QUANTITATIVE MASTER SERIES TRUST, POS AMI, 2000-04-28

QUANTITATIVE MASTER SERIES TRUST
POS AMI, 2000-04-28

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As filed with the Securities and Exchange Commission on April 28, 2000

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

WASHINGTON, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 [X]
(Check appropriate box
or boxes)

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

Quantitative 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

<PAGE>

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.

<PAGE>

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 ................... 22

Item 7. Shareholder Information ........................................... 24

Item 8. Distribution Arrangements ......................................... 26

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 .................................................... 1

Item 12. Description of the Portfolio and its Investments and Risks ....... 1

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

Item 14. Control Persons and Principal Holders of Securities .............. 38

Item 15. Investment Advisory and Other Services ........................... 39

Item 16. Brokerage Allocation and Other Practices ......................... 42

Item 17. Capital Stock and Other Securities ............................... 45

Item 18. Purchase, Redemption and Pricing of Securities ................... 46

Item 19. Taxation of the Trust ............................................ 48

Item 20. Underwriters ..................................................... 50

Item 21. Calculation of Performance Data .................................. 50

Item 22. Financial Statements.............................................. 51

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.

<PAGE>

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
herein) 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. The six named Quantitative Series
have not yet been activated. There can, of course, be no assurance that the
respective investment objectives of the Series can be achieved.

<PAGE>

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

* * * *

INDEX SERIES

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").

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.

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.

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.

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.

International (GDP Weighted) Index Series

The investment objective of the International (GDP Weighted) Index Series
is to match the performance of the Morgan Stanley Capital International Europe,
Asia and Far East GDP Weighted 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.

International (Capitalization Weighted) Index Series

The investment objective of the International (Capitalization Weighted)
Index Series is to match the performance of the Morgan Stanley Capital
International Europe, Asia and Far East Capitalization Weighted 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.

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 buy or sell securities only 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 normally 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.

<PAGE>

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 SERIES

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

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

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

<PAGE>

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 (other than Merrill
Lynch & Co., Inc. ("ML & CO.")) 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 will normally 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
Investment Adviser is authorized to deviate from full replication and instead
invest in a statistically selected 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 less transaction cost 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 400 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.

6
<PAGE>

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 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 U.S. companies in a wide range of businesses. As of the
most recent update of the Russell 2000 in June 1999, the largest stock in the
index had a market capitalization of approximately $1.35 billion and the average
market capitalization of stocks in the index was approximately $526 million. 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.

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 may not invest in all of the common stocks in the Russell 2000,
or in the same weightings as in the Russell 2000. Instead, the Series may 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 Aggregate Bond Index is a market-weighted index comprised of 6,500
dollar-denominated investment grade bonds with maturities greater than one year,
as chosen by Lehman Brothers Holding Inc. ("Lehman Brothers"). The 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.

<PAGE>

The Series may not 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
may invest in a sample of bonds included in the Aggregate Bond Index, or in a
sample of bonds not included in the index but 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 invest in bonds not included in the
index, but which are selected to reflect characteristics such as maturity,
duration, or credit quality similar to bonds in the index as a whole. This may
result in 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
Baa3 by Moody's Investors Services, Inc. or BBB by S&P), 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. Most mortgage-backed securities are issued by
Federal government agencies, such as the Government National Mortgage
Association (Ginnie Mae), the Federal Home Loan Mortgage Corporation (Freddie
Mac) or Fannie Mae. Principal and interest payments on mortgage-backed
securities issued by the Federal government agencies are guaranteed by either
the Federal government or the government agency. Such securities have very
little credit risk. Mortgage-backed securities that are issued by private
corporations rather than Federal agencies have credit risk as well as prepayment
risk and extension risk.

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
Series 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 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.

8
<PAGE>

International (GDP Weighted) Index Series

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 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, Malaysia, The Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and the 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 capitalizations. This means that
the index places greater weight on companies from countries with the highest
gross domestic product and these countries have the most effect on the index's
performance. Because gross domestic product generally changes less over time
than market capitalization, this results in the relative country weightings in
the EAFE (GDP Weighted) changing less over time than in capitalization-weighted
international indices. The stocks in the EAFE (GDP Weighted) Index are chosen by
Morgan Stanley Capital International ("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
statistically selected 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 countries within 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.
A short sale is the sale of securities borrowed from others with the expectation
that the price of the security will fall before the Series must purchase the
security to return it to the lender.

9
<PAGE>

International (Capitalization Weighted) Index Series

The 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 the 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 these countries 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, 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 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.

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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,
please see Part B.

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.

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.

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<PAGE>

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 an 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.

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.

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* * * *

QUANTITATIVE 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 (each a "Quantitative
Series" and collectively, the "Quantitative Series").

The Quantitative Series have not yet been activated.

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.

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<PAGE>

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.

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<PAGE>

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 principal risks of
investing in a Series. As with any mutual fund, the value of a Series'
investments - and therefore the value of a Series' shares - may fluctuate. These
changes may occur because the stock market is rising or falling. At other times,
there are specific factors that may affect the value of a particular investment.
If the value of a series' investments goes down, you may lose money.

S&P 500 Index Series, Mid Cap Index Series, 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 market
in one or more countries in which a Series invests will go down in value,
including the possibility that one or more 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 of a security owned
by the Series 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 -- Mortgage-backed securities represent the
right to receive a portion of principal and/or interest payments made on a pool
of residential or commercial mortgage loans. 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 will be 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 fixed income
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 security will lose value prior to its delivery to the Series.
These agreements also involve the risk that if the security goes up in value,
the counterparty will decide not to issue the security, in which case the Series
has lost the investment opportunity for the assets it had set aside to pay for
the security and any gain in the security's party.

When Issued Securities, Delayed Delivery Securities and Forward
Commitments -- When issued, 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
and instrumentalities. 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 the economy of the United States in respect to
such issues as growth of gross domestic product,

17
<PAGE>

reinvestment of capital, resources and balance of payments
position. Certain 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 or other foreign countries.

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, a Series may 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 detail as U.S. accounting
standards, it may be harder for the Investment Adviser to completely and
accurately determine a company's financial condition. 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.

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

Currency Risk -- Securities in which the Series invest are usually
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 strong U.S. dollar will reduce returns for U.S. investors
while a weak U.S. dollar will increase those returns.

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<PAGE>

Certain Risks of Holding Series Assets Outside the United States -- The
Series generally hold their foreign securities and cash 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 of investing 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.

European Economic and Monetary Union (EMU) -- 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 established a
single European currency (the euro), which 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 if the transition to the euro, or EMU as a
whole, does not proceed as planned or if a participating country withdraws from
EMU.

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<PAGE>

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 Securities -- 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.

The securities of small cap companies generally trade in lower volumes and
are subject to greater and less predictable price changes than securities of
larger, more established companies. Investing in smaller companies requires a
long term view.

Index Series and Enhanced Series

Non-Diversification Risk -- Each Series is a non-diversified series, which
means that it invests more of its assets in fewer companies than if it were a
diversified series. By concentrating in a smaller number of investments, a
Series' risk is increased because each investment has a greater effect on the
Series' performance. This hurts a Series' performance when its investments are
unsuccessful.

