QUANTITATIVE MASTER SERIES TRUST, POS AMI, 2000-10-27

QUANTITATIVE MASTER SERIES TRUST
POS AMI, 2000-10-27

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As filed with the Securities and Exchange Commission on October 27, 2000

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

WASHINGTON, D.C. 20549

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FORM N-1A

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 9 [X]
(Check appropriate box
or boxes)

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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" or the
"Securities 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 ..................................... 33

Item 14. Control Persons and Principal Holders of Securities .............. 37

Item 15. Investment Advisory and Other Services ........................... 38

Item 16. Brokerage Allocation and Other Practices ......................... 41

Item 17. Capital Stock and Other Securities ............................... 44

Item 18. Purchase, Redemption and Pricing of Securities ................... 45

Item 19. Taxation of the Trust ............................................ 47

Item 20. Underwriters ..................................................... 49

Item 21. Calculation of Performance Data .................................. 49

Item 22. Financial Statements.............................................. 50

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
Extended Market Index Series ("Extended Market 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
QA Large Cap Core Series ("QA Large Cap Core Series"), Master QA Large Cap Value
Series ("QA Large Cap Value Series"), Master QA Large Cap Growth Series ("QA
Large Cap Growth Series"), Master QA Mid Cap Series ("QA Mid Cap Series"),
Master QA Small Cap Series ("QA Small Cap Series") and Master QA International
Series ("QA International Series") (together, the "Series" and each, a "Series")
are each separate series of the Trust. The Index Series, except for the Extended
Market Index Series, and the Enhanced Series (as each such term is defined
herein) are non-diversified investment companies and the QA Series (as defined
herein) and the Extended Market Index Series are diversified investment
companies, and each Series has different investment objectives and policies.
There can, of course, be no assurance that the respective investment objectives
of the Series can be achieved.

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INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

* * * *

INDEX SERIES

S&P 500 Index Series, Mid Cap Index Series, Extended Market 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.

Mid Cap Index Series

Extended Market Index Series

The investment objective of the Extended Market Index Series is to match
the performance of the Wilshire 4500 Completion Index (the "Wilshire 4500") as
closely as possible before the deduction of Series expenses.

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.

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.

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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,
Australasia and Far East GDP Weighted Index (the "EAFE (GDP Weighted) Index") as
closely as possible before the deduction of Series expenses. The weighting of
the EAFE (GDP Weighted) Index is based on the gross domestic product of each of
the countries in the 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 Europe, Australasia and Far East Capitalization Weighted Index
(the "EAFE (Capitalization Weighted) Index") as closely as possible before the
deduction of Series expenses. The weighting of the EAFE (capitalization
weighted) Index is based on the market capitalization of companies included in
the Index.

The EAFE (GDP Weighted) Index and EAFE (Capitalization Weighted) Index are
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 (GDP Weighted) Index and EAFE (Capitalization Weighted) Index are selected
from among the larger capitalization companies in these markets.

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

The S&P 500 Index Series, Mid Cap Index Series, Extended Market 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 Index Series may also invest in illiquid
securities and repurchase agreements, and may engage in securities lending.

Each Index Series will also invest in short term money market instruments
as cash reserves to maintain liquidity. These instruments may include
obligations of the U.S. Government, its agencies or instrumentalities, highly
rated bonds or comparable unrated bonds, commercial paper, bank obligations and
repurchase agreements. To the extent an Index 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 Index 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.

S&P 500 Index Series

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represented in the index have the most effect on the index's performance. A
market-weighted index is an index in which the weighting of each security is
based on its market capitalization, 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. 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, 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.

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<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.

Extended Market Index Series

The Wilshire 4500 is composed of all of the U.S. headquartered equity
securities regularly traded on the New York and American Stock Exchanges and the
Nasdaq over-the-counter ("OTC") market, except those stocks included in the S&P
500. The Wilshire 4500 is generally considered broadly representative of the
performance of publicly traded mid-capitalization and small-capitalization
stocks. The index measures the performance of approximately 6,500 stocks (the
number of stocks has grown since the index was created in 1983). As of the most
recent update of the Wilshire 4500 as of September 29, 2000, the largest stock
in the index had a market capitalization of approximately $97.9 billion, the
smallest stock in the index had a market capitalization of less than
approximately $1 million and the weighted average market capitalization of
stocks in the index was approximately $9.8 billion.

Additions to the index are made once a month after the month-end close,
and initial public offerings will generally be added at the end of the month
(provided there is a "good" shares outstanding value). Issues spun-off from
index members are added to the index as soon as prudently possible. In addition,
shares outstanding may be adjusted to reflect corporate events during the month;
otherwise, shares outstanding are updated once a month. A security will be
excluded from the index on the day it fails index inclusion guidelines. Also, a
security will be excluded from the index on the day it does not price but may
reenter the index when it resumes pricing.

The Series may not invest in all of the common stocks in the Wilshire
4500, or in the same weightings as in the Wilshire 4500. Instead, the Series may
invest in a sample of the stocks included in the Wilshire 4500 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
Wilshire 4500 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 Wilshire 4500. Derivatives allow the Series to increase
or decrease its exposure to the Wilshire 4500 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 2000, the largest stock in the
index had a market capitalization of approximately $1.5 billion and the average
market capitalization of stocks in the index was approximately $500 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.

<PAGE>

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.

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.

8
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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.

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) Index 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, Inc.
("Morgan Stanley"). Morgan Stanley chooses stocks for inclusion in the EAFE (GDP
Weighted) Index based on market capitalization, trading activity and the overall
mix of industries represented in the index, among other factors. The EAFE (GDP
Weighted) Index is generally considered broadly representative of the
performance of stocks traded in the international markets. Morgan Stanley's
selection of a stock for the EAFE (GDP Weighted) Index does not mean that Morgan
Stanley believes the stock to be an attractive investment.

The Series may not invest in all of the countries, or all of the companies
within a country, represented in the EAFE (GDP Weighted) Index, or in the same
weightings as the EAFE (GDP Weighted) Index. Instead, the Series may invest in a
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.

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International (Capitalization Weighted) Index Series

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 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 have the most effect on
the index's performance. The stocks in the EAFE (Capitalization Weighted) Index
are chosen by Morgan Stanley & Co., Incorporated ("MSCI"). MSCI 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. MSCI's selection of a stock for the EAFE
(Capitalization Weighted) Index does not mean that MSCI 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.

* * * *

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.

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<PAGE>

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.

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.

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<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 approximately 1,000 companies from various industrial sectors whose primary
trading markets are located outside the U.S. Companies included in the EAFE
(Capitalization Weighted) Index are selected from among the larger
capitalization companies in these markets. The countries currently included in
the EAFE (Capitalization Weighted) Index are Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, The
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and United Kingdom. The weighting of the EAFE (Capitalization
Weighted) Index among these countries is based upon each country's relative
market capitalizations, and not its gross domestic product, which means that the
index contains more companies from countries with the largest capital markets
(like Japan and the United Kingdom) and these countries have the most effect on
the index's performance. The stocks in the EAFE (Capitalization Weighted) Index
are chosen by MSCI. MSCI 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.
MSCI's selection of a stock for the EAFE (Capitalization Weighted) Index does
not mean that MSCI 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>

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.

QA SERIES

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

QA Large Cap Core Series

The investment objective of the QA Large Cap Core Series is to provide
long term growth of capital.

QA Large Cap Value Series

The investment objective of the QA Large Cap Value Series is primarily to
provide long term growth of capital and secondarily to provide dividend income.

QA Large Cap Growth Series

The investment objective of the QA Large Cap Growth Series is to provide
long term growth of capital.

QA Mid Cap Series

The investment objective of the QA Mid Cap Series is to provide long term
growth of capital.

QA Small Cap Series

The investment objective of the QA Small Cap Series is to provide long
term growth of capital.

QA International Series

The investment objective of the QA International Series is to provide long
term growth of capital.

