MERCURY ASSET MANAGEMENT FUNDS INC, N-1A, 1999-02-12

MERCURY ASSET MANAGEMENT FUNDS INC
N-1A, 1999-02-12

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999

SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-08797
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 9 [X]
(Check appropriate box or boxes)
------------------------
MERCURY GLOBAL BALANCED FUND
of Mercury Asset Management Funds, Inc.
(Exact name of Registrant as specified in charter)

800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (888) 763-2260

JEFFREY M. PEEK
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)

Copies to:

<TABLE>
<S> <C> <C>
Counsel for the Fund:
JOEL H. GOLDBERG, Esq. and
Swidler Berlin Shereff Friedman, LLP ROBERT E. PUTNEY, III, Esq.
919 Third Avenue P.O. Box 9011
New York, New York 10022 Princeton, New Jersey 08543-9011
</TABLE>

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of the Registration Statement.
------------------------

It is proposed that this filing will become effective

[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Mercury Asset Management Master Trust has also executed this Registration
Statement.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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- --------------------------------------------------------------------------------
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THE INFORMATION INS THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS - , 1999

Subject to Completion March , 1999

Mercury Global Balanced Fund
OF MERCURY ASSET MANAGEMENT FUNDS, INC.

[MERCURY ARTWORK]

A SUBSCRIPTION PERIOD FOR SHARES OF THE FUND
WILL END ON , UNLESS EXTENDED.

THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD
KNOW BEFORE INVESTING, INCLUDING INFORMATION
ABOUT RISKS. PLEASE READ IT BEFORE YOU INVEST
AND KEEP IT FOR FUTURE REFERENCE.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

[MERCURY ASSET MANAGEMENT LOGO]
<PAGE> 3

Table of Contents

[FUND FACTS ICON]
FUND FACTS
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About the Mercury Global Balanced Fund...................... 2
Fees and Expenses........................................... 6

[ABOUT THE DETAILS ICON]
ABOUT THE DETAILS
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How the Fund Invests........................................ 8
Investment Risks............................................ 10
Adviser's Historical Performance Data....................... 16

[ACCOUNT CHOICES ICON]
ACCOUNT CHOICES
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Pricing of Shares........................................... 21
How to Buy, Sell, Transfer and Exchange Shares.............. 26
How Shares are Priced....................................... 30
Fee-Based Programs.......................................... 30
Dividends, Capital Gains and Taxes.......................... 31

[THE MANAGEMENT TEAM ICON]
THE MANAGEMENT TEAM
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Management of the Fund...................................... 33
Master/Feeder Structure..................................... 33

[TO LEARN MORE ICON]
TO LEARN MORE
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Shareholder Reports....................................Back Cover
Statement of Additional Information....................Back Cover
</TABLE>

MERCURY GLOBAL BALANCED FUND

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[FUND FACTS ICON] Fund Facts

IN AN EFFORT TO HELP YOU BETTER UNDERSTAND THE MANY CONCEPTS INVOLVED IN MAKING
AN INVESTMENT DECISION, WE HAVE DEFINED THE HIGHLIGHTED TERMS IN THIS PROSPECTUS
IN THE SIDEBAR.

BONDS -- debt obligations issued by governments, corporations and other issuers.

COMMON STOCK -- units of ownership of a corporation.

PREFERRED STOCK -- class of capital stock that often pays dividends at a
specified rate and has preference over common stock in dividend payments and
liquidation of assets.

CONVERTIBLE SECURITIES -- corporate securities (usually preferred stock or
bonds) that are exchangeable for a fixed number of other securities
(usually common stock) at a set price or formula.

ABOUT THE MERCURY GLOBAL BALANCED FUND
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WHAT ARE THE FUND'S GOALS?

The Fund's main goal is a combination of long-term capital growth and current
income. The Fund's portfolio is managed in two segments. In one, the Fund tries
to choose investments that will increase in value. In the other, the Fund seeks
investments that will produce current income. We cannot guarantee that the Fund
will achieve its goal.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests in a mix of stocks and high quality BONDS of issuers located in
the U.S. and other developed countries. The Fund's neutral position consists of
approximately 60% of its portfolio in stocks and 40% in bonds, although the Fund
may vary each of these percentages up to 15% in either direction based on its
view of current economic and market conditions.

EQUITY PORTION

For the equity portion of its portfolio, the Fund invests primarily in stocks of
companies located in the U.S. and other developed countries that Fund management
believes are undervalued or have good prospects for earnings growth. A company's
stock is considered to be undervalued when its price is less than Fund
management believes it is worth. A company whose earnings per share grow faster
than inflation and the economy in general usually has a higher stock price over
time than a company with slower earnings growth. The Fund'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. The Fund also allocates
investments to particular countries when Fund management believes, based on an
evaluation of economic, political and social factors, that the country's economy
presents good prospects for overall economic growth. The Fund may purchase
COMMON STOCK, PREFERRED STOCK, and CONVERTIBLE SECURITIES and other instruments.
The Fund may invest in securities issued by companies of all sizes but will
focus mainly on medium and large companies. The Fund will not invest in
companies located in countries with emerging capital markets.

BOND PORTION

For the bond portion of its portfolio, the Fund invests primarily in government
bonds issued by the U.S. and other developed countries.

2 MERCURY GLOBAL BALANCED FUND
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[FUND FACTS ICON] Fund Facts

ASSET-BACKED SECURITIES -- securities that give their holders the right to
receive a portion of principal and/or interest payments made on a pool of loans,
such as residential or commercial mortgage loans, or credit card debt.

STRIPPED SECURITIES -- securities that take two pieces of a debt security
(principal and interest) and break them apart. The resulting two securities may
be sold separately and may perform differently.

The Fund may also invest in bonds issued or guaranteed by agencies of the U.S.
or foreign governments and supranational organizations such as the World Bank.
The Fund may also invest in bonds, including convertible bonds, issued by
corporations located in the U.S. or other developed countries and in ASSET-
BACKED SECURITIES, including mortgage-backed securities, and in STRIPPED
SECURITIES. The Fund limits its investments in bonds to those rated at least A
by Moody's Investors Services, Inc. and Standard & Poor's, or if unrated,
considered by Fund management to be of comparable quality. The Fund will not
invest in emerging market debt. The bond portion of the Fund's portfolio that is
not denominated in U.S. dollars normally will be hedged against U.S. dollars in
an effort to reduce the effect of currency fluctuations on the bond portion's
performance. In selecting bonds, Fund management considers, among other things,
the yield a bond provides and whether the issuer of the bond has the ability to
continue paying that yield.

The Fund invests all of its assets in a Portfolio of Mercury Asset Management
Master Trust that has the same goals as the Fund. All investments will be made
at the level of the Portfolio. This structure is sometimes called a
"master/feeder" structure. The Fund's investment results will correspond
directly to the investment results of the underlying Portfolio it invests in.
For simplicity, this Prospectus uses the term "Fund" to include the underlying
Portfolio the Fund invests in.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

As with any mutual fund, the value of the Fund's investments, and, therefore,
the value of your Fund shares, may go up or down. If the value of the Fund's
investments goes down, you may lose money. The value changes in the equity
portion of the Fund's investments may occur because a particular stock market is
rising or falling. At other times, there are specific factors that may affect
the value of a particular investment. The Fund is also subject to the risk that
the stocks the Fund's adviser selects will underperform the markets or other
funds with similar investment objectives and investment strategies.

The bond portion of the Fund's portfolio is subject to interest rate, credit
rate and currency risk. Interest rate risk is the risk that when interest rates
go up, the value of debt instruments generally goes down. 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. Credit risk
is the risk that the issuer will be unable to pay the interest or principal when
due. The degree of credit risk depends on both the financial condition of the
issuer and the terms of the obligation. Although Fund management will seek to

MERCURY GLOBAL BALANCED FUND 3
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[FUND FACTS ICON] Fund Facts

reduce the effects of currency fluctuations on the bond portion of the Fund's
portfolio by using hedging techniques, its techniques may not be successful. At
times, hedging instruments may not be available or cost effective. The Fund is
not required to hedge and may not do so.

In addition, because the Fund may invest a significant portion of its assets in
non-U.S. securities, the Fund will be subject to additional risks. For example,
the Fund'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
foreign investment. Non-U.S. securities may also be less liquid, more volatile
and harder to value than U.S. securities.

4 MERCURY GLOBAL BALANCED FUND
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[FUND FACTS ICON] Fund Facts

WHO SHOULD INVEST?

The Fund may be an appropriate investment for you if you:

- Are looking for both long term growth and current income, and are
willing to accept less of each in seeking a balance between the
two.

- Want to diversify your holdings geographically through equity and
debt investments in the U.S. and in countries outside the U.S.

- Can tolerate the increased price volatility and currency
fluctuations associated with investments in non-U.S. securities.

- Want a professionally managed portfolio.

- Are prepared to receive taxable short-term capital gains and
ordinary income.

MERCURY GLOBAL BALANCED FUND 5
<PAGE> 8

[FUND FACTS ICON] Fund Facts

UNDERSTANDING EXPENSES

FUND INVESTORS PAY VARIOUS EXPENSES, EITHER DIRECTLY OR INDIRECTLY. LISTED BELOW
ARE SOME OF THE MAIN TYPES OF EXPENSES, WHICH ALL MUTUAL FUNDS MAY CHARGE:

EXPENSES PAID DIRECTLY BY THE SHAREHOLDER:

SHAREHOLDER FEES -- these include sales charges and redemption fees, which you
may pay when you buy or sell shares of the Fund.

EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER:

ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.

MANAGEMENT FEE -- a fee paid to the investment adviser for managing the Fund.

DISTRIBUTION FEES -- fees used to support the Fund's marketing and distribution
efforts, such as advertising and promotion.

SERVICE (ACCOUNT MAINTENANCE) FEES -- fees used to compensate dealers for
account maintenance activities.

FEES AND EXPENSES
- --------------------------------------------------------------------------------

The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not everyone
is eligible to buy every class. After determining which classes you are eligible
to buy, decide which class best suits your needs. Your financial consultant can
help you with this decision.

THIS TABLE SHOWS THE DIFFERENT FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD THE DIFFERENT CLASSES OF SHARES OF THE FUND. FUTURE EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED BELOW.

<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM
YOUR INVESTMENT): CLASS I CLASS A CLASS B(b) CLASS C
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<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on purchases (as
a percentage of offering price) 5.25%(c) 5.25%(c) None None
- ------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or redemption
proceeds, whichever is lower) None(d) None(d) 4.00%(c) 1.00%(c)
- ------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) imposed on Dividend
Reinvestments None None None None
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Redemption Fee None None None None
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Exchange Fee None None None None
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Maximum Account Fee None None None None
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ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)(a):
- ------------------------------------------------------------------------------------------------------------
Management Fee(e) 0.60% 0.60% 0.60% 0.60%
- ------------------------------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees(f) None 0.25% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------
Other Expenses (Including transfer agency fees)(g) 0.56% 0.56% 0.56% 0.56%
Administrative Fees(h) 0.20% 0.20% 0.20% 0.20%
----- ----- ----- -----
Total Other Expenses 0.76% 0.76% 0.76% 0.76%
- ------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES(i) 1.36% 1.61% 2.36% 2.36%
- ------------------------------------------------------------------------------------------------------------
</TABLE>

(a) The fees and expenses include the expenses of both the Fund and the
Portfolio it invests in.

(b) Class B shares automatically convert to Class A shares about eight years
after you buy them and will no longer be subject to distribution fees.
(c) Some investors may qualify for reductions in the sales charge (load).

(d) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.

(e) Paid by the Portfolio. The investment adviser pays the sub-adviser out of
this fee. The investment adviser or its affiliate provides accounting
services to the Portfolio at its cost.

(f) The Fund calls the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other materials. If you hold Class B or C shares for a long time, it may
cost you more in distribution (12b-1) fees than the maximum sales charge
that you would have paid if you had bought one of the other classes. Class B
and C shares pay a Distribution Fee of 0.75% and a Service (Account
Maintenance) Fee of 0.25%. Class A shares pay only a Service (Account
Maintenance) Fee of 0.25%.

(g) Based on estimated amounts for the current fiscal year. The Transfer Agent
is an affiliate of the investment adviser. The Fund pays the Transfer Agent
a fee for each shareholder account and reimburses it for out-of-pocket
expenses. The fee ranges from $11.00 to $23.00 per account

6 MERCURY GLOBAL BALANCED FUND

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[FUND FACTS ICON] Fund Facts

Footnotes continued from previous page

(depending on the level of services required), but is set at 0.10% for
certain accounts that participate in certain fee-based programs.

(h) Paid by the Fund. The administrator provides accounting services to the Fund
at its cost.

(i) In addition, certain securities dealers may charge a fee to process a
purchase or sale of shares.

EXAMPLE

These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.

These examples assume that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year, that you pay the
sales charges, if any, that apply to the particular class and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in these examples. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:

Expenses if you did redeem your shares:

<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR 656 680 639 339
- ------------------------------------------------------------------------------------------
THREE YEARS 933 1,006 1,036 736
- ------------------------------------------------------------------------------------------
</TABLE>

Expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR 656 680 239 239
- ------------------------------------------------------------------------------------------
THREE YEARS 933 1,006 736 736
- ------------------------------------------------------------------------------------------
</TABLE>

MERCURY GLOBAL BALANCED FUND 7
<PAGE> 10
[ABOUT THE DETAILS ICON] About the Details

ABOUT THE PORTFOLIO MANAGEMENT TEAM -- The equity portion of the Fund's
portfolio is managed by members of a team of investment professionals who
participate in the team's research process and stock selection. This team is
also responsible for determining the allocation of the Fund's assets between
equity securities and bonds. The senior investment professionals in this group
include . is primarily responsible for the day-to-day
management of the equity portion of the Fund's portfolio.

The bond portion of the Fund's portfolio is managed by members of a team of
investment professionals who participate in the team's research process and
bond selection. The senior investment professionals in this group include .
is primarily responsible for the day-to-day management of the bond
portion of the Fund's portfolio.

ABOUT THE INVESTMENT ADVISER -- Mercury Asset Management International Ltd. is
the investment adviser.

HOW THE FUND INVESTS
- --------------------------------------------------------------------------------

The Fund's main goal is a combination of long-term capital growth and current
income. The Fund invests in a mix of stocks and high quality bonds of issuers
located in the U.S. and other developed countries. The Fund's neutral position
consists of approximately 60% of its portfolio in stocks and 40% in bonds,
although the Fund may vary each of these percentages up to 15% in either
direction based on its view of current economic and market conditions.

In selecting equity securities, the Fund emphasizes those securities that Fund
management believes to be undervalued or have good prospects for earnings
growth. 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 Fund management believes a share of the company is worth. Fund
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 a company with slower earnings growth. The
Fund'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. The
Fund also allocates investments to developed countries

8 MERCURY GLOBAL BALANCED FUND
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[ABOUT THE DETAILS ICON] About the Details

that Fund management believes, based on an evaluation of economic, political and
social factors, present good prospects for overall economic growth. Current
income from dividends and interest will not be an important consideration in
selecting equity securities. The Fund may invest in companies of any size, but
tends to focus on medium and large companies.