Selection Risk -- Selection risk is the risk that a Series' investments,
which may not fully replicate the index, may perform differently from 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.

Enhanced Series

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.

<PAGE>

All Series

Derivatives -- A Series may use derivative instruments including futures,
forwards and options, options on futures, swaps and indexed securities. Futures
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. Forwards 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. 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 a party to exchange specified payments (which may be
based on the value of an index or asset) with another 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, including:

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

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.

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

A Series may use derivatives for anticipatory hedging. 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.
Derivatives may not always be available or cost efficient. If a Series invests
in derivatives, the investments may not be as effective as a hedge against price
movements.

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. Net asset value is the market value of a
Series' total assets after deducting liabilites, divided by the number of shares
outstanding. Certain securities that a Series buys may create leverage,
including, for example, when issued securities, forward commitments and options.

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.

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<PAGE>

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 it may be less
able to predict a loss. In addition, if Series management or the Investment
Adviser receives material adverse nonpublic 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 with a value not exceeding 33 1/3% of its assets that provide
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 could 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 -- When a Series makes a short sale, it must borrow the
security sold short and deliver it to the broker-dealer through which it made
the short sale as collateral for its obligation to deliver the security upon
conclusion of the sale. If the price of the security sold short increases
between the time of the short sale and the time the Series replaces the borrowed
security, the Series will incur a loss; conversely, if the price declines, the
Series will realize a gain. Any gain will be decreased, and any loss increased,
by transaction costs. Although the Series' gain is limited to the price at which
it sold the security short, its potential loss is theoretically unlimited.

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 Actual Fee Rate for the Fiscal Year Ended
Current Fee Contract Fee December 31, 1999 (reflects voluntary
Rate* Rate** waiver where applicable)

<S> <C> <C> <C>
Master S&P 500 Index Series 0.03% 0.005% 0.03%

Master Small Cap Index Series 0.05% 0.01% 0.03%

Master Aggregate Bond Index
Series 0.04% 0.01% 0.04%

Master International (GDP
Weighted) Index Series 0.07% 0.01% 0.06%

</TABLE>
- ----------
* Effective August 2, 1999, the Investment Adviser has entered into a contract
with the Trust on behalf of each Series designated above and certain
corresponding "feeder" funds that are registered investment companies (each a
"Feeder Fund") that provides that the aggregate administrative and management

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<PAGE>

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%; and 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%, and
International (GDP Weighted) Index Series: 0.01%, as shown above.

** Excluding fee waivers.

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 50 registered investment companies. FAM is part
of the Asset Management Group of ML & Co., which had approximately $559 billion
in investment company and other portfolio assets under management as of February
2000. This amount includes assets managed for Merrill Lynch affiliates.

Eric S. Mitofsky is the Portfolio Manager of the S&P 500 Index Series, the
International (GDP Weighted) Index Series and the Small Cap Index Series. Mr.
Mitofsky has been a First Vice President of Fund Asset Management since 1997 and
was a Vice President from 1992 to 1997.

Gregory Mark Maunz is a Co-Portfolio Manager of the Aggregate Bond Index
Series. Mr. Maunz has been a First Vice President of Fund Asset Management since
1997, a Vice President from 1987 to 1997 and a Portfolio Manager of Fund Asset
Management since 1984.

Christopher G. Ayoub is a Co-Portfolio Manager of the Aggregate Bond Index
Series. Mr. Ayoub has been a First Vice President of Fund Asset Management since
1998 and was a Vice President from 1985 to 1998.

Jeffrey B. Hewson is a Co-Portfolio Manager of the Aggregate Bond Index
Series. Mr. Hewson has been a Director (Global Fixed Income) of Fund Asset
Management since 1998, a Vice President from 1989 to 1998 and a Portfolio
Manager of Fund Asset Management since 1985.

Richard Vella is the Portfolio Manager of the International
(Capitalization Weighted) Index Series and the Enhanced International Series.
Mr. Vella has been a First Vice President of the Investment Adviser and certain
of its affiliates since 1999, a Managing Director of Global Index Funds of
Bankers Trust from 1997 to 1999, a Managing Director of International Index
Funds of Bankers Trust from 1995 to 1999, a Vice President of International
Index Funds of Bankers Trust from 1990 to 1995, an Assistant Vice President of
International Index Funds of Bankers Trust from 1987 to 1990 and an Assistant
Treasurer of Bankers Trust from 1985 to 1986.

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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 consists of
fourteen Series (six of which are not currently proposed to be activated). 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"), as of
the close of business on the Exchange, based on prices at the time of closing.
The Exchange generally closes at 4:00 p.m. Eastern time. The net asset value
used in determining 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 the next one calculated after a purchase or redemption order is placed.
Foreign securities owned by a Series may trade on weekends or other days when
the Series does not price its shares. 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. If an event occurs after the close of a foreign exchange that is
likely to significantly affect the Series' net asset value, "fair value" pricing
may be used. This means that the Series may value its foreign holdings at prices
other than their last closing prices, and the Series' net asset value will
reflect this.

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<PAGE>

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

As the year 2000 began, there were few problems caused by the inability of
certain computer systems to tell the difference between the year 2000 and the
year 1900 (commonly known as the "Year 2000 Problem"). It is still possible that
some computer systems could malfunction in the future because of the Year 2000
Problem or as a result of actions taken to address the Year 2000 Problem. The
Investment Adviser does not anticipate that its services or those of the Series'
other service providers will be adversely affected, but the Investment Adviser
will continue to monitor the situation. If malfuctions related to the Year 2000
Problem do arise, the Series and their investments could be negatively 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").

26
<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"). The six named Quantitative Series
have not yet been activated.

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.

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.

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<PAGE>

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"),
generally will 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

In seeking to replicate the total return of the Russell 2000, the
Investment Adviser may not allocate the Small Cap Index Series' investments
among all of the common stocks in the Russell 2000, or in the same weightings as
the Russell 2000. Instead, the Small Cap Index Series may 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. 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."

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<PAGE>

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

In seeking to replicate the total return of the Aggregate Bond Index, the
Investment Adviser may not 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 may 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

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."

3
<PAGE>

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 Baa3 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 Morgan Stanley Capital International EAFE(R)
GDP Weighted 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>

replicate 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, Malaysia, The Netherlands, New Zealand, Norway, Portugal, Singapore,
Spain, Sweden, Switzerland and the United Kingdom. The weighting of the EAFE
(GDP Weighted) Index among these countries is based upon gross domestic product
(GDP). Market capitalization is the basis for country weightings in the EAFE
(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 Morgan Stanley Capital
International EAFE(R) Capitalization Weighted 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 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 (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 the 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 EAFE (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.

6
<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."

7
<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 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.

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.

<PAGE>

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 approximately
1,000 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 the 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

The Quantitative Series listed below have not yet been activated.

