MERCURY ASSET MANAGEMENT MASTER TRUST, POS AMI, 1999-01-26

MERCURY ASSET MANAGEMENT MASTER TRUST
POS AMI, 1999-01-26

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1999
FILE NO. 811-09049

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 1

(CHECK APPROPRIATE BOX OR BOXES)

MERCURY MASTER INTERNATIONAL PORTFOLIO,
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO,
MERCURY MASTER U.S. LARGE CAP PORTFOLIO, AND MERCURY
MASTER GOLD AND MINING PORTFOLIO OF

MERCURY ASSET MANAGEMENT MASTER TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(888) 763-2260
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

JEFFREY M. PEEK
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)

Copies to:

Counsel for the Trust:

JOEL H. GOLDBERG, Esq. and ROBERT E. PUTNEY, III, Esq.
Swidler Berlin Shereff Friedman, LLP P.O. Box 9011
919 Third Avenue Princeton, New Jersey 08543-9011
New York, New York 10022

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EXPLANATORY NOTE

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

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PART A

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

ITEM 4. - INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED
RISKS.

Mercury Asset Management Master Trust (the "Trust") is a no-load,
open-end management investment company which was organized as a Delaware
business trust on April 23, 1998. Mercury Master Pan-European Growth Portfolio
("Pan-European Growth Portfolio"), Mercury Master International Portfolio
("International Portfolio"), Mercury Master U.S. Large Cap Portfolio ("U.S.
Large Cap Portfolio"), and Mercury Master Gold and Mining Portfolio ("Gold and
Mining Portfolio"), (together, the "Portfolios" and each, a "Portfolio") are
each separate series of the Trust. Each Portfolio is a diversified investment
company with different investment objectives and policies. There can, of
course, be no assurance that the respective investment objectives of the
Portfolios can be achieved.

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES.

INTERNATIONAL PORTFOLIO AND PAN-EUROPEAN GROWTH PORTFOLIO

International Portfolio

International Portfolio's main goal is long-term capital growth through
investments primarily in a diversified portfolio of equity securities of
companies located outside the United States. In selecting securities, the
Portfolio emphasizes those securities that Portfolio management believes to be
undervalued or have good prospects for earnings growth. International Portfolio
will generally invest at least 80% of its total assets in equity securities of
at least two different countries outside the United States.

International Portfolio will invest in securities of companies located in
developed countries and countries with emerging capital markets outside the
United States. International Portfolio may invest without limit in countries
with emerging capital markets including countries in Eastern Europe, Latin
America and the Far East. International Portfolio allocates investments to
countries that the management of the Portfolio believes, based on an evaluation
of economic, political and social factors, present good prospects for overall
economic growth.

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Pan-European Growth Portfolio

Pan-European Growth Portfolio's main goal is long-term capital growth
through investments primarily in a diversified portfolio of equity securities of
companies located in Europe. In selecting securities, the Portfolio emphasizes
those securities that Portfolio management believes to be undervalued or have
good prospects for earnings growth. Pan-European Growth Portfolio will generally
invest at least 80% of its total assets in equity securities of companies
located in Europe.

Pan-European Growth Portfolio will invest primarily in securities of
companies located in developed European countries, including the United Kingdom,
Germany, the Netherlands, Switzerland, Sweden, France, Italy, Belgium, Norway,
Denmark, Finland, Portugal, Austria, Spain, Greece, Ireland and Luxembourg. The
Portfolio may also invest in securities of companies located in developing
European countries, including Bulgaria, the Czech Republic, Hungary, Poland,
Romania, Slovakia, and the states which formerly comprised Yugoslavia and the
Soviet Union. Pan-European Growth Portfolio does not allocate investments based
on its analysis of the overall prospects for a particular European country.

INTERNATIONAL PORTFOLIO AND PAN-EUROPEAN GROWTH PORTFOLIO

Equity securities consist of:

- Common Stock
- Preferred Stock
- Securities Convertible into Common Stock

- Derivative securities, such as options (including warrants) and
futures, the value of which is based on a common stock or group
of common stocks.

A company's stock is considered undervalued when the stock's current
price is less than what Portfolio management believes a share of the company is
worth. Portfolio management feels a company's worth can be assessed by several
factors such as:

- financial resources
- value of assets
- sales and earnings growth
- product development
- quality of management
- overall business prospects

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company's industry or market sector is an important factor in evaluating a
particular company's earnings prospects. Current income from dividends and
interest will not be an important consideration in selecting portfolio
securities for a Portfolio.

Both Portfolios may invest in companies of any size, but each Portfolio
intends to focus on medium and large companies. The Portfolios have no stated
minimum holding period for investments, and each will buy or sell securities
whenever the Portfolio's management sees an appropriate opportunity. A Portfolio
does not consider potential tax consequences to investors when it sells
securities.

Each Portfolio may invest in debt securities that are issued together
with a particular equity security. Each Portfolio may or may not choose to
invest in derivatives to hedge (protect against price movements) or to enable it
to reallocate its investments more quickly than it could by buying and selling
the underlying securities.

Each Portfolio will normally invest almost all of its assets in the above
described manner. Each Portfolio may, however, invest in short-term instruments,
such as money market securities and repurchase agreements, to meet redemptions.
Each Portfolio may also, without limit, make short-term investments, purchase
high quality bonds or buy or sell derivatives, to reduce exposure to equity
securities when the Portfolio believes it is advisable to do so (on a temporary
defensive basis). Short-term investments and temporary defensive positions may
limit the potential for growth in the value of an interest in the Portfolio, and
the Portfolio may therefore not achieve its investment objective.

U.S. LARGE CAP PORTFOLIO

U.S. Large Cap Portfolio's main goal is long-term capital growth. The
Portfolio tries to achieve its goal by investing primarily in a diversified
portfolio of equity securities of large cap companies located in the U.S.. U.S.
Large Cap Portfolio may also invest up to 10% of its assets in equity securities
of companies located in Canada. In selecting securities, the Portfolio
emphasizes those securities that Portfolio management believes to be undervalued
or have good prospects for earnings growth.

U.S. Large Cap Portfolio will, under normal circumstances, invest at
least 65% of its total assets in equity securities of large cap companies
located in the U.S. Investments will also be made in equity securities of
companies of any market capitalization located in Canada and of small or medium
capitalization companies located in the U.S. Normally, Canadian investments will
represent 10% or less of the Portfolio's assets. A large cap company is a
company whose market capitalization is at least $5 billion under current market
conditions. The Portfolio's definition of large cap companies may be increased
in response to changes in the market. A company's market capitalization may go
up or down due to market fluctuations. The Portfolio will not sell a company's
securities just because

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that company's market capitalization drops below $5 billion or another amount
set by the Portfolio.

Equity securities consist of:

- Common Stock
- Preferred Stock
- Securities Convertible into Common Stock
- Derivative securities, such as options (including warrants) and
futures, the value of which is based on a common stock or group of
common stocks.

U.S. Large Cap Portfolio considers a company to be "located" in the U.S.
or Canada if:

- it is legally organized in the U.S. or Canada,
- the primary trading market for its securities is located in the
U.S. or Canada, or
- at least 50% of the company's (and its subsidiaries') non-current
assets, capitalization, gross revenues or profits have been
located in the U.S. or Canada during one of the last two fiscal
years.

Under this definition a "foreign" company (a company organized or trading
outside the U.S. or Canada, or with substantial operations outside the U.S. or
Canada) may be considered to be "located" in the U.S. or Canada.

A company's stock is considered undervalued when the stock's current
price is less than Portfolio management believes a share of the company is
worth. Portfolio management feels a company's worth can be assessed by several
factors such as:

- financial resources
- value of assets
- sales and earnings growth
- product development
- quality of management
- overall business prospects

A company's stock may become undervalued when most investors fail to
perceive the company's strengths in one or more of these areas. A company whose
earnings per share grow faster than inflation and the economy in general usually
has a higher stock price over time than companies with slower earnings growth.
The Portfolio's evaluation of the prospects for a company's industry or market
sector is an important factor in evaluating a particular company's earnings
prospects. Current income from dividends and interest will not be an important
consideration in selecting portfolio securities.

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The Portfolio may invest in debt securities that are issued together with
a particular equity security. The Portfolio may or may not choose to invest in
derivatives to hedge (protect against price movements) or to enable it to
reallocate its investments more quickly than it could by buying and selling the
underlying securities.

The Portfolio has no stated minimum holding period for investments, and
will buy or sell securities whenever the Portfolio management sees an
appropriate opportunity. The Portfolio does not consider potential tax
consequences to investors when it sells securities.

The Portfolio will normally invest almost all of its assets in the manner
described above. The Portfolio may, however, invest in short-term instruments,
such as money market securities and repurchase agreements, to meet redemptions.
The Portfolio may also, without limit, make short-term investments, purchase
high quality bonds or buy or sell derivatives to reduce exposure to equity
securities when the Portfolio believes it is advisable to do so (on a temporary
defensive basis). Short-term investments and temporary defensive positions may
limit the potential for growth in the value of an interest in the Portfolio and
the Portfolio may therefore not achieve its investment objective.

GOLD AND MINING PORTFOLIO

Gold and Mining Portfolio's main goal is long-term capital growth. The
Portfolio tries to achieve its goal by investing primarily in a diversified
portfolio of equity securities of gold mining companies, and to a lesser extent
of companies engaged in other mining activities, located throughout the world.
The Portfolio may also invest up to 10% of its assets directly in gold bullion.
In selecting securities, the Portfolio emphasizes those securities that
Portfolio management believes are undervalued or have good prospects for
earnings growth.

During normal market conditions, the Portfolio expects to invest at least
80% of its total assets in equity securities of gold mining companies and gold
bullion, and the remainder of its assets in equity securities of companies
engaged in other mining activities. Gold and Mining Portfolio has a policy to
concentrate its investments in companies in the mining and related manufacturing
industries. Mining related manufacturing industries may include, for example,
primary production of aluminum or steel foundries. For simplicity, this
Prospectus uses the term "mining" to include exploring, mining, refining,
processing, fabricating, distributing, dealing in or owning a particular metal
or mineral. The Portfolio will invest in companies engaged in non-gold mining
activities when Portfolio management believes, based on an evaluation of global
economic conditions and the price of gold, that they present better prospects
for growth than investments in gold mining companies.

Equity securities consist of:

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- Common Stock
- Preferred Stock
- Securities Convertible into Common Stock
- Derivative securities, such as asset-based securities, options
(including warrants) and futures, the value of which is based on a
common stock or group of common stocks.

Gold and Mining Portfolio considers a company to be "located" in the
country where:

- it is legally organized,
- the primary trading market for its securities is located, or
- at least 50% of the company's (and its subsidiaries) non-current
assets, capitalization, gross revenues or profits have been
located during one of the last two fiscal years.

- financial resources,
- value of assets (including the type, quantity and quality of a
company's ore reserves, and mineral exploration prospects),
- sales and earnings growth,
- product development,
- quality of management,
- overall business prospects.

A company's stock may become undervalued when most investors fail to
perceive the company's strengths in one or more of these areas. A company whose
earnings per share grow faster than inflation and the economy in general usually
has a higher stock price over time than companies with slower earnings growth.
Current income from dividends and interest will not be an important
consideration in selecting portfolio securities.

Gold and Mining Portfolio will invest in securities of companies located
throughout the world and generally intends to invest a substantial amount of its
assets in securities of companies located in the Republic of South Africa. The
Portfolio may invest without limit in securities of companies located in
countries with emerging capital markets including the Republic of South Africa,
The People's Republic of China, Russia, Indonesia, Uzbekistan, Peru, Brazil,
Mexico, Zimbabwe, Ghana, Mali, Tanzania, the Philippines and Papua New Guinea.
The Portfolio may also invest in securities of companies located in countries
with

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developed capital markets including the United States, Canada, Japan, United
Kingdom, Finland, France, Germany, Switzerland, Ireland, Luxemburg, Spain and
Australia.

The Portfolio may invest in companies of any size, but the Portfolio
intends to focus on medium and large companies. The Portfolio has no stated
minimum holding period for investments, and will buy or sell securities and
other assets whenever the Portfolio's management sees an appropriate
opportunity. The Portfolio does not consider potential tax consequences to
investors when it sells assets.

The Portfolio may invest up to 10% of its assets in gold bullion when the
Portfolio believes it is undervalued relative to the price of securities of gold
mining companies. However, the Portfolio may have internal guidelines that limit
its investments in gold bullion to considerably less than 10% of the Portfolio's
assets.

The Portfolio will normally invest almost all of its assets in the manner
described above. The Portfolio may, however, invest in short-term instruments,
such as money market securities and repurchase agreements, to meet redemptions.
If the Portfolio anticipates significant adverse changes in the price of gold
then the Portfolio's investment in stocks of gold mining companies and gold
bullion may be temporarily reduced to below 50% of the Portfolio's total assets.
In this case the Portfolio may make substantial investments, for temporary
defensive purposes, in other mineral mining companies (non-gold), and may hold
substantial amounts of short-term investments, such as money market securities
and repurchase agreements. Short term investments and temporary defensive
positions may limit the potential for growth in the value of an interest and the
Portfolio may therefore not achieve its investment objective.

The Portfolios may use many different investment strategies in seeking
their investment objectives, and each Portfolio has certain investment
restrictions. These strategies and certain of the restrictions and policies
governing each Portfolio's investments are explained in Part B of this
Registration Statement.

INVESTMENT RISKS.

This section contains a summary discussion of the general risks of
investing in a Portfolio.

As with any mutual fund, there can be no guarantee that a Portfolio will
meet its goals, or that a Portfolio's performance will be positive over any
period of time.

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INTERNATIONAL PORTFOLIO AND PAN-EUROPEAN GROWTH PORTFOLIO

The International Portfolio and Pan-European Growth Portfolio are
subject to three principal risks: market risk, selection risk and foreign
investment risk. Market risk is the risk that the equity markets will go down
in value, including the possibility that the equity markets will go down
sharply and unpredictably. Selection risk is the risk that the stocks that a
Portfolio's adviser selects will underperform the markets or other funds with
similar investment objectives and investment strategies. Foreign investment
risk is the risk that a Portfolio's investments in non-U.S. securities may go
up or down in value depending on foreign exchange rates, foreign political and
economic developments and U.S. and foreign laws relating to non-U.S.
investment. In addition to these risks, certain investment techniques that a
Portfolio may use entail other risks, as described below.

U.S. LARGE CAP PORTFOLIO

The U.S. Large Cap Portfolio is subject to three principal risks: market
risk, selection risk and Canadian investment risk. Market risk is the risk that
the U.S. or Canadian equity markets will go down in value, including the
possibility that the U.S. or Canadian equity markets will go down sharply and
unpredictably. Selection risk is the risk that the stocks that the Portfolio's
adviser selects will underperform the markets or other funds with similar
investment objectives and investment strategies. Canadian investment risk is the
risk that the Portfolio's Canadian securities may go up or down in value
depending on the fluctuations in the relative exchange rates of the U.S. dollar
and the Canadian dollar, U.S. and Canadian political and economic developments,
and changes in U.S. and Canadian laws relating to investments in Canada. In
addition to these risks, certain investment techniques that the Portfolio may
use entail other risks, as described below.

GOLD AND MINING PORTFOLIO

The Gold and Mining Portfolio is subject to four principal risks: market
risk, selection risk, sector risk and foreign investment risk. Market risk is
the risk that the equity markets or commodity markets in general, or the gold
market in particular, will go down in value, including the possibility that any
of these markets will go down sharply and unpredictably. Selection risk is the
risk that the stocks that the Portfolio's adviser selects will underperform the
markets or other funds with similar investment objectives and investment
strategies. Sector risk is the risk that the Portfolio's concentration in gold
and other mining securities will expose the Portfolio more to the price
fluctuations of mining securities, generally, or of gold in particular, than
more broadly diversified funds. Foreign investment risk is the risk that the
Portfolio's non-U.S. securities may go up or down in value depending on foreign
exchange rates, political and economic developments and U.S. and foreign laws
relating to non-U.S. investment. In addition to these risks, certain investment
techniques that the Portfolio may use entail other risks, as described below.

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INTERNATIONAL PORTFOLIO, PAN-EUROPEAN GROWTH PORTFOLIO AND GOLD AND MINING
PORTFOLIO

Liquidity, Information and Valuation Risks.

Certain securities, including securities of companies in
countries with emerging capital markets, securities of small
companies and "restricted securities" may be illiquid or
volatile, making it difficult or impossible to sell them at the
time and at the price that a Portfolio would like. Restricted
securities have contractual or legal restrictions on their resale
and include "private placement" securities that a Portfolio may
buy directly from the issuer. Also, important information about
these companies, securities or the markets in which they trade,
may be inaccurate or unavailable. It may be difficult to value
accurately these types of securities. Certain derivatives may be
subject to these risks as well.

European Economic and Monetary Union (EMU).

Certain European countries have agreed to enter into EMU, in an
effort to, 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 countries. Among other things, EMU
establishes a single common 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. Upon introduction of the euro, certain securities
(beginning with government and corporate bonds) were
redenominated in the euro. These securities trade and make
dividend and other payments only in euros. Although EMU is
generally expected to have a beneficial effect, it could
negatively affect a Portfolio in a number of situations,
including as follows:

- If the euro, or EMU as a whole, does not take effect as
planned, a Portfolio's investments could be adversely
affected. For example, sharp currency fluctuations,
exchange rate volatility, and other disruptions of the
markets could occur.

- Withdrawal from EMU by a participating country could also
have a negative effect on a Portfolio's investments, for
example if securities redenominated in euros are
transferred back into that country's national currency.

- Computer, accounting, and trading systems must be capable
of recognizing the euro as a distinct currency. Like other
investment companies and business organizations, a
Portfolio could be adversely affected if the systems used
by the investment adviser, the Portfolio's other

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service providers, or entities with which the Portfolio or
its service providers do business do not properly address
this issue. These issues may negatively affect the
operations of the companies a Portfolio invests in as well.

Other Foreign Security Risks.

- The value of each Portfolio's non-U.S. holdings (and
hedging transactions in foreign currencies) will be
affected by changes in currency exchange rates.

- The costs of non-U.S. securities transactions tend to be
higher than those of U.S. transactions.

- A Portfolio's non-U.S. securities holdings may be adversely
affected by foreign government action.

- International trade barriers or economic sanctions against
certain non-U.S. countries may adversely affect a
Portfolio's non-U.S. holdings.

- A Portfolio may be able to invest in certain small non-U.S.
markets only by investing in another fund that in turn
invests in those markets. It may cost a Portfolio more to
buy shares of these funds than it would to buy the non-U.S.
securities directly.

- The foregoing risks are heightened when the investment is
made in a country that has an emerging capital market. The
development of a capital market depends on a number of
factors, including a country's success in making political,
economic and social reforms. If a country were to
discontinue its process of reform, or experience other
destabilizing events, a Portfolio's investments could be
adversely affected. In addition, because of the small size
of the capital market in a country with an emerging capital
market or governmental restrictions on foreign investment,
there may be fewer investment opportunities available to a
Portfolio than in more developed markets. This could limit
a Portfolio's ability to diversify its holdings among
issuers, industries and countries.

- If a Portfolio purchases a bond issued by a foreign
government, the government may be unwilling or unable to
make payments when due. There may be no formal bankruptcy
proceeding by which a Portfolio would be able to collect
amounts owed by a foreign government.

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- Non-U.S. markets have different clearance and settlement
procedures, and in certain markets settlements may be
unable to keep pace with the volume of securities
transactions which may cause delays. This means that a
Portfolio's assets may be uninvested and not earning
returns. A Portfolio may miss investment opportunities or
be unable to dispose of a security because of these delays.

U.S. LARGE CAP PORTFOLIO

Liquidity, Information and Valuation Risks.

Certain securities, including securities of small companies,
securities of Canadian companies and "restricted securities" may
be illiquid or volatile, making it difficult or impossible to sell
them at the time and at the price that the Portfolio would like.
Restricted securities have contractual or legal restrictions on
their resale and include "private placement" securities that the
Portfolio may buy directly from the issuer. Also, important
information about these companies, securities or the markets in
which they trade, may be inaccurate or unavailable. It may be
difficult to value accurately these types of securities. Certain
derivatives may be subject to these risks as well.

Other Canadian Securities Risks.

Canadian securities are sensitive to conditions within Canada, but
also tend to follow the U.S. market. Canada's economy depends
heavily on exports to the U.S., Canada's largest trading partner.
The Canadian economy relies strongly on the production and
processing of natural resources. Historically, natural resource
prices have been volatile. Demand by many citizens of the Province
of Quebec for secession from Canada may significantly impact the
Canadian economy.

- The costs of Canadian securities transactions tend to be
higher than those of U.S. transactions.

- The Canadian securities market has different clearance and
settlement procedures, which may cause delays. This means
that the Portfolio's assets may be uninvested and not
earning returns. The Portfolio may miss investment
opportunities or be unable to dispose of a security because
of these delays.

Foreign Security Risks

The U.S. Large Cap Portfolio defines companies located in the U.S.
or Canada broadly. As a result, the Portfolio's investments may
include

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companies organized, traded or having substantial operations
outside the U.S. or Canada. This may expose the Portfolio to risks
associated with foreign investments.

- The value of holdings traded outside the U.S. (and any
hedging transactions in foreign currencies) will be
affected by changes in currency exchange rates.

- The costs of non-U.S. securities transactions tend to be
higher than those of U.S. transactions.

- These holdings may be adversely affected by foreign
government action.

- International trade barriers or economic sanctions against
certain non-U.S. countries may adversely affect these
holdings.

GOLD AND MINING PORTFOLIO

Mining Related Securities and Gold Bullion.

- Investments in or relating to gold and other metals or
minerals are considered speculative.

- Historically, during periods of economic or financial
instability the securities of mining companies in general,
and companies engaged in precious (including gold) and
industrial metals mining in particular, have been subject
to extreme fluctuations in market price. Gold bullion has
also been subject to extreme fluctuations in market price.

- The earnings and general financial condition of mining
companies are highly dependent on the market prices of the
underlying metals or minerals, which have historically been
extremely volatile.

- During periods of instability in the price of metals or
minerals, the liquidity of the Portfolio's portfolio
securities may be severely reduced; in other words, the
Portfolio may not, during these periods, be able to sell
its securities at the time and price that the Portfolio
would like.

- Actions of large producers, sellers, and holders of
precious metals (such as governments and central banks) may
severely impact supply of, or demand for, precious metals,
and their actions in general may

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have a significant impact on the prices of precious metals.
These actions can be affected by various economic,
financial, social and political factors which may be
unpredictable.

- The Portfolio generally intends to invest a substantial
amount of its assets in securities of companies located in
the Republic of South Africa. This investment focus could
increase volatility and risk compared to a fund that
invests a smaller percentage of its assets in South Africa.
In addition, South African companies are generally more
sensitive to movements in the price of gold than similar
companies in other countries.

- Gold bullion does not generate income and offers only the
potential for capital appreciation or depreciation.