We cannot guarantee that a QA Series will achieve its objectives.

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<PAGE>

Each QA Series (other than the QA International Series) will normally
invest at least 65% of its total assets in equity securities of U.S. issuers.
Each of the QA Large Cap Core Series, QA Large Cap Value Series and QA Large Cap
Growth Series will normally invest at least 65% of its total assets in equity
securities of large-capitalization companies. Large-capitalization companies are
companies that have market-capitalizations in the range of companies included in
the S&P 500. Each of the QA Mid Cap Series and QA Small Cap Series will normally
invest at least 65% of its total assets in equity securities of
mid-capitalization companies and small-capitalization companies, respectively.
Mid-capitalization companies are companies that have market capitalizations in
the range of companies included in the S&P 400. Small-capitalization companies
are companies that have market capitalizations in the range of companies
included in the Standard & Poor's Small Cap 600 Index (the "S&P 600"). The QA
International Series will normally invest at least 65% of its total assets in
equity securities of companies whose primary trading markets are located in
foreign countries included in the EAFE (Capitalization Weighted) Index.

The Investment Adviser will seek to maximize each Series' growth of
capital by investing in securities to create a portfolio that has risk and style
characteristics similar to those of a particular market segment. The Investment
Adviser will use three principal strategies to select investments for each
Series. First, the Investment Adviser will use objective quantitative criteria
to construct an "optimal" portfolio of investments that has similar risk and
style characteristics as a particular market segment, but which will overweight
sectors the Investment Adviser believes to be attractive and underweight sectors
the Investment Adviser believes to be less attractive. Next, the Investment
Adviser will analyze the stocks among such sectors using technical and in-depth
quantitative research to identify those stocks that may perform well relative to
the overall market segment. This analysis is designed to identify a portfolio of
investments that the Adviser believes will outperform the market segment.
Depending on the QA Series, this analysis involves selection of stocks through a
"value" strategy, a "growth" strategy or a blend of the two. Third, the
Investment Adviser will use quantitative risk management techniques to ensure
that each Series' portfolio remains consistent with, and within appropriate risk
levels relative to, its respective market segment. The market segment and style
of investment analysis for each of the QA Series is as follows:

Series Market Segment
--------------------------------------------------------------------------------
QA Large Cap Core Series stocks of large-capitalization companies
selected through a blend of "value" and
"growth" strategies
--------------------------------------------------------------------------------
QA Large Cap Value Series stocks of large-capitalization companies
selected through a "value" strategy
--------------------------------------------------------------------------------
QA Large Cap Growth Series stocks of large-capitalization companies
selected through a "growth" strategy
--------------------------------------------------------------------------------
QA Mid Cap Series stocks of mid-capitalization companies
selected through a blend of "value" and
"growth" strategies
--------------------------------------------------------------------------------
QA Small Cap Series stocks of small-capitalization companies
selected through a blend of "value" and
"growth" strategies
--------------------------------------------------------------------------------
QA 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
selected through a blend of "value" and
"growth" strategies
--------------------------------------------------------------------------------

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<PAGE>

The Investment Adviser will use portfolio construction techniques to
structure the "optimal" portfolio. These portfolio construction techniques rely
on objective formulas, and are designed to maintain a disciplined and style
controlled strategy for each Series. The Investment Adviser then will use
technical and in-depth quantitative analysis to select individual investments
from the universe of the "optimal" portfolio. Quantitative analysis focuses on
quantifiable measures such as the value of assets and profitability as opposed
to qualitative considerations such as the character of management. This
technical and in-depth quantitative analysis is the most significant part of the
investment process, and is designed to identify those investments that the
Investment Adviser believes will outperform the relevant market segment.

The technical and in-depth quantitative analysis focuses on a variety of
measures, such as

o earnings (surprises and analysts' revisions)
o momentum (price and earnings)
o valuation (enterprise value, price versus cash flows, and dividend
discount models).

For each QA 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 the Investment Adviser's
technical and in-depth quantitative analysis. The QA Large Cap Value Series will
focus on stocks 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 QA 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. The
Investment Adviser will use a blend of value and growth strategies in selecting
investments for the other four Series.

To achieve further efficiencies, and/or add value, each Series may also
invest in futures contracts. The Investment Adviser will select futures that it
believes may serve as substitutes for individual securities in an attempt to
broadly represent a particular market or market segment. Each Series will
regularly invest a small portion of its assets in futures contracts correlated
with an index representing the Series' particular market segment. Futures allow
the Series to increase or decrease exposure to the market segment quickly and at
less cost than buying or selling individual stocks. Each QA Series will invest
in futures 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 QA Series also will invest in futures whenever the
Investment Adviser believes a futures contract presents price or return
characteristics superior to those of stocks represented in the market segment.
Furthermore, the QA International Series will use futures as an efficient and
less costly way of increasing or decreasing its exposure to stocks of companies
in particular countries represented in its market segment. The QA Series will
consider futures that provide exposure to equity indices to be equity securities
for purposes of the percentages described above.

Each of the market segments targeted by a QA 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, the portfolio construction techniques
discussed above are designed with the goal of ensuring that each Series will
have risk and style characteristics similar to the index listed below:

Series Index
--------------------------------------------------------------------------------
QA Large Cap Core Series S&P 500
--------------------------------------------------------------------------------
QA Large Cap Value Series Standard & Poor's 500/Barra Value Index,
which consists of the common stocks in the
S&P 500 that are considered to be "value"
stocks.
--------------------------------------------------------------------------------
QA Large Cap Growth Series Standard & Poor's 500/Barra Growth Index,
which consists of the common stocks in the
S&P 500 that are considered to be "growth"
stocks.
--------------------------------------------------------------------------------
QA Mid Cap Series S&P 400
--------------------------------------------------------------------------------
QA Small Cap Series S&P 600
--------------------------------------------------------------------------------
QA International Series EAFE (Capitalization Weighted) Index
--------------------------------------------------------------------------------

Each QA 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. The QA Series will not invest in short term money market instruments
in order to lessen the QA Series' exposure to common stocks as a defensive
strategy, but will instead attempt to remain fully invested at all times.

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<PAGE>

Each QA Series' investment objective is fundamental and may not be changed
without shareholder approval. Each QA Series' policies not specifically
designated as fundamental in Parts A or B of this Registration Statement are
non-fundamental and may be changed without shareholder approval.

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 a particular stock or bond market in which a Series
invests is rising or falling, or in response to interest rate changes.
Generally, when interest rates go up, the value of debt instruments goes down.
Prices of longer term securities generally change more in response to interest
rate changes than prices of shorter term securities. 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, Extended Market Index
Series, Small Cap Index Series, International (GDP Weighted) Index
Series, International (Capitalization Weighted) Index Series,
Enhanced Series and QA Series.

Stock Market Risk -- Stock market risk is the risk that the stock markets
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. The Aggregate Bond
Index Series can hold bonds of any maturity. As a result, if the Series invests
a large amount in long-term bonds, the Series' value could change significantly
in response to a relatively small change in interest rates. Stripped securities
may be highly sensitive to changes in interest rates. Stripped securities are
securities that take two components of a debt security (principal and interest)
and break them apart. The resulting two securities may be sold separately and
may perform differently.

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. While the Series invests only in money market
securities of highly rated issuers, those issuers may still default on their
obligations.

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

16
<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 price.

When Issued Securities, Delayed Delivery Securities and Forward
Commitments -- When issued and delayed delivery securities and forward
commitments involve the risk that the security the Series buys will lose value
prior to its delivery. There also is the risk that the security will not be
issued or that the other party will not meet its obligation. If this occurs, the
Series both loses 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 (including foreign
states, provinces and municipalities) or their agencies. Investments in these
securities subject the Series to the risk that a government entity may delay or
refuse to pay interest or repay principal on its debt for various reasons,
including cash flow problems, insufficient foreign currency reserves, political
considerations, or the relative size of its debt position to its economy. If a
government entity defaults, it may ask for more time in which to pay or for
further loans. There may be no bankruptcy proceeding that the Series can use to
collect payments on debt securities that a government entity has not repaid.