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 managed according to traditional
methods of "active" investment management, which 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 replicate 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 replicate 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 replicate 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 Fund 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, 150 basis points for the International (GDP
Weighted) Index Series, 50 basis points for the International (Capitalization
Weighted) Index Series, 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 of the Trust (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 invests 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. If the price of a security sold short goes up between the time of
the short sale and the time a Series must deliver the security to the lender,
the Series will incur a loss; conversely, if the price declines, the Series will
realize a gain. Any gain will be decreased, and any loss increased, by
transaction costs. Although a Series' gain is limited to the price at which it
sold the security short, its potential loss is theoretically unlimited. If a
Series makes short sales of securities that increase in value, it may
underperform similar mutual funds that do not make short sales of securities
they do not own. 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 replicate 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 replicate 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

13
<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.

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 Risk. Settlement and clearance procedures in certain foreign
markets differ significantly from those in the United States 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
emerging market 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.

Sovereign Debt. The Aggregate Bond Index Series may invest a portion of
its assets in debt obligations ("sovereign debt") issued or guaranteed by
foreign governments (including foreign states, provinces and municipalities) of
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 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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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.

European Economic and Monetary Union. For a number of years, certain
European countries have been seeking economic unification that would, among
other things, reduce barriers between countries, increase competition among
companies, reduce government subsidies in certain industries, and reduce or
eliminate currency fluctuations among these European countries. The Treaty on
European Union (the "Maastricht Treaty") set out a framework for a European
Economic and Monetary Union ("EMU") among the countries that comprise the
European Union ("EU"). EMU established a single common European currency (the
"euro") that was introduced on January 1, 1999 and is expected to replace the
existing national currencies of all EMU participants by July 1, 2002. Certain
securities issued in participating EU countries (beginning with government and
corporate bonds) have been redenominated in the euro and are listed, traded and
make dividend and other payments only in euros.

No assurance can be given that EMU will take full effect, that all of the
changes planned for the EU can be successfully implemented, or that these
changes will result in the economic and monetary unity and stability intended.
There is a possibility that EMU will not be completed, or will be completed but
then partially or completely unwound. Because any participating country may opt
out of EMU within the first three years, it is also possible that a significant
participant could choose to abandon EMU, which could diminish its credibility
and influence. Any of these occurrences could have adverse effects on the
markets of both participating and non-participating countries, including sharp
appreciation or depreciation of participants' national currencies and a
significant increase in exchange rate volatility, a resurgence in economic
protectionism, an undermining of confidence in the European markets, an
undermining of European economic stability, the collapse or slowdown of the
drive toward European economic unity, and/or reversion of the attempts to lower
government debt and inflation rates that were introduced in anticipation of EMU.
Also, withdrawal from EMU by an initial participant could cause disruption of
the financial markets as securities redenominated in euros are transferred back
into that country's national currency, particularly if the withdrawing country
is a major economic power. Such developments could have an adverse impact on a
Series' investments in Europe generally or in specific countries participating
in EMU. Gains or losses resulting from euro conversions 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.

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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, Delayed Delivery 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 and the Quantitative Series may also purchase or sell
securities on a delayed delivery 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
purchase securities in these transactions, the Series segregate 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 that 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' 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 not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"). Restricted securities may be sold in private placement transactions
between the 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 non-public 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. 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
securities which may be issued and sold to that Series at the option of the
issuer. The price of the security is fixed at the time of the commitment. At the
time of entering into the agreement the 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 portfolio securities subject to legal
restrictions on resale that affect their marketability, will not exceed 15% of
its net assets taken at the time of the commitment. The Aggregate Bond Index
Series and the Quantitative Series segregate 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 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. The Enhanced Series and the Quantitative Series may invest in
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.

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New Issues. Each Enhanced Series and Quantitative 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 to banks, brokers and other financial
institutions. In return, a Series receives collateral in cash or securities
issued or guaranteed by the U.S. Government which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. This limitation is a fundamental policy and it may not be
changed with respect to a Series without the approval of the holder of a
majority of the Series' outstanding voting securities as defined in the
Investment Company Act. During the period of such a loan, a Series typically
receives the income on both the loaned securities and the collateral and thereby
increase its yield. In certain circumstances Series may receive a flat fee for
its loans. Such 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 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.

Securities of Smaller 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.

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 short-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 may 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 Put Options. Each Series may purchase put options on securities
held in its portfolio or on securities or interest rate indices which are
correlated with securities held in its portfolio 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
<PAGE>

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. Purchasing a put option may involve correlation risk, and may also
involve liquidity and credit risk.

Purchasing Call Options. Each Series may also purchase call options on
securities it intends to purchase or interest rate indices which are correlated
with the types of securities it intends to purchase, 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 (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. Purchasing a call option involves
correlation risk, and may also involve liquidity and credit risk.

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 Call Options. Each Series may write (i.e., sell) call options on
securities held in its portfolio or securities indices the performance of which
correlates with securities held in its portfolio, 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. Writing a call option may
involve correlation risk.

Writing Put Options. 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.
Each 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

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<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, 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 with
identical expiration dates on the same security or index but different exercise
prices (a technique called a "spread"). Writing a put option may involve
substantial leverage risk.

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 call or 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 also
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 an option on a
securities index, securities which substantially correlate with the performance
of such index) or owns a call option, warrant or convertible instrument which is
immediately exercisable for, or convertible into, such security.

Types of Options. 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 which 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.

<PAGE>

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. 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.
Futures involve substantial risk.

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 holding cash equivalents. 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 asset is a securities or interest rate index) purchased
or sold for anticipatory hedging purposes. Each Series will further 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.

A Series will enter into an equity swap transaction only if, immediately
following the time the Series enters into the transaction, the aggregate
notional principal amount of equity swap transactions to which the Series is a
party would not exceed 5% of the Series' net assets. Swap agreements entail the
risk that a party will default on its payment obligations to the Series
thereunder. Each Series will seek to lessen the risk to some extent by entering
into a transaction only if the counterparty meets the current credit requirement
for OTC option counterparties. Swap agreements also bear the risk that a Series
will not be able to meet its obligations to the counterparty. Each Series,
however, will deposit in a segregated account with its custodian, liquid
securities or cash or cash equivalents or other assets permitted to be so
segregated by the Securities and Exchange Commission in an amount equal to or
greater than the market value of the liabilities under the swap agreement or the
amount it would cost the Series initially to make an equivalent direct
investment, plus or minus any amount the Series is obligated to pay or is to
receive under the swap agreement.

Foreign Exchange Transactions. The International (GDP Weighted) Index
Series, International (Capitalization Weighted) Index Series, Enhanced
International Series and Quantitative International Series may engage in spot
and forward foreign exchange transactions and currency swaps, purchase and sell
options on currencies and purchase and sell currency futures and related options
thereon for purposes of settling transactions. 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.

26
<PAGE>

Risk Factors in Derivatives

The Series may use instruments referred to as derivatives, however, the
Index Series and the Enhanced Series may use derivatives for hedging purposes
only. Derivatives are financial instruments the value of which is derived from
another security, a commodity (such as gold or oil) or an index (a measure of
value or rates, such as the Standard & Poor's 500 Index or the prime lending
rate). Derivatives allows each Series to increase or decrease the level of risk
to which the Series is exposed more quickly and efficiently than transactions in
other types of 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." 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.

Derivatives are volatile and involve significant risks, including:

Credit risk -- the risk that the counterparty on a derivative transaction
will be unable to honor its financial obligation to the Series.