ALL PORTFOLIOS

Borrowing and Leverage.

The use of borrowing can create leverage. Leverage increases a
Portfolio's exposure to risk by increasing its total investments.
If a Portfolio borrows money to make more investments than it
otherwise could or to meet redemptions, and the Portfolio's
investments go down in value, the Portfolio's losses will be
magnified. Borrowing will cost a Portfolio interest expense and
other fees.

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

Derivatives.

A Portfolio may also use instruments referred to as
"Derivatives." Derivatives are financial instruments whose value
is derived from another security, a commodity (such as gold or
oil) or an index (a measure of value or rates, such as the S&P
500 or the prime lending rate). Derivatives can allow a Portfolio
to increase or decrease its level of risk exposure more quickly
and efficiently than transactions in other types of instruments.
Derivatives, however, are volatile and involve significant risks,
including many of the risks described above. Derivatives may not
always be available or cost efficient. If the Portfolio invests in
derivatives the investments may not be effective as a hedge
against price movements and can limit potential for growth in the
value of an interest in the Portfolio. Other risks include:

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

- 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 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.

- Index risk -- If the derivative is linked to the
performance of an index, it will be subject to the risks
associated with changes in that index. If the index
changes, a Portfolio could receive lower interest payments
or experience a reduction in the value of the derivative to
below what the Portfolio paid. Certain indexed securities,
including inverse securities (which move in an opposite
direction to the index), may create leverage, to the extent
that they increase or decrease in value at a rate that is a
multiple of the changes in the applicable index.

A Portfolio may use the following types of derivative instruments:

- Futures -- 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. Futures may involve leverage risk and
currency risk.

- Forwards -- 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
involve credit risk and leverage risk, and may involve
currency risk.

- Options -- 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 of certain assets or an index) from another party at
a specified price within a specified time period. Options
may

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<PAGE> 17

involve leverage risk. Private options also involve credit
risk and liquidity risk. Options mayalso involve currency
risk.

The Gold and Mining Portfolio may also use the following:

- Asset-Based Securities - debt, preferred or convertible
securities, the terms of which are related to the market
price of a natural resource asset such as gold bullion.
Asset-based securities involve credit risk, currency risk,
and liquidity risk and may involve leverage risk.

Convertible Securities.

Convertible securities, including bonds and preferred stock, are
convertible into common stock. As a result of the conversion
feature, the interest or dividend rate on a convertible security
is generally less than would be the case if the security were not
convertible. The value of a convertible security will be affected
both by its stated interest or dividend rate and the value of the
underlying common stock. Therefore, its value will be affected by
the factors that affect both debt securities (such as interest
rates) and equity securities (such as stock market movements
generally). Some convertible securities might require a Portfolio
to sell the securities back to the issuer or a third party at a
time that is disadvantageous to the Portfolio.

Debt Securities.

Debt securities, such as bonds, involve credit risk, which is the
risk that the borrower will not make timely payments of principal
and interest. These securities are also subject to interest rate
risk, which is the risk that the value of the security may fall
when interest rates rise. In general, the market price of debt
securities with longer maturities will go up or down more in
response to changes in interest rates than shorter term
securities.

ITEM 6. - MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE.

INVESTMENT ADVISER.

Mercury Asset Management International Ltd. manages each Portfolio's
investments under the overall supervision of the Board of Trustees of the
Mercury Asset Management Master Trust. The investment adviser has the
responsibility for making all investment decisions for each Portfolio.

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<PAGE> 18

Mercury and its affiliates manage portfolios with over $501 billion in
assets (as of December 1998) for individuals and institutions seeking
investments worldwide. This amount includes assets managed for its affiliates.
The advisory agreement between the Trust on behalf of each Portfolio and the
investment adviser gives the investment adviser the responsibility for making
all investment decisions.

With respect to International Portfolio, Pan-European Growth Portfolio,
and Gold and Mining Portfolio, the investment adviser is paid at the rate of
.75% of the Portfolio's average daily net assets. With respect to U.S. Large
Cap Portfolio, the investment adviser is paid at the rate of .50% of the
Portfolio's average daily net assets.

The investment adviser has hired Fund Asset Management, L.P., an
affiliate, to manage each Portfolio's daily cash assets. The Portfolios do not
pay any incremental fee for this service, although the investment adviser may
make payments to Fund Asset Management, L.P.

International Portfolio is managed by members of a team of 18 investment
professionals who participate in the team's research process and stock
selection. The senior investment professionals in this group that have managed
the International Portfolio since the Portfolio started operations include:

Claus Anthon, Director of Mercury Asset Management. He has been employed
as an investment professional by the investment adviser since 1982.

Tammy Chow, Associate Director of Mercury Asset Management. She has been
employed as an investment professional by the investment adviser since
1994. Ms. Chow was a senior fund manager for Far Eastern Markets for
Credit Lyonnais International Asset Management, Hong Kong from 1988 to
1994.

Gary Lowe, Director of Mercury Asset Management. He has been employed as
an investment professional by the investment adviser since 1992.

Juliet Marber, Director of Mercury Asset Management. She has been
employed as an investment professional by the investment adviser since
1987.

Charles Prideaux, Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser since
1988. Mr. Prideaux is primarily responsible for the day-to-day management
of the International Portfolio.

Manraj Sekhon has been employed as an investment professional by the
investment adviser since 1994.

Pan-European Growth Portfolio is managed by members of a team of 26
investment professionals who participate in the team's research process and
stock selection. The senior

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<PAGE> 19

investment professionals in this group that have managed the Pan European Growth
Portfolio since the Portfolio started operations include:

Simon Flood, Director of Mercury Asset Management. He has been employed
as an investment professional by the investment adviser since 1989.

Samuel Joab, Associate Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser since
1992.

Michel Legros, Director of Mercury Asset Management. He has been employed
as an investment professional by the investment adviser and its
affiliates since 1991.

Andreas Utermann, Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser since
1990. Mr. Utermann is primarily responsible for the day-to-day management
of the Pan-European Growth Portfolio .

Charlotte Winther has been employed as an investment professional by the
investment adviser since 1998. Ms. Winther was employed at Unibank Asset
Management from 1989 to 1998.

U.S. Large Cap Portfolio is managed by members of a team of 17 investment
professionals who participate in the team's research process and stock
selection. The senior investment professionals in this group that have managed
the Portfolio since the Portfolio started operations include:

Garrett Fish has been employed as an investment professional by the
investment adviser or its Mercury affiliates since 1997. Mr. Fish was
employed at Jardine Fleming Hong Kong as a U.S. fund manager from 1994 to
1997. From 1991 to 1993 Mr. Fish was an account manager at Aetna Capital
Management in the U.S.

Andrew J. Hudson, Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser or its
Mercury affiliates since 1992.

Michael Morony has been employed as an investment professional by the
investment adviser or its Mercury affiliates since 1997. Mr. Morony
worked for Threadneedle Investment Managers from 1992 to 1997. Mr. Morony
is primarily responsible for the day-to-day management of the Portfolio.

Gold and Mining Portfolio is managed by members of a team of 7 investment
professionals who participate in the team's research process and stock
selection. The

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<PAGE> 20

senior investment professionals in the group that have managed the Portfolio
since the Portfolio started operations include:

David Baker, Director of Mercury Asset Management. He has been employed
as an investment professional by the investment adviser or its Mercury
affiliates since 1992.

Graham Birch, Managing Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser or its
Mercury affiliates since 1993.

Geoff Campbell, Associate Director of Mercury Asset Management. He has
been employed as an investment professional by the investment adviser or
its Mercury affiliates since 1994. Mr. Campbell was employed at Ord
Minnett and Fleming Martin from 1988 to 1994. Both of these firms are
divisions of Robert Fleming.

Trevor Steel, Associate Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser or its
Mercury affiliates since 1991. Mr. Steel is primarily responsible for the
day to day management of the Portfolio.

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 Portfolio, investors would be entitled to share, in proportion to their
investment in the Trust or the Portfolio (as the case may be), in the assets of
the Trust or Portfolio available for distribution to investors.

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

Investments in the Trust may not be transferred, but an investor may
withdraw all or any portion of its investment in any Portfolio at net asset
value on any day on which the New York Stock Exchange is open.

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<PAGE> 21

ITEM 7. - SHAREHOLDER INFORMATION.

PRICING.

Each Portfolio calculates its net asset value (generally by using market
quotations) each day the New York Stock Exchange is open ("Pricing Day"),
fifteen minutes after the close of business on the Exchange (the New York Stock
Exchange generally closes at 4:00 p.m. Eastern time). The net asset value used
in determining the price of an interest in the Portfolio is the one calculated
after the purchase or redemption order is received. The net asset value is
determined by deducting the amount of the Portfolio's total liabilities from the
value of its total assets. Net asset value is generally calculated by valuing
each security at its closing price for the day. Many of the International
Portfolio's, Pan-European Growth Portfolio's and Gold and Mining Portfolio's
investments are traded on non-U.S. securities exchanges that close many hours
before the New York Stock Exchange. Events that could affect securities prices
that occur between these times normally are not reflected in a Portfolio's net
asset value. Non-U.S. securities sometimes trade on days that the New York Stock
Exchange is closed. As a result, a Portfolio's net asset value may change on
days when an investor will not be able to purchase or redeem the Portfolio's
shares. If an event occurs after the close of a non-U.S. exchange that is likely
to significantly affect a Portfolio's net asset value, "fair value" pricing may
be used. This means that a Portfolio may value its foreign holdings at prices
other than their last closing prices, and the Portfolio's net asset value will
reflect this. Securities and assets for which market quotations are not readily
available are also valued at fair value as determined in good faith by or under
the direction of the Board of Trustees.

Each investor in the Trust may add to or reduce its investment in a
Portfolio on each Pricing Day. The value of each investor's beneficial interest
in a Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, that represents that
investor's share of the aggregate beneficial interests in such Portfolio. 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
Portfolio 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
Portfolio 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 Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio 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 Portfolio 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 Portfolio as of 15 minutes after
the close of business of the New York Stock Exchange on the next Pricing Day of
the Portfolio.

PURCHASE OF SECURITIES.

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<PAGE> 22

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 Portfolio 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 Portfolio.
However, because each Portfolio 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 Portfolio's custodian
bank by a Federal Reserve Bank).

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

REDEMPTION.

An investor in the Trust may withdraw all or a portion of its investment
in any Portfolio 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
Portfolio. The proceeds of the withdrawal will be paid by the Portfolio normally
on the business day on which the withdrawal is effected, but in any event within
seven days. Investments in any Portfolio of the Trust may not be transferred.

TAX CONSEQUENCES.

Under the anticipated method of operation of the Portfolios, each
Portfolio will be treated as a separate partnership for tax purposes and, thus,
will not be subject to any income tax. Based upon the status of each Portfolio
as a partnership, each investor in a Portfolio will be taxable on its share (as
determined in accordance with the governing instruments of the Portfolio) of
such Portfolio's 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 intended that each Portfolio's assets, income and distributions
will be managed in such a way that an investor in any Portfolio will be able to
satisfy the requirements of Subchapter M of the Code assuming that the investor
invested all of its assets in the Portfolio.

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<PAGE> 23

A NOTE ABOUT YEAR 2000:

Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). The Portfolios could be
adversely affected if the computer systems used by the investment adviser or
other Portfolio service providers do not properly address this problem before
January 1, 2000. The investment adviser expects to have addressed this problem
before then, and does not anticipate that the services it provides will be
adversely affected. Each Portfolio's other service providers have told Fund
Asset Management, L.P. that they also expect to resolve the Year 2000 Problem,
and Fund Asset Management, L.P. will continue to monitor the situation as the
Year 2000 approaches. However, if the problem has not been fully addressed, the
Portfolios could be negatively affected. The Year 2000 Problem could also have a
negative impact on the companies in which the Portfolios invest, and this could
hurt a Portfolio's investment returns.

ITEM 8. - DISTRIBUTION ARRANGEMENTS.

Investments in a Portfolio will be made without a sales load. All
investments are made at net asset value next determined after an order is
received by the Portfolio. The net asset value of each Portfolio is determined
on each Pricing Day.

The Trust's placement agent is Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.

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<PAGE> 24
PART B

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

ITEM 10.

Mercury Master International Portfolio ("International Portfolio"),
Mercury Master Pan-European Growth Portfolio ("Pan-European Growth Portfolio"),
Mercury Master U.S. Large Cap Portfolio ("U.S. Large Cap Portfolio"), and
Mercury Master Gold and Mining Portfolio ("Gold and Mining Portfolio")
(together, the "Portfolios" and each, a "Portfolio") are each separate series of
Mercury Asset Management Master Trust (the "Trust"). This Statement of
Additional Information is not a prospectus and should be read in conjunction
with the Prospectus of the Portfolios, dated January 26, 1999 (the
"Prospectus"), which has been filed with the Securities and Exchange Commission
and can be obtained, without charge, by calling the Trust at 1-888-763-2260, or
by writing to Mercury Asset Management Master Trust, P.O. Box 9011, Princeton,
New Jersey 08543-9011. The Prospectus is incorporated by reference into this
Statement of Additional Information, and this Statement of Additional
Information has been incorporated by reference into the Prospectus.

The date of this Statement of Addition Information is January 26, 1999.

<PAGE> 25

TABLE OF CONTENTS.

<TABLE>
<CAPTION>
Page
<S> <C>
Trust History...........................................................................................3
Description of the Portfolios and Their Investments and Risks...........................................3
Management of the Registrant.......................................................................... 9
Control Persons and Principal Holders of
Securities........................................................................................... 21
Investment Advisory And Other Services............................................................... 22
Brokerage Allocation and Other Practices............................................................. 24
Capital Stock and Other Securities................................................................... 26
Purchase, Redemption and Pricing of Securities....................................................... 27
Taxation of the Trust................................................................................ 28
Underwriters......................................................................................... 30
Calculation of Performance Data...................................................................... 30
Financial Statements................................................................................. 32
</TABLE>

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<PAGE> 26

ITEM 11. - TRUST HISTORY.

The Trust is a Delaware business trust organized on April 23, 1998.
International Portfolio, Pan-European Growth Portfolio, U.S. Large Cap
Portfolio, and Gold and Mining Portfolio are each separate series of the Trust.

ITEM 12. - DESCRIPTION OF THE PORTFOLIOS AND THEIR INVESTMENTS AND RISKS.

INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.

International Portfolio's goal (that is, the investment objective) is
long-term capital growth through investments primarily in a diversified
portfolio of equity securities of companies located outside the United States.

Pan-European Growth Portfolio's goal (that is the investment objective)
is long-term capital growth through investments primarily in a diversified
portfolio of equity securities of companies located in Europe.

U.S. Large Cap Portfolio's goal (that is, the investment objective) is
long-term capital growth. The Portfolio tries to achieve its goal by investing
primarily in a diversified portfolio of equity securities of large cap companies
located in the U.S. The Portfolio may also invest up to 10% of its assets in
equity securities of companies of any market capitalization located in Canada.

Gold and Mining Portfolio's goal (that is, the investment objective) is
long-term capital growth. The Portfolio tries to achieve its goal by investing
primarily in a diversified portfolio of equity securities of gold mining
companies, and to a lesser extent of companies engaged in other mining
activities located throughout the world. The Portfolio may also invest directly
in gold bullion.

International Portfolio, Pan-European Growth Portfolio, U.S. Large Cap
Portfolio, and Gold and Mining Portfolio are diversified, open-end, management
investment companies. Each Portfolio's investment objective is a fundamental
policy and cannot be changed without shareholder approval. The investment
objectives and policies are described in more detail in Part A. There can be no
guarantee that a Portfolio's investment objective will be achieved.

For purposes of each Portfolio's investment objective, an issuer
ordinarily will be considered to be located in the country under the laws of
which it is organized or where the primary trading market of its securities is
located. A Portfolio, however, may consider a company to be located in a
country, without reference to its domicile or to the primary trading market of
its securities, when at least 50% of its non-current assets, capitalization,
gross revenues or profits in any one of the two most recent fiscal years
represents (directly or indirectly through subsidiaries) assets or activities
located in such country. A Portfolio also may consider closed-end investment

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<PAGE> 27

companies to be located in the country or countries in which they primarily make
their portfolio investments.

The Gold and Mining Portfolio attempts to achieve its investment
objective by seeking to identify securities of companies that, in management's
opinion, are undervalued relative to the value of the gold or other mining
holdings of such companies in light of current and anticipated economic or
financial conditions. The Portfolio will consider a company to have substantial
gold or other mining assets when, in management's opinion, the company's
holdings of the assets are of such magnitude, when compared to the
capitalization, revenues or operating profits of the company that changes in the
economic value of the assets will affect the market price of the equity
securities of such company. Generally a company has substantial gold or other
mining assets when at least 50% of its non-current assets, capitalization, gross
revenues or operating profits of the company in the most recent or current
fiscal year are involved in or result from (directly or indirectly through
subsidiaries), exploring mining, refining processing, fabricating, dealing in or
owning gold and other mining assets. Examples of other mining assets include
other precious metals (e.g., silver and platinum), non-ferrous metals (e.g.,
copper and nickel) and industrial minerals (e.g., coal and iron ore). With the
exception of gold bullion, the Portfolio presently does not intend to invest
directly in metals and minerals assets or contracts related thereto.

ALL PORTFOLIOS

While it is the policy of each Portfolio generally not to engage in
trading for short-term gains, Mercury Asset Management International Ltd.
("Mercury International" or the "Investment Adviser") will effect portfolio
transactions without regard to a holding period if, in its judgment, such
transactions are advisable in light of a change in circumstances of a particular
company or within a particular industry or in general market, economic or
financial conditions.

The U.S. Government has from time to time in the past imposed
restrictions, through taxation and otherwise, on non-U.S. investments by U.S.
investors such as the Portfolios. If such restrictions should be reinstated, it
might become necessary for a Portfolio to invest all or substantially all of its
assets in U.S. securities. In such event, a Portfolio would review its
investment objectives or fundamental policies to determine whether changes are
appropriate. Any changes in the investment objectives or fundamental policies
set forth under "Investment Restrictions" below would require the approval of
the holders of a majority of the Portfolio's outstanding voting securities.

A Portfolio's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the convertibility
and repatriation of assets. Under present conditions, the Investment Adviser
does not believe that these considerations will have any significant effect on
its portfolio strategies, although there can be no assurance in this regard.

The Portfolios may invest in the securities of non-U.S. issuers in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary

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<PAGE> 28

Receipts ("GDRs") or other securities convertible into securities of non-U.S.
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. However, they would
generally be subject to the same risks as the securities into which they may be
converted (as more fully described in Part A and below). ADRs are receipts
typically issued by an American bank or trust company that evidence ownership of
underlying securities issued by a non-U.S. corporation. EDRs are receipts issued
in Europe that evidence a similar ownership arrangement. GDRs are receipts
issued throughout the world that evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in the U.S. securities
markets, and EDRs, in bearer form, are designed for use in European securities
markets. GDRs are tradeable both in the United States and Europe and are
designed for use throughout the world. The Portfolios may invest in unsponsored
ADRs, EDRs and GDRs. The issuers of unsponsored ADRs, EDRs and GDRs are not
obligated to disclose material information in the United States, and therefore,
there may be no correlation between such information and the market value of
such securities.

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

INTERNATIONAL PORTFOLIO, PAN-EUROPEAN GROWTH PORTFOLIO, AND GOLD AND MINING
PORTFOLIO

International Investing. International investments involve certain risks
not typically involved in domestic investments, including fluctuations in
foreign exchange rates, future political and economic developments, different
legal systems and the existence or possible imposition of exchange controls or
other U.S. or non-U.S. governmental laws or restrictions applicable to such
investments. Securities prices in different countries are subject to different
economic, financial and social factors. Because International Portfolio,
Pan-European Growth Portfolio, and Gold and Mining Portfolio will invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may affect the value of securities in
the portfolio and the unrealized appreciation or depreciation of investments
insofar as U.S. investors are concerned. Foreign currency exchange rates are
determined by forces of supply and demand in the foreign exchange markets. These
forces are, in turn, affected by international balance of payments and other
economic and financial conditions, government intervention, speculation and
other factors. With respect to certain countries, there may be the possibility
of expropriation of assets, confiscatory taxation, high rates of inflation,
political or social instability or diplomatic developments that could affect
investments in those countries. In addition, certain non-U.S. investments may be
subject to non-U.S. withholding taxes. As a result, management of these
Portfolios may determine that, notwithstanding otherwise favorable investment
criteria, it may not be practicable or appropriate to invest in a particular
country.

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

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<PAGE> 29

fluctuations among these European countries. The Treaty on European Union (the
"Maastricht Treaty") seeks to set out a framework for the European Economic and
Monetary Union ("EMU") among the countries that comprise the European Union
("EU"). Among other things, EMU establishes a single common European currency
(the "euro") that was introduced on January l, 1999 and is expected to replace
the existing national currencies of all EMU participants by July 1, 2002. EMU
was implemented over the weekend January l, 1999 through January 3, 1999
("conversion weekend"). Upon implementation of EMU, certain securities issued in
participating EU countries (beginning with government and corporate bonds) were
redenominated in the euro. These securities are listed, traded, and make
dividend and other payments only in euros.

No assurance can be given 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 be
implemented but not completed, or will be completed but then partially or
completely unwound. Because any participating country may opt out of EMU within
the first three years, it is also possible that a significant participant could
choose to abandon EMU, which would diminish its credibility and influence. Any
of these occurrences could have adverse effects on the markets of both
participating and non-participating countries, including sharp appreciation or
depreciation of the participants' national currencies and a significant increase
in exchange rate volatility, a resurgence in economic protectionism, an
undermining of confidence in the European markets, an undermining of European
economic stability, the collapse or slowdown of the drive toward European
economic unity, and/or reversion of the attempts to lower government debt and
inflation rates that were introduced in anticipation of EMU. Also, withdrawal
from EMU at any time after the conversion weekend by an initial participant
could cause disruption of the financial markets as securities redenominated in
euros are transferred back into that country's national currency, particularly
if the withdrawing country is a major economic power. Such developments could
have an adverse impact on the Portfolios' investments in Europe generally or in
specific countries participating in EMU. Gains or losses resulting from the euro
conversion may be taxable to a Portfolio's interest holders under foreign or, in
certain limited circumstances, U.S. tax laws.

In addition, computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency immediately after the conversion
weekend. Like other investment companies and business organizations, the
Portfolios could be adversely affected if the computer, accounting, and trading
systems used by the Investment Adviser, the Portfolios' service providers, or
other entities with which the Portfolios or their service providers do business
do not properly address this issue prior to January 4, 1999.

Most of the securities held by International Portfolio, Pan-European
Growth Portfolio, and Gold and Mining Portfolio will not be registered with the
Commission nor will the issuers thereof be subject to the Commission's reporting
requirements. Accordingly, there may be less publicly available information
about a non-U.S. company than about a U.S. company, and non-U.S. companies may
not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject.