Aggregate Bond Index Series, International (GDP Weighted) Index Series,
International (Capitalization Weighted) Index Series, Enhanced
International Series and QA 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 a 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.
Some of these economies may rely heavily on particular
industries or foreign capital. They may be more vulnerable to
adverse diplomatic developments, the imposition of economic
sanctions against a particular country or countries, changes
in international trading patterns, trade barriers, and other
protectionist or retaliatory measures.

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

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

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

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

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

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

Currency Risk and Exchange Risk -- Securities in which a Series invests
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 United States.
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) have been 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 invests,
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, Extended Market Index Series, Small Cap Index
Series, QA Mid Cap Series and QA Small Cap Series.

Small Cap Risk -- Small cap companies and, to a lesser extent, midcap
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 or
midcap company may lose substantial value.

The securities of small cap companies and, to a lesser extent, midcap
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 and, to a lesser extent, midcap companies requires a long
term view.

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.

Index Series (not including the Extended Market Index Series) and
Enhanced Series

Non-Diversification Risk -- Each Series is a non-diversified series. By
concentrating in securities of a smaller number of issuers, a Series' risk is
increased because developments affecting an individual issuer have a greater
impact on a Series' performance.

Index Series and Enhanced 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 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.

Index Series, Enhanced Series and QA Series

Selection Risk -- Selection risk is the risk that the investments that the
Investment Adviser selects will underperform the stock markets or other funds
with similar investment objectives and investment strategies. This risk is
greater for the Enhanced Series, because of their strategy of overweighting or
underweighting companies relative to their respective index.

Enhanced Series and QA Series

Arbitrage/Correlation Risk -- Each Series may engage in index arbitrage,
and the Enhanced Series may engage in index arbitrage and 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.

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<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 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 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 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 and the QA Series
may use derivatives for non-hedging purposes. Anticipatory hedging is a strategy
in which a Series uses a derivative to offset the risk that securities in which
the Series intends to invest will increase in value before the Series has an
opportunity to purchase the securities. A Series will use derivatives for
anticipatory hedging in order to gain exposure efficiently to their underlying
indexes or market segments in the event the Series receive cash inflows.
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. Certain securities that a Series buys may
create leverage, including, for example, when issued securities, forward
commitments, options, warrants and reverse purchase agreements.

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 with a value not
exceeding 33 1/3% of its total assets to financial institutions 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.

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.

Effective August 2, 1999, Fund Asset Management, L.P. replaced Merrill
Lynch Investment Managers, L.P. (previously known as Merrill Lynch Asset
Management, L.P.) ("MLIM") as the investment adviser of the Index Series and the
Enhanced Series. Fund Asset Management, L.P. is an affiliate of MLIM, which
shares substantially the same investment personnel, including the personnel
responsible for providing management services to the Index Series and Enhanced
Series. Fund Asset Management, L.P., doing business as Mercury Advisers (the
"Investment Adviser" or "FAM"), manages all of 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 and its
affiliate 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 Period Ended Fee Rate for the Period Ended
Current Fee Contract Fee December 31, 1999 (does not December 31, 1999 (reflects voluntary
Rate Rate(2) reflect voluntary fee waivers) waiver where applicable)
<S> <C> <C> <C> <C>
Master S&P 500 Index Series(1) 0.005% 0.05% 0.03% 0.03%

Master Small Cap Index
Series(1) 0.01% 0.08% 0.05% 0.03%

Master Aggregate Bond Index
Series(1) 0.01% 0.06% 0.04% 0.04%

Master International (GDP
Weighted) Index Series(1) 0.01% 0.11% 0.07% 0.06%

Master Enhanced International
Series 0.01% 0.01% 0.01% 0.00%
</TABLE>

----------
(1) 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 management

22
<PAGE>

fee for each Series when combined with the administrative fee of each such
corresponding Feeder Fund, will not exceed 0.25% of the Merrill Lynch S&P 500
Index Feeder Fund, 0.30% of the Merrill Lynch Small Cap Index Feeder Fund, 0.20%
of the Merrill Lynch Aggregate Bond Index Feeder Fund and 0.35% of the Merrill
Lynch International (GDP Weighted) Index Feeder Fund. 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.

(2) 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 Rate
Series
Mid Cap Index Series 0.01%
Extended Market Index Series 0.01%
International (Capitalization Weighted)
Index Series 0.01%
Enhanced S&P 500 Series 0.01%
QA Large Cap Core Series 0.40%
QA Large Cap Value Series 0.40%
QA Large Cap Growth Series 0.40%
QA Mid Cap Series 0.55%
QA Small Cap Series 0.55%
QA International Series 0.65%

The Investment Adviser has contractually agreed that expenses incurred
(excluding Distribution and/or Service Fees) by each class of each corresponding
Feeder Fund of the QA Series will not exceed 1.50% for the corresponding Feeder
Fund of the QA Large Cap Core Series, QA Large Cap Value Series, and QA Large
Cap Growth Series, 1.65% for the corresponding Feeder Fund of the QA Mid Cap
Series and QA Small Cap Series and 1.75% for the corresponding Feeder Fund of
the QA International Series.

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 $591 billion
in investment company and other portfolio assets under management as of August
2000. This amount includes assets managed for 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 FAM 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 FAM since 1997, a Vice
President from 1987 to 1997 and a Portfolio Manager of FAM 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 FAM 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 FAM since 1998,
a Vice President from 1989 to 1998 and a Portfolio Manager of FAM since 1985.

Richard Vella is the Portfolio Manager of the International
(Capitalization Weighted) Index Series, the Enhanced International Series, the
Mid Cap Index Series and the Extended Market Index 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.

23
<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.

Philip Green is a Senior Vice President and Portfolio Manager of each QA
Series and is primarily responsible for the day-to-day management of the QA
Series' respective portfolios. Mr. Green has been a Senior Vice President of FAM
and certain of its affiliates since 1999, a Managing Director and Portfolio
Manager of Global Institutional Services at Bankers Trust from 1997 to 1999, a
Vice President of Quantitative Equities at Bankers Trust in 1996, a Vice
President of Asset Allocations Strategies at Bankers Trust from 1994 to 1996, a
Vice President of Foreign Exchange and Currency Overlay Strategies at Bankers
Trust from 1988 to 1999 and an Assistant Treasurer of Asset Management Group at
Bankers Trust from 1985 to 1988.

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. 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 (the "Exchange") is open
("Pricing Day"), after 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.
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' beneficial interests. 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.

24
<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.

25
<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.

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 FAM Distributors, Inc. (previously known as
Princeton Funds Distributor, Inc.)("FAMD").

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<PAGE>

PART B

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

Item 10.

Quantitative Master Series Trust (previously defined as the "Trust")
currently consists of fourteen series: Master S&P 500 Index Series ("S&P 500
Index Series"), Master Mid Cap Index Series ("Mid Cap Index Series") Master
Extended Market Index Series ("Extended Market 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
QA Large Cap Core Series ("QA Large Cap Core Series"), Master QA Large Cap Value
Series ("QA Large Cap Value Series"), Master QA Large Cap Growth Series ("QA
Large Cap Growth Series"), Master QA Mid Cap Series ("QA Mid Cap Series"),
Master QA Small Cap Series ("QA Small Cap Series") and Master QA International
Series ("QA International Series"), (each, a "Series" and together, the
"Series").

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

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

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, Extended Market 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, QA Large Cap Core Series, QA Large Cap
Value Series, QA Large Cap Growth Series, QA Mid Cap Series, QA Small Cap
Series, and QA 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 (except for the Extended Market Index Series), Mid
Cap Index Series, Extended Market Index Series, Small Cap Index Series,
Aggregate Bond Index Series, International (GDP Weighted) Index Series and
International (Capitalization Weighted) Index Series (collectively, the "Index
Series")

Each Index Series (except for the Extended Market Index Series) is
classified as a non-diversified mutual fund under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Extended Market Index
Series is classified as a diversified mutual fund under the Investment Company
Act. The investment objective of each Index Series is to provide investment
results that, before expenses, seek to replicate the total return (i.e., the
combination of capital changes and income) of a specified securities index.