In selecting bonds, Fund management considers, among other things, the yield a
bond provides and whether the issuer of the bond has the ability to continue
paying that yield. Fund management will evaluate the financial strengths and the
creditworthiness of bond issuers in determining the potential risks and benefits
of an investment. The Fund will choose bonds of various types, maturities and
issuers based on its assessment of general market and economic conditions. The
Fund limits its investments to bonds rated at least A by Moody's Investors
Services, Inc. and Standard & Poor's, or if unrated, considered by Fund
management to be of comparable quality. Of these, at least 80% will be rated
AA/Aa or higher, or if unrated, of comparable quality. The Fund's bond
investments can have any maturity, and there are no limits on the average
maturity of the bond portion of the Fund's portfolio.

Bonds will include debt issued by the following types of entities:

- U.S. government and its agencies

- Governments in other developed countries and their agencies

- Supranational organizations (e.g., World Bank)

- Corporations located in the U.S. and other developed countries

The Fund may also invest in asset-backed securities, including mortgage-backed
securities and in stripped securities. That portion of the Fund's bond portfolio
that is not denominated in U.S. dollars normally will be hedged against U.S.
dollars in an effort to reduce the effect of currency fluctuations on the bond
portion's performance.

The Fund will not invest in companies located in countries with emerging capital
markets or in emerging market debt. The Fund will invest in part based on the
Fund's evaluation of a country's economic, political and social factors. The
Fund may invest in debt securities that are issued together with a particular
equity security. The Fund may 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.

MERCURY GLOBAL BALANCED FUND 9
<PAGE> 12
[ABOUT THE DETAILS ICON] About the Details

The Fund considers an issuer 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.

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

The Fund will normally invest almost all of its assets as described above. The
Fund may, however, invest in short-term instruments, such as money market
securities and repurchase agreements, to meet redemptions. The Fund may also
reduce its exposure to equity securities and longer term bonds by making short-
term investments, purchasing a higher percentage of high quality bonds or buying
or selling derivatives, when the Fund 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 your shares and may
reduce the level of current income.

The Fund may use many different strategies in seeking its investment objectives
and it has certain investment restrictions. These strategies and certain of the
restrictions and policies governing the Fund's investments are explained in the
Fund's Statement of Additional Information. If you would like to learn more
about the Fund, request the Statement of Additional Information.

INVESTMENT RISKS
- --------------------------------------------------------------------------------

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

STOCK MARKET RISK

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

10 MERCURY GLOBAL BALANCED FUND
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[ABOUT THE DETAILS ICON] About the Details

SELECTION RISK

Selection risk is the risk that the investments that Fund management selects
will underperform the stock or bond market or other funds with similar
investment objectives and investment strategies.

CREDIT RISK

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

INTEREST RATE RISK

Interest rate risk is the risk that prices of bonds generally increase when
interest rates decline and decrease when interest rates increase. Prices of
longer term securities generally change more in response to interest rate
changes than prices of shorter term securities. The Fund can hold bonds of any
maturity. As a result, if the Fund invests a large amount in long-term bonds,
the Fund's value could change significantly in response to a relatively small
change in interest rates. Stripped securities may be highly sensitive to changes
in interest rates.

LIQUIDITY, INFORMATION AND VALUATION RISKS

Certain securities, including 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 the Fund would like. Restricted
securities have contractual or legal restrictions on their resale and include
"private placement" securities that the Fund 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.

FOREIGN GOVERNMENT DEBT

The Fund may invest in debt securities issued or guaranteed by foreign
governments or their agencies. Investments in these securities subject the Fund
to the risk that a government entity may delay or refuse to pay interest or
repayment of principal on its debt for various reasons, including cash flow
problems, insufficient foreign currency reserves, political considerations, or
the relative size of its debt position to its economy. If a government entity
defaults, it may ask for more time in which to pay or for further loans. There
may be no

MERCURY GLOBAL BALANCED FUND 11
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[ABOUT THE DETAILS ICON] About the Details

bankruptcy proceeding by which all or part of debt securities that a government
entity has not repaid may be collected.

MORTGAGE-BACKED SECURITIES

When interest rates fall, borrowers may refinance or otherwise repay principal
on their mortgages earlier than scheduled. When this happens, certain types of
mortgage backed securities will be paid off more quickly than originally
anticipated and the Fund has to invest the proceeds in securities with lower
yields. This risk is known as "prepayment risk." When interest rates rise,
certain types of mortgage backed securities will be paid off more slowly than
originally anticipated and the value of these securities will fall. This risk is
known as "extension risk."

Because of prepayment risk and extension risk, mortgage-backed securities react
differently to changes in interest rates than other debt securities. Small
movements in interest rates (both increase and decrease) may quickly and
significantly reduce the value of certain mortgage-backed securities. Stripped
mortgage-backed securities are highly sensitive to changes in prepayment and
interest rates.

ASSET-BACKED SECURITIES

Like traditional fixed-income securities, the value of asset-backed securities
typically increases when interest rates fall and decreases when interest rates
rise. Certain asset-backed securities may also be subject to the risk of
prepayment. In a period of declining interest rates, borrowers may pay what they
owe on the underlying assets more quickly than anticipated. Prepayment reduces
the yield to maturity and the average life of the asset-backed securities. In
addition, when the Fund reinvests the proceeds of a prepayment it may receive a
lower interest rate than the rate on the security that was prepaid. In a period
of rising interest rates, prepayments may occur at a slower rate than expected.
As a result, the average maturity of the Fund's portfolio will increase. The
value of long-term securities generally changes more widely in response to
changes in interest rates than shorter-term securities.

CURRENCY HEDGING RISK

The bond portion of the Fund may use currency hedges in an effort to reduce the
effect of currency fluctuations on the bond portion's performance. The Fund's
currency hedges may not be effective or cost efficient and can limit the
potential for growth in the Fund's share value. There is also a risk that the
desired currency hedges will not be available due to market or regulatory

12 MERCURY GLOBAL BALANCED FUND
<PAGE> 15
[ABOUT THE DETAILS ICON] About the Details

factors. They are also subject to the risk that the counterparty will be unable
to honor its financial obligations to the Fund.

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 and eliminate fluctuations in
their currencies. EMU has established a single European currency (the euro),
which was introduced on January 1, 1999 has replaced the existing national
currencies of all initial EMU participants. The use of notes and coins of the
relevant national currencies will be phased out by July 1, 2002. Upon
introduction of the euro, certain securities (beginning with government and
corporate bonds) were redenominated in the euro. These securities trade and make
dividend and other payments only in euros. Like other investment companies and
business organizations, including the companies in which the Fund invests, the
Fund could be adversely affected:

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

- If a participating country withdraws from EMU.

- If the computing, accounting and trading systems used by the
Fund's service providers, or by other entities with which the Fund
or its service providers do business, do not recognize the euro as
a distinct currency.

OTHER FOREIGN SECURITY RISKS

- The value of the Fund'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.

- The Fund'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 the Fund's non-U.S.
holdings.

[- The Fund may be able to invest in certain small non-U.S. markets
only by investing in another fund that in turn invests in

MERCURY GLOBAL BALANCED FUND 13
<PAGE> 16
[ABOUT THE DETAILS ICON] About the Details

those markets. It may cost the Fund more to buy shares of these
funds than it would to buy the non-U.S. securities directly.]

- 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 the Fund's assets may be uninvested
and not earning returns. The Fund may miss investment
opportunities or be unable to dispose of a security because of
these delays.

BORROWING AND LEVERAGE

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

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

DERIVATIVES

The Fund 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 the Fund 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 Fund invests
in derivatives, the investments may not be effective as a hedge against price
movements and can limit potential for growth in Fund share value. Other risks
include:

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

- 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.

14 MERCURY GLOBAL BALANCED FUND
<PAGE> 17
[ABOUT THE DETAILS ICON] About the Details

- 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, the Fund could receive lower
interest payments or experience a reduction in the value of the
derivative to below what the Fund 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.

The Fund may use the following types of derivative instruments: futures,
forwards, options, asset-backed securities, stripped securities, indexed and
inverse securities and swaps.

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 the Fund to sell the securities back to the issuer or a third party at a
time that is disadvantageous to the Fund.

MERCURY GLOBAL BALANCED FUND 15
<PAGE> 18
[ABOUT THE DETAILS ICON] About the Details

STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

If you would like further information about the Fund, including additional
details about how it invests, please see the Statement of Additional
Information.

ADVISER'S HISTORICAL PERFORMANCE DATA
- --------------------------------------------------------------------------------

The following tables present historical performance data for all accounts that
have been managed by the investment adviser or another Mercury investment
adviser and that have substantially similar (although not necessarily identical)
objectives and policies to the Fund's. These accounts have been managed using
investment styles and strategies substantially similar to those to be used in
managing the Fund. THESE FIGURES DO NOT REPRESENT THE PERFORMANCE OF THE FUND.
The Fund is newly organized and does not yet have a performance record. The
Fund's actual performance may be higher or lower, and past performance is no
guarantee of future results.

The composite figures shown in the tables presented below were calculated in the
following manner:

- Many of the accounts in the composite were managed by the
investment adviser's Mercury affiliates. All personnel of the
investment adviser and its Mercury affiliates are employed by a
single holding company. Portfolio managers perform management
services for accounts of various Mercury advisers, including the
Fund's investment adviser, depending on the nature of each
adviser's clients. The investment process, including the resources
available to the portfolio managers and the supervisory review, is
the same across advisers. As a practical matter, there is no
significant distinction between the process used in determining
the recommendations of the investment adviser and those of its
Mercury affiliates.

- The accounts included in the composite are not U.S. mutual funds,
and are not subject to the same rules and regulations (for
example, diversification and liquidity requirements and
restrictions on transactions with affiliates) as the Fund, or to
the same types of expenses that the Fund will pay. These
differences might have adversely affected the performance figures
shown below.

16 MERCURY GLOBAL BALANCED FUND
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[ABOUT THE DETAILS ICON] About the Details

- The Fund will calculate its performance using a formula specified
by the Securities and Exchange Commission. Unlike the Fund, some
of the accounts in the historical composite did not value their
assets on a daily basis and therefore, the Securities and Exchange
Commission formula could not be used. As a result, the performance
figures shown below have been calculated using a somewhat
different formula known as the "Modified Dietz Method." Although
both formulas produce a time weighted rate of return, the use of
the Securities and Exchange Commission formula might have
adversely affected the performance figures shown.

- The composite figures have been calculated by weighting the
performance of each included account by the level of the account's
total assets at the beginning of each monthly or quarterly period.
Accounts were added to the composite as of the first full quarter
under management and excluded at the end of the last full quarter
under management. Accordingly, the number of accounts included in
the composite vary by quarter, from at the beginning
of to in the most recent quarter.

- The performance of each of the accounts in the composite may have
been influenced by the level of the account's total assets. Had an
account's assets been different, its performance might have been
higher or lower.

- The accounts presented were accounted for in various base
currencies other than U.S. dollars. The Fund will calculate its
net asset value daily in U.S. dollars. For purposes of this
presentation, the accounts' performance history was converted into
U.S. dollars on at least a quarterly basis using exchange rate
movements to approximate the equivalent U.S. dollar returns which
might have been achieved.

- The figures shown below represent the performance, converted to
U.S. dollars, of the composite's included accounts. THEY ARE NOT
THE PERFORMANCE OF THE FUND. Figures show total returns. Total
return shows you how much an investment has changed in value over
the stated time period and includes both capital appreciation and
income. The first table reflects average annual total returns.
This smooths out variations in annual performance

MERCURY GLOBAL BALANCED FUND 17
<PAGE> 20
[ABOUT THE DETAILS ICON] About the Details

by averaging returns over the stated period. The second table
shows actual total returns for each one year period.

- To provide you with additional information, these composite
performance figures are presented two different ways. The "Gross
of Fees and Charges" row reflects the composite's gross
performance -- that is, performance before any deductions for fees
or expenses. These figures are hypothetical and presented for
information only; they do not reflect actual performance of the
accounts because the accounts would have paid fees and expenses.
The first table (average annual total returns) also includes a
"Net of Fees and Charges" section, which reflects adjustments of
the gross performance to reflect the deduction of all of the fees
and expenses that the Fund and a shareholder is projected to pay
as shown in the "Fees and Expenses" section at the beginning of
the Prospectus. Like the gross figures, the net figures are
hypothetical, because they do not reflect the actual fees and
charges paid by the included accounts. The net figures assume the
shareholder bought the shares at the beginning of the period and
sold (redeemed) the shares at the end of the period. To the extent
the Fund's expenses deviate from the projections, the "Net of Fees
and Charges" figures will be inaccurate. The effect would be
greater over longer periods due to compounding. The "Net of Fees
and Charges" performance figures differ by class because the sales
charges and account maintenance fees differ for each class of
shares. The net figures shown -- that is, the performance results
after all applicable deductions -- are equal to or lower than the
actual net results of the included accounts.

- Both tables include figures for two benchmark indexes (MSCI World
Index and Salomon World Government Bond Index) and for the Lipper
[Global Flexible Portfolios] universe so that you can compare the
composite's performance to the performance of the market as a
whole. The MSCI World Index and Salomon World Government Bond
Index are unmanaged indexes and do not reflect any fees or
charges. The Lipper [Global Flexible Portfolios] Average reflects
advisory fees and other fees and charges, but does not reflect
front-end or contingent deferred sales charges.

18 MERCURY GLOBAL BALANCED FUND
<PAGE> 21
[ABOUT THE DETAILS ICON] About the Details

AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

THIS IS NOT THE FUND'S PERFORMANCE.
<TABLE>
<CAPTION>

FOR FOR FOR FOR
ONE-YEAR TWO-YEAR THREE-YEAR FOUR-YEAR
PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1998 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Composite of Similar Accounts,
Recalculated:
- ---------------------------------------------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- ---------------------------------------------------------------------------------------------------------------------
CLASS I FEES AND CHARGES % % % %
- ---------------------------------------------------------------------------------------------------------------------
CLASS A FEES AND CHARGES
- ---------------------------------------------------------------------------------------------------------------------
CLASS B FEES AND CHARGES
- ---------------------------------------------------------------------------------------------------------------------
CLASS C FEES AND CHARGES
- ---------------------------------------------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3):
- ---------------------------------------------------------------------------------------------------------------------
MSCI WORLD INDEX (4):
- ---------------------------------------------------------------------------------------------------------------------
SALOMON WORLD GOVERNMENT BOND INDEX (5):
- ---------------------------------------------------------------------------------------------------------------------
LIPPER [GLOBAL FLEXIBLE PORTFOLIOS]
AVERAGE (DOES NOT INCLUDE SALES
CHARGES) (6):
- ---------------------------------------------------------------------------------------------------------------------

<CAPTION>
FOR
FOR FOR SIX-YEAR AND
FIVE-YEAR SIX-YEAR NINE-MONTH
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1998(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED:
- -------------------------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- -------------------------------------------------------------------------------------------------
CLASS I FEES AND CHARGES % % %
- -------------------------------------------------------------------------------------------------
CLASS A FEES AND CHARGES
- -------------------------------------------------------------------------------------------------
CLASS B FEES AND CHARGES
- -------------------------------------------------------------------------------------------------
CLASS C FEES AND CHARGES
- -------------------------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3):
- -------------------------------------------------------------------------------------------------
MSCI WORLD INDEX (4):
- -------------------------------------------------------------------------------------------------
SALOMON WORLD GOVERNMENT BOND INDEX (5):
- -------------------------------------------------------------------------------------------------
LIPPER [GLOBAL FLEXIBLE PORTFOLIOS]
AVERAGE (DOES NOT INCLUDE SALES CHARGES)
(6):
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) The investment adviser and its affiliates first began managing accounts with
substantially similar objectives and policies to those of the Fund on
.