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<PAGE> 30

Non-U.S. financial markets, while generally growing in trading volume,
typically have substantially less volume than U.S. markets, and securities of
many non-U.S. companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The non-U.S. markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Further, satisfactory custodial services for investment securities may not be
available in some countries having smaller capital markets, which may result in
a Portfolio 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 Portfolio are uninvested and no return is
earned thereon and could cause a Portfolio to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems either could result in losses to a Portfolio due to subsequent declines
in value of the portfolio security or, if the Portfolio has entered into a
contract to sell the security, could result in possible liability to the
purchaser. Brokerage commissions and other transaction costs on non-U.S.
securities exchanges are generally higher than in the United States. In some
non-U.S. countries there is less governmental supervision and regulation of
exchanges, brokers and issuers than there is in the United States.

A number of non-U.S. 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"), each Portfolio 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 Portfolio 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 Portfolio acquires shares in closed-end investment companies, shareholders
would bear both their proportionate share of expenses in the Portfolio
(including investment advisory fees) and, indirectly, the expenses of such
closed-end investment companies. A Portfolio also may seek, at its own cost, to
create their 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 each Portfolio's
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
Portfolio's investments in certain foreign banks and other financial
institutions.

As described above, International Portfolio, Pan-European Growth
Portfolio and Gold and Mining Portfolio will invest in a diversified array of
non-U.S. countries. The securities and commodities markets of many countries
have at times in the past moved relatively 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 and
commodities markets occurs, it may reduce risk for a Portfolio's portfolio as a
whole. This negative correlation also may offset unrealized gains a Portfolio
has

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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 and commodities 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
and commodities markets in a particular country. As a result, gains in a
particular securities or commodities market may be affected by changes in
exchange rates.

Investment in Emerging Markets. International Portfolio, Pan-European
Growth Portfolio, and Gold and Mining Portfolio have the ability to invest in
the securities of issuers domiciled in various countries with emerging capital
markets. Specifically, a country with an emerging capital market is any
country that the World Bank, the International Finance Corporation, the United
Nations or its authorities has determined to have a low or middle income
economy. Countries with emerging markets can be found in regions such as Asia,
Latin America, Eastern Europe and Africa.

Investments in the securities of issuers domiciled in countries with
emerging capital markets involve certain additional risks not involved in
investments in securities of issuers in more developed capital markets, such as
(i) low or non-existent trading volume, resulting in a lack of liquidity and
increased volatility in prices for such securities, as compared to securities of
comparable issuers in more developed capital markets, (ii) uncertain national
policies and social, political and economic instability, increasing the
potential for expropriation of assets, confiscatory taxation, high rates of
inflation or unfavorable diplomatic developments, (iii) possible fluctuations in
exchange rates, differing legal systems and the existence or possible imposition
of exchange controls, custodial restrictions or other non-U.S. or U.S.
governmental laws or restrictions applicable to such investments, (iv) national
policies that may limit a Portfolio's 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 gains 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 a Portfolio. 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 an event, it is
possible that a Portfolio 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

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<PAGE> 32

mature markets and companies may be held by a limited number of persons. This
may adversely affect the timing and pricing of a Portfolio's acquisition or
disposal of securities.

Practices in relation to settlement of securities transactions in
emerging markets involve higher risks than those in developed markets, in part
because a Portfolio 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 issuer 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 a Portfolio 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.

U.S. LARGE CAP PORTFOLIO

The U.S. Large Cap Portfolio defines companies located in the U.S. or
Canada broadly. As a result, the Portfolio's investments may include companies
organized, traded or having substantial operations outside the U.S. or Canada.
This may expose the Portfolio to risks associated with foreign investments, as
described above.

Investing in Canada. While the Portfolio will invest at least 65% of its
total assets in large cap companies located in the United States, it may invest
up to 10% of its assets in Canada. Canadian securities are sensitive to
conditions within Canada, but also tend to follow the U.S. market. The country's
economy relies strongly on the production and processing of natural resources,
and foreign trade. The Canadian government has attempted to reduce restrictions
against foreign investment, and its recent trade agreements with the United
States and Mexico are expected to increase trade; however, these reforms could
be reversed. Demand by many citizens in the Province of Quebec for secession
from Canada may significantly impact the Canadian economy.

144A Securities. The U.S. Large Cap Portfolio 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 (i) freely tradable in
their primary markets offshore or (ii) non-investment grade debt securities
which the Fund's management determines are as liquid as publicly registered
non-investment grade debt securities. The Board of Trustees has adopted
guidelines and delegated to the Portfolio's management 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 develop, the Board of Trustees will carefully monitor
investments in these securities. This investment practice could have the effect
of increasing the level of illiquidity in the Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these securities.

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<PAGE> 33

GOLD AND MINING PORTFOLIO

Investing in Gold and Other Mining Industries. The Gold and Mining
Portfolio invests principally in the equity securities of foreign and domestic
companies engaged in the exploration, mining, fabrication, processing or
marketing and distribution of gold. The Portfolio also invests in equity
securities of foreign and domestic companies engaged in these activities with
respect to silver, platinum, diamonds or other precious and rare metals, base
metals and minerals. The Portfolio may also invest up to 10% of its assets
directly in gold bullion when the Portfolio believes it is undervalued relative
to the price of securities of gold mining companies. However, the Portfolio may
have internal guidelines that limit its investments in gold bullion to
considerably less than 10% of the Fund's assets. The industry risks associated
with an investment in the Portfolio include the sharp price volatility of gold
and other metals and of mining company shares. Investments related to gold or
other metals or minerals are considered speculative and are affected by a host
of worldwide economic, financial and political factors. Prices of gold and other
metals may fluctuate sharply over short periods due to several factors: changes
in inflation or expectations regarding inflation in various countries; currency
fluctuations; metal sales by governments, central banks or international
agencies; investment speculation; changes in industrial and commercial demand;
and government prohibitions or restrictions on the private ownership of certain
metals or minerals. Political and economic conditions in gold-producing
countries may also have a direct effect on the mining and distribution of gold
and, consequently, its price.

The Portfolio may invest without limit in securities of companies located
in countries with emerging capital markets including the Republic of South
Africa, The People's Republic of China, Russia, Indonesia, Uzbekistan, Peru,
Brazil, Mexico, Zimbabwe, Ghana, Mali, Tanzania, the Philippines and Papua New
Guinea. The Portfolio may also invest in securities of companies located in
countries with developed capital markets including the United States, Canada,
Japan, United Kingdom, Finland,
France, Germany, Switzerland, Ireland, Luxemburg, Spain and Australia.

Sales of gold by companies in Russia are largely unpredictable and often
relate to political and economic considerations rather than to market forces. In
South Africa, the activities of gold-mining companies are subject to policies
promulgated by the Ministry of Mines. The Reserve Bank of South Africa, as the
sole authorized agent for South African gold, influences the price and timing of
sales of South African gold. The South African government has also from time to
time imposed restrictions on the flow of international capital. Political and
social problems in South Africa may also pose certain risks. These include the
effect of social and political unrest on mining production and gold prices, as
well as the threat of nationalization or exploration by the government of South
Africa.

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<PAGE> 34

The Portfolio also invests to a lesser extent in other precious metal
shares, base metal shares and other mining related shares, and may also invest
directly in gold bullion. To the extent that the Portfolio invests in bullion,
it will be bought from and sold only to banks (both U.S. and non-U.S.), and
dealers who are members of or affiliated with members of a regulated U.S.
commodities exchange, in accordance with applicable investment laws. Gold
bullion will not be purchased in any form that is not readily marketable. Coins
will not be purchased for their numismatic value and will not be considered for
the Portfolio if they cannot be bought or sold in an active market. Any bullion
or coins purchased by the Portfolio will be delivered to and stored with a
qualified custodian bank in the U.S. Investors should be aware that bullion and
coins do not generate income, offering only the potential for capital
appreciation or depreciation, and may subject the Portfolio to higher custody
and transactions costs than those normally associated with the ownership of
securities.

Asset-Based Securities. The Gold and Mining Portfolio may invest in debt
securities, preferred stocks or convertible securities, the principal amount,
redemption terms or conversion terms of which are related to the market price of
gold bullion or some other natural resource asset. For the purposes of the
Portfolio's investment policies, these securities are referred to as
"asset-based securities." The Portfolio will only purchase asset-based
securities which are rated, or are issued by issuers that have outstanding debt
obligations rated, investment grade (that is, AAA, AA, A or BBB by Standard &
Poor's or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or
commercial paper rated A-1 by Standard & Poor's or Prime-1 by Moody's) or in
unrated securities of issuers that the Investment Adviser has determined to be
of similar creditworthiness. Obligations ranked in the fourth highest rating
category, while considered "investment grade," may have certain speculative
characteristics and may be more likely to be downgraded than securities rated in
the three highest rating categories. If an asset-based security is backed by a
bank letter of credit or other similar facility, the Investment Adviser may take
such backing into consideration in determining the creditworthiness of the
issuer. While the market prices for an asset-based security and the related gold
bullion or other natural resource asset generally are expected to move in the
same direction, there may not be perfect correlation in the two price movements.
Asset-based securities may not be secured by a security interest in or claim on
the gold bullion or other underlying natural resource assets.

The Portfolio will not acquire asset-based securities for which no
established secondary trading market exists if at the time of acquisition more
than 15% of its net assets are invested in securities that are not readily
marketable. The Portfolio may invest in asset-based securities without limit
when it has the option to put such securities to the issuer or a stand-by bank
or broker and receive the principal amount or redemption price thereof less
transaction costs on no more than seven days' notice or when the Portfolio has
the right to convert such securities into a readily marketable security in which
it could otherwise invest upon not less than seven days' notice.

The asset-based securities in which the Portfolio may invest may bear
interest or pay preferred dividends at below market (or even relatively nominal)
rates. The Portfolio's holdings of such securities therefore might not generate
appreciable current income, and the return from such

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<PAGE> 35

securities primarily will be from any profit on the sale, maturity or conversion
thereof at a time when the price of the related asset is higher than it was when
the Portfolio purchased such securities.

ALL PORTFOLIOS

Borrowing and Leverage. Each Portfolio 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), and may borrow up to an additional 5% of its
total assets for temporary purposes. A Portfolio may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of portfolio
securities and may purchase securities on margin to the extent permitted by
applicable law. Subject to these limits, a Portfolio may use borrowing to enable
it to meet redemptions.

The use of leverage by a Portfolio 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 Portfolio interests
and in the yield on the Portfolio's portfolio. Although the principal of such
borrowings will be fixed, a Portfolio's assets may change in value during the
time the borrowings are outstanding. Borrowings will create interest expenses
for a Portfolio 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 Portfolio will
have to pay on the borrowings, the Portfolio's 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 the Portfolio 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 the Portfolio's leveraged position if it expects that the
benefits to the Portfolio's interestholders of maintaining the leveraged
position will outweigh the current reduced return.

Debt Securities. Each Portfolio may hold convertible debt securities,
non-convertible securities and preferred securities. The Portfolios have
established no rating criteria for the debt securities in which they may invest.
Therefore, a Portfolio may invest in debt securities either (a) rated in one of
the top four rating categories by a nationally recognized statistical rating
organization or unrated but, in the Investment Adviser's judgment, possess
similar credit characteristics ("investment grade securities") or (b) rated
below the top four rating categories or that, are unrated but in the Investment
Adviser's judgment, possess similar credit characteristics ("high yield
securities"). The Investment Adviser considers ratings as one of several factors
in its independent credit analysis of issuers.

Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. With respect to Gold and

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<PAGE> 36

Mining Portfolio, high yield debt issuers that are mining companies may also
experience financial stress as a result of low metal or mineral prices. High
yield securities tend to be more volatile than higher rated fixed income
securities and adverse economic events may have a greater impact on the prices
of high yield securities than on higher rated fixed income securities. The
issuer's ability to service its debt obligations also may be adversely affected
by specific issuer developments or the issuer's inability to meet specific
projected business forecasts or the unavailability of additional financing. The
risk of loss due to default by the issuer is significantly greater for the
holder of high yield securities because such securities may be unsecured and may
be subordinated to other creditors of the issuer.

High yield securities frequently have call or redemption features that
would permit the issuer to repurchase such securities from a Portfolio. If a
call were exercised by an issuer during a period of declining interest rates, a
Portfolio likely would have to replace such called security with a lower
yielding security, thus decreasing the net investment income for the Portfolio
and dividends to interestholders.

A Portfolio may have difficulty disposing of certain high yield
securities because there may be a thin trading market for such securities.
Because not all dealers maintain markets in all high yield securities, there is
no established retail secondary market for many of these securities, and the
Portfolios anticipate that such securities could be sold only to a limited
number of dealers or institutional investors. To the extent that a secondary
trading market for high yield securities does exist, it is generally not as
liquid as the secondary market for higher rated securities. Reduced secondary
market liquidity may have an adverse impact on market price and a Portfolio's
ability to dispose of particular issues when necessary to meet the Portfolio's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain securities also may make it more difficult for the
Portfolios to obtain accurate market quotations for purposes of valuing a
Portfolio's holdings. Market quotations are generally available on many high
yield securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealer or prices for actual sales.

Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. To the extent a Portfolio
holds high yield securities, factors adversely affecting the market value of
high yield securities are likely to adversely affect the Portfolio's net asset
value. In addition, a Portfolio may incur additional expenses to the extent it
is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.

Illiquid or Restricted Securities. Each Portfolio 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 Portfolio's assets in
illiquid securities may restrict the ability of the Portfolio 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

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<PAGE> 37

associated with illiquidity will be particularly acute where a Portfolio's
operations require cash, such as when the Portfolio redeems shares or pays
dividends, and could result in the Portfolio borrowing to meet short-term cash
requirements or incurring capital losses on the sale of illiquid investments.

Each Portfolio may invest in securities that are "restricted securities."
Restricted securities have contractual or legal restrictions on their resale and
include "private placement" securities that a Portfolio may buy directly from
the issuer. Restricted securities may be neither listed on an exchange nor
traded in other established markets. Privately placed securities may or 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 more difficult to value than
publicly traded securities and may be less liquid, or illiquid, and therefore
may be subject to the risks associated with illiquid securities as described in
the preceding paragraph. Some restricted securities however, may be liquid. 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 Portfolio are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Portfolio may be required to
bear the expenses of registration. Certain of a Portfolio's 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 Portfolio may obtain access to material nonpublic information
which may restrict the Portfolio's ability to conduct portfolio transactions in
such securities.

Other Special Considerations. Each Portfolio may make short-term
investments, purchase high quality bonds or buy or sell derivatives, to reduce
exposure to equity securities when a Portfolio believes it is advisable to do so
(on a temporary defensive basis). Short-term investments and temporary defensive
positions may limit the potential for growth in the value of the shares of a
Portfolio.

Sovereign Debt. Each Portfolio may invest more than 5% of its assets in
debt obligations ("sovereign debt") issued or guaranteed by non-U.S. governments
or their agencies and instrumentalities ("governmental entities"). Investment in
sovereign debt may involve a high degree of risk that the governmental entity
that controls the repayment of sovereign debt may not be able or willing to
repay the principal and/or interest when due in accordance with the terms of
such debt. A governmental entity's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the governmental entity's
policy towards the International Monetary Fund and the political constraints to
which a governmental entity may be subject. In certain countries, governmental
entities may also be dependent on expected disbursements from foreign
governments, multilateral agencies and others abroad to reduce principal and
interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or

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<PAGE> 38

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.

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

The sovereign debt instruments in which a Portfolio may invest involve
great risk and are deemed to be the equivalent in terms of quality to high
yield/high risk securities discussed above and are subject to many of the same
risks as such securities. Similarly, a Portfolio may have difficulty disposing
of certain sovereign debt obligations because there may be a thin trading market
for such securities.

Securities Lending. Each Portfolio may lend securities with a value not
exceeding 33 1/3% of its total assets. In return, the Portfolio receives
collateral in an amount equal to at least 100% of the current market value of
the loaned securities in cash or securities issued or guaranteed by the U.S.
Government. If cash collateral is received by a Portfolio, it is invested in
short-term money market securities and a portion of the yield received in
respect of such investment is retained by the Portfolio. Alternatively, if
securities are delivered to a Portfolio as collateral, the Portfolio and the
borrower negotiate a rate for the loan premium to be received by the Portfolio
for lending its portfolio securities. In either event, the total yield on a
Portfolio's portfolio is increased by loans of its portfolio securities. A
Portfolio may receive a flat fee for its loans. The loans are terminable at any
time and the borrower, after notice, is required to return borrowed securities
within five business days. A Portfolio 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 Portfolio 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.

Repurchase Agreements. Each Portfolio may invest in securities pursuant
to repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the bank or primary
dealer or an affiliate thereof agrees, upon entering into the contract, to
repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This insulates the
Portfolio from fluctuations in the market value of the underlying security
during such period, although, to the extent the repurchase agreement is not
denominated in U.S. dollars, a Portfolio's return may be affected by currency
fluctuations. A Portfolio may not invest more than 15% of its total 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 Portfolio 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 Portfolio but
only constitute collateral for the seller's obligation to pay the repurchase
pace. Therefore, a Portfolio may suffer time

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<PAGE> 39

delays and incur costs or possible losses in connection with the disposition of
the collateral. In the event of a default under such a repurchase agreement,
instead of the contractual fixed rate of return, the rate of return to a
Portfolio shall be dependent upon intervening fluctuations of the market value
of such security and the accrued interest on the security. In such event, the
Portfolio 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.

Warrants. Each Portfolio 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 a Portfolio 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 an investment in warrants may be more speculative than other
equity-based investments.

When-lssued Securities and Forward Commitments. Each Portfolio may
purchase or sell securities that they are entitled to receive on a when-issued
basis. Each Portfolio may also purchase or sell securities through a forward
commitment. These transactions involve the purchase or sale of securities by a
Portfolio at an established price with payment and delivery taking place in the
future. A Portfolio enters into these transactions to obtain what is considered
an advantageous price to the Portfolio at the time of entering into the
transaction. No Portfolio has established any limit on the percentage of its
assets that may be committed in connection with these transactions. When a
Portfolio is purchasing securities in these transactions, the Portfolio
maintains a segregated account with its custodian of cash, cash equivalents,
U.S. Government securities or other liquid securities in an amount equal to the
amount of its purchase commitments.

There can be no assurance that a security purchased on a when-issued
basis will be issued, or a security purchased or sold through a forward
commitment will be delivered. The value of securities in these transactions on
the delivery date may be more or less than a Portfolio's purchase price. The
Portfolio 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.

Standby Commitment Agreements. Each Portfolio may enter into standby
commitment agreements. These agreements commit a Portfolio, for a stated period
of time, to purchase a stated amount of securities which may be issued and sold
to the Portfolio 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
Portfolio is paid a commitment fee, regardless of whether or not the security is
ultimately issued. A Portfolio 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 Portfolio. A Portfolio will not enter into a
standby commitment with a remaining term in excess of 45 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. A Portfolio will maintain a segregated account with its custodian of
cash, cash equivalents, U.S. Government securities or other liquid securities in
an aggregate amount equal to the purchase price of the securities underlying the
commitment.

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<PAGE> 40

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, a
Portfolio 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 a Portfolio's net asset
value. 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.

INVESTMENT RESTRICTIONS.

The Trust has adopted the following restrictions and policies relating to
the investment of each Portfolio's assets and each Portfolio's activities. The
fundamental restrictions set forth below may not be changed with respect to a
Portfolio without the approval of the holders of a majority of a Portfolio's
outstanding voting securities (which for this purpose and under the Investment
Company Act means the lesser of (i) 67% of the interests represented at a
meeting at which more than 50% of the outstanding interests are represented or
(ii) more than 50% of the outstanding interests). No Portfolio may:

1. Make any investment inconsistent with the Portfolio's classification
as a diversified company under the Investment Company Act.

2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S. Government
and its agencies and instrumentalities). With respect to Gold and Mining
Portfolio, issuers principally engaged in the mining and related manufacturing
industries are also excluded from this restriction.

3. Make investments for the purpose of exercising control or management.
Investments by the Portfolio 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
applicable law, the Portfolio may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies that 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 governmental
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 the
Portfolio may lend its portfolio securities, provided that the lending of
portfolio securities may be made only in accordance with applicable

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<PAGE> 41

law and the guidelines set forth in the Portfolio'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) the Portfolio 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) the Portfolio may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) the Portfolio
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) the Portfolio may purchase
securities on margin to the extent permitted by applicable law. A Portfolio may
not pledge its assets other than to secure such borrowings or, to the extent
permitted by the Portfolio's investment policies as set forth in its
Registration Statement, as it may be amended from time to time, in connection
with hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.

8. Underwrite securities of other issuers except insofar as a Portfolio
technically may be deemed an underwriter under the Securities Act of 1933, as
amended (the "Securities Act"), in selling portfolio securities.

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

In addition, the Trust has adopted non-fundamental restrictions that may
be changed with respect to a Portfolio by the Board of Trustees without
shareholder approval. Under the non-fundamental investment restrictions, no
Portfolio may:

(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 Portfolio 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 Portfolio's shares are owned by another investment company
that is part of the same group of investment companies as the Portfolio.

(b) Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Portfolios currently do not
intend to engage in short sales, except short sales "against the box."

(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

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<PAGE> 42

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.

The staff of the Commission has taken the position that purchased
over-the-counter ("OTC") options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Trust has adopted an investment
policy pursuant to which no Portfolio will purchase or sell OTC options
(including OTC options on futures contracts) if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
that are held by the Portfolio, the market value of the underlying securities
covered by OTC call options currently outstanding that were sold by the
Portfolio and margin deposits on the Portfolio's existing OTC options on futures
contracts exceeds 15% of the net assets of the Portfolio taken at market
value, together with all other assets of the Portfolio that are illiquid or are
not otherwise readily marketable. However, if the OTC option is sold by a
Portfolio to a primary U.S. Government securities dealer recognized by the
Federal Reserve Bank of New York and if the Portfolio has the unconditional
contractual right to repurchase such OTC option from the dealer at a
predetermined price, then the Portfolio will treat as illiquid such amount of
the underlying securities as is equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the underlying
securities minus the option's strike price). The repurchase price with the
primary dealers is typically a formula price that is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money." This policy as to OTC options is not a fundamental
policy of the Portfolios and may be amended by the Trustees without the approval
of the interestholders. However, the Trustees will not change or modify this
policy prior to the change or modification by the Commission staff of its
position.

Portfolio securities of the Portfolios generally may not be purchased
from, sold or loaned to the Investment Adviser or its affiliates or any of their
directors, 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 and Fund Asset
Management, L.P. ("FAM"), a Portfolio is prohibited from engaging in certain
transactions involving Merrill Lynch, the Investment Adviser, 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 "Portfolio
Transactions and Brokerage." Rule 10f-3 under the Investment Company Act sets
forth conditions under which a Portfolio may purchase from an underwriting
syndicate of which Merrill Lynch is a member.

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<PAGE> 43

ITEM 13. - MANAGEMENT OF THE REGISTRANT.