The Index Series' investment objectives are not fundamental policies and
may be changed by the Board of Trustees of the Trust, without shareholder
approval. The Trustees may also change the target index of an Index Series if
they consider that a different index would facilitate the management of the
Index Series in a manner which better enables the Index Series to seek to
replicate the total return of the market segment represented by the current
index.

S&P 500 Index Series

1
<PAGE>

In seeking to replicate the total return of the S&P 500, Fund Asset
Management, L.P., doing business as Mercury Advisers (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 generally will 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.

Extended Market Index Series

In seeking to replicate the total return of the Wilshire 4500, the
Investment Adviser may not allocate the Extended Market Index Series'
investments among all of the common stocks in the Wilshire 4500, or in the same
weightings as the Wilshire 4500. Instead, the Extended Market Index Series may
invest in a sample of the stocks included in the Wilshire 4500 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 Extended Market 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 Wilshire 4500, with the objective of reducing the selected investment
portfolio's deviation from the performance of the Wilshire 4500 (this deviation
is referred to as "tracking error"). The Extended Market Index Series may also
engage in securities lending. See "Other Investment Policies, Practices and Risk
Factors."

The Wilshire 4500 contains all of the U.S. headquartered equity securities
regularly traded on the New York and American Stock Exchanges and the Nasdaq
over-the-counter ("OTC") market, except those stocks included in the S&P 500
(totaling approximately 6,500 stocks because the number of stocks has grown
since the index was created in 1983). The Wilshire 4500 is generally considered
broadly representative of the performance of publicly traded mid-capitalization
and small-capitalization stocks. A company's stock market capitalization is the
total market value of its outstanding shares.

2
<PAGE>

Small Cap Index Series

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

In seeking to replicate the total return of the Russell 2000, the
Investment Adviser 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 relating to all or a portion
of the Russell 2000. The investments to be included in the Small Cap Index
Series will be selected so that the market capitalizations, industry weightings
and other fundamental characteristics of the stocks, and of the stocks
underlying or otherwise related to the foregoing financial instruments, closely
approximate those same factors in the Russell 2000, with the objective of
reducing the selected investment portfolio's deviation from the performance of
the Russell 2000 (tracking error). The Small Cap Index Series may also engage in
securities lending. See "Other Investment Policies, Practices and Risk Factors."

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

Aggregate Bond Index Series

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

4
<PAGE>

In seeking to 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 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 (as defined below). 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 Europe, Australasia and Far East Capitalization Weighted Index
(the "EAFE (Capitalization Weighted) Index") as closely as possible before the
deduction of Series expenses. The weighting of the EAFE (Capitalization
Weighted) Index is based on the market capitalization of companies included in
the Index. There can be no assurance that the investment objective of the Series
will be achieved.

In seeking to replicate 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 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

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

Each Enhanced Series is classified as a non-diversified mutual fund under
the Investment Company Act whose investment objective is to provide total return
exceeding the performance of a specified securities index while actively seeking
to reduce downside risks as compared with the index.

The Enhanced Series' investment objectives are not fundamental policies
and may be changed by the Board of Trustees of the Trust, without shareholder
approval. The Trustees may also change the target index of an Enhanced Series if
they consider that a different index would facilitate the management of the
Enhanced Series in a manner which better enables the Enhanced Series to seek
total return exceeding the performance of the market segment represented by the
current index.

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>

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

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

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 a less diversified index.

QA Large Cap Core Series, QA Large Cap Value Series, QA Large Cap Growth Fund,
QA Mid Cap Series, QA Small Cap Series and QA International Series
(collectively, the "QA Series")

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

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

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

Each QA Series will seek to achieve its objective by investing in
securities that have risk and style characteristics similar to those of a
particular market segment. There can be no assurance that the investment
objectives of the QA Series will be achieved.

The investment objective of each QA Series is a fundamental policy and may
not 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, Extended Market 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 Index 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 an Index 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 an Index Series or by an Index
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 Index 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 Index 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 an Index Series, and the timing
and amount of Index Series investors' contributions and withdrawals, if any. In
addition, each Index Series' total return will be affected by incremental
operating costs (e.g., transfer agency, accounting) that will be borne by the
Index Series. Under normal circumstances, it is anticipated that each Index
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 a
feeder 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, 50 basis points for the Extended Market 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 Index Series.
Information regarding correlation of an Index Series' performance to that of a
target index may be found in the Index 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 Enhanced 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 an Enhanced Series, and the timing and amount of Enhanced Series
investor contributions and withdrawals, if any. There can be no assurance that
an Enhanced Series will exceed the total return of its respective index. In the
event that an Enhanced Series, over time, does not exceed the total return of
its index, the Trustees will consider alternative strategies for the Enhanced
Series. Information regarding an Enhanced Series' performance relative to that
of a target index may be found in the Enhanced Series' annual report.

Certain types of securities in which an Enhanced Series may invest and
certain investment practices that the Enhanced 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
Standard & Poor's Rating Group ("S&P") or, if unrated, of comparable quality in
the opinion of the Investment Adviser; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time deposits and
bankers' acceptances; and (v) repurchase agreements. At the time the Series
invest in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated Aa or higher by
Moody's or AA or higher by S&P or outstanding commercial paper, bank obligations
or other short term obligations rated Prime-1 by Moody's or A-1 by S&P; or, if
no such ratings are available, the instrument must be of comparable quality in
the opinion of the Investment Adviser.

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

11
<PAGE>

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

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

Short Sales. In connection with the use of certain instruments based upon
or consisting of one or more baskets of securities, the Investment Adviser may
sell a security a Series does not own, or in an amount greater than the Series
owns (i.e., make short sales), including in the case of the QA Series,
securities or instruments not represented in an index correlating with the QA
Series' particular market segment. With respect to the QA Series, such
transactions will be used to seek to achieve efficiencies in a QA Series and/or
add value to the QA 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. A
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 a Series. If the price of a security sold short increases between the time of
the short sale and the time a 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 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

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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, since 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

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

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

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

Foreign Investment Risks

International Investing. International investments involve certain risks
not typically involved in domestic investments, including fluctuations in
foreign exchange rates, future political and economic developments, different
legal systems and the existence or possible imposition of exchange controls or
other U.S. or foreign 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 QA 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 foreign investments
may be subject to foreign 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.

Sovereign Debt. The Aggregate Bond Index Series may invest in sovereign
debt securities issued or guaranteed by foreign government entities. Investment
in sovereign debt involves a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund and the political constraints to which a
governmental entity may be subject. 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 or 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. In the event of a default by the issuer,
the Series may have few or no effective legal remedies for collecting on such
debt.

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. EMU took
effect for the initial EMU participants on January 1, 1999. Certain securities
issued in participating EU countries (beginning with government and corporate
bonds) have been redenominated in the euro, and are listed, and traded and make
dividend and other payments, only in euros.

No assurance can be given that EMU will continue to proceed as planned,
that the changes planned for the EU can be successfully implemented, or that
these changes will result in the economic and monetary unity and stability
intended. There is a possibility that EMU will not be completed, or will be
completed but then partially or completely unwound. Because any participating
country may opt out of EMU within the first three years, it is also possible
that a significant participant could choose to abandon EMU, which 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 that have been redenominated in the euro 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 a Series' shareholders under foreign or, in certain limited
circumstances, U.S. tax laws.

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 the company. Accounting
standards in other countries are not necessarily the same as in 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 Series management 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 the Series can earn on its investments.