(2) Reflects the reinvestment of dividends and distributions, and the deduction
of all fees and expenses that the Fund and a shareholder are projected to
pay (including the maximum front-end sales charges paid when purchasing
shares, or the maximum deferred sales charge paid upon redeeming shares at
the end of each period shown). To the extent the Fund's expenses deviate
from the projections, the "Net of Fees and Charges" figures will be
inaccurate. The effect would be greater over longer periods due to
compounding.

(3) Does not reflect the deduction of any fees, charges or expenses other than
certain brokerage commissions. These figures are hypothetical and presented
for information only; they do not reflect actual performance of the accounts
because the accounts would have paid fees and expenses.

(4) An unmanaged geographically diversified index of [insert description]. No
sales charges, 12b-1 fees or advisory fees, and no other expenses (e.g.,
custody or brokerage fees) are reflected in the total returns of the Index.
Index returns reflect reinvestment of net dividends and distributions.

(5) An unmanaged geographically diversified index of [insert description]. No
sales charges, 12b-1 fees or advisory fees, and no other expenses (e.g.,
custody or brokerage fees) are reflected in the total returns of the Index.
Index returns reflect reinvestment of net dividends and distributions.

(6) An average of the performance of other U.S. investment companies that
[insert description]. The average does not reflect front-end or contingent
deferred sales charges that might be paid by an investor in a fund included
in the average, but does include 12b-1 fees, advisory fees and other
expenses. The average also reflects reinvestment of dividends and
distributions.

MERCURY GLOBAL BALANCED FUND 19
<PAGE> 22
[ABOUT THE DETAILS ICON] About the Details

TOTAL RETURNS ON AN ANNUAL BASIS
- --------------------------------------------------------------------------------

THIS IS NOT THE FUND'S PERFORMANCE.

<TABLE>
<CAPTION>
FOR EACH YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994 1993 1992(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED: GROSS OF FEES AND
CHARGES (2): % % % % % % %
- --------------------------------------------------------------------------------------------------
MSCI WORLD INDEX (3):
- --------------------------------------------------------------------------------------------------
SALOMON WORLD GOVERNMENT BOND INDEX
(4):
- --------------------------------------------------------------------------------------------------
LIPPER [GLOBAL FLEXIBLE PORTFOLIOS]
AVERAGE (DOES NOT INCLUDE SALES
CHARGES) (5):
- --------------------------------------------------------------------------------------------------
</TABLE>

(1) The investment adviser and its affiliates first began managing accounts with
substantially similar objectives and policies to those of the Fund on
.

(2) Reflects the reinvestment of dividends and distributions. Does not reflect
the deduction of any fees, charges or expenses, other than certain brokerage
commissions. These figures are hypothetical and presented for information
only; they do not reflect actual performance of the accounts because the
accounts would have paid fees and expenses. If these fees and expenses were
included, the performance figures would be lower.

(3) An unmanaged geographically diversified index of [insert description]. No
sales charges, 12b-1 fees or advisory fees, and no other expenses (e.g.,
custody or brokerage fees) are reflected in the total returns of the Index.
Index returns reflect reinvestment of net dividends and distributions.

(5) An average of the performance of other U.S. investment companies that
[insert description]. The average does not reflect front-end or contingent
deferred sales charges that might be paid by an investor in a fund included
in the average, but does include 12b-1 fees, advisory fees and other
expenses. The average also reflects reinvestment of dividends and
distributions.

20 MERCURY GLOBAL BALANCED FUND
<PAGE> 23
[ACCOUNT CHOICES ICON] Account Choices

PRICING OF SHARES
- --------------------------------------------------------------------------------

The Fund offers four classes of shares, each with its own sales charge and
expense structure allowing you to invest in the way that best suits your needs.
Each share class represents an ownership interest in the same investment
portfolio. The class of shares you should choose will be affected by the size of
your investment and how long you plan to hold your shares. Your financial
consultant can help you determine which pricing option is best suited to your
personal financial goals.

For example, if you select Class I or A, you generally pay a sales charge at the
time of purchase. If you buy Class A shares, you also pay an ongoing account
maintenance fee of 0.25%. You may be eligible for a sales charge waiver.

If you select Class B or C shares, you will invest the full amount of your
purchase price, but you will be subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. Because these fees are paid out of the Fund's
assets on an ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales charge. In
addition, you may be subject to a deferred sales charge when you sell Class B or
C shares.

The Fund's shares are distributed by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.

A subscription period for the shares will end on , 1999, unless
extended. Subscriptions will be payable, shares will be issued and the Fund will
commence operations on the third business day after the end of the subscription
period. The Fund or the Distributor can terminate the subscription offering at
any time, in which case the Fund will not commence operations or will commence
operations with a limited number of shares.

After the Fund commences operations, shares can be purchased on each business
day.

MERCURY GLOBAL BALANCED FUND 21
<PAGE> 24
[ACCOUNT CHOICES ICON] Account Choices

To better understand the pricing of the Fund's shares, we have summarized the
information below:

<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABILITY? LIMITED TO CERTAIN GENERALLY AVAILABLE GENERALLY AVAILABLE GENERALLY AVAILABLE
INVESTORS INCLUDING: THROUGH SELECTED THROUGH SELECTED THROUGH SELECTED
- Current Class I SECURITIES DEALERS. SECURITIES DEALERS. SECURITIES DEALERS.
shareholders
- Certain Retirement
Plans
- Participants of
certain sponsored
programs
- Certain affiliates of
selected securities
dealers
- ---------------------------------------------------------------------------------------------------------------------------
INITIAL SALES CHARGE? YES. PAYABLE AT TIME OF YES. PAYABLE AT TIME OF NO. ENTIRE PURCHASE NO. ENTIRE PURCHASE
PURCHASE. LOWER SALES PURCHASE. LOWER SALES PRICE IS INVESTED IN PRICE IS INVESTED IN
CHARGES AVAILABLE FOR CHARGES AVAILABLE FOR SHARES OF THE FUND. SHARES OF THE FUND.
CERTAIN LARGER CERTAIN LARGER
INVESTMENTS. INVESTMENTS.
- ---------------------------------------------------------------------------------------------------------------------------
DEFERRED SALES NO. (MAY BE CHARGED FOR NO. (MAY BE CHARGED FOR YES. PAYABLE IF YOU YES. PAYABLE IF YOU
CHARGE? PURCHASES OVER $1 PURCHASES OVER $1 REDEEM WITHIN SIX YEARS REDEEM WITHIN ONE YEAR
MILLION THAT ARE MILLION THAT ARE OF PURCHASE. OF PURCHASE.
REDEEMED WITHIN ONE REDEEMED WITHIN ONE
YEAR.) YEAR.)
- ---------------------------------------------------------------------------------------------------------------------------
ACCOUNT MAINTENANCE NO. 0.25% ACCOUNT 0.25% ACCOUNT 0.25% ACCOUNT
AND DISTRIBUTION MAINTENANCE FEE. NO MAINTENANCE FEE. 0.75% MAINTENANCE FEE. 0.75%
FEES? DISTRIBUTION FEE. DISTRIBUTION FEE. DISTRIBUTION FEE.
- ---------------------------------------------------------------------------------------------------------------------------
CONVERSION TO CLASS A NO. NO. YES, AUTOMATICALLY NO.
SHARES? AFTER APPROXIMATELY 8
YEARS.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

22 MERCURY GLOBAL BALANCED FUND
<PAGE> 25
[ACCOUNT CHOICES ICON] Account Choices

RIGHT OF ACCUMULATION -- permits you to pay the sales charge applicable to the
cost or value (whichever is higher) of all shares you own in the Mercury mutual
funds.

LETTER OF INTENT -- permits you to pay the sales charge that would be applicable
if you add up all shares of Mercury mutual funds that you agree to buy within a
13 month period. Certain restrictions apply.

CLASS I AND A SHARES -- INITIAL SALES CHARGE OPTIONS

The public offering price of Class I and Class A shares during the subscription
period is $10.00 per share. If you select Class I or A shares, you will pay a
sales charge at the time of purchase (whether during or after the subscription
period) as shown in the following table. During the subscription period,
securities dealers will receive compensation equal to the entire sales charge
(and therefore, may be deemed to be underwriters). After the subscription
period, the dealer compensation will be as shown in the last column.

<TABLE>
<CAPTION>
DEALER
COMPENSATION
AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT* OFFERING PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
LESS THAN $25,000 5.25% 5.54% 5.00%
- ---------------------------------------------------------------------------------------
$25,000 BUT LESS THAN
$50,000 4.75% 4.99% 4.50%
- ---------------------------------------------------------------------------------------
$50,000 BUT LESS THAN
$100,000 4.00% 4.17% 3.75%
- ---------------------------------------------------------------------------------------
$100,000 BUT LESS THAN
$250,000 3.00% 3.09% 2.75%
- ---------------------------------------------------------------------------------------
$250,000 BUT LESS THAN
$1,000,000 2.00% 2.04% 1.80%
- ---------------------------------------------------------------------------------------
$1,000,000 AND OVER** 0.00% 0.00% 0.00%
- ---------------------------------------------------------------------------------------
</TABLE>

* Rounded to the nearest one-hundredth percent.

** If you invest $1,000,000 or more in Class I or A shares, you may not pay an
initial sales charge. However, if you redeem your shares within one year
after purchase, you may be charged a deferred sales charge. This charge is 1%
of the lesser of the original cost of the shares being redeemed or your
redemption proceeds. A sales charge of 0.75% will be charged on purchases of
$1,000,000 or more of Class I and A shares by certain employer sponsored
retirement or savings plans.

No initial sales charge applies to Class I or Class A shares that you buy
through reinvestment of dividends or distributions.

A reduced or waived sales charge on a purchase of Class I or A shares may apply
for:
- Purchases under a RIGHT OF ACCUMULATION or LETTER OF INTENT.

- Certain trusts managed by banks, thrifts or trust companies
including those affiliated with Mercury or its affiliates.

- Certain employer-sponsored retirement or savings plans.

MERCURY GLOBAL BALANCED FUND 23
<PAGE> 26
[ACCOUNT CHOICES ICON] Account Choices

- Certain investors, including directors of mutual funds sponsored
by Mercury or its affiliates, employees of Mercury and its
affiliates, and employees of selected dealers.

- Certain fee-based programs managed by Mercury or its affiliates.

- Certain fee-based programs managed by selected dealers that have
an agreement with Mercury.

- Purchases through certain financial advisers that meet and adhere
to standards established by Mercury.

Only certain investors are eligible to buy Class I shares, including existing
Class I shareholders of the Fund, certain retirement plans and participants in
certain programs sponsored by Mercury or its affiliates. Your financial
consultant can help you determine whether you are eligible to buy Class I shares
or to participate in any of these programs.

If you decide to buy shares under the initial sales charge alternative and you
are eligible to buy both Class I and Class A shares, you should buy Class I
shares since Class A shares are subject to an account maintenance fee, while
Class I shares are not.

If you redeem Class I or Class A shares and within 30 days buy new shares of the
same class, you will not pay a sales charge on the new purchase amount. The
amount eligible for this "Reinstatement Privilege" may not exceed the amount of
your redemption proceeds. To exercise the privilege, contact your financial
consultant or the Fund's Transfer Agent at 1-888-763-2260.

CLASS B AND C SHARES -- DEFERRED SALES CHARGE OPTIONS

If you select Class B or Class C shares, you do not pay an initial sales charge
at the time of purchase. However, if you redeem your Class B shares within six
years after purchase or Class C shares within one year after purchase, you may
be required to pay a deferred sales charge. You will also pay distribution fees
of 0.75% and account maintenance fees of 0.25% each year under a distribution
plan that the Fund has adopted under Rule 12b-1 under the Investment Company Act
of 1940. The Distributor uses the money that it receives from the deferred sales
charge and the distribution fees to cover the costs of marketing, advertising
and compensating the financial consultant or other dealer who assists you in
your decision to purchase Fund shares. The public offering price of Class B and
C shares during the subscription period will be $10.00 per share.

24 MERCURY GLOBAL BALANCED FUND
<PAGE> 27
[ACCOUNT CHOICES ICON] Account Choices

CLASS B SHARES

If you redeem Class B shares within six years after purchase, you may be charged
a deferred sales charge. The amount of the charge gradually decreases as you
hold your shares over time, according to the following schedule:

<TABLE>
<CAPTION>
YEAR SINCE PURCHASE SALES CHARGE*
- ----------------------------------------
<S> <C>
0 - 1 4.00%
- ----------------------------------------
1 - 2 4.00%
- ----------------------------------------
2 - 3 3.00%
- ----------------------------------------
3 - 4 3.00%
- ----------------------------------------
4 - 5 2.00%
- ----------------------------------------
5 - 6 1.00%
- ----------------------------------------
6 AND AFTER 0.00%
- ----------------------------------------
</TABLE>

* The percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares acquired by
dividend or capital gain reinvestment are not subject to a deferred sales
charge. Mercury funds may not all have identical deferred sales charge
schedules. In the event of an exchange for the shares of another Mercury fund,
the higher charge, if any, would apply.

The deferred sales charge relating to Class B shares may be reduced or waived in
certain circumstances, such as:

- Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old (certain legal
documentation may be required at the time of liquidation
establishing eligibility for qualified distribution).

- Redemption by certain eligible 401(a) and 401(k) plans and certain
retirement plan rollovers.

- Redemption in connection with participation in certain fee-based
programs managed by Mercury or its affiliates.

- Redemption in connection with participation in certain fee-based
programs managed by selected dealers that have agreements with
Mercury.

- Withdrawals resulting from shareholder death or disability as long
as the waiver request is made within one year after death or
disability or, if later, reasonably promptly following completion
of probate, or in connection with involuntary termination of an
account in which Fund shares are held (certain legal documentation
may be required at the time of liquidation establishing
eligibility for qualified distribution).

MERCURY GLOBAL BALANCED FUND 25
<PAGE> 28
[ACCOUNT CHOICES ICON] Account Choices

- Withdrawal through the Systematic Withdrawal Plan of up to 10% per
year of your account value at the time the plan is established.

Your Class B shares convert automatically into Class A shares approximately
eight years after purchase. Any Class B shares received through reinvestment of
dividends or distributions paid on converting shares will also convert at that
time. Class A shares are subject to lower annual expenses than Class B shares.
The conversion of Class B shares to Class A shares is not a taxable event for
federal income tax purposes.

Different conversion schedules may apply to Class B shares of different Mercury
mutual funds. If you acquire your Class B shares in an exchange from another
fund with a shorter conversion schedule, the Fund's eight year conversion
schedule will apply. If you exchange your Class B shares in the Fund for Class B
shares of a fund with a longer conversion schedule, the other fund's conversion
schedule will apply. In any event, the length of time that you hold the original
and exchanged Class B shares in both funds will count toward the conversion
schedule.