TRUSTEES AND OFFICERS.

The Trustees of the Trust consist of six individuals, four of whom are
not "interested persons" of the Trust as defined in the Investment Company Act.
The Trustees are responsible for the overall supervision of the operations of
the Trust and perform the various duties imposed on the trustees 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.

Jeffrey M. Peek (51)--Trustee and President(1)(2)--President of MLAM and
FAM since 1997; President and Director of Princeton Services, Inc. since 1997;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1997;
Co-Head of Merrill Lynch Investment Banking Division from March 1997 to December
1997; Director of Merrill Lynch Global Securities Research and Economics
Division from 1995 to 1997; Head of Merrill Lynch Global Industries Group from
1993 to 1995.

Terry K. Glenn (58)--Trustee and Executive Vice President(1)
(2)--Executive Vice President of MLAM and FAM since 1983; Executive Vice
President and Director of Princeton Services, Inc. since 1993; President of
Princeton Funds Distributor, Inc. since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P. since 1988.

David O. Beim (58)--Trustee--410 Uris Hall, Columbia University, New
York, New York 10027. Professor at Columbia University since 1991; Chairman of
Outward Bound USA since 1997; Chairman of Wave Hill, Inc. since 1980.

James T. Flynn (59)--Trustee(2)--340 East 72nd Street, New York, New York
10021. Chief Financial Officer of J.P. Morgan & Co. Inc. from 1990 to 1995 and
an employee of J.P. Morgan in various capacities from 1967 to 1995.

W. Carl Kester (47)--Trustee(2)--Harvard Business School, Morgan Hall
393, Soldiers Field, Boston, Massachusetts 02163. James R. Williston Professor
of Business Administration of Harvard University Graduate School of Business
since 1997; MBA Class of 1958 Professor of Business Administration of Harvard
University Graduate School of Business Administration from 1981 to 1997;
Independent Consultant since 1978.

Karen P. Robards (48)--Trustee--Robards & Company, 173 Riverside Drive,
New York, New York 10024. President of Robards & Company, a financial advisory
firm, for more than five years; Director of Enable Medical Corp. since 1996;
Director of Cine Muse Inc. since 1996.

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<PAGE> 44

Peter John Gibbs (40)--Senior Vice President--33 King William Street,
London, EC4R 9AS, England. Chairman of Mercury Asset Management International
Ltd. since 1998; Director of Mercury Asset Management Ltd since 1993; Director
of Mercury Asset Management International Channel Islands Ltd.

Gerald M. Richard (49)--Treasurer--Senior Vice President and Treasurer of
MLAM and FAM since 1984; Senior Vice President and Treasurer of Princeton
Services, Inc. 1993; Vice President of Princeton Funds Distributor, Inc. since
1981 and Treasurer thereof since 1984.

Donald C. Burke (38)--Vice President--First Vice President of MLAM and
FAM since 1997 and Director of Taxation thereof since 1990; Vice President of
MLAM and FAM from 1990 to 1997.

Robert E. Putney, III (38)--Secretary--Director (Legal Advisory) of MLAM
and Princeton Administrators, L.P. since 1997; Vice President of MLAM from 1994
to 1997; Vice President of Princeton Administrators, L.P. from 1996 to 1997;
Attorney with MLAM from 1991 to 1994.

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

(2) Such Trustee or officer is a trustee, director or officer of other
investment companies for which the Investment Adviser, or the Portfolios'
sub-adviser, FAM, or their affiliates, acts as investment adviser.

As of the date of this Part B, the officers and Trustees of the Trust as
a group (ten persons) owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co. and owned an aggregate of less than 1% of the
outstanding shares of any of the Portfolios.

COMPENSATION OF DIRECTORS/TRUSTEES.

Mercury Asset Management Funds, Inc., (the "Corporation"), the registered
investment company whose series (the "Funds") invest all of their assets in the
corresponding Portfolios, and the Trust expect to pay each Director/Trustee not
affiliated with the Investment Adviser or FAM or with an affiliate of the
Investment Adviser or FAM (each a "non-affiliated Director/Trustee"), for
service to each Fund and Portfolio, a fee of $3,000 per year plus $500 per
in-person meeting attended, together with such individual's actual out-of-pocket
expenses relating to attendance at meetings. The Corporation and the Trust also
expect to compensate members of the Audit and Nominating Committee, which
consists of all of the non-affiliated Directors/Trustees, at the rate of $1,000
annually for the service to each Fund and Portfolio.

The following table sets forth the aggregate compensation the Corporation
and the Trust expect to pay to the non-affiliated Directors/Trustees for their
first full fiscal year and the aggregate compensation paid by all investment
companies advised by Mercury International, FAM, or their affiliates ("Mercury
and Affiliates-Advised Funds") to the non-affiliated Directors/Trustees for the
calendar year ended December 31, 1998.

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<PAGE> 45

<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
FUNDS/PORTFOLIOS AND
PENSION OR RETIREMENT MERCURY AND
BENEFITS ACCRUED AS PART AFFILIATES-ADVISED FUNDS
AGGREGATE COMPENSATION OF FUNDS/PORTFOLIOS PAID TO
NAME OF DIRECTOR/TRUSTEE FROM FUNDS/PORTFOLIOS EXPENSES DIRECTORS/TRUSTEES(1)
- ------------------------ ----------------------- -------- --------------------
<S> <C> <C> <C>
David O. Beim......................... $6,000 None None

James T. Flynn........................ $6,000 None $36,000

W. Carl Kester........................ $6,000 None $36,000

Karen P. Robards $6,000 None None
</TABLE>

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

(1) In addition to the Corporation and the Trust, the Directors/Trustees
served on other Mercury and Affiliates-Advised Funds as follows: Mr.
Beim (no registered investment companies); Mr. Flynn (2 registered
investment companies consisting of 6 portfolios); Mr. Kester (2
registered investment companies consisting of 6 portfolios); and Ms.
Robards (no registered investment companies).

ITEM 14. - CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.

Mercury International Fund ("International Fund") of Mercury Asset
Management Funds, Inc. (the ""Corporation'') a Maryland corporation, controls
International Portfolio. As of January 4, 1999, International Fund owns 100% of
the currently outstanding interests of International Portfolio. The following
sets forth the name, address and percentage of ownership of each person who owns
of record or is known by the Corporation to own beneficially 5% or more of any
Class of the International Fund's outstanding securities:

Merrill Lynch Trust Company Class I
Trustee FBO MLSIP 5.0% of Class
Investment Account
Robert Arimenta Jr.
P.O. Box 30532
New Brunswick, NJ 08989

Sheet Metal Workers Natl Class A
Pension Fund-Int'l Account 24.0% of Class
601 N. Fairfax St #500
Alexandria, VA 22314

As of January 4, 1999, International Fund's holdings
of International Portfolio represent 34.5% of the Trust as a whole.

Mercury Pan-European Growth Fund ("Pan-European Growth Fund") of the
Corporation controls Pan-European Growth Portfolio. As of January 4, 1999,
Pan-European Growth Fund owns 100% of the currently outstanding interests of
Pan-European Growth Portfolio. As of January 4, 1999, Pan-European Gowth
Fund's holdings of Pan-European Growth Portfolio represent 65.5% of the Trust
as a whole.

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<PAGE> 46

Mercury U.S. Large Cap Fund ("U.S. Large Cap Fund") of the Corporation
and the Investment Adviser each control U.S. Large Cap Portfolio. As of January
4, 1999, U.S. Large Cap Fund owns 99.9% of the currently outstanding interests
of U.S. Large Cap Portfolio and the Investment Adviser owns 100% of the
currently outstanding interests of U.S. Large Cap Fund. As of January 4, 1999,
U.S. Large Cap Fund's holdings of U.S. Large Cap Portfolio represent less than
.1% of the Trust as a whole.

Mercury Gold and Mining Fund ("Gold and Mining Fund") of the Corporation
and the Investment Adviser each control Gold and Mining Portfolio. As of January
4, 1999, Gold and Mining Fund owns 99.9% of the currently outstanding interests
of Gold and Mining Portfolio and the Investment Adviser owns 100% of the
currently outstanding interests of Gold and Mining Fund. As of January 4, 1999,
Gold and Mining Fund's holdings of Gold and Mining Portfolio represent less
than .1% of the Trust as a whole.

All holders of interests ("Holders") are entitled to vote in proportion
to the amount of their interest in a Portfolio 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 Holders of separate Portfolios vote together;
they generally vote separately by Portfolio on other matters.

ITEM 15. - INVESTMENT ADVISORY AND OTHER SERVICES.

The Trust on behalf of each Portfolio has entered into investment
advisory agreements with Mercury International as Investment Adviser (the
"Advisory Agreements"). As discussed in Part A, the Investment Adviser for
International Portfolio, Pan-European Growth Portfolio, and Gold and Mining
Portfolio receives for its services to each Portfolio monthly compensation at
the annual rate of 0.75% of the average daily net assets of each Portfolio. With
respect to U.S. Large Cap Portfolio, the Investment Adviser receives for its
services to the Portfolio monthly compensation at the annual rate of 0.50% of
the average daily net assets of the Portfolio.

The Advisory Agreements obligate the Investment Adviser to provide
investment advisory services and to pay, or cause its affiliate to pay, for
maintaining its staff and personnel and to provide office space, facilities and
necessary personnel for the Trust. The Investment Adviser is also obligated to
pay, or cause its affiliate to pay, the fees of all Officers, Trustees and
Directors who are affiliated persons of the Investment Adviser or any
sub-adviser or of an affiliate of the Investment Adviser or any sub-adviser. The
Trust pays, or causes to be paid, all other expenses incurred in the operation
of the Portfolios and the Trust (except to the extent paid by Mercury Funds
Distributor, a division of Princeton Funds Distributors, Inc., as Placement
Agent), including, among other things, taxes, expenses for legal and auditing
services, costs of printing proxies, shareholder reports, copies of the
Registration Statement, charges of the Custodian, any Sub-custodian and Transfer
Agent, expenses of portfolio transactions, expenses of redemption of shares,
Commission fees, expenses of registering the shares under federal, state or
non-U.S. laws, fees and actual out-of-pocket expenses of Trustees who are not
affiliated persons of the Investment Adviser or any sub-adviser, or of an
affiliate of the Investment Adviser or of any sub-adviser, accounting and
pricing costs (including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and other expenses properly payable by the Trust or the Portfolios.

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<PAGE> 47

The Placement Agent will pay certain of the expenses of the Portfolios incurred
in connection with continuous offering of its interests. Accounting services are
provided to the Trust by the Investment Adviser or an affiliate of the
Investment Adviser, and the Trust reimburses the Investment Adviser or an
affiliate of the Investment Adviser for its costs in connection with such
services.

Securities held by the Portfolios, or other portfolios 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 Trust's portfolios 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.

Mercury International is located at 33 King William Street, London EC4R
9AS, England. Mercury International's intermediate parent company is Mercury
Asset Management Group Ltd, a London-based holding company of a group engaged in
the provision of investment management and advisory services globally. The
ultimate parent of Mercury Asset Management Group Ltd. is ML & Co., a financial
services holding company. ML & Co. is a controlling person of Mercury
International as defined under the Investment Company Act because of its power
to exercise a controlling influence over its management or policies.

The Investment Adviser has entered into sub-advisory agreements (the
"Sub-Advisory Agreements") with FAM with respect to each Portfolio pursuant to
which FAM provides investment advisory services with respect to each Portfolio's
daily cash assets. The Investment Adviser pays FAM a fee in an amount to be
determined from time to time by the Investment Adviser and FAM but in no event
in excess of the amount that the Investment Adviser actually receives for
providing services to the Trust pursuant to the Advisory Agreements.

FAM is located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
FAM, an affiliate of Mercury International, is a wholly owned subsidiary of ML &
Co., a financial services holding company and the parent of Merrill Lynch. ML &
Co. and Princeton Services, Inc., the partners of FAM, are "controlling persons"
of FAM as defined under the Investment Company Act because of their power to
exercise a controlling influence over its management or policies.

Duration and Termination. Unless earlier terminated as described below,
the Advisory Agreements and Sub-Advisory Agreements will each remain in effect
for two years from their effective dates. Thereafter, they will remain in effect
from year to year if approved annually (a) by the Board of Trustees or by a
majority of the outstanding shares of the respective Portfolio and (b) by a
majority of the Trustees who are not parties to such contract or interested
persons (as defined in the Investment Company Act) of any such party. Such
contracts are not assignable and may be terminated with respect to each
Portfolio

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<PAGE> 48

without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Portfolio.

CODE OF ETHICS.

The Board of Trustees of the Trust, the Board of Directors of the
Corporation, the Investment Adviser, and FAM have each adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act (together the "Codes"). The Codes
significantly restrict the personal investing activities of all employees of the
Investment Adviser and FAM and, as described below, impose additional, more
onerous, restrictions on portfolio investment personnel. Among other substantive
restrictions, the Codes contain reporting and preclearance requirements for
employees of the Investment Adviser and FAM and provide for trading "blackout
periods" that prohibit trading by decision making access persons (those who
recommend or determine which securities transactions the Trust undertakes) of
the Trust within periods of trading by the Trust in the same (or equivalent)
security.

INDEPENDENT ACCOUNTANTS.

Deloitte & Touche LLP, has been selected as the independent auditors of
the Trust. The independent auditors are responsible for auditing the annual
financial statements of the Trust.

LEGAL COUNSEL.

Swidler Berlin Shereff Friedman, LLP, 919 Third Avenue, New York 10022,
is counsel for the Trust.

CUSTODIAN.

Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, acts as the custodian of the Portfolios' assets. Under its contract with
the Trust, the Custodian is authorized to establish separate accounts in foreign
currencies and to cause foreign securities owned by the Portfolios to be held in
its offices outside the United States and with certain foreign banks and
securities depositors. The Custodian is responsible for safe guarding and
controlling the Portfolios' cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Portfolios'
investments.

ITEM 16. - BROKERAGE ALLOCATION AND OTHER PRACTICES.

The Investment Adviser is responsible for making portfolio decisions for
each Portfolio, placing the Portfolios' brokerage business, evaluating the
reasonableness of brokerage commissions and negotiating the amount of any
commissions paid subject to a policy established by the Trust's Trustees and
officers. The Trust has no obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. Orders for
transactions in portfolio securities are placed for the Trust with a number of
brokers and dealers, including affiliates of the Investment Adviser. In placing
orders, it is the policy of the Trust to obtain the most favorable net results,
taking into account various factors, including price,

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<PAGE> 49

commissions, if any, size of the transaction and difficulty of execution. Where
practicable, the Investment Adviser surveys a number of brokers and dealers in
connection with proposed portfolio transactions and selects the broker or dealer
that offers the Trust the best price and execution or other services that are of
benefit to the Trust. Securities firms also may receive brokerage commissions on
transactions including covered call options written by the Trust and the sale of
underlying securities upon the exercise of such options. In addition, consistent
with the NASD Conduct Rules and policies established by the Trustees, the
Investment Adviser may consider sales of shares of a corresponding series of the
Corporation as a factor in the selection of brokers or dealers to execute
portfolio transactions for the Trust.

Brokers who provide supplemental investment research 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 the Advisory Agreement. If in the
judgment of the Investment Adviser the Trust will be benefited by supplemental
research services, the Investment Adviser is authorized to pay brokerage
commissions to a broker furnishing such services in excess of commissions that
another broker may have charged for effecting the same transaction. The expenses
of the Investment Adviser will not necessarily be reduced as a result of the
receipt of such supplemental information, and the Investment Adviser may use
such information in servicing its other accounts.

The Trust invests in certain securities traded in the over-the-counter
market and, where possible, deals directly with dealers who make a market in the
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 generally are prohibited from dealing with the Trust
as principal in purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own accounts, affiliated persons of the Trust, including
Merrill Lynch, will not serve as the Trust's dealer in such transactions.
However, affiliated persons of the Trust may serve as its broker in the
over-the-counter transactions conducted on an agency basis.

Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as
amended, Merrill Lynch may execute transactions for the Trust on the floor of
any U.S. national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to the Trust at
least annually setting forth the compensation it has received in connection with
such transactions.

The Trustees of the Trust have considered the possibility of recapturing
for the benefit of the Trust brokerage commissions, dealer spreads and other
expenses of possible portfolio transactions, such as underwriting commissions,
by conducting such portfolio transactions through affiliated entities, including
Merrill Lynch. For example, brokerage commissions received by Merrill Lynch
could be offset against the management fee paid by the Trust to the Investment
Adviser. After considering all factors deemed relevant, the Trustees made a
determination not to seek such recapture. The Trustees will reconsider this
matter from time to time.

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<PAGE> 50

The portfolio turnover rate is calculated by dividing the lesser of
a Portfolio's annual sales or purchases of portfolio securities (exclusive of
purchases and sales of securities, whose maturities at the time of acquisition
were one year or less) by the monthly average value of the securities in the
Portfolio during the year. The portfolio turnover rate is generally anticipated
to be under 100%.

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 Portfolio 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 Portfolio in which they have invested. Upon
liquidation or dissolution of a Portfolio, investors are entitled to share in
proportion to their investment in such Portfolio's net assets available for
distribution to its investors. Interests in a Portfolio have no preference,
preemptive, conversion or similar rights and are fully paid and nonassessable,
except as set forth below. Investments in a Portfolio generally may not be
transferred.

Each investor is entitled to a vote in proportion to the amount of its
interest in a Portfolio or in the Trust, as the case may be. Investors in the
Trust, or in any Portfolio, 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 Portfolio shall be dissolved by unanimous consent of the Trustees by
written notice of dissolution to the Holders of the interests of the Portfolio.
The Trust shall be dissolved upon the dissolution of the last remaining
Portfolio.

The Declaration of Trust provides that obligations of the Trust and the
Portfolios are not binding upon the Trustees individually but only upon the
property of the Portfolios and that the Trustees will not be liable for any
action or failure to act (including without limitation, the failure to compel in
any way any former or acting Trustee to redress any breach of trust), but
nothing in the Declaration of Trust 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 Portfolios, their Holders, Trustees,
officers, employees and agents covering possible tort and other liabilities.

The Trust currently consists of seven Portfolios. The Trust reserves the
right to create and issue interests in a number of additional Portfolios. As
indicated above, Holders of each Portfolio participate equally in the earnings
and assets of the particular Portfolio. Holders of each Portfolio are entitled
to vote separately to approve advisory agreements or changes in investment
policy, but Holders of all Portfolios vote together in the election or selection
of Trustees and accountants for the Trust. Upon liquidation or

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<PAGE> 51

dissolution of a Portfolio, the Holders of such Portfolio are entitled to share
in proportion to their investment in the net assets of such Portfolio 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 Portfolio 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 Portfolio is determined once
daily Monday through Friday as of 15 minutes after the close of business on the
New York Stock Exchange ("NYSE") on each day the NYSE is open for trading (a
"Pricing Day"). The close of business on the NYSE is generally 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 deducting
the amount of the Portfolio's total liabilities from the value of its total
assets. Expenses, including the advisory fees payable to the Investment Adviser,
are accrued daily.

Portfolio securities, including ADRs, EDRs, or GDRs, that are traded on
stock exchanges are valued at the last sale price (regular way) on the exchange
on which such securities are traded, as of the close of business on the day the
securities are being valued, or lacking any sales, at the last available bid
price for long positions, and at the last available ask price for short
positions. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the authority of
the Board of Trustees as the primary market. Securities traded in the OTC market
are valued at the last available bid price in the OTC market prior to the time
of valuation. Portfolio securities that are traded both in the OTC market and on
a stock exchange are valued according to the broadest and most representative
market. Short positions in securities traded on the OTC market are valued at the
last available ask price in the OTC market prior to the time of valuation. When
the Portfolio writes a call option, the amount of the premium received is
recorded on the books of the Portfolio 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 Portfolio are valued at their last
sale price in the case of exchange-traded options or, in the case of options
traded in the OTC market, the last bid price. Other investments, including
financial futures contracts and related options, are stated at market value.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust. Such valuations and procedures will be
reviewed periodically by the Board of Trustees.

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<PAGE> 52

Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Portfolio's 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 will not be reflected in the computation of a Portfolio's 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 in good faith by the Trustees.

Each investor in the Trust may add to or reduce its investment in a
Portfolio on each Pricing Day. The value of each investor's interest in the
Portfolio will be determined as of 15 minutes after the close of business on the
NYSE by multiplying the net asset value of the Portfolio by the percentage,
effective for that day, that represents that investor's share of the aggregate
interests in the Portfolio. The close of business on the NYSE is generally 4:00
p.m., Eastern time. Any additions or withdrawals to be effected on that day will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio 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 Portfolio 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 investments in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio 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 Portfolio by
all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as of
15 minutes after the close of business of the NYSE on the next Pricing Day of
the Portfolio. For further information concerning the Portfolios' net asset
value, and the valuation of the Portfolios' assets, see Part A.

REDEMPTIONS.

ITEM 19. - TAXATION OF THE TRUST

The Trust is organized as a Delaware business trust. Each Portfolio is
treated as a separate partnership under the Internal Revenue Code of 1986, as
amended (the "Code") and, thus, is not subject to income tax. Based upon the
status of each Portfolio as a partnership, each investor in a Portfolio will be
taxable on its share (as determined in accordance with the governing instruments
of such Portfolio) of such Portfolio's 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 regulations promulgated thereunder.

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<PAGE> 53

Although, as described above, the Portfolios 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 items of income, gain, loss and deduction of a
Portfolio as they are taken into account by the Portfolio.

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

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 Portfolio may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Portfolios. In addition, losses
realized by the Portfolios 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. Because only a few
regulations implementing the straddle rules have been promulgated, the tax
consequences of hedging transactions to the Portfolios are not entirely clear.
The Portfolios may make one or more of the elections available under the Code
which are applicable to straddles. If the Portfolios make 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 Portfolios 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 Portfolios 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 Portfolio's assets to be
invested within various countries is not known.

The Portfolios may make investments that produce income that is not
matched by a corresponding cash receipt by the Portfolios, such as investments
in obligations having original issue discount or market discount (if a Portfolio
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 Portfolios may be required to borrow money or dispose of other
securities to be able to make distributions to investors.

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<PAGE> 54

Each Portfolio's taxable income will in most cases be determined on the
basis of reports made to such Portfolio by the issuers of the securities in
which such Portfolio invests. The tax treatment of certain securities in which a
Portfolio 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
Portfolio could result in adjustments to the income of the Portfolio.

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

ITEM 20. - UNDERWRITERS.

The exclusive placement agent for each Portfolio of the Trust is Mercury
Funds Distributor, a division of Princeton Funds Distributor, Inc., (the
"Placement Agent"), an affiliate of the Investment Adviser and of Merrill Lynch,
with offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. The
Placement Agent receives no compensation for serving in this capacity.
Investment companies, common and commingled trust funds and similar
organizations and entities may continuously invest in the Portfolios.

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 Portfolios' 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

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<PAGE> 55

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.