Foreign financial markets, while generally growing in trading volume,
typically have substantially less volume than U.S. markets, and securities of
many foreign companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The foreign 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 a Series are uninvested and no return is earned
thereon and could cause a Series to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems either
could result in losses to 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 foreign 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 a 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 more than 15% of its revenues from "securities related activities"
as defined by the rules thereunder. These provisions may restrict a 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
QA 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 QA 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 foreign 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 QA Series may purchase or sell securities
that they are entitled to receive on a when issued basis. The Aggregate Bond
Index Series may also purchase or sell securities on a delayed delivery basis.
The Aggregate Bond Index 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 QA 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 QA 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 QA Series purchases 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 QA 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 under the
Securities Act of 1933, as amended (the "Securities Act" or the "1933 Act") or
that are subject to trading restrictions under the laws of a foreign
jurisdiction ("restricted securities"). 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
their 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.

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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 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 each Series' investments in these securities. This investment practice
could have the effect of increasing the level of illiquidity in each 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 QA
Series may enter into standby commitment agreements. These agreements commit the
Aggregate Bond Index Series or a QA 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 a 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 QA 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 QA Series will enter into such
agreements for the purpose of investing in the security underlying the
commitment at a price that is considered advantageous to the Series. Each of the
Aggregate Bond Index Series and the QA 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 QA 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 QA 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
thereafter will be reflected in the calculation of the Aggregate Bond Index
Series' or a QA 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 a 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 QA 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, a 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.

Convertible Securities. The Enhanced Series and the QA Series each may
invest in convertible securities. Convertibles are generally debt securities or
preferred stocks that may be converted into common stock. Convertibles typically
pay current income as either interest (debt security convertibles) or dividends
(preferred stocks). A convertible's value usually reflects both the stream of
current income payments and the value of the underlying common stock. The market
value of a convertible performs like that of a regular debt security; that is,
if market interest rates rise, the value of a convertible usually falls. Since
it is convertible into common stock, the convertible also has the same types of
market and issuer risk as 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 nonconvertible form.

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In analyzing convertible securities, the Investment Adviser will consider
both the yield on the convertible security relative to its credit quality and
the potential capital appreciation that is offered by the underlying common
stock, among other things.

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 securities, the conversion price
may be based on a fixed exchange rate established at the time the security is
issued. As a result, fluctuations in the 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 convertible securities is
influenced by both the yield of nonconvertible 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
underlying 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. The yield and conversion premium of
convertible securities issued in Japan and the Euromarket are frequently
determined at levels that cause the conversion value to affect their market
value move than the securities' investment value.

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 may invest in warrants, which are securities
permitting, but not obligating, the warrant holder to subscribe for other
securities. Buying a warrant does not make the 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. The Enhanced Series and QA Series may seek to purchase "hot
issues" that is, newly issued securities, sometimes with the intent of quickly
selling such securities in the secondary market for an amount higher than the
issue price ("Hot IPOs"). Newly issued securities lack established trading
histories and may be issued by companies with limited operating histories. The
Enhanced Series and QA Series also would bear the risk of the security trading
at a discount to the issue price. The Enhanced Series and QA Series may not be
able to obtain an allocation of a Hot IPO, or in the amount that it would like.

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 without the approval of the holders 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
a Series' shares and in the yield on a 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 QA Small Cap Series and, to a lesser extent, the Extended Market
Index Series, the Mid Cap Index Series and the QA Mid Cap Series involves
greater risk than is customarily associated with funds 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, these 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 QA Small Cap
Series, and to a lesser extent the Extended Market Index Series, the Mid Cap
Index Series and the QA 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. Management believes that properly selected companies of this type
have the potential to increase their earnings or market valuation at a rate
substantially in excess of the general growth of the economy. Full development
of these companies and trends frequently takes time and, for this reason, the
Small Cap Index Series, the QA Small Cap Series, and to a lesser extent the
Extended Market Index Series, the Mid Cap Index Series and the QA 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 QA Small Cap
Series, and to a lesser extent the Extended Market Index Series, the Mid Cap
Index Series and the QA Mid Cap Series invest will often be traded only in the
OTC 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 these Series of portfolio securities, to meet
redemptions or otherwise, may require the Series to sell these securities at a
discount from market prices or during periods when in management's judgement
such disposition is not desirable or to make many small sales over a lengthy
period of time.

While the process of selection and continuous supervision by management
does not, of course, guarantee successful investment results, it does provide
access to an asset class not available to the average individual due to the time
and cost involved. Careful initial selection is particularly important in this
area as many new enterprises have promise but lack certain of the fundamental
factors necessary to prosper. Investing in small and emerging growth companies
requires specialized research and analysis. In addition, many investors cannot
invest sufficient assets in such companies to provide wide diversification.

Small companies are generally little known to most individual investors
although some may be dominant in their respective industries. Management of the
Series believes that relatively small companies will continue to have the
opportunity to develop into significant business enterprises. A Series may
invest in securities of small issuers in the relatively early stages of business
development which have a new technology, a unique or proprietary product or
service, or a favorable market position. Such companies may not be counted upon
to develop into major industrial companies, but management believes that
eventual recognition of their special value characteristics by the investment
community can provide above-average long term growth to the portfolio.

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.

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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 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.

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 and convertible bonds. 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. Each 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.

In addition, the International (GDP Weighted) Index Series, International
(Capitalization Weighted) Index Series, Enhanced International Series and QA
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 a Series' cash flow and
cash management needs.

Indexed Securities

The Series may invest in securities the potential return of which is based
on an index. As an illustration, a Series may invest in a debt security that
pays interest based on the current value of an interest rate index, such as the
prime rate. Indexed securities involve credit risk, and certain indexed
securities may involve leverage risk and liquidity risk. A Series may invest in
indexed securities for anticipating hedging (and for non-hedging purposes in the
case of the QA Series). When used for hedging purposes, indexed securities
involve correlation risk.

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. 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

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of a put option limits the Series' risk of loss in the event of a decline in the
market value of the portfolio holdings underlying the put option prior to the
option's expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases, however, a
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 securities or interest rate indices, which
are correlated with the types of securities it intends to purchase. When a
Series purchases a call option, in consideration for the option premium the
Series acquires the right to purchase from another party specified securities at
the exercise price on or before the expiration date, in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index increases beyond a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a call option may protect the Series from having to pay more for a security as a
consequence of increases in the market value for the security during a period
when the Series is contemplating its purchase, in the case of an option on a
security, or attempting to identify specific securities in which to invest in a
market the Series believes to be attractive, in the case of an option or an
index (an "anticipatory hedge"). In the event a Series determines not to
purchase a security underlying a call option, however, the Series may lose the
entire option premium. 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. 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 QA 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. 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 a 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 at the time of exercise as long as the put option is
outstanding, in the case of an option on a security, or make a cash payment
reflecting any decline in the index, in the case of an option on an index.
Accordingly, when a 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 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 credit risk. OTC options also involve greater liquidity risk. See
"Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivative" 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, a 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, a 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 leverage 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 attempting to identify specific
securities in which to invest in a market the Series believes to be attractive.
In the event that such securities decline in value or a 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 (including the QA 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.

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 a
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 direct investment is
restricted by local law or is otherwise impractical.

A Series (other than the QA 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 (other than the QA 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 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 QA 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 QA 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, Enhanced International
Series and QA International Series will enter into foreign exchange transactions
only for purposes of hedging (including anticipatory hedges) either a specific
transaction or a portfolio position. Such Series may enter into a forward
foreign exchange transaction for purposes of hedging a specific transaction by,
for example, purchasing a currency needed to settle a security transaction or
selling a currency in which the Series has received or anticipates receiving a
dividend or distribution.

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Risk Factors in Derivatives

The Series may use instruments referred to as derivatives. Derivatives are
financial instruments the value of which is derived from another security, a
commodity (such as gold or oil) or an index (a measure of value or rates, 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." 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.

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

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

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

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.

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 the Series will otherwise be able to sell such
instrument at an acceptable price. It may therefore not be possible to close a
position in a derivative without incurring substantial losses, if at all.