The conversion schedule may be modified in certain other cases as well.

CLASS C SHARES

If you redeem Class C shares within one year after purchase, you may be charged
a deferred sales charge of 1.00%. The charge will apply to the lesser of the
original cost of the shares being redeemed or the proceeds of your redemption.
You will not be charged a deferred sales charge when you redeem shares that you
acquire through reinvestment of Fund dividends or distributions. The deferred
sales charge relating to Class C shares may be reduced or waived in connection
with certain fee-based programs.

Class C shares do not offer a conversion privilege.

HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- --------------------------------------------------------------------------------

The chart below summarizes how to buy, sell, transfer and exchange shares
through certain securities dealers. You may also buy shares through the Transfer
Agent. To learn more about buying shares through the Transfer Agent, call
1-888-763-2260. Because the selection of a mutual fund involves many
considerations, your financial consultant may help you with this decision. The
Fund does not issue share certificates.

26 MERCURY GLOBAL BALANCED FUND
<PAGE> 29
[ACCOUNT CHOICES ICON] Account Choices

<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BUY SHARES First, select the share class Please refer to the pricing of shares table on page 22. Be
appropriate for you sure to read this Prospectus carefully.
-------------------------------------------------------------------------------------------------
Next, determine the amount of The minimum initial investment for the Fund is $1,000 for
your investment all accounts except:
- $500 for certain fee-based programs
- $100 for retirement plans

(The minimums for initial investments may be waived or
reduced under certain circumstances.)
-------------------------------------------------------------------------------------------------
Have your financial consultant The price of your shares is based on the next calculation of
or securities dealer submit net asset value after your order is placed. Any purchase
your purchase order orders placed within fifteen minutes after the close of
business on the New York Stock Exchange will be priced at
the net asset value determined that day.

Purchase orders received after that time will be priced at
the net asset value determined on the next business day. The
Fund may reject any order to buy shares and may suspend the
sale of shares at any time. Certain securities dealers may
charge a fee to process a purchase. For example, the fee
charged by Merrill Lynch, Pierce, Fenner & Smith
Incorporated is currently $5.35. The fees charged by other
securities dealers may be higher or lower.
-------------------------------------------------------------------------------------------------
Or contact the Transfer Agent Instead of purchasing through a financial consultant or
securities dealer, you can purchase shares of the Fund by
calling the Transfer Agent to request an application and
mailing a purchase order directly to the Transfer Agent at
the address on the inside back cover of this Prospectus.
- ------------------------------------------------------------------------------------------------------------------------
ADD TO YOUR Purchase additional shares The minimum investment for additional purchases is $100 for
INVESTMENT all accounts except:
- $50 for certain fee-based programs
- $1 for retirement plans

(The minimums for additional purchases may be waived under
certain circumstances.)
-------------------------------------------------------------------------------------------------
Acquire additional shares All dividends and capital gains distributions are
through the automatic dividend automatically reinvested without a sales charge.
reinvestment plan
-------------------------------------------------------------------------------------------------
Participate in the automatic You may automatically invest a specific amount in the Fund
investment plan on a periodic basis through your securities dealer:

- The current minimum for such automatic investments is $50.
The minimum may be waived or revised under certain
circumstances.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

MERCURY GLOBAL BALANCED FUND 27
<PAGE> 30
[ACCOUNT CHOICES ICON] Account Choices

<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSFER SHARES TO Transfer to a participating To transfer your shares of the Fund to another securities
ANOTHER SECURITIES securities dealer dealer, authorized dealer agreements must be in place
DEALER between the Distributor and the transferring securities
dealer and the Distributor and the receiving securities
dealer. All shareholder services will be available for all
transferred shares. All future trading of these shares must
be coordinated by the receiving securities dealer.
-------------------------------------------------------------------------------------------------
Transfer to a non-participating You cannot transfer your shares of the Fund to a securities
securities dealer dealer that does not have an authorized dealer agreement
with the Distributor.
You must either:
- Transfer your shares to an account with the Transfer
Agent; or
- Sell your shares.
- ------------------------------------------------------------------------------------------------------------------------
SELL YOUR SHARES Have your financial consultant The price of your shares is based on the next calculation of
or securities dealer submit net asset value after your order is placed. For your
your sales order redemption request to be priced at the net asset value on
the day of your request, you must submit your request to
your dealer within fifteen minutes after that day's close of
business on the New York Stock Exchange (the New York Stock
Exchange generally closes at 4:00 p.m. Eastern time). Any
redemption request placed after that time will be priced at
the net asset value at the close of business on the next
business day. Dealers must submit redemption requests to the
Fund not more than thirty minutes after the close of
business on the New York Stock Exchange on the day the
request was received.

Certain securities dealers may charge a fee to process a
sale of shares. For example, the fee charged by Merrill
Lynch, Pierce, Fenner & Smith Incorporated is currently
$5.35. The fees charged by other securities dealers may be
higher or lower.

The Fund may reject an order to sell shares under certain
circumstances.
-------------------------------------------------------------------------------------------------
Sell through the Transfer Agent You may sell shares held at the Transfer Agent by writing to
the Transfer Agent at the address on the inside back cover
of this Prospectus. All shareholders on the account must
sign the letter and signatures must be guaranteed. Depending
on the type of account and/or type of distribution, certain
additional documentation may be required. The Transfer Agent
will normally mail sale proceeds within seven days following
receipt of a properly completed request. If you make a sales
order request before the Fund has collected payment for the
purchase of shares, the Fund or the Transfer Agent may delay
mailing your proceeds. This delay usually will not exceed
ten days.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

28 MERCURY GLOBAL BALANCED FUND
<PAGE> 31
[ACCOUNT CHOICES ICON] Account Choices

<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELL SHARES Participate in the Fund's You can generally arrange through your selected dealer for
SYSTEMATICALLY Systematic Redemption Program systematic sales of shares of a fixed dollar amount on a
monthly, bi-monthly, quarterly, semi-annual or annual basis,
subject to certain conditions. You must have dividends and
other distributions automatically reinvested. For Class B
and C shares your total annual withdrawals cannot be more
than 10% of the value of your shares at the time the Program
is established. The deferred sales charge is waived for
systematic sales of shares. Ask your financial consultant
for details.
- ------------------------------------------------------------------------------------------------------------------------
EXCHANGE YOUR Select the fund into which you You can exchange your shares of the Fund for shares of other
SHARES want to exchange. Be sure to Mercury mutual funds or for shares of the Summit Cash
read that fund's prospectus Reserves Fund. You must have held the shares used in the
exchange for at least 15 calendar days before you can
exchange to another fund.

Each class of Fund shares is generally exchangeable for
shares of the same class of another Mercury fund. If you own
Class I or Class A shares and wish to exchange into Summit,
you will exchange into Class A shares of Summit. Class B or
Class C shares can be exchanged for Class B shares of
Summit.

Some of the Mercury mutual funds may impose a different
initial or deferred sales charge schedule. If you exchange
Class I or Class A shares for shares of a fund with a higher
initial sales charge than you originally paid, you may be
charged the difference at the time of exchange. If you
exchange Class B or Class C shares for shares of a fund with
a different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or Class C
shares in both funds will count when determining your
holding period for calculating a deferred sales charge at
redemption. Your time in both funds will also count when
determining the holding period for a conversion from Class B
to Class A shares.

Although there is currently no limit on the number of
exchanges that you can make, the exchange privilege may be
modified or terminated at any time in the future.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

MERCURY GLOBAL BALANCED FUND 29
<PAGE> 32
[ACCOUNT CHOICES ICON] Account Choices

NET ASSET VALUE -- the market value in U.S. dollars of a Fund's total assets
after deducting liabilities, divided by the number of shares outstanding.

HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------

When you buy shares, you pay the NET ASSET VALUE, plus any applicable sales
charge. This is the offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Fund calculates its net
asset value (generally by using market quotations) each day the New York Stock
Exchange is open, fifteen minutes after the close of business on the Exchange
(the Exchange generally closes at 4:00 p.m. Eastern time). The net asset value
used in determining your price is the next one calculated after your purchase or
redemption order is placed. Net asset value is generally calculated by valuing
each security or other asset at its closing price for the day. Many of the
Fund'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 the Fund's
net asset value. Non-U.S. securities sometimes trade on days that the New York
Stock Exchange is closed. As a result, the Fund's net asset value may change on
days when you will not be able to purchase or redeem the Fund's shares. If an
event occurs after the close of a non-U.S. exchange that is likely to
significantly affect the Fund's net asset value, "fair value" pricing may be
used. This means that the Fund may value its foreign holdings at prices other
than their last closing prices, and the Fund'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.

Generally, Class I shares will have the highest net asset value, because that
class has the lowest expenses, and Class A shares will have a higher net asset
value than Class B or Class C shares. Also, dividends paid on Class I and Class
A shares will generally be higher than dividends paid on Class B and Class C
shares because Class I and Class A shares have lower expenses.

FEE-BASED PROGRAMS
- --------------------------------------------------------------------------------

If you participate in certain fee-based programs offered by Mercury or an
affiliate of Mercury, or by selected dealers that have an agreement with
Mercury, you may be able to buy Class I shares at net asset value, including
through exchange from other share classes. Sales charges on the shares being
exchanged may be reduced or waived under certain circumstances.

30 MERCURY GLOBAL BALANCED FUND
<PAGE> 33
[ACCOUNT CHOICES ICON] Account Choices

DIVIDENDS -- income paid to shareholders. Dividends may be reinvested in
additional Fund shares as they are paid.

DISTRIBUTIONS -- capital gains paid to shareholders. Distributions may be
reinvested in the Fund as they are paid.

You generally cannot transfer shares held through a fee-based program into
another account. Instead, you will have to redeem your shares held through the
program and purchase shares of another class, which may be subject to
distribution and account maintenance fees. This may be a taxable event and you
will pay any applicable sales charges.

If you leave one of these programs, your shares may be redeemed or automatically
exchanged into another class of Fund shares or into the Summit fund. The class
you receive may be the class you originally owned when you entered the program,
or in certain cases, a different class. If the exchange is into Class B shares,
the period before conversion to Class A shares may be modified. Any redemption
or exchange will be at net asset value. However, if you participate in the
program for less than a specified period, you may be charged a fee in accordance
with the terms of the program.

Details about these features and the relevant charges are included in the client
agreement for each fee-based program and are available from your financial
consultant or your selected dealer.

DIVIDENDS, CAPITAL GAINS AND TAXES
- --------------------------------------------------------------------------------

The Fund will distribute any net investment income and any net realized long or
short-term capital gains at least annually. The Fund may also pay a special
distribution at the end of the calendar year to comply with federal tax
requirements. DIVIDENDS and DISTRIBUTIONS may be reinvested automatically in
shares of the Fund at net asset value without a sales charge or may be taken in
cash. If your account is with a securities dealer that has an agreement with the
Fund, contact your financial consultant about which option you would like. If
your account is with the Transfer Agent, and you would like to receive dividends
and distributions in cash, contact the Transfer Agent.

You will pay tax on dividends and distributions from the Fund whether you
receive them in cash or additional shares.

If you redeem Fund shares or exchange them for shares of another fund, any gain
on the transaction may be subject to tax.

The Fund intends to make distributions that will either be taxed as ordinary
income or capital gains. Capital gains distributions may be taxable at different
rates depending on the length of time the Fund has held the assets sold.

MERCURY GLOBAL BALANCED FUND
31
<PAGE> 34
[ACCOUNT CHOICES ICON] Account Choices

"BUYING A DIVIDEND"

Unless your investment is in a tax-deferred account, you may want to avoid
buying shares shortly before the Fund pays a dividend or distribution. The
reason? If you buy shares when a fund has realized but not yet distributed
income or capital gains, you will pay the full price for the shares and then
receive a portion of the price back in the form of a taxable distribution.
Before investing you may want to consult your tax advisor.

The Fund expects to make an election that will require you to include in income
your share of foreign withholding taxes paid by the Fund. You will be entitled
to treat these taxes as taxes paid by you, and therefore, deduct such taxes in
computing your taxable income or, in some cases, to use them as foreign tax
credits against the U.S. income taxes you otherwise owe.

If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.

By law, the Fund must withhold 31% of your distributions and redemption proceeds
if you have not provided a taxpayer identification number or social security
number.

This section summarizes some of the consequences under current federal tax law
of an investment in the Fund. It is not a substitute for personal tax advice.
Consult your personal tax advisor about the potential tax consequences of an
investment in the Fund under all applicable tax laws.

32 MERCURY GLOBAL BALANCED FUND
<PAGE> 35
[THE MANAGEMENT TEAM ICON] The Management Team

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

Mercury Asset Management International Ltd. manages the underlying Portfolio's
investments under the overall supervision of the Board of Trustees of the
Mercury Asset Management Master Trust. The investment adviser and its affiliates
have the responsibility for making all investment decisions for the Fund.

The senior investment professionals in the groups that have managed the Fund's
portfolio since the Fund started operations include:

[To be provided by subsequent amendment]

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 and the investment adviser gives the investment
adviser the responsibility for making all investment decisions.

The investment adviser is paid at the rate of 0.60% of the Portfolio's average
daily net assets.

Fund Asset Management, L.P., an affiliate of Mercury, will manage daily cash
assets. The Fund does not pay any incremental fee for this service, although
Mercury may make payments to Fund Asset Management, L.P. See "Fees and Expenses"
under "Fund Facts" for information about the fees paid to Mercury Asset
Management and its affiliates.

The Fund does not have an investment adviser, since the Fund's assets will be
invested in its corresponding Portfolio. Fund Asset Management, L.P. provides
administrative services to the Fund.

MASTER/FEEDER STRUCTURE
- --------------------------------------------------------------------------------

Unlike many other mutual funds, which directly buy and manage their own
portfolio securities, the Fund seeks to achieve its investment objectives by
investing all its assets in the corresponding Portfolio of the Mercury Asset
Management Master Trust. Investors in the Fund will acquire an indirect interest
in the underlying Portfolio.

Other "feeder" funds may also invest in the "master" Portfolio. This structure
may enable the Fund to reduce costs through economies of scale. A larger

MERCURY GLOBAL BALANCED FUND 33
<PAGE> 36
[THE MANAGEMENT TEAM ICON] The Management Team

investment portfolio may also reduce certain transaction costs to the extent
that contributions to and redemptions from the master from different feeders may
offset each other and produce a lower net cash flow.

The Fund may withdraw from the Portfolio at any time and may invest all of its
assets in another pooled investment vehicle or retain an investment adviser to
manage the Fund's assets directly.

Smaller feeder funds may be harmed by the actions of larger feeder funds. For
example, a larger feeder fund could have more voting power than the Fund over
the operations of the Portfolio.

Whenever the Portfolio holds a vote of its feeder funds, the Fund will pass the
vote through to its own shareholders.

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 Fund could be adversely
affected if the computer systems used by Fund management or other Fund service
providers do not properly address this problem before January 1, 2000. Fund
management expects to have addressed this problem before then, and does not
anticipate that the services it provides will be adversely affected. The Fund's
other service providers have told the administrator that they also expect to
resolve the Year 2000 Problem, and the administrator will continue to monitor
the situation as the year 2000 approaches. However, if the problem has not been
fully addressed, the Fund could be negatively affected. The Year 2000 Problem
could also have a negative impact on the companies in which the Fund invests,
and this could hurt the Fund's investment returns.