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<PAGE> 56

ITEM 22. - FINANCIAL STATEMENTS

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Investor,
Mercury Asset Management Master Trust:

We have audited the accompanying statements of assets and liabilities of the
Mercury Master International Portfolio and Mercury Master Pan-European Growth
Portfolio of Mercury Asset Management Master Trust as of October 8, 1998 and
the related statements of operations for the period April 23, 1998 (organization
of the Trust) to October 8, 1998. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Mercury Master International Portfolio
and Mercury Master Pan-European Growth Portfolio of Mercury Asset Management
Master Trust as of October 8, 1998 and the results of their operations for the
period April 23, 1998 (organization of the Trust) to October 8, 1998 in
conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
October 9, 1998

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<PAGE> 57

MERCURY MASTER INTERNATIONAL PORTFOLIO AND
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO OF
MERCURY ASSET MANAGEMENT MASTER TRUST
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 8, 1998

<TABLE>
<CAPTION>
MERCURY MASTER
MERCURY MASTER PAN-EUROPEAN
INTERNATIONAL GROWTH
PORTFOLIO PORTFOLIO
--------- ---------

Assets:

<S> <C> <C>
Cash $50,000 $50,000

Prepaid offering costs (Note 3) 15,000 15,000

Receivable from Investment Adviser (Note 4) 10,500 10,500
----------- -----------

Total Assets 75,500 75,500

Liabilities:

Organization expenses (Note 4) 10,500 10,500

Liabilities and accrued expenses 15,000 15,000
--------- ---------

Total Liabilities 25,500 25,500

Net Assets applicable to investor's interest
in each Portfolio. (Note 1) $50,000 $50,000
=========== ===========
</TABLE>

- ---------------------------------------
See Notes to Financial Statements.

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<PAGE> 58

MERCURY MASTER INTERNATIONAL PORTFOLIO AND
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO OF
MERCURY ASSET MANAGEMENT MASTER TRUST
STATEMENTS OF OPERATIONS
FOR THE PERIOD APRIL 23, 1998 (INCEPTION) TO OCTOBER 8, 1998

<TABLE>
<CAPTION>
MERCURY MASTER
MERCURY MASTER PAN-EUROPEAN
INTERNATIONAL GROWTH
PORTFOLIO PORTFOLIO
--------- ---------

<S> <C> <C>
INVESTMENT INCOME:

Investment income $ - $ -

EXPENSES:

Organization expenses (Note 4) 10,500 10,500
----------- -----------

Total expenses before reimbursement 10,500 10,500

Reimbursement from Investment Adviser (Note 4) (10,500) (10,500)
------------ -----------

Total expenses after reimbursement - -
------------ -----------

Investment income - net - -
------------ -----------

NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ - $ -
============= ===========
</TABLE>

- -------------------------------------------
See Notes to Financial Statements.

- 35 -
<PAGE> 59

MERCURY MASTER INTERNATIONAL PORTFOLIO AND
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO OF
MERCURY ASSET MANAGEMENT MASTER TRUST
NOTES TO FINANCIAL STATEMENTS

(1) Mercury Asset Management Master Trust (the "Trust") was organized as a
Delaware business trust on April 23, 1998. Mercury Master International
Portfolio and Mercury Master Pan-European Growth Portfolio (the
"Portfolios") are portfolios of the Trust. To date, the Trust has not had
any transactions other than those relating to organizational matters and
an indirect $50,000 capital contribution to each of the portfolios by
Mercury Asset Management International Ltd. (the "Investment Adviser")
through the corresponding portfolios of the Mercury Asset Management
Funds, Inc.

(2) The Trust on behalf of each Portfolio has entered into investment advisory
agreements (the "Advisory Agreements") with the Investment Adviser. (See
"Investment Advisory and Other Services" in Part B of the Registration
Statement.) Certain officers and/or Trustees of the Trust are officers
and/or directors of the Investment Adviser.

(4) Organization expenses are reimbursed by the Investment Adviser.

- -

- 36 -
<PAGE> 60

MERCURY MASTER U.S. LARGE CAP PORTFOLIO AND
MERCURY MASTER GOLD AND MINING PORTFOLIO OF
MERCURY ASSET MANAGEMENT MASTER TRUST
STATEMENTS OF ASSETS AND LIABILITIES
JANUARY 12, 1999

<TABLE>
<CAPTION>
MERCURY MASTER MERCURY MASTER
U.S. LARGE CAP GOLD AND MINING
PORTFOLIO PORTFOLIO

<S> <C> <C>
Assets:
Cash $100,100 $100,100
Prepaid offering costs (Note 3) 10,500 10,500
-------- --------
Total Assets 110,600 110,600

Less liabilities and accrued expenses 10,500 10,500
-------- ---------
Net Assets applicable to investors' interest
in each Portfolio. (Note 1) $100,100 $100,100
======== ========
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS.

(1) Mercury Asset Management Master Trust (the "Trust") was organized as a
Delaware business trust on April 23, 1998. Mercury Master U.S. Large Cap
Portfolio and Mercury Master Gold and Mining Portfolio (the "Portfolios") are
portfolios of the Trust. To date, the Portfolios have not had any transactions
other than those relating to organizational matters, an indirect $100,000
capital contribution to each of the Portfolios by Mercury Asset Management
International Ltd. (the "Investment Adviser") through the corresponding
portfolios of the Mercury Asset Management Funds, Inc., and a $100 partnership
contribution to each of the Portfolios by Mercury Funds Distributor, a division
of Princeton Funds Distributor, Inc.

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<PAGE> 61

(3) Prepaid offering costs consist of legal and printing fees related to
preparing the initial registration statement, and will be amortized over a 12
month period beginning with the commencement of operations of the Portfolios.
The Investment Adviser on behalf of the Portfolios will incur organization
costs, estimated at $16,000 for each Portfolio.

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<PAGE> 62

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Investor,
Mercury Asset Management Master Trust:

We have audited the accompanying statements of assets and liabilities of the
Mercury Master U.S. Large Cap Portfolio and Mercury Master Gold and Mining
Portfolio of Mercury Asset Management Master Trust as of January 12, 1999. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, such statements of assets and liabilities present fairly, in all
material respects, the financial position of the Mercury Master U.S. Large Cap
Portfolio and Mercury Master Gold and Mining Portfolio of Mercury Asset
Management Master Trust as of January 12, 1999 in conformity with generally
accepted accounting principles.

Deloitte & Touche LLP
Princeton, New Jersey
January 21, 1999

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<PAGE> 63

APPENDIX A

Investment Policies Involving the Use of Indexed
Securities, Options, Futures, Swaps and Foreign Exchange

The Portfolios are authorized to use certain derivative instruments,
including indexed and inverse securities, options, futures, and swaps, and to
purchase and sell foreign exchange, as described below. Such instruments are
referred to collectively herein as "Strategic Instruments."

Although certain risks are involved in options and futures transactions
(as defined below in "Risk Factors in Options, Futures and Currency
Instruments"), the Investment Adviser believes that, because the Portfolios will
generally engage in these transactions, if at all, for hedging purposes,
including anticipatory hedges (other than options on securities that may be used
to seek increased return), the options and futures portfolio strategies of the
Portfolios will not subject the Portfolios to the risks frequently associated
with the speculative use of options and futures transactions. While the
Portfolios' use of hedging strategies is intended to reduce the volatility of
the net asset value of Portfolio interests the Portfolios' net asset value will
fluctuate. There can be no assurance that the Portfolios' hedging transactions
will be effective. Furthermore, the Portfolios will engage in hedging
activities, if at all, only from time to time and may not necessarily be
engaging in hedging activities when movements in the equity markets, interest
rates or currency exchange rates occur.

INDEXED AND INVERSE SECURITIES

The Portfolios may invest in securities the potential return of which is
based on the change in particular measurements of value or rate (an "index"). As
an illustration, a Portfolio may invest in a debt security that pays interest
and returns principal based on the change in the value of a securities index or
a basket of securities, or based on the relative changes of two indices. In
addition, a Portfolio may invest in securities the potential return of which is
based inversely on the change in an index. For example, a Portfolio may invest
in securities that pay a higher rate of interest when a particular index
decreases and pay a lower rate of interest (or do not fully return principal)
when the value of the index increases. If a Portfolio invests in such
securities, it may be subject to reduced or eliminated interest payments or loss
of principal in the event of an adverse movement in the relevant index or
indices. Furthermore, where such a security includes a contingent liability, in
the event of such an adverse movement, a Portfolio may be required to pay
substantial additional margin to maintain the position.

Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal payable
increases or decreases at a rate that is a multiple of the changes in the
relevant index. As a consequence, the market value of such securities may be
substantially more volatile than the market values of other debt securities. The
Portfolios believe that indexed and inverse securities may provide portfolio
management flexibility that permits the Portfolios

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<PAGE> 64

to seek enhanced returns, hedge other portfolio positions or vary the degree of
portfolio leverage with greater efficiency than would otherwise be possible
under certain market conditions.

OPTIONS ON SECURITIES AND SECURITIES INDICES

Purchasing Options. Each Portfolio is authorized to purchase put options
on equity securities held in its portfolio or securities indices the performance
of which is substantially replicated by securities held in its portfolio. When a
Portfolio purchases a put option, in consideration for an up-front payment (the
"option premium") the Portfolio acquires a right to sell to another party
specified securities owned by the Portfolio 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 of a put option limits a Portfolio's 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 Portfolio will lose the option premium and will consequently realize
a lower return on the portfolio holdings than would have been realized without
the purchase of the put.

Each Portfolio is also authorized to purchase call options on securities
it intends to purchase or securities indices the performance of which
substantially replicates the performance of the types of securities it intends
to purchase. When a Portfolio purchases a call option, in consideration for the
option premium the Portfolio acquires a 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 a Portfolio 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 Portfolio 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 Portfolio believes to be
attractive, in the case of an option on an index (an "anticipatory hedge"). In
the event a Portfolio determines not to purchase a security underlying a call
option, however, the Portfolio may lose the entire option premium.

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

Writing Options. Each Portfolio is authorized to write (i.e., sell) call
options on securities held in its portfolio or securities indices the
performance of which is substantially replicated by securities held in its
portfolio. When a Portfolio writes a call option, in return for an option
premium the Portfolio is legally obligated to sell specified securities owned by
the Portfolio at the exercise price on or before the expiration date, in the
case of an option on securities, or 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, however
much the exercise price exceeds the market price. A

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<PAGE> 65

Portfolio may write call options to earn income, through the receipt of option
premiums. In the event the party to which the Portfolio 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 Portfolio 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, the
Portfolio 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.

A Portfolio may also write put options on securities or securities
indices. When a Portfolio writes a put option, in return for an option premium
the Portfolio gives another party the right to sell to the Portfolio 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. A Portfolio
may write put options to earn income, through the receipt of option premiums. In
the event the party to which a Portfolio has written an option fails to exercise
its right under the option because the value of the underlying securities is
greater than the exercise price, the Portfolio will profit by the amount of the
option premium. By writing a put option, however, a Portfolio 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 Portfolio 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 Portfolio for writing the put option. A Portfolio
will write a put option on a security or a securities index only if the
Portfolio 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").

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

Other than with respect to closing transactions, a Portfolio will write
only call or put options that are "covered." A put option will be considered
covered if a Portfolio has segregated assets with respect to such option in the
manner described in "Risk Factors in Options, Futures and Currency Instruments"
below. A call option will be considered covered if the Portfolio 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 that substantially
correlate with the performance of such index) or owns a call option, warrant or
convertible instrument that is immediately exercisable for, or convertible into,
such security.

Types of Options. Each Portfolio may engage in transactions in options on
securities or securities indices, on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin

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<PAGE> 66

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 the seller, but generally do not require the parties to post margin and are
subject to greater risk of counterparty default. See "Additional Risk Factors of
OTC Transactions; Limitations on the Use of OTC Strategic Instruments" below.

FUTURES

The Portfolios may engage in transactions in futures and options thereon.
Futures are standardized, exchange-traded contracts that obligate a purchaser to
take delivery, and a seller to make delivery, of a specific amount of a
commodity at a specified future date at a specified price. No price is paid upon
entering into a futures contract. Rather, upon purchasing or selling a futures
contract a Portfolio is required to deposit collateral ("margin") equal to a
percentage (generally less than 10%) of the contract value with the Futures
Commission Merchants (the "FCM") effecting the Portfolio's exchanges or in a
third-party account with the Portfolio's Custodian. Each day thereafter until
the futures position is closed, the Portfolio will pay additional margin
representing any loss experienced as a result of the futures position the prior
day or be entitled to a payment representing any profit experienced as a result
of the futures position the prior day. Whether the margin is deposited with the
FCM or with the Custodian, the margin may be deemed to be in the FCM's custody,
and, consequently, in the event of default due to the FCM's bankruptcy, the
margin may be subject to pro rata treatment as the FCM's assets, which could
result in potential losses to a Portfolio and its interestholders. Even if a
transaction is profitable, a Portfolio may not get back the same assets which
were deposited as margin or may receive payment in cash.

The sale of a futures contract limits the Portfolio's risk of loss
through a decline in the market value of portfolio holdings correlated with the
futures contract prior to the future's 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 Portfolio 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 Portfolio from having to
pay more for securities as a consequence of increases in the market value for
such securities during a period when the Portfolio was attempting to identify
specific securities in which to invest in a market the Portfolio believes to be
attractive. In the event that such securities decline in value or a Portfolio
determines not to complete an anticipatory hedge transaction relating to a
futures contract, however, the Portfolio may realize a loss relating to the
futures position.

The Portfolios will limit transactions in futures and options on futures
to financial futures contracts (i.e., contracts for which the underlying
commodity is a currency or securities or interest rate index) purchased or sold
for hedging purposes (including anticipatory hedges). The Portfolios will
further limit transactions in futures and options on futures to the extent
necessary to prevent a Portfolio from being deemed a "commodity pool" under
regulations of the Commodity Futures Trading Commission.

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SWAPS

The Portfolios 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.

A Portfolio will enter into a swap transaction only if, immediately
following the time the Portfolio enters into the transaction, the aggregate
notional principal amount of swap transactions to which the Portfolio is a party
would not exceed 5% of the Portfolio's net assets.

FOREIGN EXCHANGE TRANSACTIONS

The Portfolios 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 (collectively,
"Currency Instruments") for purposes of hedging against the decline in the value
of currencies in which its portfolio holdings are denominated against the U.S.
dollar.

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 Portfolios will enter into foreign exchange transactions only
for purposes of hedging either a specific transaction or a portfolio position. A
Portfolio may enter into a foreign exchange transaction for purposes of hedging
a specific transaction by, for example, purchasing a currency needed to settle a
security transaction at a future date or selling a currency in which the
Portfolio has received or anticipates receiving a dividend or distribution. A
Portfolio may enter into a foreign exchange transaction for purposes of hedging
a portfolio position by selling forward a currency in which a portfolio position
of the Portfolio is denominated or by purchasing a currency in which the
Portfolio anticipates acquiring a portfolio position in the near future. The
Portfolios may also hedge portfolio positions through currency swaps, which are
transactions in which one currency is simultaneously bought for a second
currency on a spot basis and sold for the second currency on a forward basis.

The Portfolios may also hedge against the decline in the value of a
currency against the U.S. dollar through use of currency futures or options
thereon. Currency futures are similar to forward foreign exchange transactions
except that futures are standardized, exchange-traded contracts. See "Futures"
above.

The Portfolios may also hedge against the decline in the value of a
currency against the U.S. dollar through the use of currency options. Currency
options are similar to options on securities, but in consideration for an option
premium the writer of a currency option is obligated to sell (in the case of a

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call option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. A Portfolio may, however, hedge a currency by entering into a
transaction in a Currency Instrument denominated in a currency other than the
currency being hedged (a "cross-hedge"). A Portfolio will only enter into a
cross-hedge if the Investment Adviser believes that (i) there is a demonstrably
high correlation between the currency in which the cross-hedge is denominated
and the currency being hedged, and (ii) executing a cross-hedge through the
currency in which the cross-hedge is denominated will be significantly more
cost-effective or provide substantially greater liquidity than executing a
similar hedging transaction by means of the currency being hedged.

The Portfolios will not speculate in Currency Instruments. Accordingly, a
Portfolio will not hedge a currency in excess of the aggregate market value of
the securities that it owns (including receivables for unsettled securities
sales), or has committed to or anticipates purchasing, which are denominated in
such currency.

Risk Factors in Hedging Foreign Currency Risks. While the Portfolio's use
of Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of a Portfolio's interests, the net asset
value of the Portfolio's shares will fluctuate. Moreover, although Currency
Instruments will be used with the intention of hedging against adverse currency
movements, transactions in Currency Instruments involve the risk that
anticipated currency movements may not be accurately predicted and a Portfolio's
hedging strategies may be ineffective. To the extent that a Portfolio hedges
against anticipated currency movements that do not occur, the Portfolio may
realize losses, and decrease its total return, as the result of its hedging
transactions. Furthermore, a Portfolio will only engage in hedging activities
from time to time and may not be engaging in hedging activities when movements
in currency exchange rates occur. It may not be possible for a Portfolio to
hedge against currency exchange rate movements, even if correctly anticipated,
in the event that (i) the currency exchange rate movement is so generally
anticipated that the Portfolio is not able to enter into a hedging transaction
at an effective price, or (ii) the currency exchange rate movement relates to a
market with respect to which Currency Instruments are not available or in which
their availability is limited (such as certain emerging markets) and it is not
possible to engage in effective foreign currency hedging.

RISK FACTORS IN OPTIONS, FUTURES, AND CURRENCY INSTRUMENTS

Use of Strategic Instruments for hedging purposes involves the risk of
imperfect correlation in movements in the value of the Strategic Instruments and
the value of the instruments being hedged. If the value of the Strategic
Instruments moves more or less than the value of the hedged instruments, a
Portfolio will experience a gain or loss that will not be completely offset by
movements in the value of the hedged instruments.

The Portfolios intend to enter into transactions involving Strategic
Instruments 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

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of OTC Transactions; Limitations on the Use of OTC Strategic Instruments."
However, there can be no assurance that, at any specific time, either a liquid
secondary market will exist for a Strategic Instrument or a Portfolio will
otherwise be able to sell such instrument at an acceptable price. Therefore, it
may not be possible to close a position in a Strategic Instrument without
incurring substantial losses, if at all.

Certain transactions in Strategic Instruments (e.g., forward foreign
exchange transactions, futures transactions, sales of put options) may expose a
Portfolio to potential losses that exceed the amount originally invested by the
Portfolio in such instruments. When a Portfolio engages in such a transaction,
the Portfolio will deposit in a segregated account at its custodian liquid
securities with a value at least equal to the Portfolio's exposure, on a
mark-to-market basis, to the transaction (as calculated pursuant to requirements
of the Commission). Such segregation will ensure that a Portfolio has assets
available to satisfy its obligations with respect to the transactions, but will
not limit the Portfolio's exposure to loss.

ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS

Certain Strategic Instruments traded in OTC markets, including indexed
securities, swaps and OTC options, may be substantially less liquid than other
instruments in which a Portfolio may invest. The absence of liquidity may make
it difficult or impossible for a Portfolio to sell such instruments promptly at
an acceptable price. The absence of liquidity may also make it more difficult
for a Portfolio to ascertain a market value for such instruments. A Portfolio
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 Portfolio 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.

The staff of the Commission has taken the position that purchased OTC
options and the assets underlying written OTC options are illiquid securities.
The Portfolios have therefore adopted an investment policy pursuant to which a
Portfolio will not 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 that are held by the Portfolio, the
market value of the securities underlying OTC call options currently outstanding
that have been sold by the Portfolio and margin deposits on the Portfolio's
outstanding OTC options exceeds 15% of the total assets of the Portfolio, taken
at market value, together with all other assets of the Portfolio that are deemed
to be illiquid or are otherwise not readily marketable. However, if an OTC
option is sold by a Portfolio to a dealer in U.S. government securities
recognized as a "primary dealer" by the Federal Reserve Bank of New York and the
Portfolio has the unconditional contractual right to repurchase such OTC option
at a predetermined price, then the Portfolio will treat as illiquid such amount
of the underlying securities as equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the underlying
security minus the option's exercise price).

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Because Strategic Instruments 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 Portfolio has unrealized gains in such instruments
or has deposited collateral with its counterparty, the Portfolio is at risk that
its counterparty will become bankrupt or otherwise fail to honor its
obligations. The Portfolio will attempt to minimize the risk that a counterparty
will default by engaging in transactions in Strategic Instruments traded in OTC
markets only with financial institutions that have a credit rating of AA- or
better from Standard & Poor's, or Aa3 or better from Moody's, or AA or better of
Fitch.

ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS

A Portfolio may not use any Strategic Instrument to gain exposure to an
asset or class of assets that it would be prohibited by its investment
restrictions from purchasing directly.

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APPENDIX B

RATINGS OF FIXED INCOME SECURITIES

DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC.'S CORPORATE DEBT 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 issues.

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 that 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 that 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.

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Ca Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

C Bonds that are rated C are the lowest rated 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
classification from Aa through B in its corporate bond 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 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, as amended.

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
higher 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

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variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

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 alternative 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.

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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.

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 obligers 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.

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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
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 and C are 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 that
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 or 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

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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
that is assigned an actual or implied CCC rating.

C The rating C is typically applied to debt subordinated to senior debt
that 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,"

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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.

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-1 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-1."

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.

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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 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.

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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 in default on debt
instruments.

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. ("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.

- 56 -
<PAGE> 80

Fitch ratings are based on information obtained from issuers, other
obligers, 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.

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-1+."

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.

FITCHALERT Ratings are placed on FitchAlert 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

- 57 -
<PAGE> 81

"Evolving," where ratings may be raised or lowered. FitchAlert is
relatively short-term, and should be resolved within 12 months.

Ratings Outlook: An 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.

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 repa9 principal may be affected over time by adv%rse 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 imminent default in payment of interest or principal.

- 58 -
<PAGE> 82

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

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-1+."

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-1+" and "F-1" 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.