Certain transactions in derivatives (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 marked-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
Investment Adviser 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.

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

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, a 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 a Series' holding of the target company's stock may
not result in any profit for the Series and may lose significant value.

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 or Market Segments

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," "Standard & Poor's Small Cap 600 Index" (the "S&P 600"), "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/or the Trust. The S&P 500
Index Series, Enhanced S&P 500 Series, QA Large Cap Core Series, QA Mid Cap
Series, QA Small 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, the S&P 400 and the S&P 600 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,
the S&P 400 and the S&P 600 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, the S&P
400 and the S&P 600. 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 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, the S&P 400 and the S&P 600 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, the S&P 400 and the S&P
600 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, the S&P 400 and the
S&P 600 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.

"Wilshire 4500" is a trademark and "Wilshire" is a service mark of
Wilshire Associates Incorporated ("Wilshire") and they have been licensed for
use by the Investment Adviser and its affiliates. The Trust and the Series are
not sponsored, endorsed, sold or promoted by Wilshire Associates Incorporated
or any of its subsidiaries or affiliates, and they make no representation
regarding the advisability of investing in the Trust or the Series.

28
<PAGE>

The Extended Market Index Series is not sponsored, endorsed, sold or
promoted by Wilshire. Wilshire makes no representation or warranty, express or
implied, to the owners 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 Wilshire 4500 Index to track general stock market
performance. Wilshire's only relationship to the Trust is the licensing of
certain trademarks and trade names of Wilshire and the use of the Wilshire
Indices. The Wilshire 4500 Index are composed and calculated without regard to
the Trust or the Series. Wilshire has no obligation to take the needs of the
Series or the owners of Series into consideration in determining, composing or
calculating the Wilshire 4500 Index. Wilshire does not guarantee the accuracy or
the completeness of the 4500 Index or any data included therein, and Wilshire
shall have no liability for any errors, omissions, or interruptions therein.
Wilshire makes no warranty, express or implied, as to results to be obtained by
the Series, owners of the Series, or any other person or entity from the use of
the Wilshire 4500 Index or any data included therein. Wilshire makes no express
or implied warranties, and expressly disclaims all warranties of merchantability
or fitness for a particular purpose or use with respect to the Wilshire 4500
Index or any data included therein. Without limiting any of the foregoing, in no
event shall Wilshire 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 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.

30
<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). Under the fundamental investment restrictions each Series may not:

1. Make any investment inconsistent with the Index Series' (except
for the Extended Market Index Series) and Enhanced Series'
classification as a non-diversified company under the Investment
Company Act, and the QA Series' and the Extended Market Index
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. Investments by a QA Series in wholly-owned
investment entities created under the laws of certain countries
will not be deemed the making of investments for the purpose of
exercising control or management.

4. Purchase or sell real estate, except that, to the extent
permitted by 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 Trust's 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, 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 Trust's Registration Statement, as it may
be amended from time to time, and without registering as a
commodity pool operator under the Commodity Exchange Act.

31
<PAGE>

In addition, each Series, including the Index Series (except for the
Extended Market 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 and other regulated investment
companies 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. 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 Trustees 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.

32
<PAGE>

The staff of the Commission has taken the position that purchased OTC
options and the assets underlying written OTC options are illiquid securities.
The Trust has, therefore, 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 transactions, the sum of the market value of
OTC options currently outstanding which are held by such Series, the market
value of the securities underlying OTC call options currently outstanding have
been sold by the Series and margin deposits on the Series' outstanding OTC
options exceed 15% of the total assets of the Series, taken at market value,
together with all other assets of such Series which are deemed to be illiquid or
are otherwise not readily marketable. However, if an OTC option is sold by a
Series to a dealer in U.S. Government securities recognized as a "primary
dealer" by the Federal Reserve Bank of New York and if a Series has the
unconditional contractual right to repurchase such OTC option 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 exercise price).

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 any
of its affiliates, except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Brokerage Allocation and Other Practices." Rule 10f-3 under the Investment
Company Act sets forth conditions under which a Series may purchase from an
underwriting syndicate of which Merrill Lynch is a member. Otherwise, a Series
is prohibited from engaging in portfolio transactions with Merrill Lynch or its
affiliates acting as principal without an exemptive order.

Portfolio Turnover

Although the Index Series and the Enhanced Series will use an approach to
investing that is largely a passive, indexing approach, each such Series may
engage in a substantial number of portfolio transactions. Each QA Series uses a
quantitative approach to investing and seeks to maintain exposure to its market
segment and therefore each such Series may also 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 or market segment, as the case
may be, will tend to increase that Series' portfolio turnover rate, as the
Investment Adviser restructures the Series' holdings to reflect the changes in
the index or market segment, as the case may be. 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 eight individuals, six of whom are not "interested
persons" of the Trust as defined in the Investment Company Act ("non-interested
Trustees"). 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, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Trustee is
P.O. Box 9011, Princeton, New Jersey 08543-9011.

33
<PAGE>

Terry K. Glenn (60) - 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 FAM Distributors, Inc. (previously defined as "FAMD") since
1986 and Director thereof since 1991; President of Princeton Administrators,
L.P. since 1988.

M. Colyer Crum (68) - Trustee(2)(3) - 104 Westcliff Road, Weston, MA
02493. James R. Williston Professor of Investment Management Emeritus, Harvard
Business School since 1996; James R. Williston Professor of Investment
Management, Harvard Business School from 1971 to 1996; Director of Cambridge
Bancorp.

Laurie Simon Hodrick (37) - Trustee(2)(3) - 809 Uris Hall, 3022 Broadway,
New York, NY 10027. Professor of Finance and Economics, Graduate School of
Business, Columbia University since 1998; Associate Professor of Finance and
Economics, Graduate School of Business, Columbia University from 1996 to 1998;
Associate Professor of Finance, J.L. Kellogg Graduate School of Management,
Northwestern University from 1992 to 1996.

Jack B. Sunderland (72) - Trustee(2)(3) - 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 (67) - Trustee(2)(3) - 24 Federal Street, Suite 400,
Boston, Massachusetts 02110. Chairman of Fernwood Advisors (investment adviser)
since 1996; Principal of Fernwood Associates (financial consultants) since 1975;
Chairman of R.P.P. Corporation (Manufacturing) since 1978; Director of
International Mobile Communications, Inc. (Telecommunications) since 1998.

J. Thomas Touchton (61) - Trustee(2)(3) - 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).

Fred G. Weiss (58) - Trustee(2)(3) - 16450 Maddalena Place, Delray Beach,
Florida 33446. Director of Watson Pharmaceutical, Inc. (a pharmaceutical
company) since 2000; Director of Michael J. Fox Foundation for Parkinson's
Research; Managing Director of FGW Associates since 1997; Vice President,
Planning, Investment and Development of Warner Lambert Co. from 1979 to 1997;
Director of Laboratories Phoenix USA, Inc. (a private drug delivery company);
and Director of Kann Institute for Medical Careers, Inc. (a private medical
education company).

Arthur Zeikel (68) - Trustee(1)(2) - 300 Woodland Avenue, Westfield, New
Jersey 07090. Chairman of the Investment Adviser and certain of its affiliates
from 1997 to 1999 and President thereof from 1977 to 1997; Chairman of Princeton
Services from 1997 to 1999, Director thereof from 1993 to 1999 and President
thereof from 1993 to 1997; Executive Vice President of Merrill Lynch & Co., Inc.
("ML&Co.") from 1990 to 1999.

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.

34
<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 (40) - 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 FAMD 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
Merrill Lynch Investment Managers L.P. (previously known as Merrill Lynch Asset
Management, L.P.)("MLIM") from 1990 to 1997.

Robert C. Doll, Jr. (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 of 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.

(3) Member of the Trust's Audit and Nominating Committee, which is
responsible for the selection of the independent auditors and the selection and
nomination of non-interested Trustees.