34 MERCURY GLOBAL BALANCED FUND
<PAGE> 37

[This page intentionally left blank]

MERCURY GLOBAL BALANCED FUND
<PAGE> 38

[This page intentionally left blank]

MERCURY GLOBAL BALANCED FUND
<PAGE> 39
[THE MANAGEMENT TEAM ICON] The Management Team

FUND
Mercury Global Balanced Fund
of Mercury Asset Management Funds, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(888-763-2260)

INVESTMENT ADVISER
Mercury Asset Management International Ltd.
33 King William Street
London EC4R 9AS
England

ADMINISTRATOR AND SUB-ADVISER
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536

TRANSFER AGENT
Financial Data Services, Inc.
P.O. Box 44062
Jacksonville, Florida 32232-4062
(888-763-2260)

INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400

DISTRIBUTOR
Mercury Funds Distributor,
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081

CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109

COUNSEL
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022

MERCURY GLOBAL BALANCED FUND
<PAGE> 40
[TO LEARN MORE ICON] To Learn More

SHAREHOLDER REPORTS

Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the relevant market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. You may obtain these reports at no cost by calling 1-888-763-2260.

If you hold your Fund shares through a brokerage account or directly at the
Transfer Agent, you may receive only one copy of each shareholder report and
certain other mailings regardless of the number of Fund accounts you have. If
you prefer to receive separate shareholder reports for each account (or if you
are receiving multiple copies and prefer to receive only one), call your
financial consultant or, if none, write to the Transfer Agent at its mailing
address. Include your name, address, tax identification number and brokerage or
mutual fund account number. If you have any questions, please call your
financial consultant or the Transfer Agent at 1-888-763-2260.

STATEMENT OF ADDITIONAL INFORMATION

The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this Prospectus). You may request a free copy by writing or calling the Fund
at Financial Data Services, Inc., P.O. Box 44062, Jacksonville, Florida
32232-4062 or by calling 1-888-763-2260.

Contact your financial consultant or the Fund at the telephone number or address
indicated on the inside back cover of this Prospectus if you have any questions.

Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet Site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS
AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM THE
INFORMATION CONTAINED IN THIS PROSPECTUS.

Investment Company Act File #811-08797.

CODE # 19054-0399
(C) Mercury Asset Management International Ltd.

Mercury Global Balanced Fund
OF MERCURY ASSET MANAGEMENT FUNDS, INC.

[MERCURY ARTWORK]

PROSPECTUS - , 1999

[MERCURY ASSET MANAGEMENT LOGO]

<PAGE> 41

THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION MARCH , 1999

STATEMENT OF ADDITIONAL INFORMATION

MERCURY GLOBAL BALANCED FUND
of Mercury Asset Management Funds, Inc.

P.O. Box 9011, Princeton, New Jersey 08543-9011
Phone No. (888) 763-2260

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

Mercury Global Balanced Fund (the "Fund") is a series of Mercury Asset
Management Funds, Inc. (the "Corporation" or "Mercury"). The Fund is an open-end
diversified investment company (commonly known as a mutual fund). The investment
objective of the Fund is a combination of long-term capital growth and current
income. The Fund seeks to achieve this objective through investments in a mix of
stocks and high quality bonds of issuers located in the U.S. and other developed
countries. The Fund will seek to achieve its investment objective by investing
all of its assets in Mercury Master Global Balanced Portfolio (the "Portfolio"),
which is the portfolio of Mercury Asset Management Master Trust (the "Trust")
that has the same investment objective as the Fund. The Fund's investment
experience will correspond directly to the investment experience of the
Portfolio. There can be no assurance that the investment objective of the Fund
will be achieved.

The Fund offers four classes of shares, each with a different combination
of sales charges, ongoing fees and other features. This permits an investor to
choose the method of purchasing shares that the investor believes is most
beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. The Fund's
distributor is Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.

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

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Fund, dated , 1999
(the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling
the Fund at 888-763-2260 or your financial consultant, or by writing to the
address listed above. This Statement of Additional Information incorporates by
reference the Prospectus.

MERCURY ASSET MANAGEMENT INTERNATIONAL LTD. -- INVESTMENT ADVISER
MERCURY FUNDS DISTRIBUTOR -- DISTRIBUTOR

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

The date of this Statement of Additional Information is
, 1999.
<PAGE> 42

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.......................... 2
Investment Restrictions................................... 11
Management of the Fund...................................... 13
Directors and Officers.................................... 13
Compensation of Directors/Trustees........................ 14
Administration Arrangements............................... 15
Management and Advisory Arrangements...................... 15
Code of Ethics............................................ 17
Purchase of Shares.......................................... 17
Initial Sales Charge Alternatives -- Class I and Class A
Shares................................................. 18
Reduced Initial Sales Charges............................. 18
Distribution Plans........................................ 20
Limitations on the Payment of Deferred Sales Charges...... 22
Redemption of Shares........................................ 22
Redemption................................................ 22
Repurchase................................................ 23
Reinstatement Privilege -- Class I and Class A Shares..... 23
Deferred Sales Charges -- Class B and Class C Shares...... 24
Portfolio Transactions and Brokerage........................ 25
Determination of Net Asset Value............................ 26
Shareholder Services........................................ 28
Investment Account........................................ 28
Automatic Investment Plan................................. 28
Automatic Dividend Reinvestment........................... 28
Systematic Redemption Program............................. 29
Retirement Plans.......................................... 30
Exchange Privilege........................................ 30
Fee-Based Programs........................................ 31
Dividends, Distributions and Taxes.......................... 31
Dividends and Distributions............................... 31
Taxes..................................................... 32
Tax Treatment of Options and Futures Transactions......... 34
Other Tax Matters......................................... 34
Performance Data............................................ 35
General Information......................................... 36
Description of Shares..................................... 36
Computation of Offering Price Per Share................... 36
Independent Auditors...................................... 37
Custodian................................................. 37
Transfer Agent............................................ 37
Legal Counsel............................................. 37
Reports to Shareholders................................... 37
Additional Information.................................... 37
Independent Auditors Report.................................
Financial Statements........................................
Appendix A.................................................. A-1
Appendix B.................................................. B-1
</TABLE>
<PAGE> 43

INVESTMENT OBJECTIVES AND POLICIES

The goal (that is, the investment objective) of the Fund is a combination
of long-term capital growth and current income. This is a fundamental policy and
cannot be changed without shareholder approval. The Fund tries to achieve its
goal by investing in a mix of stocks and high quality bonds of issuers located
in the U.S. and other developed countries. The Fund's neutral position consists
of approximately 60% of its portfolio in stocks and 40% in bonds, although the
Fund may vary each of these percentages up to 15% in either direction based on
its view of current economic and market conditions. Reference is made to "How
the Fund Invests" in the Prospectus for a discussion of the investment objective
and policies of the Fund.

The Fund will seek to achieve its investment objective by investing all of
its assets in the Portfolio, which is a portfolio of the Trust that has the same
investment objective as the Fund. The Fund's investment experience and results
will correspond directly to the investment experience of the Portfolio. Thus,
all investments will be made at the level of the Portfolio. For simplicity,
however, with respect to investment objective, policies and restrictions, this
Statement of Additional Information, like the Prospectus, uses the term "Fund"
to include the underlying Portfolio in which the Fund invests. Reference is made
to the discussion under "How the Fund Invests" and "Investment Risks" in the
Prospectus for information with respect to the Fund's and the Portfolio's
investment objective and policies. There can be no guarantee that the Fund's
investment objective will be achieved.

For purposes of the Fund's policy to invest in the U.S. and other developed
countries, 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. The Fund, however, may also 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. The Fund also may consider closed-end
investment companies to be located in the country or countries in which they
primarily make their portfolio investments.

While it is the policy of the Fund 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 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 Fund. If such restrictions should be reinstituted, it might become
necessary for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective or
fundamental policies to determine whether changes are appropriate. Any changes
in the investment objective or fundamental policies set forth under "Investment
Restrictions" below would require the approval of the holders of a majority of
the Fund's outstanding voting securities.

The Fund'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 strategy, although there can be no assurance in this regard.

The Fund may invest in the securities of non-U.S. issuers in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary 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 the
Prospectus and below). ADRs are receipts typically issued by a U.S. 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

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<PAGE> 44

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 Fund 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.

The Fund's investment objective and policies are described in "How the Fund
Invests" in the Prospectus. Certain types of securities in which the Fund may
invest and certain investment practices that the Fund may employ are discussed
more fully below.

International Investing. International investments involve certain risks
not typically involved in domestic investments, including fluctuations in
foreign exchange rates, future political and economic developments, different
legal systems and the existence or possible imposition of exchange controls or
other U.S. or non-U.S. governmental laws or restrictions applicable to such
investments. Securities prices in different countries are subject to different
economic, financial and social factors. Because the Fund 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
investment in those countries. In addition, certain non-U.S. investments may be
subject to non-U.S. withholding taxes. As a result, management of the Fund 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 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 1, 1999 and has replaced the existing national currencies
of all EMU participants. The use of notes and coins of the relevant national
currencies will be phased out by July 1, 2002. Upon implementation of EMU,
certain securities issued in participating EU countries (beginning with
government and corporate bonds) were or are being redenominated in the euro, and
thereafter, will be listed, traded, and make dividend and other payments only in
euros.

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

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<PAGE> 45

from the euro conversion may be taxable to Fund shareholders under foreign or,
in certain limited circumstances, U.S. tax laws.

Many of the securities held by the Fund will not be registered in the U.S.
with the Securities and Exchange 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.

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
the Fund incurring additional costs and delays in transporting and custodying
such securities outside such countries. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon and could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems either
could result in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund 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"), the Fund 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 the Fund 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 the Fund acquires shares in
closed-end investment companies, shareholders would bear both their
proportionate share of expenses in the Fund (including investment advisory fees)
and, indirectly, the expenses of such closed-end investment companies. The Fund
also may seek, at its own cost, to create its own investment entities under the
laws of certain countries.

In some countries, banks or other financial institutions may constitute a
substantial number of the leading companies or companies with the most
actively-traded securities. The Investment Company Act limits the Fund'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 the Fund's
investments in certain foreign banks and other financial institutions.

As described above, the Fund may invest outside the U.S. The securities
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 markets occurs, it may reduce risk for the Fund's
portfolio as a whole. This negative correlation also may offset unrealized gains
the Fund has derived from movements in a particular market. To the extent the
various markets move independently, total portfolio volatility is reduced when
the various markets are combined into a single portfolio. Of course, movements
in the various securities markets may be offset by changes in foreign currency
exchange rates, where the different markets are denominated in different
currencies. Exchange rates frequently move independently of securities markets
in a particular country. As a result, gains in a particular securities market
may be affected by changes in exchange rates.

Debt Securities. The Fund may hold convertible and non-convertible debt
securities, non-convertible securities and preferred securities. The Fund may
hold debt securities in the following classes: U.S. Treasury

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<PAGE> 46

and agency securities, U.S. corporate bonds, foreign corporate bonds, foreign
sovereign debt (debt securities issued or guaranteed by foreign governments and
governmental agencies), supranational debt (debt securities issued by entities,
such as the World Bank, constituted by the governments of several countries to
promote economic development) and mortgage-backed securities. These debt
securities may have any maturity. The Fund may invest in debt securities either
rated in one of the top three rating categories by a nationally recognized
statistical rating organization or unrated but, in the Investment Adviser's
judgment, possessed of similar credit characteristics. At least 80% of the
Fund's investments in debt securities will be rated in one of the top two rating
categories. The Investment Adviser considers ratings as one of several factors
in its independent credit analysis of issuers.

Debt securities are subject to interest rate and credit risk. Interest rate
risk is the risk that when interest rates go up, the value of debt instruments
generally goes down. 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. Credit risk is the risk that the issuer will be unable
to pay the interest or principal when due. The degree of credit risk depends on
both the financial condition of the issuer and the terms of the obligation.

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

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

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

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

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

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

Holders of convertible securities generally have a claim on the assets of
the issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may
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<PAGE> 47

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

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

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

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

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

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<PAGE> 48

particular risk may effectively change a security that was considered short or
intermediate-term at the time of purchase into a long-term security. Since
long-term securities generally fluctuate more widely in response to changes in
interest rates than shorter-term securities, maturity extension risk could
increase the inherent volatility to the Fund. See "Debt Securities" above and
"Illiquid Securities" below.

Stripped Mortgage-Backed Securities. The Fund may also invest in
mortgage-backed security strips ("MBS strips") (1) issued by the U.S. and
foreign government agencies or instrumentalities or (2) issued by private
originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special purpose subsidiaries
of the foregoing (derivative multiclass mortgage securities). MBS strips are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. A common type
of stripped mortgage security will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yields to maturity on IOs and POs are
sensitive to the expected or anticipated rate of principal payments (including
prepayments) on the related underlying mortgage assets, and principal payments
may have a material effect on yield to maturity. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the Fund
may not fully recoup its initial investment in IOs. Conversely, if the
underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially adversely affected. Derivative
mortgage-backed securities such as MBS strips are highly sensitive to changes in
prepayment and interest rates.

Asset-Backed Securities. Asset-backed securities are "pass-through"
securities, meaning that principal and interest payments made by the borrower on
the underlying assets (such as credit card receivables) are passed through to
the Fund. The value of asset-backed securities, like that of traditional
fixed-income securities, typically increases when interest rates fall and
decreases when interest rates rise. However, asset-backed securities differ from
traditional fixed-income securities because of their potential for prepayment.
The price paid by the Fund for its asset-backed securities, the yield the Fund
expects to receive from such securities and the average life of the securities
are based on a number of factors, including the anticipated rate of prepayment
of the underlying assets. In a period of declining interest rates, borrowers may
prepay the underlying assets more quickly than anticipated, thereby reducing the
yield to maturity and the average life of the asset-backed securities. Moreover,
when the Fund reinvests the proceeds of a prepayment in these circumstances, it
will likely receive a rate of interest that is lower than the rate on the
security that was prepaid. To the extent that the Fund purchases asset-backed
securities at a premium, prepayments may result in a loss to the extent of the
premium paid. If the Fund buys such securities at a discount, both scheduled
payments and unscheduled prepayments will increase current and total returns and
will accelerate the recognition of income which, when distributed to
shareholders, will be taxable as ordinary income. In a period of rising interest
rates, prepayments of the underlying assets may occur at a slower than expected
rate, creating maturity extension risk. This particular risk may effectively
change a security that was considered short or intermediate-term at the time of
purchase into a long-term security. Since long-term securities generally
fluctuate more widely in response to changes in interest rates than shorter-term
securities, maturity extension risk could increase the inherent volatility of
the Fund. See "Debt Securities" above and "Illiquid Securities" below.

Borrowing and Leverage. The Fund 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. The Fund 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, the Fund may use borrowing to enable it to meet
redemptions.

The use of leverage by the Fund 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 Fund shares and in the yield on
the Fund's portfolio. Although the principal of such borrowings will be fixed,
the Fund's assets may change in value during the time the borrowings are
outstanding. Borrowings will create interest
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<PAGE> 49

expenses for the Fund 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 the Fund will have
to pay on the borrowings, the Fund'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 Fund 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 Fund's leveraged position if it expects that the benefits to the Fund's
shareholders of maintaining the leveraged position will outweigh the current
reduced return.