- 59 -
<PAGE> 83

PART C. OTHER INFORMATION

ITEM 23. - EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------
<S> <C> <C>
1(a) -- Declaration of Trust of Registrant
1(b) -- Amendment No. 1 to Declaration of Trust of Registrant(1)
1(c) -- Certificate of Trust(1)
1(d) -- Certificate of Amendment of Certificate of Trust(1)
1(e) -- Certificate of Amendment of Certificate of Trust(1)
2 -- Amended and Restated By-Laws of Registrant(1)
3 -- Instrument Defining Rights of Security Holders. Incorporated by reference to Exhibits 1 and 2 above.
4(a) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master International Portfolio
and Mercury Asset Management International Ltd.(1)
4(b) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master Pan-European Growth
Portfolio and Mercury Asset Management International Ltd.(1)
4(c) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset Management, L.P.,
with respect to Mercury Master International Portfolio.(1)
4(d) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset Management, L.P.,
with respect to Mercury Master Pan-European Growth Portfolio.(1)
4(e) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master U.S. Large Cap Portfolio and
Mercury Asset Management International Ltd.
4(f) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master Gold and Mining Portfolio and
Mercury Asset Management International Ltd.
4(g) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset Management, L.P.,
with respect to Mercury Master U.S. Large Cap Portfolio.
4(h) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset Management, L.P.,
with respect to Mercury Master Gold and Mining Portfolio.
5 -- Not Applicable.
6 -- Not Applicable.
7 -- Custody Agreement between Registrant and Brown Brothers Harriman & Co.
8(a) -- Placement Agent Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. .(1)
8b) -- License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc.(1)
8(c) -- License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.(1)
9 -- Not Applicable.
10 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant
11 -- Not Applicable.
12(a) -- Certificate of Mercury Asset Management Funds, Inc. with respect to Mercury Master International Portfolio
and Mercury Master Pan-European Growth Portfolio(1)
12(b) -- Certificate of Mercury Asset Management Funds, Inc. and Mercury Funds Distributor, a division of Princeton
Funds Distributor, Inc. with respect to Mercury Master U.S. Large Cap Portfolio and Mercury Master Gold
and Mining Portfolio
13 -- Not Applicable.
14 -- Not Applicable.
15 -- Not Applicable.
</TABLE>

<PAGE> 84

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

(1) Incorporated by reference to same numbered exhibits to
Registrant's initial Registration Statement on Form N-1A (File No. 811-09049).

<PAGE> 85

ITEM 24. - PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.

Mercury International Fund ("International Fund") of Mercury Asset
Management Funds, Inc. (the "Corporation") controls Mercury Master International
Portfolio ("International Portfolio"). As of January 4, 1999, International Fund
owns 100% of the currently outstanding interests of International Portfolio. As
of January 4, 1999, International Fund's holdings of International Portfolio
represented 34.5% of the Trust as a whole.

Mercury Pan-European Growth Fund, Inc. ("Pan-European Growth Fund")
of the Corporation controls Mercury Master Pan-European Growth Portfolio ("Pan-
European Growth Portfolio"). As of January 4, 1999, Pan-European Growth Fund
owns 100% of the currently outstanding interests of Pan-European Growth
Portfolio. As of January 4, 1999, Pan-European Growth Fund's holdings of Pan-
European Growth Portfolio represented 65.5% of the Trust as a whole.

Mercury U.S. Large Cap Fund ("U.S. Large Cap Fund ") of the
Corporation and Mercury Asset Management International Ltd. (the "Investment
Adviser") each control Mercury Master U.S. Large Cap Portfolio ("U.S. Large Cap
Portfolio"). As of January 4, 1999, U.S. Large Cap Fund owns 99.9% of the
currently outstanding interests of U.S. Large Cap Portfolio and the Investment
Adviser owns 100% of the currently outstanding interests of U.S. Large Cap Fund.
Therefore, U.S. Large Cap Fund is under common control with U.S. Large Cap
Portfolio. As of January 4, 1999, U.S. Large Cap Fund's holdings of U.S. Large
Cap Portfolio represent less than .1% of the Trust as a whole.

Mercury Gold and Mining Fund ("Gold and Mining Fund") of the
Corporation and the Investment Adviser each control Mercury Master Gold
and Mining Portfolio ("Gold and Mining Portfolio"). As of January 4, 1999, Gold
and Mining Fund owns 99.9% of the currently outstanding interests of Gold and
Mining Portfolio and the Investment Adviser owns 100% of the currently
outstanding interests of Gold and Mining Fund. Therefore, Gold and Mining Fund
is under common control with Gold and Mining Portfolio. As of January 4, 1999,
Gold and Mining Fund's holdings of Gold and Mining Portfolio represent less
than .1% of the Trust as a whole.

The Investment Adviser was incorporated under the laws of England
and Wales. Mercury Asset Management Funds, Inc. was incorporated under the laws
of the State of Maryland.

ITEM 25. - INDEMNIFICATION.

As permitted by Section 17(h) and (i) of the Investment Company Act
of 1940, as amended (the "1940 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 1940
Act.

<PAGE> 86

Article VIII, Section 8.2 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 thereof for any
action or failure to act (including, without limitation, the failure to compel
in any way any former or acting Trustee to redress any breach of trust) 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
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 Trust (within the meaning of the 1940 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 provides a security for his undertaking; or

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

<PAGE> 87

(c) there is a determination, based on a review of readily
available facts, that there is reason 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 1940 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 Adviser to the Trust or any Series against any liability to the Trust
or any Series to which 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 Adviser to the Trust or any Series.

As permitted by Article VIII, Section 8.7, 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 1940 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.

<PAGE> 88

Set forth below is a list of each executive officer and partner of
the adviser indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
September, 1996 for his own account or in the capacity of director, officer,
partner or trustee.

<TABLE>
<CAPTION>
NAME POSITIONS OTHER SUBSTANTIAL BUSINESS,
WITH ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ---------- ------------------- -----------------------------------------------
<S> <C> <C>
Peter John Gibbs Chairman Director of Mercury Asset Management Ltd; and Director
of Mercury Asset Management International Channel
Islands Ltd.
Carol Consuelo Brooke Deputy Chairman Director of Mercury Asset Management Ltd.
David Morris Fitzgerald Scott Director Director of Corporation of St. Lawrence College
Helen Margaret Perkins Secretary None
John Eric Nelson Director None
Steve Warner Golann Director None
</TABLE>

Set forth below is a list of the name and principal business
address of any company for which a person listed above serves in the capacity
of director, officer, employee, partner or trustee. The address of each,
unless otherwise stated is 33 King William Street, London, England EC4R 9AS.

Mrs. Brooke also serves as director of the following companies:

Munich London Investment Management Ltd.; Benenden School (Kent)
Ltd., Cranbrook Kent, TN17 4AA; and Mercury Asset Management Pension Trustee
Co. Ltd.

Mr. Gibbs also serves as director of Mercury Asset Management
Limited (Australia).

Mrs. Perkins also serves as officer of the following companies:

Grosvenor Alternate Partner Limited; Grosvenor General Partner
Limited; Grosvenor Ventures Limited; Grosvenor Venture Managers Limited;
Mercury Asset Management Finance Ltd.; Mercury Asset Management Group Ltd;
Mercury Asset Management Group Services Ltd; Mercury Asset Management No. 1
Limited; Mercury Asset Management Pension Trustee Co. Ltd.; Mercury Executor &
Trustee Co. ltd.; Mercury (Finance) Ltd; Mercury Fund Managers Limited; Mercury
Financial Services Ltd.; Mercury Investment Management Limited; Mercury
Investment Services Ltd.; Mercury Investment Trust Managers Ltd.; Mercury Life
Assurance Company Ltd; Mercury Life Limited; Mercury Life Nominees Ltd.;
Mercury Private Equity Holdings Ltd; Mercury Rowan Mullens Ltd.; Munich London
Investment Management Ltd.; Mercury Private Equity MUST 3 Limited; Seligman
Trust Limited; Third Grosvenor Limited; and Winco Nominees Ltd.

Set forth below is a list of each executive officer and director of
Fund Asset Management,

<PAGE> 89

L.P. ("FAM") indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since September,
1996 for his own account or in the capacity of director, officer, partner or
trustee.

<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME FAM VOCATION OR EMPLOYMENT
- ---- ----------- ---------------------------------------
<S> <C> <C>
ML & Co. Limited Partner Financial Services Holding Company; Limited
Partner of Merrill Lynch
Asset Management, L.P. ("MLAM")
Fund Asset Management, Inc. Limited Partner Investment Advisory Service
Princeton Services General Partner General Partner of MLAM
Arthur Zeikel Chairman Chairman of MLAM; President of MLAM and
FAM from 1977 to 1997; Chairman and Director
of Princeton Services; President of Princeton
Services from 1993 to 1997; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML
& Co.")
Jeffrey M. Peek President President of MLAM; President and Director of
Princeton Services; Executive Vice President of
ML & Co.; Managing Director and Co-Head of
the Investment Banking Division of Merrill
Lynch in 1997; Senior Vice President and
Director of the Global Securities and
Economics division of Merrill Lynch from 1995
to 1997
Terry K. Glenn Executive Vice Executive Vice President of MLAM; Executive
President Vice President and Director of Princeton
Services; President and Director of Princeton
Funds Distributor, Inc.; Director of FDS;
President of Princeton Administrators, L.P.
Mark A. Desario.................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton Services
Linda L. Federici Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Vincent R. Giordano Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Elizabeth A. Griffin Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Norman R. Harvey Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Michael J. Hennewinkel Senior Vice President Senior Vice President, Secretary and General
Secretary and General Counsel of MLAM; Senior Vice President of
Counsel Princeton Services
Philip L. Kirstein Senior Vice President Senior Vice President of MLAM; Senior Vice
President, General Counsel, Director and
Secretary of Princeton Services
Ronald M. Kloss Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Debra W. Landsman-Yaros Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Vice President
of Princeton Funds Distributor, Inc.
Stephen M.M. Miller Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services
</TABLE>

<PAGE> 90

<TABLE>
<S> <C> <C>
Joseph T. Monagle, Jr. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Brian A. Murdock Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Gerald M. Richard Senior Vice President Senior Vice President and Treasurer of MLAM;
and Treasurer Senior Vice President and Treasurer of Princeton
Services; Vice President and Treasurer of
Princeton Funds Distributor, Inc.
Gregory D. Upah Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Ronald L. Welburn Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
</TABLE>

Mr. Zeikel is President, Mr. Glenn is Executive Vice President and
Mr. Richard is Treasurer of all or substantially all of the investment companies
described in the following two paragraphs. Mr. Zeikel is a director of
substantially all such companies. Messrs. Glenn, Giordano, Harvey, Kirstein, and
Monagle are directors or officers of one or more of such companies.

FAM, located at P.O. Box 9011, Princeton, New Jersey 08543-9011, an
affiliate of the Investment Adviser, acts as the investment adviser for the
following open-end registered investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc. and The Municipal Fund Accumulation Program, Inc.; and the following
closed-end investment companies: Apex Municipal Fund, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies
Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund
2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings Insured Fund Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York
Insured Fund II, Inc., MuniHoldings New York Fund, Inc., MuniHoldings Florida
Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida Insured
Fund III, MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey
Insured Fund II, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield
Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California
Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield
Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured
Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New

<PAGE> 91

Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., and
Worldwide DollarVest Fund, Inc.

MLAM, located at P.O. Box 9011, Princeton, New Jersey 08543-9011,
acts as investment adviser for the following open-end registered investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value 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 Middle East/Africa Fund, Inc., Merrill
Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Ready Assets Trust, 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 Technology Fund, Inc., Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch
Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and
Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLAM);
and for the following closed-end registered investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate
Fund, Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy
Portfolio and Merrill Lynch Basic Value Equity Portfolio, two investment
portfolios of EQ Advisors Trust.

ITEM 27. - PRINCIPAL UNDERWRITERS.

(a) Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. ("MFD") acts as placement agent for the Registrant and as
principal underwriter for each of the following open-end investment companies:

Mercury Gold and Mining Fund of Mercury Asset Management Funds,
Inc.; Mercury U.S. Large Cap Fund of Mercury Asset Management Funds, Inc.;
Mercury International Fund of Mercury Asset Management Funds, Inc.; Mercury
Japan Capital Fund of Mercury Asset Management Funds, Inc.; Mercury Pan-European
Growth Fund of Mercury Asset Management Funds, Inc.; Summit Cash Reserves Fund
of Financial Institutions Series Trust; Mercury V.I. Pan- European Growth Fund
of Mercury Asset Management V.I. Funds, Inc.; Mercury V.I. U.S. Large Cap Fund
of Mercury Asset Management V.I. Funds, Inc.

A separate division of Princeton Funds Distributor, Inc. acts as the
principal underwriter for a number of other investment companies.

<PAGE> 92

(b) Set forth below is information concerning each director and
officer of MFD. The principal business address of each such person is P.O. Box
9081, Princeton, New Jersey 08543-9081, except that the address of Messrs.
Crook, Aldrich, Breen, Fatseas, and Wasel is One Financial Center, 23rd Floor,
Boston, Massachusetts 02111-2665.

<TABLE>
<CAPTION>
(1) (2) (3)
NAME POSITIONS AND POSITIONS AND
OFFICES WITH PRINCETON FUNDS OFFICES WITH REGISTRANT
DISTRIBUTOR, INC.
- -------- ------------------------------- --------------------------
<S> <C> <C>
Terry K. Glenn President and Director Executive Vice President
Michael G. Clark Director 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
Michael G. Clark Vice President None
James J. Fatseas Vice President None
Debra W. Landsman-Yaros Vice President None
Michelle T. Lau Vice President None
Gerald M. Richard Vice President and Treasurer Treasurer
Salvatore Venezia Vice President None
William Wasel Vice President None
Robert Harris Secretary None
</TABLE>

ITEM 28. - LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of:

(1) the registrant, Mercury Asset Management Master Trust,
800 Scudders Mill Road, Plainsboro, New Jersey 08536;

(2) the custodian, Brown Brothers Harriman & Co., 40 Water
Street, Boston, Massachusetts 02109;

(3) the investment adviser, Mercury Asset Management
International ltd., 33 King William Street, London EC4R 9AS,
England; and

(4) the sub-adviser, Fund Asset Management, L.P., 800
Scudders Mill Road, Plainsboro, New Jersey 08536.

ITEM 29. - MANAGEMENT SERVICES.
<PAGE> 93

Other than as set forth under the caption "Management, Organization,
and Capital Structure of the Fund" in Part A of the Registration Statement and
under "Investment Advisory and Other Services" in Part B of the Registration
Statement, the Registrant is not party to any Management-related service
contract.

ITEM 30. - UNDERTAKINGS.

None.

<PAGE> 94

SIGNATURES

Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this Amendment to the Registration Statement to
be signed on its behalf by the undersigned, duly authorized, in the Township of
Plainsboro, and State of New Jersey, on the 26th day of January 1999.

MERCURY ASSET MANAGEMENT
MASTER TRUST
(Registrant)

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

<PAGE> 95

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
- -------
<S> <C>
1(e) -- Certificate of Amendment of Certificate of Trust
4(e) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master U.S. Large Cap
Portfolio and Mercury Asset Management International Ltd.
4(f) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master Gold and Mining
Portfolio and Mercury Asset Management International Ltd.
4(g) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset
Management, L.P., with respect to Mercury Master U.S. Large Cap Portfolio.
4(h) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset
Management, L.P., with respect to Mercury Master Gold and Mining Portfolio.
7 -- Custody Agreement between Registrant and Brown Brothers Harriman & Co.
10 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant
12(b) -- Certificate of Mercury Asset Management Funds, Inc. and Mercury Funds Distributor, a division
of Princeton Funds Distributor, Inc. with respect to Mercury Master U.S. Large Cap Portfolio
and Mercury Master Gold and Mining Portfolio
</TABLE>

<PAGE> 1
EXHIBIT 1(e)

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF TRUST
OF
MERCURY ASSET MANAGEMENT MASTER TRUST

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

1. Name. The name of the business trust (hereinafter called the
"Trust") is MERCURY ASSET MANAGEMENT MASTER TRUST.

2. Paragraph 5 of the Certificate of Trust of the Trust is hereby
amended to change the name of one of the series of the Trust from "Mercury
Master Core U.S. Growth Portfolio" to "Mercury Master U.S. Large Cap Portfolio."

3. Effective Date. This Certificate of Trust shall be effective
upon the date and time of filing.

IN WITNESS WHEREOF, the undersigned, being a trustee of the Trust,
has executed this Certificate of Amendment as of December 8, 1998.

/s/ Terry K. Glenn
------------------
Terry K. Glenn
Trustee

<PAGE> 1
EXHIBIT 4(e)

INVESTMENT ADVISORY AGREEMENT

AGREEMENT made as of December 22, 1998, by and between MERCURY ASSET
MANAGEMENT MASTER TRUST, a Delaware business trust (hereinafter referred to as
the "Trust") on behalf of its series MERCURY MASTER U.S. LARGE CAP PORTFOLIO
(the "Portfolio") and MERCURY ASSET MANAGEMENT INTERNATIONAL LTD., a corporation
organized under the laws of England and Wales (hereinafter referred to as the
"Investment Adviser").

W I T N E S S E T H:

WHEREAS, the Trust is engaged in business as an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and

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

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

WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940 and regulated by the
Investment Management Regulatory Organization, a self-regulating organization
recognized under the Financial Services Act of 1986 of the United Kingdom
(hereinafter referred to as "IMRO"), and the conduct of its investment business
is regulated by IMRO; and

<PAGE> 2

WHEREAS, the Trust desires to retain the Investment Adviser to provide
management and investment advisory services to the Portfolio in the manner and
on the terms hereinafter set forth; and

WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Portfolio on the terms and conditions
hereafter set forth;

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

ARTICLE I
DUTIES OF THE INVESTMENT ADVISER

The Trust hereby employs the Investment Adviser to act as a manager and
investment adviser of the Portfolio and to furnish, or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to the policies of, review by and overall control of the Trustees, for
the period and on the terms and conditions set forth in this Agreement. The
Investment Adviser hereby accepts such employment and agrees during such period,
at its own expense, to render, or arrange for the rendering of, such services
and to assume the obligations herein set forth for the compensation provided for
herein. The Investment Adviser and its affiliates shall for all purposes herein
be deemed to be independent contractors and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Trust or
the Portfolio in any way or otherwise be deemed agents of the Trust or the
Portfolio.

(a) Management Services. The Investment Adviser shall perform (or arrange
for the performance by affiliates of) the management and administrative services
necessary for the operation of the Trust and the Portfolio. The Investment
Adviser shall provide the Trust and the Portfolio with

<PAGE> 3

office space, facilities, equipment and necessary personnel and such other
services as the Investment Adviser, subject to review by the Trustees, shall
from time to time determine to be necessary or useful to perform its obligations
under this Agreement. The Investment Adviser shall also, on behalf of the Trust
and the Portfolio, conduct relations with custodians, depositories, transfer
agents, dividend disbursing agents, other shareholder servicing agents,
accountants, attorneys, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and such other persons in any such other capacity
deemed to be necessary or desirable. The Investment Adviser shall generally
monitor the Trust's and the Portfolio's compliance with investment policies and
restrictions as set forth in the Registration Statement of the Trust filed with
the Securities and Exchange Commission under the Investment Company Act, as
amended from time to time (the "Registration Statement"). The Investment Adviser
shall make reports to the Trustees of its performance of obligations hereunder
and furnish advice and recommendations with respect to such other aspects of the
business and affairs of the Portfolio as it shall determine to be desirable.

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

<PAGE> 4

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

(c) Affiliated Sub-Advisers. In carrying out its responsibilities
hereunder, the Investment Adviser may employ, retain or otherwise avail itself
of the services of other persons or entities including without limitation,
affiliates of the Investment Adviser, on such terms as the Investment Adviser
shall determine to be necessary, desirable or appropriate. However, if the
Investment

<PAGE> 5

Adviser chooses to retain or avail itself of the services of another person or
entity to manage assets of the Fund, such other person or entity must be (i) an
affiliate of the Investment Adviser, (ii) retained at the Investment Adviser's
own cost and expense, and (iii) retained subject to the requirements of Section
15 of the Investment Company Act. Retention of one or more affiliated
sub-advisers, or the employment or retention of other persons or entities to
perform services, shall in no way reduce the responsibilities or obligations of
the Investment Adviser under this Agreement and the Investment Adviser shall be
responsible for all acts and omissions of such affiliated sub-advisers, or other
persons or entities, in connection with the performance of the Investment
Adviser's duties hereunder.

ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES

(a) The Investment Adviser. The Investment Adviser assumes and shall pay,
or cause its affiliate to pay, for maintaining the staff and personnel necessary
to perform its obligations under this Agreement, and shall, at its own expense,
provide the office space, facilities and necessary personnel which it is
obligated to provide under Article I hereof. The Investment Adviser shall pay,
or cause its affiliate to pay, compensation of all Officers of the Trust and all
Trustees of the Trust who are affiliated persons of the Investment Adviser or
any sub-adviser, or of an affiliate of the Investment Adviser or any
sub-adviser.

(b) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust and the Portfolio (except for the expenses paid by
the Mercury Funds Distributor division of Princeton Funds Distributor, Inc. (the
"Distributor")), including, without limitation: taxes, expenses for legal and
auditing services, costs of printing proxies, shareholder reports, copies of the

<PAGE> 6

Registration Statement, charges of the custodian, any sub-custodian and transfer
agent, expenses of portfolio transactions, expenses of redemption of shares,
Securities and Exchange Commission fees, expenses of registering the shares
under Federal, state and foreign laws, fees and actual out-of-pocket expenses of
Trustees who are not affiliated persons of the Investment Adviser or any
sub-adviser, or of an affiliate of the Investment Adviser or any sub-adviser,
accounting and pricing costs (including the daily calculation of the net asset
value), insurance, interest, brokerage costs, litigation and other extraordinary
or non-recurring expenses, and other expenses properly payable by the Trust or
the Portfolio. It is also understood that the Trust shall reimburse the
Investment Adviser or an affiliate of the Investment Adviser for its costs in
providing accounting services to the Trust and the Portfolio. The Distributor
will pay certain of the expenses of the Portfolio incurred in connection with
the continuous offering of shares of beneficial interest of the Portfolio.

ARTICLE III
COMPENSATION OF THE INVESTMENT ADVISER

Management and Investment Advisory Fee. For the services rendered, the
facilities furnished and expenses assumed by the Investment Adviser, the
Portfolio shall pay to the Investment Adviser at the end of each calendar month
a fee based upon the average daily value of the net assets of the Portfolio, as
determined and computed in accordance with the description of the determination
of net asset value contained in the Registration Statement, at the annual rate
of 0.50% of the average daily net assets of the Portfolio, commencing on the day
following effectiveness hereof. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fee as set forth
above. Payment of the Investment

<PAGE> 7

Adviser's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated above. During any
period when the determination of net asset value is suspended by the Trustees,
the net asset value of a share as of the last business day prior to such
suspension shall for this purpose be deemed to be the net asset value at the
close of each succeeding business day until it is again determined.

ARTICLE IV
LIMITATION OF LIABILITY OF THE INVESTMENT ADVISER

The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Trust and the Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder. As used
in this Article IV, the term "Investment Adviser" shall include any affiliates
of the Investment Adviser performing services for the Trust or the Portfolio
contemplated hereby and partners, directors, officers and employees of the
Investment Adviser and such affiliates.

ARTICLE V
ACTIVITIES OF THE INVESTMENT ADVISER

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

<PAGE> 8

ARTICLE VI
INVESTMENT ADVISER STATEMENTS PURSUANT TO IMRO RULES

Any complaints concerning the Investment Adviser should be in writing
addressed to the attention of the Managing Director of the Investment Adviser.
The Trust has the right to obtain from the Investment Adviser a copy of the IMRO
complaints procedure and to approach IMRO and the Investment Ombudsman directly.