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

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

Use of derivatives for hedging purposes involves correlation risk. If the
value of the derivative moves more or less than the value of the hedged
instruments the Series will experience a gain or loss which will not be
completely offset by movements in the value of the hedged instruments.

Certain transactions in derivatives (such as futures transactions or sales
of put options) involve substantial leverage risk and may expose a Series to
potential losses, which exceed the amount originally invested by the Series.
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; Limitations on the Use of OTC
Derivatives.

Certain derivatives traded in OTC markets, including indexed securities,
swaps and OTC options, involve substantial liquidity risk. The absence of
liquidity may make it difficult or impossible for 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 QA Equity Series, Inc., Mercury QA Strategy Series, 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. 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 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 the 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 is 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.

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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 the 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 believe the stock to be an attractive investment.

31
<PAGE>

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' Registration Statement, as it 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 Registration Statement, as it 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' Registration Statement, as it may
be amended from time to time, and without registering as a
commodity pool operator under the Commodity Exchange Act.

32
<PAGE>

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 Internal Revenue Code of 1986, as amended (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.

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.

33
<PAGE>

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." Without such an exemptive order, the Series are
prohibited from engaging in portfolio transactions with Merrill Lynch or its
affiliates acting as principal.

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.

34
<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 of Fernwood Advisors (investment adviser)
since 1996; Principal of 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) - 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.

35
<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 of 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 (37) - 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 of Global Institutional Services at Bankers Trust
from 1997 to 1999; Vice President, Quantitative Equities at Bankers Trust in
1996; Vice President of Asset Allocations Strategies at Bankers Trust from 1994
to 1996; Vice President of 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 of Global Institutional Services at Bankers Trust from 1992 to 1999;
Manager of Quantitative U.S. Equities Group at Bankers Trust from 1991 to 1992;
Manager of Bond Index Funds at Bankers Trust from 1986 to 1991; Quantitative
Analyst of Index Funds at Bankers Trust from 1984 to 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 expects to pay 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 services 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.

36
<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,
1999 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,
1999.

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 $4,750 None None $143,975
Stephen B. Swensrud $4,750 None None $232,250
J. Thomas Touchton $4,750 None None $142,725

</TABLE>

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

(1) The Trustees serve on the boards of FAM/MLAM-Advised Funds as follows:
Mr. Sunderland (18 registered investment companies consisting of 33
portfolios); Mr. Swensrud (30 registered investment companies
consisting of 66 portfolios); Mr. Touchton (18 registered investment
companies consisting of 33 portfolios).

Code of Ethics

The Board of Trustees of the Trust, the Directors of each Feeder Fund, the
Investment Adviser and the distributor of the Feeder Fund shares (the
"Distributor") have adopted a Code of Ethics under Rule 17j-1 of the Investment
Company Act (the "Code"). The Code significantly restricts the personal
investing activities of all employees of the Feeder Funds, the Trust, the
Investment Adviser and the Distributor and, as described below, imposes
additional, more onerous, restrictions on fund investment personnel.

The Code requires, among other things, that all employees of the Feeder
Funds, the Trust, the Investment Adviser and the Distributor 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 Feeder Funds, the Trust, the Investment Adviser and the Distributor 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
or its affiliated advisers. Furthermore, the Code provides 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).

37
<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

38
<PAGE>

As of April 1, 2000, 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.

39
<PAGE>

As discussed in Part A, effective August 2, 1999 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 set forth below. The Enhanced
S&P 500 Series and Quantitative Series either commenced operating subsequent to
December 31, 1999 or has not commenced operating as of the date of this
Registration Statement and, therefore, has not paid any investment advisory fees
to the Investment Adviser for the periods set forth below.

<TABLE>
<CAPTION>
Fee Rate for the Fiscal Year Ended
Actual Current Contractual December 31, 1999 (reflects voluntary
Name of Series Fee Rate* Fee Rate waiver where applicable)
- -------------- -------------- ------------- -------------------------------------

<S> <C> <C> <C>
Master S&P 500 Index Series .......................... 0.03% 0.005% 0.03%
Master Small Cap Index Series ........................ 0.05% 0.01% 0.03%
Master Aggregate Bond Index Series ................... 0.04% 0.01% 0.04%
Master International (GDP Weighted) Index Series ..... 0.07% 0.01% 0.06%
Master International (Capitalization Weighted)
Index Series**....................................... 0.01% 0.01% 0.00%
Master Enhanced S&P 500 Series ....................... 0.01%
Master Enhanced International Series ................. 0.01% 0.01% 0.00%
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% 0.01% 0.00%
</TABLE>

- ----------
* Effective August 2, 1999, the Investment Adviser has entered into a contract
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: Master S&P 500 Index Series: 0.005%; Master Small Cap
Index Series: 0.01%; Master Aggregate Bond Index Series: 0.01%, Master
International (GDP Weighted) Index Series: 0.01%, as shown above.

** Commenced operations on December 30, 1999.

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 Enhanced S&P 500 Series
and Quantitative Series either commenced operating subsequent to December 31,
1999 or has not commenced operating as of the date of this Registration
Statement and, therefore, has not paid any investment advisory fees to the
Investment Adviser for the periods set forth below.

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

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

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

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

December 31, 1999**
Contractual Amount .... $479,793 $46,744 $185,365 $106,636 $ 9,369 $ 3 $ 6

Amount waived
(if applicable)........ $ 0 $23,839 $ 0 $ 26,206 $ 9,369 $ 3 $ 6
</TABLE>

- -------------------
* 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).

** 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 (August 2, 1999).

**** Period is from commencement of operations (December 30, 1999).

40
<PAGE>

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. The Trust pays, or causes to be paid, all
other expenses incurred in the operation of the Trust and the Series (except to
the extent paid by the Placement Agent), including, among other things, taxes,
expenses for legal and auditing services, costs of 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 a
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 and the Series
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.

41
<PAGE>

Independent Auditors.

Deloitte & Touche LLP, Princeton Forrestal Village, 116-300 Village
Boulevard, 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.

42
<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 analyses of the business or prospects of a
company, industry or economic sector. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Investment Adviser under its Management Agreement, and the expenses 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.

The Enhanced S&P 500 Index Series and Quantitative Series either commenced
operating subsequent to December 31, 1999 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, 1999.

Information about the brokerage commissions paid by the Trust, including
to Merrill Lynch, is set forth in the following table:

<TABLE>
<CAPTION>
International
Aggregate International Enhanced Mid Cap (Capitalization
S&P 500 Index Small Cap Bond Index (GDP Weighted) International Index Weighted)
Series Index Series Series Index Series Series*** Series**** Index Series****
------------- ------------ ---------- ------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
From inception to
December 31, 1997* ...... $118,903 $60,361 $ 0 $146,336 $ N/A $ N/A $ N/A
For the fiscal year
ended December 31, 1998** $105,046 $50,264 $ 0 $ 74,373 $ N/A $ N/A $ N/A
For the fiscal year
ended December 31, 1999 $145,795 $20,124 $ 0 $ 26,554 $134,043 $ 2,763 $ 5,917
</TABLE>

* The Master S&P 500 Index Series and the Master Aggregate Bond Index Series
commenced operations on April 3, 1997, and the Master Small Cap Index Series and
the Master International (GDP Weighted) Index Series commenced operations on
April 9, 1997. The Series paid no commissions to Merrill Lynch.