Illiquid or Restricted Securities. The Fund 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 the Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where the Fund's operations require cash, such as
when the Fund redeems shares or pays dividends, and could result in the Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.

The Fund may invest in securities that are "restricted securities."
Restricted securities have contractual or legal restrictions on their resale and
include "private placement" securities that the Fund 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 the Fund are required to be registered under the securities laws of one or
more jurisdictions before being resold, the Fund may be required to bear the
expenses of registration. Certain of the Fund'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, the Fund may obtain access to material nonpublic information which
may restrict the Fund's ability to conduct portfolio transactions in such
securities.

Other Special Considerations. The Fund may make short-term investments,
purchase a higher percentage of high quality bonds or buy or sell derivatives,
to reduce exposure to equity securities and longer term bonds when the Fund
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 shares of the Fund and may reduce the level of current income.

Securities Lending. The Fund may lend securities with a value not
exceeding 33 1/3% of its total assets. In return, the Fund 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 the Fund, 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 Fund. Alternatively, if securities are delivered
to the Fund as collateral, the Fund and the borrower negotiate a rate for the
loan premium to be received by the Fund for lending its portfolio securities. In
either event, the total yield on the Fund's portfolio is increased by loans of
its portfolio securities. The Fund 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. The Fund may pay
reasonable finder's, administrative and custodial fees in connection with its
loans. In the event that the

8
<PAGE> 50

borrower defaults on its obligation to return borrowed securities because of
insolvency or for any other reason, the Fund 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. The Fund 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 Fund
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, the Fund's return may be affected by currency fluctuations. The
Fund 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.
The Fund 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 the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time 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 the Fund shall be dependent upon intervening fluctuations of the market value
of such security and the accrued interest on the security. In such event, the
Fund 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. The Fund may invest in warrants, which are securities
permitting, but not obligating, the warrant holder to subscribe for other
securities. Buying a warrant does not make the Fund 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 investment in warrants may be more speculative than other
equity-based investments.

When-Issued Securities and Forward Commitments. The Fund may purchase or
sell securities that it is entitled to receive on a when-issued basis. The Fund
may also purchase or sell securities through a forward commitment. These
transactions involve the purchase or sale of securities by the Fund at an
established price with payment and delivery taking place in the future. The Fund
enters into these transactions to obtain what is considered an advantageous
price to the Fund at the time of entering into the transaction. The Fund has not
established any limit on the percentage of its assets that may be committed in
connection with these transactions. When the Fund is purchasing securities in
these transactions, the Fund 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 the Fund's purchase price. The Fund 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. The Fund may enter into standby commitment
agreements. These agreements commit the Fund, for a stated period of time, to
purchase a stated amount of securities which may be issued and sold to the Fund
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 Fund is paid a
commitment fee, regardless of whether or not the security is ultimately issued.
The Fund 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 Fund. The Fund 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

9
<PAGE> 51

commitments, together with the value of portfolio securities subject to legal
restrictions on resale that affect their marketability, will not exceed 15% of
its net assets taken at the time of the commitment. The Fund will maintain a
segregated account with its custodian of cash, cash equivalents, U.S. Government
securities or other liquid securities in an aggregate amount equal to the
purchase price of the securities underlying the commitment.

There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.

The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of the Fund'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.

Foreign Exchange Transactions. The Fund 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
fluctuations in the value of currencies in which its bond holdings are
denominated against the U.S. dollar. The Fund is not required to use hedging
transactions and may not do so.

Forward foreign exchange transactions are OTC contracts to purchase or sell
a specified amount of a specified currency or multinational currency unit at a
price and future date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions only for purposes of
hedging either a specific transaction or a portfolio position. The Fund 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 Fund has
received or anticipates receiving a dividend or distribution. The Fund 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 Fund is
denominated or by purchasing a currency in which the Fund anticipates acquiring
a portfolio position in the near future. The Fund 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 Fund 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" in
Appendix A.

The Fund 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 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. The Fund 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"). The Fund 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 Fund will not speculate in Currency Instruments. Accordingly, the Fund
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.

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<PAGE> 52

Risk Factors in Hedging Foreign Currency Risks. While the Fund's use of
Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of the Fund's shares, the net asset value of
the Fund'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 the Fund's hedging strategies may
be ineffective. To the extent that the Fund hedges against anticipated currency
movements that do not occur, the Fund may realize losses, and decrease its total
return, as the result of its hedging transactions. Furthermore, the Fund 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 the Fund 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 Fund 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.

For a discussion of the Fund's policies with respect to, and the risks
associated with, investments in indexed and inverse securities, options, futures
and swaps, please see Appendix A.

INVESTMENT RESTRICTIONS

The Corporation has adopted the following restrictions and policies
relating to the investment of the Fund's assets and its activities. The
fundamental restrictions set forth below may not be changed with respect to the
Fund without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company Act
means the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). Provided that none of the following restrictions shall
prevent the Fund from investing all of its assets in shares of another
registered investment company with the same investment objective (in a
master/feeder structure), the Fund may not:

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

2. Invest more than 25% of its total assets, taken at market value, in
the securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).

3. Make investments for the purpose of exercising control or
management. Investments by the Fund 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 Fund 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 Fund may lend its portfolio securities, provided
that the lending of portfolio securities may be made only in accordance
with applicable law and the guidelines set forth in the Fund's Prospectus
and Statement of Additional Information, as they may be amended from time
to time.

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

7. Borrow money, except that (i) the Fund 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 Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities

11
<PAGE> 53

and (iv) the Fund may purchase securities on margin to the extent permitted
by applicable law. The Fund may not pledge its assets other than to secure
such borrowings or, to the extent permitted by the Fund's investment
policies as set forth in its Prospectus and Statement of Additional
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.

8. Underwrite securities of other issuers except insofar as the Fund
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 the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.

The Trust has adopted investment restrictions substantially identical to
the foregoing, which are fundamental policies of the Trust and may not be
changed with respect to the Portfolio without the approval of the holders of a
majority of the interests of the Portfolio.

In addition, the Corporation has adopted non-fundamental restrictions that
may be changed by the Board of Directors without shareholder approval. Like the
fundamental restrictions, none of the non-fundamental restrictions, including
but not limited to restriction (a) below, shall prevent the Fund from investing
all of its assets in shares of another registered investment company with the
same investment objective (in a master/feeder structure). Under the
non-fundamental investment restrictions, the Fund may not:

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

(b) Make short sales of securities or maintain a short position,
except to the extent permitted by applicable law. The Fund currently does
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 Directors of the Corporation have
otherwise determined to be liquid pursuant to applicable law. Securities
purchased in accordance with Rule 144A under the Securities Act (which are
restricted securities that can be resold to qualified institutional buyers,
but not to the general public) and determined to be liquid by the Directors
are not subject to the limitations set forth in this investment
restriction.

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

The Trust has adopted investment restrictions substantially identical to
the foregoing, which are nonfundamental policies of the Trust and may be changed
with respect to any Portfolio by the Trustees.

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 Corporation and Trust have
adopted an investment policy pursuant to which neither the Portfolio nor the
Fund 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 Fund or Portfolio, the
market value of the underlying securities covered by OTC call options currently
outstanding that were sold by the

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<PAGE> 54

Fund or Portfolio and margin deposits on the Fund or Portfolio's existing OTC
options on futures contracts exceeds 15% of the net assets of the Fund or
Portfolio taken at market value, together with all other assets of the Fund or
Portfolio that are illiquid or are not otherwise readily marketable. However, if
the OTC option is sold by the Fund or Portfolio to a primary U.S. Government
securities dealer recognized by the Federal Reserve Bank of New York and if the
Fund or Portfolio has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Fund or 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 Fund or Portfolio and may be
amended by the Trustees or the Directors without the approval of the
shareholders. However, the Directors or 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 Portfolio and the Fund 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" or the "Administrator"), the Fund and Portfolio are
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 the Fund and Portfolio
may purchase from an underwriting syndicate of which Merrill Lynch is a member.

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

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

JEFFREY M. PEEK (51) -- Director and President(1)(2) -- President of MLAM
and FAM since 1997; President and Director of Princeton Services 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) -- Director 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) -- Director -- 410 Uris Hall, Columbia University, New
York, New York 10027. Professor of Columbia University since 1991; Chairman of
Outward Bound USA since 1997; Chairman of Wave Hill, Inc. since 1980.

13
<PAGE> 55

JAMES T. FLYNN (59) -- Director(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) -- Director(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) -- Director -- 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.

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. since 1997.

DONALD C. BURKE (38) -- Treasurer and Vice President -- Senior Vice
President and Treasurer of MLAM and FAM since 1999; Senior Vice President and
Treasurer of Princeton Services; Vice President and Treasurer of Princeton Funds
Distributor, Inc.; First Vice President of MLAM and FAM from 1997 to 1999;
Director of Taxation of MLAM and FAM 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 Fund.
(2) Such Director or officer is a trustee, director or officer of other
investment companies for which the Investment Adviser, or the Fund's
sub-adviser and administrator, FAM, or their affiliates, acts as investment
adviser.

As of the date of this Statement of Additional Information, the officers
and Directors of the Corporation as a group (nine 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 the Fund.

COMPENSATION OF DIRECTORS/TRUSTEES

The Corporation 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 the Fund and the 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 service to the 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.

14
<PAGE> 56

<TABLE>
<CAPTION>
PENSION OR RETIREMENT TOTAL COMPENSATION FROM
BENEFITS ACCRUED AS FUND/PORTFOLIO AND
PART OF MERCURY AND AFFILIATES-
AGGREGATE COMPENSATION FUND/PORTFOLIO ADVISED FUNDS PAID TO
NAME OF DIRECTOR/TRUSTEE FROM FUND/PORTFOLIO EXPENSES DIRECTORS/TRUSTEES(1)
------------------------ ---------------------- --------------------- -----------------------
<S> <C> <C> <C>
David O. Beim.................... $6,000 None $10,000
James T. Flynn................... $6,000 None $49,000
W. Carl Kester................... $6,000 None $49,000
Karen P. Robards................. $6,000 None $10,000
</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 (2
registered investment companies consisting of 14 portfolios); Mr. Flynn (4
registered investment companies consisting of 20 portfolios); Mr. Kester (4
registered investment companies consisting of 20 portfolios); and Ms.
Robards (2 registered investment companies consisting of 14 portfolios).

The Directors of the Corporation and the Trustees of the Trust may be eligible
for reduced sales charges on purchases of Class I shares. See "Reduced Initial
Sales Charges -- Purchase Privileges of Certain Persons."

ADMINISTRATION ARRANGEMENTS

The Corporation on behalf of the Fund has entered into an administration
agreement with FAM as Administrator (the "Administration Agreement"). The
Administrator receives for its services to the Fund monthly compensation at the
annual rate of 0.20% of the average daily net assets of the Fund.

The Administration Agreement obligates the Administrator to provide certain
administrative services to the Corporation and the Fund 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 Corporation. The Administrator
is also obligated to pay, or cause its affiliate to pay, the fees of those
Officers, Directors, and Trustees who are affiliated persons of the
Administrator or any of its affiliates. The Corporation pays, or causes to be
paid, all other expenses incurred in the operation of the Corporation and the
Fund (except to the extent paid by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc. ("MFD" or the "Distributor")), including,
among other things, taxes, expenses for legal and auditing services, costs of
printing proxies, shareholder reports and prospectuses and statements of
additional information, charges of the Custodian, any Sub-custodian and
Financial Data Services, Inc. (the "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 Directors who are not affiliated persons of the
Administrator, or of an affiliate of the Administrator, 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 Corporation or the Fund. The
Distributor will pay certain of the expenses of the Fund incurred in connection
with the continuous offering of its shares. Accounting services are provided to
the Corporation and the Fund by the Administrator, and the Corporation
reimburses the Administrator for its costs in connection with such services.

Duration and Termination. Unless earlier terminated as described below,
the Administration Agreement will remain in effect for two years from its
effective date. Thereafter, it will remain in effect from year to year with
respect to the Fund if approved annually (a) by the Board of Directors and (b)
by a majority of the Directors who are not parties to such contract or
interested persons (as defined in the Investment Company Act) of any such party.
Such contract is not assignable and may be terminated with respect to the Fund
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.

MANAGEMENT AND ADVISORY ARRANGEMENTS

The Fund invests all of its assets in shares of the Portfolio. Accordingly,
the Fund does not invest directly in portfolio securities and does not require
investment advisory services. All portfolio management occurs at the level of
the Trust. The Trust on behalf of the Portfolio has entered into an investment
advisory agreement

15
<PAGE> 57

with Mercury International as Investment Adviser (the "Advisory Agreement"). As
discussed in "The Management Team -- Management of the Fund" in the Prospectus,
the Investment Adviser receives for its services to the Portfolio monthly
compensation at the annual rate of 0.60% of the average daily net assets of the
Portfolio.

The Advisory Agreement obligates 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 Portfolio and the Trust (except to the extent paid by the Distributor),
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 Portfolio. The
Distributor will pay certain of the expenses of the Fund incurred in connection
with the continuous offering of its shares. 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 Portfolio, 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 Trust has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with FAM with respect to the Portfolio, pursuant to which FAM
provides investment advisory services with respect to the Portfolio's daily cash
assets. The Trust has agreed to use its reasonable best efforts to cause the
Investment Adviser to pay to 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 Agreement.

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.

16
<PAGE> 58

Duration and Termination. Unless earlier terminated as described below,
the Advisory Agreement and Sub-Advisory Agreement will each remain in effect for
two years from its effective date. 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 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 contract is not assignable and
may be terminated with respect to the Portfolio 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 fund 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.

PURCHASE OF SHARES

Reference is made to "Account Choices -- How to Buy, Sell, Transfer and
Exchange Shares" in the Prospectus for certain information as to the purchase of
Fund shares.

The Fund issues four classes of shares: shares of Class I and Class A are
sold to investors choosing the initial sales charge alternatives and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Each Class I, Class A, Class B and Class C share of the Fund
represents an identical interest in the investment portfolio of the Fund, and
has the same rights, except that Class A, Class B and Class C shares bear the
expenses of the ongoing account maintenance fees (also known as service fees)
and Class B and Class C shares bear the expenses of the ongoing distribution
fees and the additional incremental transfer agency costs resulting from the
deferred sales charge arrangements. Class A, Class B and Class C shares each
have exclusive voting rights with respect to the Rule 12b-1 distribution plan
adopted with respect to such class pursuant to which the account maintenance
and/or distribution fees are paid (except that Class B shareholders may vote
upon any material changes to expenses charged under the Class A Distribution
Plan). Each class has different exchange privileges. See "Shareholder
Services -- Exchange Privilege."

MFD, an affiliate of the Investment Adviser and of Merrill Lynch, with
offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536 (mailing
address: P. O. Box 9081, Princeton, New Jersey 08543-9081) acts as Distributor
for the Fund.