The Investment Adviser may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding Investments Not Readily
Realisable (as that term is used in the IMRO Rules) or investments denominated
in a currency other than British pound sterling. There can be no certainty that
market makers will be prepared to deal in unlisted or thinly traded securities
and an accurate valuation may be hard to obtain. The value of investments
recommended by the Investment Adviser may be subject to exchange rate
fluctuations which may have favorable or unfavorable effects on investments.

The Investment Adviser may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding options, futures or
contracts for differences. Markets can be highly volatile and such investments
carry a high degree of risk of loss exceeding the original investment and any
margin on deposit.

ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT

This Agreement shall become effective as of the date first above written,
and shall remain in force for two years thereafter and thereafter, but only so
long as such continuance is specifically approved at least annually by (i) the
Trustees, or by the vote of a majority of the outstanding voting securities of
the Portfolio, and (ii) a majority of those Trustees who are not parties to this
Agreement

<PAGE> 9

or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by the vote of a majority of the outstanding voting
securities of the Portfolio, or by the Investment Adviser, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment.

ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT

This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) by the vote of a majority of outstanding voting
securities of the Portfolio, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.

ARTICLE IX
DEFINITIONS OF CERTAIN TERMS

The terms "vote of majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.

ARTICLE X
GOVERNING LAW

This Agreement shall be construed in accordance with laws of the State of
New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of

<PAGE> 10

the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the Investment Company Act, the latter shall control.

ARTICLE XI
Limitation of Obligations of the Portfolio

The obligations of the Portfolio shall be limited to the assets of the
Portfolio, shall be separate from the obligations of any other series of the
Trust, and the Portfolio shall not be liable for the obligations of any other
series of the Trust.

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

MERCURY ASSET MANAGEMENT MASTER
TRUST on behalf of its series,
MERCURY MASTER U.S. LARGE CAP
PORTFOLIO

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

MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD.

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

<PAGE> 1
EXHIBIT 4(f)

INVESTMENT ADVISORY AGREEMENT

AGREEMENT made as of January 27, 1999, by and between MERCURY ASSET
MANAGEMENT MASTER TRUST, a Delaware business trust (hereinafter referred to as
the "Trust") on behalf of its series MERCURY MASTER GOLD AND MINING PORTFOLIO
(the "Portfolio") and MERCURY ASSET MANAGEMENT INTERNATIONAL LTD., a corporation
organized under the laws of England and Wales (hereinafter referred to as the
"Investment Adviser").

W I T N E S S E T H:

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

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

<PAGE> 2

WHEREAS, the Trust desires to retain the Investment Adviser to provide
management and investment advisory services to the Portfolio in the manner and
on the terms hereinafter set forth; and

WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Portfolio on the terms and conditions
hereafter set forth;

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

ARTICLE I
DUTIES OF THE INVESTMENT ADVISER

<PAGE> 3

<PAGE> 4

<PAGE> 5

Adviser chooses to retain or avail itself of the services of another person or
entity to manage assets of the Fund, such other person or entity must be (i) an
affiliate of the Investment Adviser, (ii) retained at the Investment Adviser's
own cost and expense, and (iii) retained subject to the requirements of Section
15 of the Investment Company Act. Retention of one or more affiliated sub-
advisers, or the employment or retention of other persons or entities to perform
services, shall in no way reduce the responsibilities or obligations of the
Investment Adviser under this Agreement and the Investment Adviser shall be
responsible for all acts and omissions of such affiliated sub-advisers, or other
persons or entities, in connection with the performance of the Investment
Adviser's duties hereunder.

ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES

<PAGE> 6

ARTICLE III
COMPENSATION OF THE INVESTMENT ADVISER

Management and Investment Advisory Fee. For the services rendered, the
facilities furnished and expenses assumed by the Investment Adviser, the
Portfolio shall pay to the Investment Adviser at the end of each calendar month
a fee based upon the average daily value of the net assets of the Portfolio, as
determined and computed in accordance with the description of the determination
of net asset value contained in the Registration Statement, at the annual rate
of 0.75% of the average daily net assets of the Portfolio, commencing on the day
following effectiveness hereof. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fee as set forth
above. Payment of the Investment

<PAGE> 7

ARTICLE IV
LIMITATION OF LIABILITY OF THE INVESTMENT ADVISER

ARTICLE V
ACTIVITIES OF THE INVESTMENT ADVISER

<PAGE> 8

ARTICLE VI
INVESTMENT ADVISER STATEMENTS PURSUANT TO IMRO RULES

ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT

<PAGE> 9

or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.

ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT

ARTICLE IX
DEFINITIONS OF CERTAIN TERMS

ARTICLE X
GOVERNING LAW

This Agreement shall be construed in accordance with laws of the State of
New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of

<PAGE> 10

the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the Investment Company Act, the latter shall control.

ARTICLE XI
Limitation of Obligations of the Portfolio

MERCURY ASSET MANAGEMENT MASTER
TRUST on behalf of its series,
MERCURY MASTER GOLD AND MINING
PORTFOLIO

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

MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD.

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

<PAGE> 1
EXHIBIT 4(g)

SUB-ADVISORY AGREEMENT

AGREEMENT made as of December 22, 1998, by and between MERCURY ASSET
MANAGEMENT INTERNATIONAL LTD., a corporation organized under the laws of England
and Wales (hereinafter referred to as the "Investment Adviser"), and FUND ASSET
MANAGEMENT, L.P., a Delaware limited partnership (hereinafter referred to as the
"Sub-Adviser").

W I T N E S S E T H:

WHEREAS, MERCURY ASSET MANAGEMENT MASTER TRUST (the "Trust") is a Delaware
business trust engaged in business as an open-end management investment company
registered under the Investment Company Act of 1940, as amended (hereinafter
referred to as the "Investment Company Act"); and

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

WHEREAS, the Trustees have established and designated MERCURY MASTER U.S.
LARGE CAP PORTFOLIO (the "Portfolio") as a series of the Trust; and

WHEREAS, the Investment Adviser and the Sub-Adviser are engaged
principally in rendering investment advisory services and are registered as
investment advisers under the Investment Advisers Act of 1940, as amended; and

WHEREAS, the Investment Adviser is also regulated by the Investment
Management Regulatory Organization, a self-regulating organization recognized
under the Financial Services

<PAGE> 2

Act of 1986 of the United Kingdom (hereinafter referred to as "IMRO"), and the
conduct of its investment business is regulated by IMRO; and

WHEREAS, the Investment Adviser has entered into an investment advisory
agreement with the Trust on behalf of the Portfolio (the "Advisory Agreement"),
dated December 22, 1998, pursuant to which the Investment Adviser will provide
investment advisory and management services to the Trust and the Portfolio; and

WHEREAS, the Sub-Adviser is willing to provide sub-advisory services to
the Investment Adviser with respect to the daily cash position of the Portfolio
on the terms and conditions hereinafter set forth;

NOW THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Sub-Adviser and the Investment Adviser hereby agree
as follows:

ARTICLE I

Duties of the Sub-Adviser

The Investment Adviser hereby employs the Sub-Adviser to act as
sub-adviser to the Investment Adviser and to furnish, or arrange for affiliates
to furnish, certain investment advisory services with respect to the daily cash
position of the Portfolio, as described below, subject to the supervision of the
Investment Adviser and the Trustees of the Trust, for the period and on the
terms and conditions set forth in this Agreement. The Sub-Adviser hereby accepts
such employment and agrees during such period to render, or arrange for the
rendering of, such services and to assume the obligations herein set forth for
the compensation from the Investment Adviser provided for herein. The
Sub-Adviser and its affiliates shall for all purposes herein be

<PAGE> 3

deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Trust or
Portfolio in any way or otherwise be deemed an agent of the Trust or Portfolio.

The Sub-Adviser shall provide the Investment Adviser with such investment
research, advice and supervision as the latter may from time to time consider
necessary for the proper management of the daily cash position of the Portfolio.
All advice and recommendations provided by the Sub-Adviser shall be subject to
the restrictions of the Declaration of Trust and By-Laws of the Trust, as
amended from time to time, the provisions of the Investment Company Act and the
statements relating to the Portfolio's investment objectives, investment
policies and investment restrictions as the same are set forth in the currently
effective prospectus and statement of additional information relating to the
shares of the Portfolio under the Securities Act of 1933, as amended (the
"Prospectus" and "Statement of Additional Information", respectively).

ARTICLE II

Allocation of Charges and Expenses

The Sub-Adviser assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement, and shall
at its own expense provide the office space, equipment and facilities which it
is obligated to provide under Article I hereof and shall pay all compensation of
officers of the Trust and all Trustees of the Trust who are affiliated persons
of the Sub-Adviser to the extent not otherwise paid by the Investment Adviser.

<PAGE> 4

ARTICLE III

Compensation of the Sub-Adviser

For the services rendered, the facilities furnished and expenses assumed
by the Sub-Adviser, the Investment Adviser shall pay to the Sub-Adviser a fee in
an amount to be determined from time to time by the Investment Adviser and the
Sub-Adviser but in no event in excess of the amount that the Investment Adviser
actually receives for providing services to the Trust and the Portfolio pursuant
to the Advisory Agreement.

ARTICLE IV

Limitation of Liability of the Sub-Adviser

The Sub-Adviser shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the performance of sub-advisory services rendered with respect to the Trust
and the Portfolio, except for willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of reckless disregard of its
obligations and duties hereunder. As used in this Article IV, the Sub-Adviser
shall include any affiliates of the Sub-Adviser performing services for the
Investment Adviser contemplated hereby and directors, officers and employees of
the Sub-Adviser and such affiliates.

ARTICLE V

Activities of the Sub-Adviser

The services of the Sub-Adviser to the Trust and the Portfolio are not to
be deemed to be exclusive, and the Sub-Adviser and any person controlled by or
under common control with the Sub-Adviser (for purposes of this Article V
referred to as "affiliates") is free to render services to

4
<PAGE> 5

others. It is understood that Trustees, officers, employees and shareholders of
the Trust or Portfolio are or may become interested in the Sub-Adviser and its
affiliates, as directors, officers, partners, employees and shareholders of the
Sub-Adviser and its affiliates are or may become similarly interested in the
Trust or Portfolio, and that the Sub-Adviser and directors, officers, employees,
partners and shareholders of the Sub-Adviser or its affiliates may become
interested in the Trust or Portfolio as shareholders or otherwise.

ARTICLE VI

Investment Adviser Statements Pursuant to IMRO Rules

Any complaints concerning the Investment Adviser should be in writing
addressed to the attention of the Compliance Officer of the Investment Adviser.
The Trust has the right to obtain from the Investment Adviser a copy of the IMRO
complaints procedure and to approach the Investment Ombudsman directly.

ARTICLE VII

Duration and Termination of this Agreement

This Agreement shall become effective as of the date first above written,
and shall remain in force until the date of termination of the Advisory
Agreement (but not later than two years after the effective date of this
Agreement) and thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Trustees of the Trust, or by the vote of a
majority of the outstanding voting securities of the Portfolio, and (ii) a
majority of those Trustees who are not parties to this Agreement or interested
persons of any such party cast in person at a meeting called for the purpose of
voting on such approval.

5
<PAGE> 6

This Agreement may be terminated at any time, without the payment of any
penalty, by the Investment Adviser or by vote of a majority of the outstanding
voting securities of the Portfolio, or by the Sub-Adviser, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment or in the event of the termination of the
Advisory Agreement. Any termination shall be without prejudice to the completion
of transactions already initiated.

ARTICLE VIII

Amendments of this Agreement

This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Trustees of the Trust or by the vote of a
majority of outstanding voting securities of the Portfolio and (ii) a majority
of those Trustees who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.

ARTICLE IX

Definitions of Certain Terms

The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.

6
<PAGE> 7

ARTICLE X

Governing Law

This Agreement shall be construed in accordance with the laws of the State
of New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.

MERCURY ASSET MANAGEMENT INTERNATIONAL LTD.

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

FUND ASSET MANAGEMENT, L.P.

By: PRINCETON SERVICES, INC.,
GENERAL PARTNER

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

<PAGE> 1
EXHIBIT 4(h)

SUB-ADVISORY AGREEMENT

AGREEMENT made as of February 11, 1999, by and between MERCURY ASSET
MANAGEMENT MASTER TRUST, a Delaware business trust (hereinafter referred to as
the "Trust") on behalf of its series MERCURY MASTER GOLD AND MINING PORTFOLIO
(the "Portfolio"), and FUND ASSET MANAGEMENT, L.P., a Delaware limited
partnership (hereinafter referred to as "FAM").

W I T N E S S E T H:

WHEREAS, the Trust is a Delaware business trust engaged in business as an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (hereinafter referred to as the "Investment Company
Act"); and

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

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

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

WHEREAS, the Trust, on behalf of the Portfolio, has entered into an
investment advisory agreement (the "MAM Advisory Agreement"), dated January 27,
1999, with Mercury Asset

<PAGE> 2

Management International Ltd. (hereinafter referred to as "MAM") pursuant to
which MAM will provide investment advisory and management services to the Trust
and the Portfolio; and

WHEREAS, FAM is willing to provide investment advisory services to the
Portfolio with respect to all or a portion of the daily cash position of the
Portfolio on the terms and conditions hereinafter set forth;

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

ARTICLE I

Duties of FAM

The Trust hereby employs FAM to act as an investment adviser for all or a
portion of the daily cash position of the Portfolio and to furnish, or arrange
for affiliates to furnish, certain investment advisory services with respect to
such portion of the Portfolio, as described below, subject to the policies of,
review by and overall control of the Trustees of the Trust, for the period and
on the terms and conditions set forth in this Agreement. FAM hereby accepts such
employment and agrees during such period, at its own expense, to render, or
arrange for the rendering of, such services and to assume the obligations herein
set forth for the compensation, to be paid by MAM, provided for herein. FAM and
its affiliates shall for all purposes herein be deemed to be independent
contractors and shall, unless otherwise expressly provided or authorized, have
no authority to act for or represent the Trust or Portfolio in any way or
otherwise be deemed agents of the Trust or Portfolio.

2
<PAGE> 3

FAM shall provide (or arrange for affiliates to provide) the Trust with
such investment research, advice and supervision as the latter may from time to
time consider necessary for the proper management of the portion of the daily
cash position of the Portfolio from time to time managed by FAM. All advice and
recommendations provided by FAM shall be subject to the restrictions of the
Declaration of Trust and By-Laws of the Trust, as amended from time to time, the
provisions of the Investment Company Act and the statements relating to the
Portfolio's investment objectives, investment policies and investment
restrictions as the same are set forth in the Trust's current Registration
Statement.

ARTICLE II

Allocation of Charges and Expenses

FAM assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement and shall pay all
compensation of officers of the Trust and all Trustees of the Trust who are
affiliated persons of FAM to the extent not otherwise paid by MAM.

ARTICLE III

Compensation of FAM

For the services rendered, the facilities furnished and expenses assumed
by FAM, the Trust shall use its reasonable best efforts to cause MAM to pay to
FAM at the end of each calendar month a fee of at least $1.00 or another amount
to be determined from time to time by MAM and FAM, but in no event in excess of
the amount that MAM actually receives for providing services to the Trust and
the Portfolio pursuant to the MAM Advisory Agreement.

3
<PAGE> 4

ARTICLE IV

Limitation of Liability of FAM

FAM shall not be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
performance of services rendered hereunder with respect to the Trust and the
Portfolio, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its obligations
and duties hereunder. As used in this Article IV, the term "FAM" shall include
any affiliates of FAM performing services for the Trust contemplated hereby and
partners, directors, officers and employees of FAM and such affiliates.

ARTICLE V

Activities of FAM

The services of FAM to the Trust and the Portfolio are not to be deemed to
be exclusive, and FAM and any person controlled by or under common control with
FAM (for purposes of this Article V referred to as "affiliates") is free to
render services to others. It is understood that Trustees, officers, employees
and shareholders of the Trust and Portfolio are or may become interested in FAM
and its affiliates, as directors, officers, partners, employees and
shareholders, and that FAM and its affiliates are or may become similarly
interested in the Trust or Portfolio.

ARTICLE VI

Duration and Termination of this Agreement

This Agreement shall become effective as of the date first above written,
and shall remain in force until the date of termination of the Advisory
Agreement (but not later than two years

4
<PAGE> 5

after the effective date of this Agreement) and thereafter, but only so long as
such continuance is specifically approved at least annually by (i) the Trustees
of the Trust, or by the vote of a majority of the outstanding voting securities
of the Portfolio, and (ii) a majority of those Trustees who are not parties to
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by vote of a majority of the outstanding voting
securities of the Portfolio, or by FAM, on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment. Any termination shall be without prejudice to the completion of
transactions already initiated.

ARTICLE VII

Amendments of this Agreement

This Agreement may be amended by the parties only if such amendment is
approved in compliance with the requirements of the Investment Company Act and
the rules and regulations thereunder.

ARTICLE VIII

Definitions of Certain Terms

5
<PAGE> 6

thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.

ARTICLE IX

Governing Law

ARTICLE X

Limitation of Obligations of the Portfolio

6
<PAGE> 7

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

MERCURY ASSET MANAGEMENT
MASTER TRUST on behalf of its series
MERCURY MASTER GOLD AND MINING
PORTFOLIO

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

FUND ASSET MANAGEMENT, L.P.
By: PRINCETON SERVICES, INC.,
GENERAL PARTNER

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

<PAGE> 1
EXHIBIT 7

AGREEMENT BETWEEN

BROWN BROTHERS HARRIMAN & CO.

AND

MERCURY ASSET MANAGEMENT MASTER TRUST

<PAGE> 2

AGREEMENT made this ______ day of ______, 1998, between MERCURY ASSET MANAGEMENT
MASTER TRUST (the "Fund") and each of its Portfolios listed in Appendix B
attached hereto as said Exhibit may from time to time be revised (collectively,
the "Portfolios" individually, a "Portfolio") and Brown Brothers Harriman & Co.
(the "Custodian").

WITNESSETH: That in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:

1. The Fund hereby employs and appoints the Custodian as a custodian for
the term and subject to the provisions of this Agreement. The Custodian shall
not be under any duty or obligation to require the Fund to deliver to it any
securities or funds owned by the Fund and shall have no responsibility or
liability for or on account of securities or funds not so delivered. The Fund
will deposit with the Custodian copies of the Certificate of Incorporation and
By-Laws (or comparable documents) of the Fund and all amendments thereto, and
copies of such votes and other proceedings of the Fund as may be necessary for
or convenient to the Custodian in the performance of its duties.

2. Except for securities and funds held by subcustodians appointed
pursuant to the provisions of Section 3 hereof, the Custodian shall have and
perform the following powers and duties:

A. Safekeeping - To keep safely the securities of the Fund that have been
delivered to the Custodian and from time to time to receive delivery of
securities for safekeeping.

B. Manner of Holding Securities - To hold securities of the Fund (1) by
physical possession of the share certificates or other instruments representing
such securities in registered or bearer form, or (2) in book-entry form by a
Securities System (as said term is defined in Section 2S).

C. Registered Name; Nominee - To hold registered securities of the Fund
(1) in the name or any nominee name of the Custodian or the Fund, or in the name
or any nominee name of any agent appointed pursuant to Section 5E, or (2) in
street certificate form, so-called, and in any case with or without any
indication of fiduciary capacity.

D. Purchases - Upon receipt of Proper Instructions, as defined in Section
V on Page 14, insofar as funds are available for the purpose, to pay for and
receive securities purchased for

<PAGE> 3

the account of the Fund, payment being made only upon receipt of the securities
(1) by the Custodian, or (2) by a clearing corporation of a national securities
exchange of which the Custodian is a member, or (3) by a Securities System.
However, (i) in the case of repurchase agreements entered into by the Fund, the
Custodian may release funds to a Securities System or to a Subcustodian prior to
the receipt of advice from the Securities System or Subcustodian that the
securities underlying such repurchase agreement have been transferred by book
entry into the Account (as defined in Section 2S) of the Custodian maintained
with such Securities System or Subcustodian, so long as such payment
instructions to Securities System or Subcustodian include a requirement that
delivery is only against payment of securities, and (ii) in the case of time
deposits, call account deposits, currency deposits, and other deposits,
contracts or options pursuant to Sections 2K, 2L and 2M, the Custodian may make
payment therefor without receiving an instrument evidencing said deposit so long
as such payment instructions detail specific securities to be acquired.

E. Exchanges - Upon receipt of proper instructions, to exchange
securities held by it for the account of the Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares, change
of par value, conversion or other event, and to deposit any such securities in
accordance with the terms of any reorganization or protective plan. Without such
instructions, the Custodian may surrender securities in temporary form for
definitive securities, may surrender securities for transfer into a name or
nominee name as permitted in Section 2C, and may surrender securities for a
different number of certificates or instruments representing the same number of
shares or same principal amount of indebtedness, provided the securities to be
issued are to be delivered to the Custodian and further provided custodian shall
at the time of surrendering securities or instruments receive a receipt or other
evidence of ownership thereof.

F. Sales of Securities - Upon receipt of proper instructions, to make
delivery of securities which have been sold for the account of the Fund, but
only against payment therefor (1) in cash, by a certified check, bank cashier's
check, bank credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a

<PAGE> 4

national securities exchange of which the Custodian is a member, or (3) by
credit to the account of the Custodian or an Agent of the Custodian with a
Securities System.

G. Depositary Receipts - Upon receipt of proper instructions, to instruct
a subcustodian appointed pursuant to Section 3 hereof (a "Subcustodian") or an
agent of the Custodian appointed pursuant to Section 5E hereof (an "Agent") to
surrender securities to the depositary used by an issuer of American Depositary
Receipts or International Depositary Receipts (hereinafter collectively referred
to as "ADRs") for such securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to the Subcustodian
or Agent that the depositary has acknowledged receipt of instructions to issue
with respect to such securities ADRs in the name of the Custodian, or a nominee
of the Custodian, for delivery to the Custodian in Boston, Massachusetts, or at
such other place as the Custodian may from time to time designate.

Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a Subcustodian or an Agent.

H. Exercise of Rights; Tender Offers - Upon timely receipt of proper
instructions, to deliver to the issuer or trustee thereof, or to the agent of
either, warrants, puts, calls, rights or similar securities for the purpose of
being exercised or sold, provided that the new securities and cash, if any,
acquired by such action are to be delivered to the Custodian, and, upon receipt
of proper instructions, to deposit securities upon invitations for tenders of
securities, provided that the consideration is to be paid or delivered or the
tendered securities are to be returned to the Custodian.

I. Stock Dividends, Rights, Etc. - To receive and collect all stock
dividends, rights and other items of like nature; and to deal with the same
pursuant to proper instructions relative thereto.

J. Borrowings - Upon receipt of proper instructions, to deliver
securities of the Fund to lenders or their agents as collateral for borrowings
effected by the Fund, provided that such borrowed money is payable to or upon
the Custodian's order as Custodian for the Fund.