** The Master International (GDP Weighted) Index Series paid $1,299 in brokerage
commissions to Merrill Lynch and each of S&P 500 Index Series, Master Small Cap
Index Series and Master Aggregate Bond Index Series paid no brokerage
commissions to Merrill Lynch.

*** Commenced operations on August 2, 1999.

**** Commenced operations on December 30, 1999.

For the fiscal year ended December 31, 1999, the Series paid no brokerage
commissions to Merrill Lynch.

43
<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 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,
affiliated persons of the Trust, including Merrill Lynch and its affiliates,
will not serve as the Trust's dealer in such transactions. However, affiliated
persons 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
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
United States 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 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.

44
<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

45
<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 consists of fourteen Series, six of which are not currently
prepared to be activated. 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 as of the close of business on the New York Stock Exchange
on each day the Exchange is open for trading, based on prices at the time of
closing. The New York Stock Exchange (the "NYSE") generally closes at 4:00 p.m.,
Eastern time. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the day of valuation. The
NYSE is not open for trading on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.

The net asset value is computed by 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.

46
<PAGE>

A Series' securities which are traded on stock exchanges are valued at the
last sale price 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
or yield equivalent obtained from one or more dealers or pricing services
approved by the Trustees. 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. 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.
The value of swaps, including interest rate swaps, caps and floors, will be
determined by obtaining dealer quotations. Other investments, including
financial futures contracts and related options, are stated at market value.
Obligations with remaining maturities of 60 days or less are valued at amortized
cost unless the Investment Adviser believes that this method no longer produces
fair valuations. Repurchase agreements will be valued at cost plus accrued
interest. 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, 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 NYSE. 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.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that will not be reflected in the computation of a Series
net asset value.

Each investor in the Trust may add to or reduce its investment in any
Series on each day the NYSE is open for trading. The value of each investor's
interest in a Series will be determined after the close of business on the NYSE
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. The close business on the NYSE is generally 4:00 p.m. Eastern
time. 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

47
<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 after the close of
business of the NYSE on the next determination of net asset value of the Series.
For further information concerning the Series' net asset value, and the
valuation of the Series' assets, see Part A.

Redemptions.

An investor in the Trust may withdraw all or a portion of its investment
in any Series on any day the NYSE is open for trading 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, an investor requests redemption-in-kind or 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.

If redemption-in-kind is made, shareholders who receive securities and
sell them could receive proceeds equal to less than the redemption value of
their securities due to transaction costs. 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 with such consent.

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 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.

48
<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.

49
<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.

50
<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, 1999. The Series' unaudited financial statements are incorporated in this
Part B by reference to their semi-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.

51
<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.

A-10
<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.

A-11
<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.

A-12
<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.(5)

1(g) Certificate of Amendment to Certificate of Trust.(5)

2 By-Laws of Registrant.(1)

3 Instrument 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)

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

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.(5)

8(a) Licensing Agreement.(3)

8(b) Form of Fee Waiver Agreement by and among Index Master Series Trust, Merrill Lynch Index Funds Inc.,
Fund Asset Management L.P. and Merrill Lynch Asset Management, L.P.

9 Not applicable.

10(a) Consent of Deloitte & Touche, LLP, Independent Auditors for the Registrant.

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

11 Not applicable.

12 Not applicable.

13 Not applicable.

14 Power of Attorneys.(3)

15 Not applicable.

16 Code of Ethics.

</TABLE>

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

C-1
<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(a) 9
14 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) Incorporated by reference to indentically numbered Exhibit to Amendment
No. 6 to Registrant's Registration Statement on Form N-1A (File No.
811-7885).

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

None

C-2
<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 Focus Twenty Fund, Inc., Merrill Lynch Funds for
Institutions Series, Merrill Lynch Large Cap Series Funds, Inc., 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 Premier Growth 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 II, Inc., MuniHoldings California Insured
Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured
Fund V, MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II, Inc.,
MuniHoldings Insured Fund III, Inc., MuniHoldings Insured Fund IV, Inc.,
MuniHoldings Michigan Fund II, Inc.,

C-5
<PAGE>

MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund
IV, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York
Insured Fund IV, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., 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 Convertible Fund, Inc., 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, 1997 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. 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 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, Secretary and General
Secretary and General Counsel of MLAM; Senior Vice President of
Counsel Princeton Services

Philip L. Kirstein Senior Vice President Senior Vice President and Secretary of MLAM;
and Secretary 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, Inc., Mercury QA Equity Series, Inc., Mercury QA
Strategy Series, 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
Donald C. Burke Vice President Vice President and Treasurer
James T. Fatseas Vice President None
Debra W. Landsman-Yaros Vice President None
Michelle T. Lau Vice President None
Salvatore Venezia Vice President None
William Wasel Vice President None
Robert Harris Secretary None

</TABLE>

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 28th
day of April, 2000.

Quantitative Master Series Trust

(Registrant)

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

C-11

<PAGE>

EXHIBIT INDEX

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

8(b) Form of Fee Waiver Agreement by and among Index Master Series
Trust, Merrill Lynch Index Funds, Inc., Fund Asset Management
L.P. and Merrill Lynch Asset Management, L.P.

10(a) Consent of Deloitte & Touche, LLP, Independent Auditors for the
Registrant

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

16 Code of Ethics

C-12

Exhibit 8(b)

FEE WAIVER AGREEMENT

THIS FEE WAIVER AGREEMENT, dated as of August 2, 1999, is entered into by
and among Fund Asset Management L.P. ("FAM"), acting in its capacity as the
adviser of each series (each, a "Portfolio") of the Index Master Series Trust
(the "Trust"), Merrill Lynch Asset Management, L.P. ("MLAM"), as the
administrator of each series (each, a "Fund") of Merrill Lynch Index Funds, Inc.
(the "Corporation") and the Trust, on behalf of each Portfolio and the
Corporation, on behalf of each Fund.

WHEREAS, each Fund invests all of its assets in a corresponding Portfolio;

WHEREAS, the Board of Directors of the Corporation, the Board of Trustees
of the Trust, FAM and MLAM have agreed that FAM and MLAM will waive all or a
portion of their fees to the extent necessary to ensure that the combination of
the advisory fees paid by a Portfolio and the administration fees paid by the
corresponding Fund do not exceed specified amounts; and

WHEREAS, FAM and MLAM understand and intend that each Fund will rely on
this Agreement in preparing a registration statement on Form N-1A and in
accruing Fund expenses for purposes of calculating net asset value and for other
purposes, and expressly permit each Fund to do so; and

WHEREAS, shareholders of each Fund will benefit from the ongoing waivers
by incurring lower Fund operating expenses than they would absent such waivers.