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<PAGE>

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 in person 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-affiliated Trustee for his
out-of-pocket expenses relating to attendance at Board and Committee meetings.

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 by all
registered investment companies advised by the Investment Adviser and its
affiliates ("FAM/MLIM-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/MLIM Advised Funds Paid
to Directors/Trustees(1)
<S> <C> <C> <C> <C>

M. Colyer Crum (2) None None $122,975
Laurie Simon Hodrick (2) None None $ 53,000
Jack B. Sunderland $8,000 None None $143,975
Stephen B. Swensrud $8,000 None None $232,250
J. Thomas Touchton $8,000 None None $142,725
Fred G. Weiss (2) None None $122,975

</TABLE>

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

(1) The Trustees serve on the boards of FAM/MLIM-Advised Funds as follows: Mr.
Crum (25 registered investment companies consisting of 60 portfolios);
Ms. Hodrick (25 registered investment companies consisting of 60
portfolios); Mr. Sunderland (25 registered investment companies
consisting of 60 portfolios); Mr. Swensrud (40 registered investment
companies consisting of 80 portfolios); Mr. Touchton (25 registered
investment companies consisting of 60 portfolios); and Mr. Weiss (25
registered investment companies consisting of 60 portfolios).

(2) Messrs. Crum & Weiss & Ms. Hodrick joined as Trustees of the Trust on
August 1, 2000 and therefore did not receive any compensation from the
Trust for the calendar year ended December 31, 1999.

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 that covers the Series and the Series' Investment Advisor and
Distributor (the "Code of Ethics"). The Code of Ethics 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 of Ethics requires, among other things, that all employees of the
Feeder Funds, the Trust, the Investment Adviser and the Distributor pre-clear
any personal securities investments (with limited exceptions such as mutual
funds, high-quality short term securities and direct obligations of he U.S.
government). 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
investment personnel are prohibited 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 of
Ethics provides for trading "blackout periods" which prohibit trading by
investment personnel of the Trust within seven calendar days before or after
trading by the Series in the same or an equivalent security.

36
<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 October 11, 2000.

<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) 60.2% Beneficial
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Small Cap Index Series Merrill Lynch Small Cap 66%(2) 3.6%
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 32%(2) 1.8% Beneficial
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Aggregate Merrill Lynch Aggregate Bond 98%(2) 8.4% Beneficial
Bond Index Series Index Fund of MLIF, P.O.
Box 9011, Princeton, New
Jersey 08543-9011

----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
International (GDP Weighted) Merrill Lynch International 69%(2) 3.3% Beneficial
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 31%(2) 1.5% Beneficial
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
International FAM Distributors, Inc.
(Capitalization Weighted) ("FAMD"),a wholly-owned
Index Series indirect subsidiary of
Merrill Lynch & Co., Inc.
("ML & Co."), P.O. Box 9081,
Princeton, New Jersey 08543 61%(2) .3% Beneficial

Nationwide Mutual Funds
Three Nationwide Plaza
Columbus, Ohio 43216 16%(2) .1% Beneficial
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Enhanced S&P 500 Series FAMD, a wholly-owned
subsidiary of ML & Co., P.O.
Box 9081, Princeton, New
Jersey 08543 100%(2) N/A Beneficial
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Enhanced International Series Merrill Lynch Enhanced
International Index Trust,
P.O. Box 9011, Princeton,
New Jersey 08543-9011 100%(2) 20.1% Beneficial
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
QA Large Cap Core Series None N/A N/A N/A
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
QA Large Cap None
Value Series N/A N/A N/A
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
QA Large Cap None
Growth Series N/A N/A N/A
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
QA Mid Cap Series None N/A N/A N/A
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
QA Small Cap Series None N/A N/A N/A
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
QA International None
Series N/A N/A N/A
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Mid Cap Index Series Nationwide Mutual Funds 100% .3% Beneficial
Three Nationwide Plaza
Columbus, Ohio 43216
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Extended Market Index Series None N/A N/A N/A
----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
</TABLE>

37
<PAGE>

----------
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
FAMD Delaware
Merrill Lynch Small Cap Index Trust New Jersey
Merrill Lynch Enhanced International Index Trust New Jersey
Nationwide Mutual Funds Ohio

As of October 15, 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.

38
<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, Extended Market Index Series and QA 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 Fee Rate for the
Period Ended Period Ended
December 31, 1999 December 31, 1999
Actual Contractual (does not (reflects voluntary
Current Fee reflect voluntary waiver where
Name of Series Fee Rate Rate(2) fee waivers) applicable)
-------------- ------------ ----------- ----------------- -------------------
<S> <C> <C> <C> <C>
Master S&P 500 Index Series(1)..................... 0.005% 0.05% 0.03% 0.03%
Master Small Cap Index Series(1)................... 0.01% 0.08% 0.05% 0.03%
Master Aggregate Bond Index Series(1).............. 0.01% 0.06% 0.04% 0.04%
Master International (GDP Weighted) Index Series(1) 0.01% 0.11% 0.07% 0.06%
Master International (Capitalization Weighted)
Index Series(4)................................... 0.01% 0.01% 0.00%
Master Enhanced S&P 500 Series .................... 0.01%
Master Enhanced International Series .............. 0.01% 0.01% 0.01% 0.00%
Master QA Large Cap Core Series(3)................. 0.40%
Master QA Large Cap Value Series(3)................ 0.40%
Master QA Large Cap Growth Series(3)............... 0.40%
Master QA Mid Cap Series(3)........................ 0.55%
Master QA Small Cap Series(3)...................... 0.55%
Master QA International Series(3).................. 0.65%
Master Mid Cap Index Series(4)..................... 0.01% 0.01% 0.00%
Master Extended Market Index Series ............... 0.01%
</TABLE>

----------
(1) Effective August 2, 1999, the Investment Adviser has entered into a
contract with the Trust on behalf of certain Series and the corresponding
Feeder Funds that provides that the management fee for each such Series
when combined with the administrative fee of each such corresponding Feeder
Fund will not exceed 0.25% of the Merrill Lynch S&P 500 Index Feeder Fund,
0.30% of the Merrill Lynch Small Cap Index Feeder Fund, 0.20% of the
Merrill Lynch Aggregate Bond Index Feeder Fund, and 0.35% of the Merrill
Lynch International (GDP Weighted) Index Feeder Fund. 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.

(2) Excluding fee waivers.

(3) The Investment Adviser has contractually agreed that expenses incurred
(excluding Distribution and/or Service Fees) by each class of each
corresponding Feeder Fund of the QA Series will not exceed 1.50% for the
corresponding Feeder Fund of the QA Large Cap Core Series, QA Large Cap
Value Series and QA Large Cap Growth Series, 1.65% for the corresponding
Feeder Fund of the QA Mid Cap Series and QA Small Cap Series and 1.75% for
the corresponding Feeder Fund of the QA International Series.

(4) Commenced operations on December 30, 1999.

39
<PAGE>

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, Extended Market Index Series and QA 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>
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, MLIM, an affiliate of the Investment Adviser, 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).

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 or any of its affiliates. 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 and 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
non-affiliated 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., doing
business as Mercury Advisers (previously defined as 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.,

40
<PAGE>

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 will automatically terminate in the event of its assignment. In
addition, such contract may be terminated without penalty on 60 days' written
notice at the option of either party thereto or by the vote of the majority of
the outstanding voting securities of such Series.

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. 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, Extended Market Index
Series, International (GDP Weighted) Index Series, International (Capitalization
Weighted) Index Series, Enhanced Series and QA Series. Under the contracts with
the Trust, The Chase Manhattan Bank is 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.

Transfer Agent.

Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, which is a wholly-owned subsidiary of ML & Co., acts as the
Transfer Agent for the Index Series and the QA Series. The Transfer Agent is
responsible for the issuance, transfer and redemption of interests and the
opening, maintenance and servicing of interestholder accounts.

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.