The Corporation has entered into a distribution agreement with the
Distributor in connection with the offering of shares of the Fund (the
"Distribution Agreement"). The Distribution Agreement obligates the Distributor
to pay certain expenses in connection with the offering of the shares of the
Fund. After the prospectuses, statements of additional information and periodic
reports have been prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies thereof used in
connection with the offering to dealers and investors. The Distributor also pays
for other supplementary sales literature and advertising costs. The Distribution
Agreement is subject to the same renewal requirements and termination provisions
as the Advisory Agreement described above.

The Fund may reject any order to buy shares and may suspend the offering of
its shares at any time.

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<PAGE> 59

INITIAL SALES CHARGE ALTERNATIVES -- CLASS I AND CLASS A SHARES

Investors choosing the initial sales charge alternatives who are eligible
to purchase Class I shares should purchase Class I shares rather than Class A
shares because there is an account maintenance fee imposed on Class A shares.

Eligible Class I Investors. Class I shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class I shares. Investors that currently own Class I shares of the
Fund in a shareholder account are entitled to purchase additional Class I shares
of the Fund in that account. Certain employer sponsored retirement or savings
plans, including eligible 401(k) plans, may purchase Class I shares at net asset
value provided such plans meet the required minimum number of eligible employees
or required amount of assets advised by Mercury or any of its affiliates. Also
eligible to purchase Class I shares at net asset value are participants in
certain investment programs including certain managed accounts for which a trust
institution, thrift, or bank trust department provides discretionary trustee
services, certain collective investment trusts for which a trust institution,
thrift, or bank trust department serves as trustee, certain purchases made in
connection with certain fee-based programs and certain purchases made through
certain financial advisers that meet and adhere to standards established by
Mercury. In addition, Class I shares are offered at net asset value to ML & Co.
and its subsidiaries and their directors and employees, to members of the Boards
of Mercury and Affiliates-Advised investment companies, including the
Corporation, and to employees of certain selected dealers.

The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class I and Class A
shares of the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his or her or their own account and to
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company that has not been in existence for at least six months or which
has no purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.

REDUCED INITIAL SALES CHARGES

No initial sales charges are imposed upon Class I and Class A shares issued
as a result of the automatic reinvestment of dividends or capital gains
distributions.

Rights of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of other Mercury mutual funds. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.

Letter of Intent. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class I or Class A shares of the Fund or any
other Mercury mutual funds made within a 13-month period starting with the first
purchase pursuant to the Letter of Intent. The Letter of Intent is available
only to investors whose accounts are established and maintained at the Fund's
Transfer Agent. The Letter of Intent is not available to employee benefit plans
for which affiliates of Mercury International provide plan participant

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<PAGE> 60

record-keeping services. The Letter of Intent is not a binding obligation to
purchase any amount of Class I or Class A shares; however, its execution will
result in the purchaser paying a lower sales charge at the appropriate quantity
purchase level. A purchase not originally made pursuant to a Letter of Intent
may be included under a subsequent Letter of Intent executed within 90 days of
such purchase if the Distributor is informed in writing of this intent within
such 90-day period. The value of Class I and Class A shares of the Fund and of
other Mercury mutual funds presently held, at cost or maximum offering price
(whichever is higher), on the date of the first purchase under the Letter of
Intent, may be included as a credit toward the completion of such Letter, but
the reduced sales charge applicable to the amount covered by such Letter will be
applied only to new purchases. If the total amount of shares does not equal the
amount stated in the Letter of Intent (minimum of $25,000), the investor will be
notified and must pay, within 20 days of the execution of such Letter, the
difference between the sales charge on the Class I or Class A shares purchased
at the reduced rate and the sales charge applicable to the shares actually
purchased through the Letter. Class I or Class A shares equal to five percent of
the intended amount will be held in escrow during the 13-month period (while
remaining registered in the name of the purchaser) for this purpose. The first
purchase under the Letter of Intent must be at least five percent of the dollar
amount of such Letter. If a purchase during the term of such Letter would
otherwise be subject to a further reduced sales charge based on the right of
accumulation, the purchaser will be entitled on that purchase and subsequent
purchases to that further reduced percentage sales charge but there will be no
retroactive reduction of the sales charges on any previous purchase. The value
of any shares redeemed or otherwise disposed of by the purchaser prior to
termination or completion of the Letter of Intent will be deducted from the
total purchases made under such Letter. An exchange from the Summit Cash
Reserves Fund ("Summit") into the Fund that creates a sales charge will count
toward completing a new or existing Letter of Intent from the Fund.

Purchase Privileges of Certain Persons. Directors of the Corporation and
Trustees of the Trust, members of the Boards of other investment companies
advised by Mercury International or its affiliates, directors and employees of
ML & Co. and its subsidiaries (the term "subsidiaries," when used herein with
respect to ML & Co., includes Mercury International, FAM and certain other
entities directly or indirectly wholly owned and controlled by ML & Co.),
employees of certain selected dealers, and any trust, pension, profit-sharing or
other benefit plan for such persons, may purchase Class I shares of the Fund at
net asset value. Under such programs, the Fund realizes economies of scale by
providing incentives to a large group of such individuals to invest.
Furthermore, the individuals who qualify for these programs are already familiar
with the Fund, and, therefore, providing these investment opportunities to such
qualified individuals does not increase the expenditures of sales-related
expenses.

Class A shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that he
or she will purchase Class A shares of the Fund with proceeds from a redemption
of shares of a mutual fund that was sponsored by the Financial Consultant's
previous firm and was subject to a sales charge either at the time of purchase
or on a deferred basis; and second, the investor must also establish that such
redemption had been made within 60 days prior to the investment in the Fund, and
the proceeds from the redemption had been maintained in the interim in cash or a
money market fund.

Class A shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a Merrill Lynch
Financial Consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that he or she will
purchase Class A shares of the Fund with proceeds from a redemption of such
shares of other mutual funds and that such shares have been outstanding for a
period of no less than 6 months; and second, the investor must also establish
that such redemption had been made within 60 days prior to the investment in the
Fund, and the proceeds from the redemption had been maintained in the interim in
cash or a money market fund.

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<PAGE> 61

Lynch has either received or given notice that such arrangement will be
terminated ("notice"), if the following conditions are satisfied: first, the
investor must purchase Class A shares of the Fund with proceeds from a
redemption of shares of such other mutual fund and such fund must have been
subject to a sales charge either at the time of purchase or on a deferred basis;
and second, such purchase of Class A shares must be made within 90 days after
notice.

Class A shares of the Fund are offered at net asset value, without sales
charge, to an investor who is a former shareholder of The United Kingdom Fund
Inc. if the following conditions are satisfied: first, the investor must
purchase Class A shares of the Fund through a Merrill Lynch Financial Consultant
or the Transfer Agent with proceeds of any tender offer by The United Kingdom
Fund, Inc. for shares of, or liquidation of, The United Kingdom Fund Inc.; and
second, such purchase of Class A shares must be made within 60 days after
payment of such proceeds by The United Kingdom Fund Inc.

Employees and directors or trustees wishing to purchase shares of the Fund
must satisfy the Fund's suitability standards.

Managed Trusts. Class I shares are offered at net asset value to certain
trusts to which trust institutions, thrifts, and bank trust departments provide
discretionary trustee services.

Acquisition of Certain Investment Companies. The public offering price of
Class A shares may be reduced to the net asset value per Class A share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company. The value
of the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund that
might result from an acquisition of assets having net unrealized appreciation
that is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the Fund. The issuance of Class A shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities that (i) meet the
investment objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, which
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objectives and
Policies" herein).

Reductions in or exemptions from the imposition of a sales charge are due
to the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.

Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class I or Class A shares at net asset
value, based on the number of employees or number of employees eligible to
participate in the plan and/or the aggregate amount invested by the plan in
specified investments. Certain other plans may purchase Class B shares with a
waiver of the CDSC upon redemption, based on similar criteria. Such Class B
shares will convert into Class A shares approximately ten years after the plan
purchases the first share of any Mercury mutual fund. Minimum purchase
requirements may be waived or varied for such plans. For additional information
regarding purchases by employer-sponsored retirement or savings plans and
certain other arrangements, call your plan administrator or your selected
dealer.

Purchases Through Certain Financial Advisers. Reduced sales charges may be
applicable for purchases of Class I or Class A shares of the Fund through
certain financial advisers that meet and adhere to standards established by
Mercury from time to time.

DISTRIBUTION PLANS

Reference is made to "Account Choices -- Pricing of Shares" in the
Prospectus for certain information with respect to separate distribution plans
for Class A, Class B, and Class C shares pursuant to Rule 12b-1 under the
Investment Company Act of the Fund (each a "Distribution Plan") with respect to
the account maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.

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<PAGE> 62

The Distribution Plan for Class A, Class B and Class C shares each provides
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and selected dealers
(pursuant to sub-agreements) in connection with account maintenance activities.

The Distribution Plan for Class B and Class C shares each provides that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and selected dealers
(pursuant to sub-agreements) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class I and Class A
shares of the Fund in that the ongoing distribution fees and deferred sales
charges provide for the financing of the distribution of the Fund's Class B and
Class C shares.

The payments under the Distribution Plans are subject to the provisions of
Rule 12b-1 under the Investment Company Act, and are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors of the Corporation for their consideration in
connection with their deliberations as to the continuance of the Class B and
Class C Distribution Plans. This information is presented annually as of
December 31 of each year on a "fully allocated accrual" basis and quarterly on a
"direct expense and revenue/cash" basis. On the fully allocated basis, revenues
consist of the account maintenance fees, the distribution fees, the CDSCs and
certain other related revenues, and expenses consist of financial consultant
compensation, branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the direct expense and
revenue/cash basis, revenues consist of the account maintenance fees, the
distribution fees and CDSCs and the expenses consist of financial consultant
compensation.

The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and selected dealers in
connection with the Class A, Class B and Class C shares, and there is no
assurance that the Directors of the Corporation will approve the continuance of
the Distribution Plans from year to year. However, the Distributor intends to
seek annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares to Class A shares as set forth under "How to
Buy, Sell, Transfer and Exchange Shares" in the Prospectus.

In their consideration of each Distribution Plan, the Directors must
consider all factors they deem relevant, including information as to the
benefits of the Distribution Plan to the Fund and each related class of
shareholders. Each Distribution Plan further provides that, so long as the
Distribution Plan remains in effect, the selection and nomination of Directors
who are not "interested persons" of the Fund, as defined in the Investment
Company Act (the "Independent Directors") shall be committed to the discretion
of the Independent Directors then in office. In approving each Distribution Plan
in accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that such Distribution Plan will benefit the Fund and its
related class of shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the Independent Directors or
by the vote of the holders of a majority of

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<PAGE> 63

the outstanding related class of voting securities of the Fund. A Distribution
Plan cannot be amended to increase materially the amount to be spent by the Fund
without the approval of the related class of shareholders, and all material
amendments are required to be approved by the vote of Directors, including a
majority of the Independent Directors who have no direct or indirect financial
interest in such Distribution Plan, cast in person at a meeting called for that
purpose. Rule 12b-1 further requires that the Fund preserve copies of each
Distribution Plan and any report made pursuant to such plan for a period of not
less than six years from the date of such Distribution Plan or such report, the
first two years in an easily accessible place.

LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES

The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain
asset-based sales charges such as the distribution fee and the CDSC borne by the
Class B and Class C shares, but not the account maintenance fee. The maximum
sales charge rule is applied separately to each class. As applicable to the
Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances payment in excess of the amount payable
under the NASD formula will not be made.

REDEMPTION OF SHARES

Reference is made to "Account Choices -- How to Buy, Sell, Transfer and
Exchange Shares" in the Prospectus for certain information as to the redemption
and purchase of Fund shares.

The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost, depending on
the net asset value of the Fund's shares at such time.

REDEMPTION

A shareholder wishing to redeem shares held with the Transfer Agent may do
so by tendering the shares directly to the Fund's Transfer Agent, Financial Data
Services, Inc., P.O. Box 44062, Jacksonville, Florida 32232-4062. Proper notice
of redemption in the case of shares deposited with the Transfer Agent may be
accomplished by a written letter requesting redemption. Redemption requests
delivered other than by mail should be delivered to Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Redemption
requests should not be sent to the Fund. A redemption request requires the
signature(s) of all persons in whose name(s) the shares are registered, signed
exactly as (his) (her) (their) name(s) appear(s) on the Transfer Agent's
register. The signature(s) on the redemption request must be guaranteed by an
"eligible guarantor institution" as such term is defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, the existence and validity of which may be
verified by the Transfer Agent

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<PAGE> 64

through the use of industry publications. Notarized signatures are not
sufficient. In certain instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority. For shareholders redeeming directly with the Transfer Agent, payments
will be mailed within seven days of receipt of a proper notice of redemption.

At various times the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (i.e., cash or
certified check drawn on a United States bank) has been collected for the
purchase of such shares. Normally, this delay will not exceed 10 days.

The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange (the "NYSE") is restricted as
determined by the Commission or during which the NYSE is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists, as defined by the Commission, as a result of which disposal of
portfolio securities or determination of the net asset value of the Fund is not
reasonably practicable, and for such other periods as the Commission may by
order permit for the protection of shareholders of the Fund.

The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending in part on the net asset value of such shares at
such time.

REPURCHASE

The Fund will also repurchase shares through a shareholder's listed
securities dealer. The Fund will normally accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, less any applicable CDSC,
provided that the request for repurchase is received by the dealer prior to the
close of business on the NYSE (generally 4:00 p.m., Eastern time) on the day
received and is received by the Fund from such dealer not later than 30 minutes
after the close of business on the NYSE on the same day.

Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 30 minutes after the close of business on the NYSE in
order to obtain that day's closing price. These repurchase arrangements are for
the convenience of shareholders and do not involve a charge by the Fund (other
than any applicable CDSC). Securities firms that do not have selected dealer
agreements with the Distributor, however, may impose a transaction charge on the
shareholder for transmitting the notice of repurchase to the Fund. Certain
securities dealers may charge a processing fee to confirm a repurchase of
shares. For example, the fee currently charged by Merrill Lynch is $5.35. Fees
charged by other securities dealers may be higher or lower. Repurchases directly
through the Fund's Transfer Agent, on accounts held at the Transfer Agent, are
not subject to the processing fee. The Fund reserves the right to reject any
order for repurchase, which right of rejection might adversely affect
shareholders seeking redemption through the repurchase procedure. A shareholder
whose order for repurchase is rejected by the Fund, however, may redeem shares
as set forth above.

REINSTATEMENT PRIVILEGE -- CLASS I AND CLASS A SHARES

Shareholders of the Fund who have redeemed their Class I and Class A shares
have a privilege to reinstate their accounts by purchasing Class I or Class A
shares of the Fund, as the case may be, at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor.
Alternatively, the reinstatement privilege may be exercised through the
investor's financial consultant within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds.

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<PAGE> 65

DEFERRED SALES CHARGES -- CLASS B AND CLASS C SHARES

Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in Mercury mutual funds.