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, FAM and MLAM agree to waive fees of
each Fund and/or its corresponding Portfolio to the extent necessary to limit
the aggregate administrative and management fees charged to each Fund and its
corresponding Portfolio to: (i) 0.25% for the Merrill Lynch S&P 500 Index Fund;
(ii) 0.30% for the Merrill Lynch Small Cap Index Fund; (iii) 0.20% for the
Merrill Lynch Aggregate Bond Index Fund; and (iv) 0.35% for the Merrill Lynch
International Index Fund. The relative amounts of the waiver of fees by FAM and
MLAM will be determined by FAM and MLAM in their discretion, so long as the
aggregate administrative and management fees charged to a Fund do not exceed the
amounts stated above. This contractual waiver shall be effective for each Fund's
current fiscal year and for fiscal years thereafter unless the Board of
Directors of the Corporation, Board of Trustees of the Trust, FAM and MLAM agree
otherwise not less than 30 days prior to the end of the then current fiscal
year.

<PAGE>

IN WITNESS WHEREOF, FAM, MLAM, the Trust and the Corporation have agreed
to this Fee Waiver Agreement as of the day and year first above written.

FUND ASSET MANAGEMENT, L.P.

By: Princeton Services, Inc.,
its general partner

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

MERRILL LYNCH ASSET MANAGEMENT, L.P.

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

INDEX MASTER SERIES TRUST,
on behalf of each Portfolio

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

MERRILL LYNCH INDEX FUNDS, INC.,
on behalf of each Fund

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

Exhibit 10(a)

INDEPENDENT AUDITORS' CONSENT

Quantitative Master Series Trust:

We consent to the incorporation by reference in Amendment No. 7 to Registration
Statement No. 811-7885 of Quantitative Master Series Trust of our reports dated
as follows:

February 15, 2000 Master International (Capitalization Weighted) Index Series
February 16, 2000 Master Mid Cap Index Series
February 22, 2000 Master S&P 500 Index Series
February 22, 2000 Master Small Cap Index Series
February 22, 2000 Master Aggregate Bond Index Series
February 22, 2000 Master International (GDP Weighted) Index Series
February 24, 2000 Master Enhanced International Index Series

appearing in their respective annual reports to shareholders for the year ended
December 31, 1999.

/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Princeton, New Jersey
April 28, 2000

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. 7 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
April 28, 2000

Exhibit 16

CODE OF ETHICS

MERRILL LYNCH ASSET MANAGEMENT GROUP (MLAMG)
REGISTERED INVESTMENT COMPANIES
AND THEIR INVESTMENT ADVISERS
AND PRINCIPAL UNDERWRITER

Section 1 - Background

This Code of Ethics is adopted under Rule 17j-1 under the Investment
Company Act of 1940 ("1940 Act") and Rule 204-2(a) under the Investment Advisers
Act of 1940 and has been approved by the Boards of Directors of each of the
MLAMG funds.1 Except where noted, the Code applies to all MLAMG employees.

Section 17(j) under the Investment Company Act of 1940 makes it unlawful
for persons affiliated with investment companies, their principal underwriters
or their investment advisers to engage in fraudulent personal securities
transactions. Rule 17j-1 requires each Fund, investment adviser and principal
underwriter to adopt a Code of Ethics that contains provisions reasonably
necessary to prevent an employee from engaging in conduct prohibited by the
principles of the Rule. The Rule also requires that reasonable diligence be used
and procedures be instituted which are reasonably necessary to prevent
violations of the Code of Ethics.

On August 23, 1999, the SEC adopted amendments to Rule 17j-1 which require
greater board oversight of personal trading practices, more complete reporting
of employee securities trading and preclearance of employee purchases of initial
public offerings and private placements. The amendments require, among other
things, that MLAMG provide its fund boards annually a written report that (i)
describes issues that arose during the previous year under the Code, including
information about material code violations and sanctions imposed and (ii)
certifies to the board that MLAMG has adopted procedures reasonably necessary to
prevent access persons from violating the Code.

Section 2 - Statement of General Fiduciary Principles

The Code of Ethics is based on the fundamental principle that MLAMG and
its employees must put client interests first. As an investment adviser, MLAMG
has fiduciary responsibilities to its clients, including the registered
investment companies (the "Funds") for which it serves as investment adviser.
Among MLAMG's fiduciary

- --------
1 As applicable herein, MLAMG includes all AMG investment advisory affiliates
and the affiliated principal underwriter of investment companies registered
under the 1940 Act.

<PAGE>

responsibilities is the responsibility to ensure that its employees conduct
their personal securities transactions in a manner which does not interfere or
appear to interfere with any Fund transactions or otherwise take unfair
advantage of their relationship to the Funds. All MLAMG employees must adhere to
this fundamental principle as well as comply with the specific provisions set
forth herein. It bears emphasis that technical compliance with these provisions
will not insulate from scrutiny transactions which show a pattern of compromise
or abuse of an employee's fiduciary responsibilities to the Funds. Accordingly,
all MLAMG employees must seek to avoid any actual or potential conflicts between
their personal interest and the interest of the Funds. In sum, all MLAMG
employees shall place the interest of the Funds before personal interests.

Section 3 - Insider Trading Policy

All MLAMG employees are subject to MLAMG's Insider Trading Policy, which
is considered an integral part of this Code of Ethics. MLAMG's Insider Trading
Policy, which is set forth in the MLAMG Code of Conduct, prohibits MLAMG
employees from buying or selling any security while in the possession of
material nonpublic information about the issuer of the security. The policy also
prohibits MLAMG employees from communicating to third parties any material
nonpublic information about any security or issuer of securities. Additionally,
no MLAMG employee may use his or her position or knowledge of MLAMG activities
or the activities of any Merrill Lynch & Co., Inc. entity to benefit the Funds
or to gain personal benefit. Any violation of MLAMG's Insider Trading Policy may
result in sanctions, which could include termination of employment with MLAMG.
(See Section 10--Sanctions).

Section 4 - Restrictions Relating to Securities Transactions

A. General Trading Restrictions for all Employees

The following restrictions apply to all MLAMG employees:

1. Accounts. No employee, other than those employed by Mercury Asset
Management International Ltd. ("MAMI"), may engage in personal
securities transactions other than through an account maintained
with Merrill Lynch, Pierce, Fenner & Smith Inc. or another Merrill
Lynch broker/dealer entity ("Merrill Lynch") unless written
permission is obtained from the Compliance Director. Similarly, no
MAMI employee may engage in personal securities transactions other
than through an account maintained with Merrill Lynch or The Bank of
New York Europe Limited ("BNYE") unless written permission is
obtained from the Compliance Director.

2. Accounts Include Family Members and Other Accounts. Accounts of
employees include the accounts of their spouses, dependent relatives
and members of the same household, trustee and custodial accounts or
any other

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account in which the employee has a financial interest or over which
the employee has investment discretion.

3. Preclearance. All employees must obtain approval from the Compliance
Director or preclearance delegatee prior to entering any securities
transaction (with the exception of exempted securities as listed in
Section 5) in all accounts. Approval of a transaction, once given,
is effective only for the business day on which approval was
requested or until the employee discovers that the information
provided at the time the transaction was approved is no longer
accurate.

4. Restrictions on Purchases. No employee may purchase any security
which at the time is being purchased, or to the employee's knowledge
is being considered for purchase, by any Fund managed by MLAMG. This
restriction, however, does not apply to personal trades of employees
which coincide with trades by any MLAMG index fund.