41
<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 Investment Advisory 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 Trust's
ability and decisions to purchase and sell portfolio securities may be affected
by foreign laws and regulations relating to the convertabiltiy and repatriation
of assets.

The Enhanced S&P 500 Index Series, Extended Market Index Series and QA
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.

42
<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
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 Commission or with interpretations of the Commission staff.
See "Investment Restrictions."

Section 11(a) of the Securities Exchange Act of 1934 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.

43
<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

44
<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 fifteen Series. The Trust reserves the right to
create and issue interests in a number of additional Series. As indicated above,
Holders of each Series participate equally in the earnings and assets of the
particular series. Holders of each series are entitled to vote separately to
approve advisory agreements or changes in investment policy, but Holders of all
Series vote together in the election or selection of Trustees and accountants
for the Trust. Upon liquidation or dissolution of a Series, the Holders of such
Series are entitled to share in proportion to their investment in the net assets
of such Series available for distribution to Holders.

Item 18. Purchase, Redemption and Pricing of Securities.

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

The net asset value of the shares of each Series is determined once daily
Monday through Friday as of the close of business on the New York Stock Exchange
("NYSE") on each day the NYSE is open for trading, based on prices at the time
of closing. 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 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.

45
<PAGE>

A Series' securities that are traded on stock exchanges (including NASDAQ
National Market System) 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. Securities traded on the NASDAQ National
Market are valued at the last sale price 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. Long positions in securities traded in the OTC market, including
NASDAQ SmallCap and OTC Bulletin Board, 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, including NASDAQ SmallCap and OTC Bulletin Board, and on a stock
exchange are valued according to the broadest and most representative market.
Short positions in securities traded in the OTC market, including NASDAQ
SmallCap and OTC Bulletin Board, 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 generally 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 foreign 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 NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of a Series' net asset value.
If events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
by the Trustees.

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 of 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

46
<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.

The Trust, on behalf of the Series, has entered into a joint committed
line of credit with other investment companies advised by the Investment Adviser
and its affiliates and a syndicate of banks that is intended to provide the
Series with a temporary source of cash to be used to meet redemption requests
from Series Shareholders in extraordinary or emergency circumstances.

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.

Each Series may purchase or sell options and futures and foreign currency
options and futures, and related options on such futures. Options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
Federal income tax purposes at the end of each taxable year, i.e., each option
or futures contract will be treated as sold for its fair market value on the
last day of the taxable year. In general, unless a special election is made,
gain or loss from transactions in Section 1256 contracts will be 60% long term
and 40% short term capital gain or loss ("60/40"). 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.

47
<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.

48
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Item 20. Underwriters.

The exclusive placement agent for each Series of the Trust is FAM
Distributors, 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.

49
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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, 2000. 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.

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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

<TABLE>
<CAPTION>
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)

1(h) Amendment No. 4 to Declaration of Trust.(8)

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.(8)

5 Second Amended and Restated Placement Agent Agreement with FAM Distributors, Inc.(5)

6 Not applicable.

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

7(c) Form of Custody Agreement with The Chase Manhattan Bank.(5)

7(d) Form of Custody Agreement with The Chase Manhattan Bank.(6)

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 Investment Managers, L.P.(7)

8(c) Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement
between Registrant and Financial Data Services, Inc.

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 Form of Power of Attorney.

15 Not applicable.

16 Amended and Restated Code of Ethics.(8)

</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 Exhibit number 7(c) in Amendment No. 4 to
Registrant's Registration Statement on Form N-1A (File No. 811-7885).

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

(7) Incorporated by reference to identically numbered Exhibit to Amendment
No. 7 to Registrant's Registration Statement on Form N-1A (File No.
811-7885).

(8) Incorporated by reference to identically numbered Exhibit to Amendment
No. 8 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

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<PAGE>

Item 25. Indemnification.

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

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

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

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

C-3
<PAGE>

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

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

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

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

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

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

Article VIII, Section 8.4 of the Registrant's 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. (including doing business as Mercury Advisers)
(previously defined as the "Investment Adviser" or "FAM"), also acts as the
investment adviser for the following open-end registered investment companies:
Mercury QA Equity Series, Inc., Mercury QA Strategy Series, Inc., 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, Master Focus
Twenty Trust, Master Internet Strategies Trust, Master Large Cap Series Trust,
Master Premier Growth Trust, Mercury Global Holdings, Inc., 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.,
Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Small Cap Value Fund, Inc., Merrill Lynch U.S.
Government Mortagage Fund, Merrill Lynch World Income Fund, Inc. The Asset
Program, 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 2000, Inc.,
Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Funds, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings California Insured
Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Insured Fund II,
Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Insured Fund IV, Inc.,
MuniHoldings Michigan Insured 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 Insured Fund, MuniYield Quality Fund, Inc., MuniYield
Quality Fund II, Inc., Senior High Income Portfolio, Inc. and Worldwide
DollarVest Fund, Inc.

Merrill Lynch Investment Managers, L.P. (previously defined as "MLIM"), an
affiliate of FAM, acts as the investment adviser for the following open-end
registered investment companies: Master Global Financial Services Trust, Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Balanced Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill
Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity
Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Growth Fund, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill
Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch 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., the Asset Program, Inc. and
Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLIM);
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. MLIM 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 MLIM, 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, MLIM 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

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<PAGE>

Institutions Series and Merrill Lynch Intermediate Government Bond Fund is One
Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The address of
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 FAM Distributors, Inc. ("FAMD")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 MLIM

Princeton Services General Partner General Partner of MLIM

Jeffrey M. Peek President President of MLIM; 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 MLIM; Executive
Vice President and Director of Princeton
Services; President and Director of FAMD;
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 MLIM; Chief Operating Officer and Managing
Director of Princeton Services; Co-CEO of
Merrill Lynch Australia from 1997 to 1999
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
Position with the Investment Other Substantial Business, Profession,
Name Adviser Vocation or Employment
---- ---------------------------- ----------------------------------------
<S> <C> <C>
Donald C. Burke Senior Vice President, Senior Vice President and Treasurer of MLIM;
Treasurer and Director of Senior Vice President and Treasurer of Princeton
Taxation Services; Vice President of FAMD; First Vice
President of MLIM from 1997 to 1999;
Vice President of MLIM from 1990 to 1997

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

Robert C. Doll Senior Vice President Senior Vice President of MLIM; 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 MLIM; Senior Vice
President of Princeton Services

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

Michael J. Hennewinkel Senior Vice President, Senior Vice President, Secretary and General
Secretary and General Counsel of MLIM; Senior Vice President of
Counsel Princeton Services

Philip L. Kirstein Senior Vice President Senior Vice President of MLIM; Senior Vice
President, Secretary, General Counsel and
Director of Princeton Services
</TABLE>

C-8

<PAGE>

<TABLE>
<CAPTION>
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 MLIM; Senior Vice
President of Princeton Services; Vice
President of FAMD

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 MLIM; Senior Vice
President of Princeton Services

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

Gregory D. Upah Senior Vice President Senior Vice President of MLIM; Senior Vice
President of Princeton Services
</TABLE>

Item 27. Principal Underwriters.

(a) FAM Distributors, Inc. (previously defined as "FAMD"), 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. FAMD 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 FAMD also act as the
principal underwriter of a number of other investment companies.

Mercury Funds Distributor, a division of FAMD, 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
FAMD. 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.

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<PAGE>

<TABLE>
<CAPTION>
Positions and Office Positions and Offices
Name with FAMD 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 captions "Management, Organization, and
Capital Structure" and "Management of the Registrant" in Parts A and B,
respectively, 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 27th
day of October, 2000.

Quantitative Master Series Trust

(Registrant)

By: /s/ Donald C. Burke
--------------------------------
(Donald C. Burke, Vice President
and Treasurer)

C-11

<PAGE>

EXHIBIT INDEX

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

8(c) Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between Registrant and
Financial Data Services, Inc.

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

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

14 Form of Power of Attorney

C-12