K. Demand Deposit Bank Accounts - To open and operate an account or
accounts in the

<PAGE> 5

name of the Fund on the Custodian's books subject only to draft or order by the
Custodian. All funds received by the Custodian from or for the account of the
Fund shall be deposited in said account(s). The responsibilities of the
Custodian to the Fund for deposits accepted on the Custodian's books shall be
that of a U. S. bank for a similar deposit.

If and when authorized by proper instructions, the Custodian may open and
operate an additional account(s) in such other banks or trust companies as may
be designated by the Fund in such instructions (any such bank or trust company
so designated by the Fund being referred to hereafter as a "Banking
Institution"), provided that such account(s) shall be in the name of the
Custodian for account of the Fund and subject only to the Custodian's draft or
order. Such accounts may be opened with Banking Institutions in the United
States and in other countries and may be denominated in either U. S. Dollars or
other currencies as the Fund may determine. All such deposits shall be deemed to
be portfolio securities of the Fund and accordingly the responsibility of the
Custodian therefore shall be the same as and neither lesser nor greater than the
Custodian's responsibility in respect of other portfolio securities of the Fund.

L. Interest Bearing Call or Time Deposits - To place interest bearing
fixed term and call deposits with such banks and in such amounts as the Fund may
authorize pursuant to proper instructions. Such deposits may be placed with the
Custodian or with Subcustodians or other Banking Institutions as the Fund may
determine. Deposits may be denominated in U. S. Dollars or other currencies and
need not be evidenced by the issuance or delivery of a certificate to the
Custodian, provided that the Custodian shall include in its records with respect
to the assets of the Fund, appropriate notation as to the amount and currency of
each such deposit, the accepting Banking Institution, and other appropriate
details. Such deposits, other than those placed with the Custodian, shall be
deemed portfolio securities of the Fund and the responsibilities of the
Custodian therefor shall be the same as those for demand deposit bank accounts
placed with other banks, as described in Section K of this agreement. The
responsibility of the Custodian for such deposits accepted on the Custodian's
books shall be that of a U. S. bank for a similar deposit.

M. Foreign Exchange Transactions and Futures Contracts - Pursuant to
proper instructions, to

<PAGE> 6

enter into foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf and for the account of the
Fund. Such transactions may be undertaken by the Custodian with such Banking
Institutions, including the Custodian and Subcustodian(s) as principals, as
approved and authorized by the Fund. Foreign exchange contracts and options
other than those executed with the Custodian, shall be deemed to be portfolio
securities of the Fund and the responsibilities of the Custodian therefor shall
be the same as those for demand deposit bank accounts placed with other banks as
described in Section 2-K of this agreement. Upon receipt of proper instructions,
to receive and retain confirmations evidencing the purchase or sale of a futures
contract or an option on a futures contract by the Fund; to deposit and maintain
in a segregated account, for the benefit of any futures commission merchant or
to pay to such futures commission merchant, assets designated by the fund as
initial, maintenance or variation "margin" deposits intended to secure the
Fund's performance of its obligations under any futures contracts purchased or
sold or any options on futures contracts written by the Fund, in accordance with
the provisions of any agreement or agreements among any of the Fund, the
Custodian and such futures commission merchant, designated to comply with the
rules of the Commodity Futures Trading Commission and/or any contract market, or
any similar organization or organizations, regarding such margin deposits; and
to release and/or transfer assets in such margin accounts only in accordance
with any such agreements or rules.

N. Stock Loans - Upon receipt of proper instructions to deliver
securities of the Fund, in connection with loans of securities by the Fund, to
the borrower thereof upon the receipt of the cash collateral, if any, for such
borrowing. In the event U.S. Government securities are to be used as collateral,
the Custodian will not release the securities to be loaned until it has received
confirmation that such collateral has been delivered to the Custodian. The
Custodian and Fund understand that the timing of receipt of such confirmation
will normally require that the delivery of securities to be loaned will be made
one day after receipt of the U. S. Government collateral.

O. Collections - To collect, receive and deposit in said account or
accounts all income and other payments with respect to the securities held
hereunder, and to execute ownership and other

<PAGE> 7

certificates and affidavits for all federal and state tax purposes in connection
with receipt of income or other payments with respect to securities of the Fund
or in connection with transfer of securities, and pursuant to proper
instructions to take such other actions with respect to collection or receipt of
funds or transfer of securities which involve an investment decision.

P. Dividends, Distributions and Redemptions - Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from the Fund's
shareholder servicing agent or agent with comparable duties (the "Shareholder
Servicing Agent") (given by such person or persons and in such manner on behalf
of the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities to the Shareholder Servicing Agent
or otherwise apply funds or securities, insofar as available, for the payment of
dividends or other distributions to Fund shareholders. Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from the Shareholder
Servicing Agent (given by such person or persons and in such manner on behalf of
the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities, insofar as available, to the
Shareholder Servicing Agent or as such Agent shall otherwise instruct for
payment to Fund shareholders who have delivered to such Agent a request for
repurchase or redemption of their shares of capital stock of the Fund.

Q. Proxies, Notices, Etc. - Promptly to deliver or mail to the Fund all
forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, and upon receipt of proper instructions, to execute
and deliver or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor its nominee shall
vote upon any of such securities or execute any proxy to vote thereon or give
any consent or take any other action with respect thereto (except as otherwise
herein provided) unless ordered to do so by proper instructions.

R. Bills - Upon receipt of proper instructions from the Administrator, to
pay or cause to be paid, insofar as funds are available for the purpose, bills,
statements, or other obligations of the Fund.

S. Deposit of Fund Assets in Securities Systems - The Custodian may
deposit and/or

<PAGE> 8

maintain securities owned by the Fund in (i) The Depository Trust Company, (ii)
any book-entry system as provided in Subpart O of Treasury Circular No. 300, 31
CFR 306, Subpart B of 31 CFR Part 350, or the book-entry regulations of federal
agencies substantially in the form of Subpart O. or (iii) any other domestic
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 which acts as a securities
depository and whose use the Fund has previously approved in writing (each of
the foregoing being referred to in this Agreement as a "Securities System").
Utilization of a Securities System shall be in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:

1) The Custodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Custodian (provided that
any such agent shall be qualified to act as a custodian of the Fund pursuant to
the Investment Company Act of 1940 and the rules and regulations thereunder), in
a Securities System provided that such securities are represented in an account
("Account") of the Custodian or such Agent in the Securities System which shall
not include any assets of the Custodian or Agent other than assets held as a
fiduciary, custodian, or otherwise for customers;

2) The records of the Custodian with respect to securities of the Fund
which are maintained in a Securities System shall identify by book-entry those
securities belonging to the Fund;

3) The Custodian shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall Transfer securities sold for the
account of the Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices from the Securities
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by the Custodian or an Agent as referred to
above, and be provided to the

<PAGE> 9

Fund at its request. The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the account of
the Fund on the next business day;

4) The Custodian shall provide the Fund with any report obtained by the
Custodian or any Agent as referred to above on the Securities System's
accounting system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System; and the Custodian and such Agents
shall send to the Fund such reports on their own systems of internal accounting
control as the Fund may reasonably request from time to time.

5) At the written request of the Fund, the Custodian will terminate the
use of any such Securities System on behalf of the Fund as promptly as
practicable.

T. Other Transfers - Upon receipt of Proper Instructions, to deliver
securities, funds and other property of the Fund to a Subcustodian or another
custodian of the Fund; and, upon receipt of proper instructions, to make such
other disposition of securities, funds or other property of the Fund in a manner
other than or for purposes other than as enumerated elsewhere in this Agreement,
provided that the instructions relating to such disposition shall include a
statement of the purpose for which the delivery is to be made, the amount of
securities to be delivered and the name of the person or persons to whom
delivery is to be made.

U. Investment Limitations - In performing its duties generally, and more
particularly in connection with the purchase, sale and exchange of securities
made by or for the Fund, the Custodian may assume unless and until notified in
writing to the contrary that proper instructions received by it are not in
conflict with or in any way contrary to any provisions of the Fund's Certificate
of Incorporation or By-Laws (or comparable documents) or votes or proceedings of
the shareholders or Directors of the Fund. The Custodian shall in no event be
liable to the Fund and shall be indemnified by the Fund for any violation which
occurs in the course of carrying out instructions given by the Fund of any
investment limitations to which the Fund is subject or other limitations with
respect to the Fund's powers to make expenditures, encumber securities, borrow
or

<PAGE> 10

take similar actions affecting its portfolio.

V. Proper Instructions - Proper instructions shall mean a tested telex
from the Fund or a written request, direction, instruction or certification
signed or initialed on behalf of the Fund by two or more persons as the Board of
Directors of the Fund shall have from time to time authorized, provided,
however, that no such instructions directing the delivery of securities or the
payment of funds to an authorized signatory of the Fund shall be signed by such
person. Those persons authorized to give proper instructions may be identified
by the Board of Directors by name, title or position and will include at least
one officer empowered by the Board to name other individuals who are authorized
to give proper instructions on behalf of the Fund. Telephonic or other oral
instructions given by any one of the above persons will be considered proper
instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. Oral instructions will be confirmed by tested telex or in writing in
the manner set forth above but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral
instructions. The Fund authorizes the Custodian to tape record any and all
telephonic or other oral instructions given to the Custodian by or on behalf of
the Fund (including any of its officers, Directors, employees or agents) and
will deliver to the Custodian a similar authorization from any investment
manager or adviser or person or entity with similar responsibilities which is
authorized to give proper instructions on behalf of the Fund to the Custodian.
Proper instructions may relate to specific transactions or to types or classes
of transactions, and may be in the form of standing instructions.

Proper instructions may include communications effected directly between
electro-mechanical or electronic devices or systems, in addition to tested
telex, provided that the Fund and the Custodian agree to the use of such device
or system.

3. Securities, funds and other property of the Fund may be held by
subcustodians appointed pursuant to the provisions of this Section 3 (a
"Subcustodian"). The Custodian may, at any time and from time to time, appoint
any bank or trust company (meeting the requirements of a custodian

<PAGE> 11

or a foreign custodian under the Investment Company Act of 1940 and the rules
and regulations thereunder) to act as a Subcustodian for the Fund, provided that
the Fund shall have approved in writing (1) any such bank or trust company and
the subcustodian agreement to be entered into between such bank or trust company
and the Custodian, and (2) if the subcustodian is a bank organized under the
laws of a country other than the United States, the holding of securities, cash
and other property of the Fund in the country in which it is proposed to utilize
the services of such subcustodian. Upon such approval by the Fund, the Custodian
is authorized on behalf of the Fund to notify each Subcustodian of its
appointment as such. The Custodian may, at any time in its discretion, remove
any bank or trust company that has been appointed as a Subcustodian but will
promptly notify the Fund of any such action.

Those Subcustodians, their offices or branches which the Fund has
approved to date are set forth on Appendix A hereto. Such Appendix shall be
amended from time to time as Subcustodians, branches or offices are changed,
added or deleted. The Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be held at a
location not listed on Appendix A, in order that there shall be sufficient time
for the Fund to give the approval required by the preceding paragraph and for
the Custodian to put the appropriate arrangements in place with such
Subcustodian pursuant to such subcustodian agreement.

Although the Fund does not intend to invest in a country before the
foregoing procedures have been completed, in the event that an investment is
made prior to approval, if practical, such security shall be removed to an
approved location or if not practical such security shall be held by such agent
as the Custodian may appoint. In such event, the Custodian shall be liable to
the Fund for the actions of such agent if and only to the extent the Custodian
shall have recovered from such agent for any damages caused the Fund by such
agent and provided that the Custodian shall pursue its rights against such
agent.

In the event that any Subcustodian appointed pursuant to the provisions
of this Section 3 fails to perform any of its obligations under the terms and
conditions of the applicable subcustodian

<PAGE> 12

agreement, the Custodian shall use its best efforts to cause such Subcustodian
to perform such obligations. In the event that the Custodian is unable to cause
such Subcustodian to perform fully its obligations thereunder, the Custodian
shall forthwith upon the Fund's request terminate such Subcustodian and, if
necessary or desirable, appoint another subcustodian in accordance with the
provisions of this Section 3. At the election of the Fund, it shall have the
right to enforce, to the extent permitted by the subcustodian agreement and
applicable law, the Custodian's rights against any such Subcustodian for loss or
damage caused the Fund by such Subcustodian.

At the written request of the Fund, the Custodian will terminate any
subcustodian Appointed pursuant to the provisions of this Section 3 in
accordance with the termination provisions under the applicable subcustodian
agreement. The Custodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder except upon the prior written approval
of the Fund.

In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the Fund of such claim. No more than thirty days
after written notice to the Fund of the Custodian's intention to make such
payment, the Fund will reimburse the Custodian the amount of such payment except
in respect of any negligence or misconduct of the Custodian.

4. The Custodian may assist generally in the preparation of reports to
Fund shareholders and others, audits of accounts, and other ministerial matters
of like nature.

5. A. The Custodian shall not be liable for any action taken or omitted
in reliance upon proper instructions believed by it to be genuine or upon any
other written notice, request, direction, instruction, certificate or other
instrument believed by it to be genuine and signed by the proper party or
parties. The Chairman of the Board of the Fund shall certify to the Custodian
the names, signatures and scope of authority of all persons authorized to give
proper instructions or any other such notice, request, direction, instruction,
certificate or instrument on behalf of the Fund, the names and signatures of
the officers of the Fund, the name and address of the Shareholder Servicing
Agent,

<PAGE> 13

and any resolutions, votes, instructions or directions of the Fund's Board of
Directors or shareholders. Such certificate may be accepted and relied upon by
the Custodian as conclusive evidence of the facts set forth therein and may be
considered in full force and effect until receipt of a similar certificate to
the contrary.

So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement.

The Custodian shall be entitled, at the expense of the Fund, (but only to
the extent such expenses are reasonable) to receive and act upon advice of
counsel (who may be counsel for the Fund) on all matters, and the Custodian
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.

B. With respect to the portfolio securities, cash and other property of
the Fund held by a Securities System, the Custodian shall be liable to the Fund
only for any loss or damage to the Fund resulting from use of the Securities
System if caused by any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or from any failure of
the Custodian or any such agent to enforce effectively such rights as it may
have against the Securities System.

C. The Custodian shall be liable to the Fund for any loss or damage to
the Fund caused by or resulting from the acts or omissions of any Subcustodian
if such acts or omissions would be deemed to be negligence, gross negligence or
willful misconduct hereunder if such acts or omissions were those of the
Custodian taken or omitted by the Custodian in the country in which the
Subcustodian is operating. The Custodian shall also be liable to the Fund for
its own negligence in transmitting any instructions received by it from the Fund
and for its own negligence in connection with the delivery of any securities or
funds held by it to any Subcustodian.

D. Except as may otherwise be set forth in this Agreement with respect to
particular matters, the Custodian shall be held only to the exercise of
reasonable care and diligence in carrying out the provisions of this Agreement,
provided that the Custodian shall not thereby be required to

<PAGE> 14

take any action which is in contravention of any applicable law. However,
nothing herein shall exempt the Custodian from liability due to its own
negligence or willful misconduct. The Fund agrees to indemnify and hold harmless
the Custodian and its nominees from all claims and liabilities (including
reasonable counsel fees) incurred or assessed against it or its nominees in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's breach of the relevant standard of conduct set forth in
this Agreement. Without limiting the foregoing indemnification obligation of the
Fund, the Fund agrees to indemnify the Custodian and its nominees against any
liability the Custodian or such nominee may incur by reason of taxes assessed to
the Custodian or such nominee or other costs, liability or expense incurred by
the Custodian or such nominee resulting directly or indirectly from the fact
that portfolio securities or other property of the Fund is registered in the
name of the Custodian or such nominee.

In order that the indemnification provisions contained in this Paragraph
5-C shall apply, however, it is understood that if in any case the Fund may be
asked to indemnify or hold the Custodian harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Custodian will use all reasonable care to
identify and notify the Fund promptly concerning any situation which presents or
appears likely to present the probability of such a claim for indemnification
against the Fund. The Fund shall have the option to defend the Custodian against
any claim which may be the subject of this indemnification, and in the event
that the Fund so elects it will so notify the Custodian, and thereupon the Fund
shall take over complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which it shall seek
indemnification under this Paragraph 5-C. The Custodian shall in no case confess
any claim or make any compromise in any case in which the Fund will be asked to
indemnify the Custodian except with the Fund's prior written consent.

It is also understood that the Custodian shall not be liable for any loss
involving any securities, currencies, deposits or other property of the Fund,
whether maintained by it, a

<PAGE> 15

Subcustodian, an agent of the Custodian or a Subcustodian, a Securities System,
or a Banking Institution, or a loss arising from a foreign currency transaction
or contract, resulting from a Sovereign Risk. A "Sovereign Risk" shall mean
nationalization, expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental authority, de
facto or de jure; or enactment, promulgation, imposition or enforcement by any
such governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Fund's property; or acts of war,
terrorism, insurrection or revolution; or any other similar act or event beyond
the Custodian's control.

E. The Custodian shall be entitled to receive reimbursement from the Fund
on demand, in the manner provided in Section 6, for its cash disbursements,
expenses and charges (including the fees and expenses of any Subcustodian or any
Agent) in connection with this Agreement, but excluding salaries and usual
overhead expenses.

F. The Custodian may at any time or times in its discretion appoint (and
may at any time remove) any other bank or trust company as its agent (an
"Agent") to carry out such of the provisions of this Agreement as the Custodian
may from time to time direct, provided, however, that the appointment of such
Agent (other than an Agent appointed pursuant to the third paragraph of Section
3) shall not relieve the Custodian of any of its responsibilities under this
agreement.

G. Upon request, the Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.

6. The Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the Custodian and
the Fund. Such fee, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 5D, shall be billed to the Fund in such a
manner as to permit payment by a direct cash payment to the Custodian.

7. This Agreement shall continue in full force and effect until
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid, to the other party, such termination to

<PAGE> 16

take effect not sooner than seventy five (75) days after the date of such
delivery or mailing. In the event of termination the Custodian shall be entitled
to receive prior to delivery of the securities, funds and other property held by
it all accrued fees and unreimbursed expenses the payment of which is
contemplated by Sections 5D and 6, upon receipt by the Fund of a statement
setting forth such fees and expenses.

In the event of the appointment of a successor custodian, it is agreed
that the funds and securities owned by the Fund and held by the Custodian or any
Subcustodian shall be delivered to the successor custodian, and the Custodian
agrees to cooperate with the Fund in execution of documents and performance of
other actions necessary or desirable in order to substitute the successor
custodian for the Custodian under this Agreement.

8. This Agreement constitutes the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof. No provision of
this Agreement may be amended or terminated except by a statement in writing
signed by the party against which enforcement of the amendment or termination is
sought.

In connection with the operation of this Agreement, the Custodian and the
Fund may agree in writing from time to time on such provisions interpretative of
or in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. No interpretative or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.

9. This instrument is executed and delivered in The Commonwealth of
Massachusetts and shall be governed by and construed according to the laws of
said Commonwealth.

10. Notices and other writings delivered or mailed postage prepaid to the
Fund addressed to the Fund in care of Mercury Asset Management International
Limited, 33 King William Street, London EC4R 9AS England or to such other
address as the Fund may have designated to the Custodian in writing, or to the
Custodian at 49 Water Street, Boston, Massachusetts 02109, Attention: Manager,
Securities Department, or to such other address as the Custodian may have
designated to the Fund in writing, shall be deemed to have been properly
delivered or given hereunder to the respective addressee.

<PAGE> 17

11. This Agreement shall be binding on and shall inure to the benefit of
the Fund and the Custodian and their respective successors and assigns, provided
that neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.

12. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original. This Agreement shall become effective when
one or more counterparts have been signed and delivered by each of the parties.

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.

BROWN BROTHERS HARRIMAN & CO.

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

MERCURY ASSET MANAGEMENT
MASTER TRUST

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

<PAGE> 18
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
MERCURY ASSET MANAGEMENT MASTER TRUST

and

BROWN BROTHERS HARRIMAN & CO.

Dated as of October 27, 1998

The following is a list of Portfolios for which the Custodian shall serve under
a Custodian Agreement dated as of October 27, 1998 (the "Agreement"):

MERCURY MASTER CORE U.S. GROWTH PORTFOLIO
MERCURY MASTER EMERGING ECONOMIC MARKETS PORTFOLIO
MERCURY MASTER GOLD & MINING PORTFOLIO
MERCURY MASTER INTERNATIONAL PORTFOLIO
MERCURY MASTER JAPAN CAPITAL PORTFOLIO
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO

IN WITNESS WHEREOF, each of the parties hereto has caused this Appendix to be
executed in its name and on behalf of each such Fund.

MERCURY ASSET MANAGEMENT BROWN BROTHERS HARRIMAN & CO.
FUNDS, INC.

By: /s/ GERALD M. RICHARD By: /s/ STOKLEY P. TOWLES
---------------------------- ----------------------------
Name: Gerald M. Richard Name: Stokley P. Towles
Title: TREASURER Title: Partner

<PAGE> 1
EXHIBIT 10

INDEPENDENT AUDITORS' CONSENT

Mercury Master International Portfolio,
Mercury Master Pan-European Growth Portfolio,
Mercury Master U.S. Large Cap Portfolio, and
Mercury Master Gold and Mining Portfolio of
Mercury Asset Management Master Trust:

We consent to the use in this Registration Statement of the Mercury Asset
Management Master Trust of our reports dated October 9, 1998 for Mercury Master
International Portfolio and Mercury Master Pan-European Portfolio, and January
21, 1999 for Mercury Master U.S. Large Cap Portfolio and Mercury Master Gold and
Mining Portfolio respectively, appearing in Part B of such Registration
Statement.

Deloitte & Touche LLP
Princeton, New Jersey
January 25, 1999

<PAGE> 1
EXHIBIT 12

CERTIFICATE OF HOLDERS OF BENEFICIAL INTERESTS

Mercury Asset Management Funds, Inc., and Mercury Funds Distributor, a
division of Princeton Funds Distributor, Inc., each a holder of the beneficial
interests in the amounts indicated below, of Mercury Asset Management Master
Trust (the "Trust"), do hereby confirm to the Trust their representations that
they purchased such shares for investment purposes, with no present intention of
redeeming or reselling any portion thereof.

Mercury Asset Management Funds, Inc.

By: /s/ GERALD M. RICHARD
---------------------------------

Mercury Funds Distributor,
a division of Princeton Funds Distributor,
Inc.

By: /s/ GERALD M. RICHARD
---------------------------------

Dated: January 12, 1999

<TABLE>
<CAPTION>
==========================================================================================
Mercury Master U.S. Large Mercury Master Gold and
Cap Portfolio of Mercury Mining Portfolio of Mercury
Asset Management Master Asset Management Master
Trust Trust
==========================================================================================
<S> <C> <C>
Mercury Asset Management
Funds, Inc. $100,000 $100,000
- ------------------------------------------------------------------------------------------
Mercury Funds Distributor,
a division of Princeton Funds
Distributor, Inc. $100 $100
- ------------------------------------------------------------------------------------------
Total $100,100 $100,100
==========================================================================================
</TABLE>