5. Restrictions on Sales. No employee may sell any security which at
the time is actually being sold, or to the employee's knowledge is
being considered for sale, by any Fund managed by MLAMG. This
restriction, however, does not apply to personal trades of employees
which coincide with trades by any MLAMG index fund.

6. Restrictions on Related Securities. The restrictions and procedures
applicable to the transactions in securities by employees set forth
in this Code of Ethics shall similarly apply to securities that are
issued by the same issuer and whose value or return is related, in
whole or in part, to the value or return of the security purchased
or sold or being contemplated for purchase or sale during the
relevant period by the Fund. For example, options or warrants to
purchase common stock, and convertible debt and convertible
preferred stock of a particular issuer would be considered related
to the underlying common stock of that issuer for purposes of this
policy. In sum, the related security would be treated as if it were
the underlying security for the purpose of the pre-clearance
procedures described herein.

7. Private Placements. Employee purchases and sales of "private
placement" securities (including all private equity partnerships,
hedge funds, limited partnership or venture capital funds) must be
precleared directly with the Compliance Director or designee. No
employee may engage in any such transaction unless the Compliance
Director or his designee and the employee's senior manager have each
previously determined in writing that the contemplated investment
does not involve any potential for conflict with the investment
activities of the Funds.

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If, after receiving the required approval, an employee has any material
role in the subsequent consideration by any Fund of an investment in
the same or affiliated issuer, the employee must disclose his or her
interest in the private placement investment to the Compliance Director
and the employee's department head. The decision to purchase securities
of the issuer by a Fund must be independently reviewed and authorized
by the employee's department head.

8. Initial Public Offerings. Employees may not purchase securities in
"hot" initial public offerings.

9. Prohibition on Short-Term Profits. Employees are prohibited from
profiting on any sale and subsequent purchase, or any purchase and
subsequent sale of the same (or equivalent) securities occurring
within 60 calendars days ("short-term profit"). This holding period
also applies to all permitted options transactions; therefore, for
example, an employee may not purchase or write an option if the
option will expire in less than 60 days (unless the employee is
buying or writing an option on a security that the employee has held
more than 60 days). In determining short-term profits, all
transactions within a 60-day period in all accounts related to the
employee shall be netted regardless of an employee's intentions to
do otherwise (e.g., tax or other trading strategies). Should an
employee fail to preclear a trade that results in a short-term
profit, the trade would be subject to reversal with all costs and
expenses related to the trade borne by the employee, and the
employee would be required to disgorge the profit. Transactions not
required to be precleared under Section 5 will not be subject to
this prohibition.

B. Additional Trading Restrictions for Decision-Making Employees

The following additional restrictions apply to decision-making employees
(i.e., employees who recommend or determine which securities transactions a Fund
undertakes). The Compliance Department will retain and keep current a list of
decision-making employees.

1. Notification. A decision-making employee must notify the Compliance
Department or preclearance designee of any intended transactions in a
security for his or her own personal account which is owned or
contemplated for purchase by a Fund for which the employee has
decision-making authority.

2. Blackout Periods. A decision-making employee may not buy or sell a
security within 7 calendar days either before or after a purchase or
sale of the same or related security by a Fund or portfolio management
group for which the employee has decision-making authority. For
example, if a Fund trades a security on day 0, day 8 is the first day
the manager, analyst or portfolio management group member of that Fund
may trade the security for his or her own account.

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3. Establishing Positions Counter to Fund Positions. No decision-making
employee may establish a long position in a personal account in a
security if a Fund for which the employee is a decision-making employee
holds a put option on such security (aside from a put purchased for
hedging purposes where the fund holds the underlying security), has
written a call option on such security, or otherwise maintains a
position that would benefit from a decrease in the value of the
underlying security (e.g., a short sale other than a short sale
"against-the-box").

No decision-making employee may purchase a put option or write a call
option where a Fund for which such person has decision-making
responsibilities holds a long position in the underlying security.

No decision-making employee may short sell any security where a Fund
for which the employee has decision-making authority holds a long
position in the same security or where such Fund otherwise maintains a
position in respect of which the Fund would benefit from an increase in
the value of the security.

4. Purchasing an Investment for a Fund that is a Personal Holding. A
decision-making employee may not purchase an investment for a Fund
that is also a personal holding of the employee or any other account
covered by this Code of Ethics, or the value of which is materially
linked to a personal holding, unless the decision-making employee
has obtained prior approval from the employee's senior manager.

5. Index Funds. The restrictions of this Section 4.B. do not apply to
purchases and sales of securities by decision-making employees which
coincide with trades by any MLAMG index fund.

C. Trading Restrictions for Disinterested Directors of the MLAMG Funds

The following restrictions apply only to disinterested directors of the
MLAMG Funds (i.e., any director who is not an "interested person" of a MLAMG
fund within the meaning of Section 2(a)(10) of the 1940 Act):

1. Restrictions on Purchases. No disinterested director may purchase any
security which, to the director's knowledge at the time, is being
purchased or is being considered for purchase by any Fund managed by
MLAMG.

2. Restrictions on Sales. No disinterested director may sell any security
which, to the director's knowledge at the time, is being sold or is
being considered for sale by any Fund managed by MLAMG.

3. Restrictions on Trades in Securities Related in Value. The restrictions
applicable to the transactions in securities by disinterested directors
shall similarly

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apply to securities that are issued by the same issuer and whose value
or return is related, in whole or in part, to the value or return of
the security purchased or sold by the Fund (see Section 4.A.6.).

Section 5 - Exempted Transactions/Securities

MLAMG has determined that the following securities transactions do not
present the opportunity for improper trading activities that Rule 17j-1 is
designed to prevent; therefore, the restrictions set forth in Section 4 of this
Code (including preclearance, prohibition on short-term profits and blackout
periods) shall not apply.

Exempted transactions/securities may not be executed/held in brokerage
accounts maintained outside of Merrill Lynch.

The reporting requirements listed in Section 6 of this Code, however,
shall apply to the securities and transaction types set forth in paragraphs F-J
of this section.

A. Purchases or sales in an account over which the employee has no
direct or indirect influence or control (e.g., an account managed on
a fully discretionary basis by an investment adviser or trustee).

B. Purchases or sales of direct obligations of the U.S. Government.

C. Purchases or sales of open-end investment companies (including money
market funds), variable annuities and unit investment trusts.
(However, unit investment trusts traded on a stock exchange (e.g.,
MITS, SPDRS, DIAMONDS, NASDAQ 100, etc.) must be precleared.)

D. Purchases or sales of bank certificates, bankers acceptances,
commercial paper and other high quality short-term debt instruments,
including repurchase agreements.

E. Merrill Lynch common stock which is purchased and sold within any
Merrill Lynch employee benefit plan and stock purchased and sold
through similar such employer-sponsored plans in which a spouse of a
MLAMG employee may participate.

F. Purchases or sales which are non-volitional on the part of the
employee (e.g., an in-the-money option that is automatically
exercised by a broker; a security that is called away as a result of
an exercise of an option; or a security that is sold by a broker,
without employee consultation, to meet a margin call not met by the
employee).

G. Purchases which are made by reinvesting cash dividends pursuant to
an automatic dividend reinvestment plan.

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H. Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer.

I. Purchases or sales of commodities, futures (including currency
futures and futures on broad-based indices), options on futures and
options on broad-based indices. (Currently, "broad-based indices"
include only the S&P 100, S&P 500, FTSE 100 and Nikkei 225.)

J. The receipt of a bona fide gift of securities. (Donations of
securities, however, require preclearance.)

Section 6 - Reporting by Employees

The requirements of this Section 6 apply to all MLAMG employees. The
requirements will also apply to all transactions in the accounts of spouses,
dependent relatives and members of the same household, trustee and custodial
accounts or any other account in which the employee has a financial interest or
over which the employee has investment discretion. The requirements do not apply
to securities acquired for accounts over which the employee has no direct or
indirect control or influence. All employees whose accounts are maintained at
Merrill Lynch or BNYE are deemed to have automatically complied with the
requirements of this Section 6 B. and C. as to reporting executed transactions
and personal holdings. Transactions and holdings in such accounts are
automatically reported to the Compliance Department through automated systems.

Employees who have approved accounts outside of Merrill Lynch or BNYE are
deemed to have complied with the requirements of this Section 6 B. and C.
provided that the Compliance Department receives duplicate statements and
confirmations directly from their brokers.

Employees who effect reportable transactions outside of a brokerage
account (e.g., optional purchases or sales through an automatic investment
program directly with an issuer) will be deemed to have complied with this
requirement by preclearing transactions with the Compliance Department and by
reporting their holdings annually on the "Personal Securities Holdings" form, as
required by the Compliance Department.

A. Initial Holdings Report. Each new MLAMG employee will be given a
copy of this Code of Ethics upon commencement of employment. All new
employees must disclose their personal securities holdings to the
Compliance Department within 10 days of commencement of employment
with MLAMG. (Similarly, securities holdings of all new related
accounts must be reported to the Compliance Department within 10
days of the date that such account becomes related to the employee.)
With respect to exempt securities referred to in Section 5 which do
not require preclearance/reporting, employees must nonetheless
initially report those exempt securities defined in Section 5.F.-J.
(This reporting requirement does not apply to

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holdings that are the result of transactions in exempt securities as
defined in Section 5.A.-E.) Initial holdings reports must identify
the title, number of shares, and principal amount with respect to
each security holding. Within 10 days of commencement of employment,
each employee shall file an Acknowledgement stating that he or she
has read and understands the provisions of the Code.

B. Records of Securities Transactions. All employees must preclear each
securities transaction (with the exception of exempt transactions in
Section 5) with the Compliance Department or preclearance designee.
At the time of preclearance, the employee must provide a complete
description of the security and the nature of the transaction. As
indicated above, employees whose accounts are maintained at Merrill
Lynch or BNYE or who provide monthly statements directly from their
brokers/dealers are deemed to have automatically complied with the
requirement to report executed transactions.

C. Annual Holdings Report. All employees must submit an annual holdings
report reflecting holdings as of a date no more than 30 days before
the report is submitted. As indicated above, employees whose
accounts are maintained at Merrill Lynch or BNYE or who provide
monthly statements directly from their brokers/dealers are deemed to
have automatically complied with this requirement.

With respect to exempt securities referred to in Section 5 which do
not require preclearance/reporting, employees must nonetheless
annually report the holdings of those exempt securities that are
defined in Section 5.F.-J. (This reporting requirement, however,
does not apply to exempt securities as defined in Section 5.A.-E.)

D. Annual Certification of Compliance. All MLAMG employees must certify
annually to the Compliance Department that (1) they have read and
understand and agree to abide by this Code of Ethics; (2) they have
complied with all requirements of the Code of Ethics, except as
otherwise notified by the Compliance Department that they have not
complied with certain of such requirements; and (3) they have
reported all transactions required to be reported under the Code of
Ethics.

E. Review of Transactions and Holdings Reports. All transactions
reports and holdings reports will be reviewed by appropriate
management or compliance personnel according to procedures
established by the Compliance Department.

Section 7 - Reporting by Disinterested Directors of MLAMG Funds

A disinterested director of a Fund need only report a transaction in a
security if the director, at the time of that transaction, knew or, in the
ordinary course of fulfilling the official duties of a director of such Fund,
should have known that, during the 15-day period immediately preceding the date
of the transaction by the director, the security was purchased or sold by the
Fund or was being considered for purchase or sale by the Fund.

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In reporting such transactions, disinterested directors must provide: the date
of the transaction, a complete description of the security, number of shares,
principal amount, nature of the transaction, price, commission, and name of
broker/dealer through which the transaction was effected.

As indicated in Section 6, disinterested directors are required to certify
annually to the Compliance Department that (1) they have read and understand and
agree to abide by this Code of Ethics; (2) they have complied with all
requirements of the Code of Ethics, except as otherwise reported to the
Compliance Department that they have not complied with certain of such
requirements; and (3) they have reported all transactions required to be
reported under the Code of Ethics.

Section 8 - Approval and Review by Boards of Directors

The Board of Directors of each MLAMG Fund, including a majority of
directors who are disinterested directors, must approve this Code of Ethics.
Additionally, any material changes to this Code must be approved by the Board of
Directors within six months after adoption of any material change. The Board of
Directors must base its approval of the Code and any material changes to the
Code on a determination that the Code contains provisions reasonably necessary
to prevent employees from engaging in any conduct prohibited by Rule 17j-1.
Prior to approving the Code or any material change to the Code, the Board of
Directors must receive a certification from the Fund, the Investment Adviser or
Principal Underwriter that it has adopted procedures reasonably necessary to
prevent employees from violating the Code of Ethics.

Section 9 - Review of MLAMG Annual Report

At least annually, the Fund, the Investment Adviser and the Principal
Underwriter must furnish to the Fund's Board of Directors, and the Board of
Directors must consider, a written report that (1) describes any issues arising
under this Code of Ethics or procedures since the last report to the Board of
Directors, including, but not limited to, information about material violations
of the Code of Ethics or procedures and sanctions imposed in response to the
material violations and (2) certifies that the Fund, Investment Adviser and
Principal Underwriter have adopted procedures reasonably necessary to prevent
employees from violating this Code of Ethics.

Section 10 - Sanctions

Potential violations of the Code of Ethics must be brought to the
attention of the Compliance Director or his designee and are investigated. Upon
completion of the investigation, if necessary, the matter will be reviewed by
the Code of Ethics Review Committee and the employee's senior manager. The Code
of Ethics Review Committee will make a determination as to whether any sanction
should be imposed. Sanctions will include, but are not limited to, a letter of
caution or warning, reversal of a trade, fine or other monetary penalty,
disgorgement of a profit or absorption of costs associated with a

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trade, suspension of personal trading privileges, suspension of employment (with
or without compensation), and termination of employment.

Section 11 - Exceptions

An exception to any of the policies, restrictions or requirements set forth
herein may be granted only upon a showing by the employee to the Code of Ethics
Review Committee that such employee would suffer extreme financial hardship
should an exception not be granted. Should the subject of the exception request
involve a transaction in a security, a change in the employee's investment
objectives, tax strategies, or special new investment opportunities would not
constitute acceptable reasons for a waiver.

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