As discussed in the Prospectus under "Account Choices -- Pricing of
Shares -- Class B and C Shares -- Deferred Sales Charge Options," while Class B
shares redeemed within six years of purchase are subject to a CDSC under most
circumstances, the charge may be reduced or waived in certain instances. These
include certain post-retirement withdrawals from an IRA or other retirement plan
or redemption of Class B shares in certain circumstances following the death of
a Class B shareholder. In the case of such withdrawal, reduction or waiver
applies to: (a) any partial or complete redemption in connection with a
distribution following retirement under a tax-deferred retirement plan on
attaining age 59 1/2 in the case of an IRA or other retirement plan, or part of
a series of equal periodic payments (not less frequently than annually) made for
life (or life expectancy) or any redemption resulting from the tax-free return
of an excess contribution to an IRA (certain legal documentation may be required
at the time of liquidation establishing eligibility for qualified distribution);
or (b) any partial or complete redemption following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended (the "Code")) of a
Class B shareholder (including one who owns the Class B shares as joint tenant
with his or her spouse), provided the redemption is requested within one year of
the death or initial determination of disability or, if later, reasonably
promptly following completion of probate or in connection with involuntary
termination of an account in which Fund shares are held (certain legal
documentation may be required at the time of liquidation establishing
eligibility for qualified distribution).

The charge may also be reduced or waived in other instances, such as: (c)
redemptions by certain eligible 401(a) and 401(k) plans and certain retirement
plan rollovers; (d) redemptions in connection with participation in certain
fee-based programs managed by the Investment Adviser or its affiliates; (e)
redemptions in connection with participation in certain fee-based programs
managed by selected dealers that have agreements with Mercury; or (f)
withdrawals through the Systematic Withdrawal Plan of up to 10% per year of your
account value at the time the plan is established.

In determining whether a Class B CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore it will be assumed that the redemption is first of
shares held for over six years or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the six-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.

Class C shares are subject only to a one-year 1% CDSC. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. The Class C CDSC may be waived in
connection with certain fee-based programs.

In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.

Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
selected dealers related to providing distribution-related services to the Fund
in connection with the sale of the Class B and Class C shares, such as the
payment of

24
<PAGE> 66

compensation to financial consultants for selling Class B and Class C shares,
from its own funds. The combination of the CDSC and the ongoing distribution fee
facilitates the ability of the Fund to sell the Class B and Class C shares
without a sales charge being deducted at the time of purchase.

Conversion of Class B Shares to Class A Shares. As discussed in the
Prospectus under "Account Choices -- Pricing of Shares -- Class B and C
Shares -- Deferred Sales Charge Options," Class B shares of equity Mercury
mutual funds convert automatically to Class A shares approximately eight years
after purchase (the "Conversion Period").

The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans that qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any Mercury mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between Mercury mutual funds and the Class B Retirement Plan was
established), all Class B shares of all Mercury mutual funds held in that Class
B Retirement Plan will be converted into Class A shares of the appropriate
funds. Subsequent to such conversion, that Class B Retirement Plan will be sold
Class A shares of the appropriate funds at net asset value per share.

The Conversion Period may also be modified for retirement plan investors
who participate in certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs" below.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Because the Fund will invest exclusively in shares of the Portfolio, it is
expected that all transactions in portfolio securities will be entered into by
the Portfolio. The Investment Adviser is responsible for making the Portfolio's
portfolio decisions, placing the Portfolio's 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, commissions, if any, size
of the transaction and difficulty of execution. Where applicable, 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 the Fund 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 are prohibited from dealing with the Trust as
principal in purchase and sale of securities. Since

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<PAGE> 67

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 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.

The portfolio turnover rate is calculated by dividing the lesser of the
Fund's annual sales or purchases of portfolio securities (exclusive of purchases
or 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%.

Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Investment Adviser or an affiliate when
one or more clients of the Investment Adviser or an affiliate are selling the
same security. If purchases or sales of securities arise for consideration at or
about the same time that would involve the Fund or other clients or funds for
which the Investment Adviser or an affiliate act as manager, 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 an affiliate 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.

DETERMINATION OF NET ASSET VALUE

Reference is made to "How Shares are Priced" in the Prospectus concerning
the determination of net asset value.

The net asset value of the shares of the Fund is determined once daily
Monday through Friday as of 15 minutes after the close of business on the 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. The Fund also will
determine its net asset value on any day in which there is sufficient trading in
the underlying Portfolio's portfolio securities that the net asset value might
be affected materially, but only if on any such day the Fund is required to sell
or redeem shares. Any assets or liabilities initially expressed in terms of
non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of valuation.
The NYSE is not open for trading on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value is computed by dividing
the value of the securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the fees payable to the
Administrator and the Distributor, and the advisory fees payable indirectly by
the Portfolio to the Investment Adviser, are accrued daily.

The principal assets of the Fund will normally be its interest in the
underlying Portfolio, which will be valued at its net asset value. Net asset
value is computed by dividing the value of the securities held by the Portfolio
plus any cash or other assets (including interest and dividends accrued but not
yet received) minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time. Expenses,

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<PAGE> 68

including the management fees and any account maintenance and/or distribution
fees, are accrued daily. The per share net asset value of Class A, Class B and
Class C shares generally will be lower than the per share net asset value of
Class I shares, reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to Class B and Class C shares, and the daily expense accruals of the
account maintenance fees applicable with respect to Class A shares. It is
expected, however, that the per share net asset value of the four classes will
tend to converge (although not necessarily meet) immediately after the payment
of dividends or distributions, which will differ by approximately the amount of
the expense accrual differentials between the classes.

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.

Bonds held by the Portfolio are traded primarily in the OTC markets. In
determining net asset value, the Portfolio utilizes the valuations of portfolio
securities furnished by a pricing service approved by the Board of Trustees. The
pricing service typically values portfolio securities at the bid price or the
yield equivalent when quotations are readily available. The bonds for which
quotations are not readily available are valued at fair market value on a
consistent basis as determined by the pricing service using a matrix system to
determine valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Portfolio under the general supervision of
the Board of Trustees. The Board of Trustees has determined in good faith that
the use of a pricing service is a fair method of determining the valuation of
portfolio securities.

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 Fund'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 the Fund'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 the
Portfolio on each Pricing Day. The value of each investor's (including the
Fund'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

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<PAGE> 69

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 the
Portfolio as of 15 minutes after the close of business of the NYSE on the next
Pricing Day of the Portfolio.

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services described below that are
designed to facilitate investment in their shares. Full details as to each such
service and copies of the various plans described below can be obtained from the
Fund, the Distributor or your selected dealer.

INVESTMENT ACCOUNT

Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of income dividends and
long-term capital gains distributions. The statements will also show any other
activity in the account since the preceding statement. Shareholders will receive
separate transaction confirmations for each purchase or sale transaction other
than automatic investment purchases and the reinvestment of ordinary income
dividends, and long-term capital gains distributions. A shareholder with an
account held at the Transfer Agent may make additions to his or her Investment
Account at any time by mailing a check directly to the Transfer Agent.

The Fund does not issue share certificates. Shareholders considering
transferring their Class I or Class A shares from a selected dealer to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class I or Class A shares are to be transferred will not take delivery
of shares of the Fund, a shareholder either must redeem the Class I or Class A
shares so that the cash proceeds can be transferred to the account at the new
firm or such shareholder must continue to maintain an Investment Account at the
Transfer Agent for those Class I or Class A shares. Shareholders interested in
transferring their Class B or Class C shares from a selected dealer and who do
not wish to have an Investment Account maintained for such shares at the
Transfer Agent may request their new brokerage firm to maintain such shares in
an account registered in the name of the brokerage firm for the benefit of the
shareholder at the Transfer Agent. Shareholders considering transferring a
tax-deferred retirement account such as an individual retirement account from a
selected dealer to another brokerage firm or financial institution should be
aware that, if the firm to which the retirement account is to be transferred
will not take delivery of shares of the Fund, a shareholder must either redeem
the shares (paying any applicable CDSC) so that the cash proceeds can be
transferred to the account at the new firm, or such shareholder must continue to
maintain a retirement account at a selected dealer for those shares.

AUTOMATIC INVESTMENT PLAN

A shareholder may make additions to an Investment Account at any time by
purchasing Class I shares (if an eligible Class I investor as described in the
Prospectus) or Class A, Class B or Class C shares at the applicable public
offering price either through the shareholder's securities dealer, or by mail
directly to the Transfer Agent, acting as agent for such securities dealer. You
may also add to your account by automatically investing a specific amount in the
Fund on a periodic basis through your selected dealer. The current minimum for
such automatic additional investments is $50. This minimum may be waived or
revised under certain circumstances.

AUTOMATIC DIVIDEND REINVESTMENT PLAN

Dividends and distributions from the Fund may be taken in cash or
automatically reinvested in shares of the Fund at net asset value without a
sales charge. You should consult with your financial consultant about

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<PAGE> 70

which option you would like. If you choose the reinvestment option, such
reinvestment will be at the net asset value of shares of the Fund, without sales
charge, as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing or by telephone
(1-888-763-2260), if the shareholder's account is maintained with the Transfer
Agent, to receive either their dividends or capital gains distributions, or
both, in cash, in which event payment will be mailed or direct deposited on or
about the payment date, except that in all circumstances dividends less than ten
dollars will be reinvested.

Shareholders may, at any time, notify their selected dealer in writing if
the shareholder's account is maintained with a selected dealer or notify the
Transfer Agent in writing or by telephone (1-888-763-2260) that they no longer
wish to have their dividend and/or capital gains distributions reinvested in
shares of the Fund or vice versa and, commencing ten days after the receipt by
the Transfer Agent of such notice, those instructions will be effected. The Fund
is not responsible for any failure of delivery to the shareholder's address of
record and no interest will accrue on amounts represented by uncashed
distribution or redemption checks.

SYSTEMATIC REDEMPTION PROGRAM

A shareholder may elect to make withdrawals from an Investment Account of
Class I, Class A, Class B or Class C shares in the form of payments by check or
through automatic payment by direct deposit to such shareholder's bank account
on either a monthly or quarterly basis as provided below. Quarterly withdrawals
are available for shareholders who have acquired shares of the Fund having a
value, based on cost or the current offering price, of $5,000 or more, and
monthly withdrawals are available for shareholders with shares having a value of
$10,000 or more.

At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. With respect to shareholders who hold accounts
directly at the Transfer Agent, redemptions will be made at net asset value as
determined as described herein on the 24th day of each month or the 24th day of
the last month of each quarter, whichever is applicable. With respect to
shareholders who hold accounts with their broker-dealer, redemptions will be
made at net asset value determined as described herein on the first, second,
third or fourth Monday of each month, or the first, second, third or fourth
Monday of the last month of each quarter, whichever is applicable. If the NYSE
is not open for business on such date, the shares will be redeemed at the close
of business on the following business day. The check for the withdrawal payment
will be mailed, or the direct deposit for withdrawal payment will be made, on
the next business day following redemption. When a shareholder is making
systematic withdrawals, dividends and distributions on all shares in the
Investment Account are reinvested automatically in shares of the Fund. A
shareholder's systematic withdrawal plan may be terminated at any time, without
a charge or penalty, by the shareholder, the Fund, the Fund's Transfer Agent or
the Distributor.

Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of sales charges and tax
liabilities. The Fund will not knowingly accept purchase orders for shares of
the Fund from investors who maintain a systematic withdrawal plan unless such
purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.

With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Pricing of
Shares -- Class B and C Shares -- Deferred Sales Charge Options" in the
Prospectus. Where the systematic withdrawal plan is applied to Class B shares,
upon conversion of the last Class B shares in an account to Class A shares, a
shareholder

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<PAGE> 71

must make a new election to join the systematic withdrawal program with respect
to the Class A shares. If an investor wishes to change the amount being
withdrawn in a systematic withdrawal plan the investor should contact his or her
financial consultant.

RETIREMENT PLANS

The minimum initial purchase to establish a retirement plan is $100.
Capital gains and income received in retirement plans are exempt from Federal
taxation until distributed from the plans. Investors considering participations
in any such plan should review specific tax laws relating thereto and should
consult their attorneys or tax advisors with respect to the establishment and
maintenance of any such plan.

EXCHANGE PRIVILEGE

U.S. shareholders of each class of shares of the Fund have an exchange
privilege with other Mercury mutual funds and Summit. The exchange privilege
does not apply to any other funds. Under the Fund's pricing system, Class I
shareholders may exchange Class I shares of the Fund for Class I shares of a
second Mercury mutual fund. Class I shares also may be exchanged for Class I
shares of a second Mercury mutual fund at any time as long as, at the time of
the exchange, the shareholder is eligible to acquire Class I shares of any
Mercury mutual fund. Class A, Class B and Class C shares are exchangeable with
shares of the same class of other Mercury mutual funds. For purposes of
computing the CDSC that may be payable upon a disposition of the shares acquired
in the exchange, the holding period for the previously owned shares of the Fund
is "tacked" to the holding period of the newly acquired shares of the other fund
as more fully described below. Class I, Class A, Class B and Class C shares also
are exchangeable for shares of Summit, a money market fund specifically
designated for exchange by holders of Class I, Class A, Class B or Class C
shares. Class I and Class A shares will be exchanged for Class A shares of
Summit, and Class B and Class C shares will be exchanged for Class B shares of
Summit. Summit Class A and Class B shares do not include any front-end sales
charge or CDSC; however, Summit Class B shares pay a 12b-1 distribution fee of
0.75% and are subject to a CDSC payable as if the shareholder still held shares
of the Mercury fund used to acquire the Summit Class B shares.

Exchanges of Class I or Class A shares outstanding ("outstanding Class I or
Class A shares") for Class I or Class A shares of another Mercury mutual fund,
or for Class A shares of Summit ("new Class I or Class A shares") are transacted
on the basis of relative net asset value per Class I or Class A share,
respectively, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class I or Class A shares and the
sales charge payable at the time of the exchange on the new Class I or Class A
shares. With respect to outstanding Class I or Class A shares as to which
previous exchanges have taken place, the "sales charge previously paid" shall
include the aggregate of the sales charges paid with respect to such Class I or
Class A shares in the initial purchase and any subsequent exchange. Class I or
Class A shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class I or Class A shares. For purposes of
the exchange privilege, dividend reinvestment Class I and Class A shares shall
be deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class I or Class A shares on which the dividend was paid.
Based on this formula, Class I and Class A shares of the Fund generally may be
exchanged into the Class I and Class A shares, respectively, of the other funds
with a reduced or without a sales charge.

In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively (or, in the case of
Summit, Class B shares) ("new Class B or Class C shares"), of another Mercury
mutual fund or of Summit on the basis of relative net asset value per Class B or
Class C share, without the payment of any CDSC that might otherwise be due on
redemption of the outstanding shares. Class B shareholders of the Fund
exercising the exchange privilege will continue to be subject to the Fund's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the new
Class B shares acquired through use of the exchange privilege. In addition,
Class B shares of the Fund acquired through use of the exchange privilege will
be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the fund from which the exchange has
been made. For purposes of computing the sales

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<PAGE> 72

charge that may be payable on a disposition of the new Class B or Class C
shares, the holding period for the outstanding Class B shares is "tacked" to the
holding period of the new Class B or Class C shares. For example, an investor
may exchange Class B shares of the Fund for those of another Mercury fund ("New
Mercury Fund") after having held the Fund's Class B shares for two-and-a-half
years. The 3% CDSC that generally would apply to a redemption would not apply to
the exchange. Four years later the investor may decide to redeem the Class B
shares of New Mercury Fund and receive cash. There will be no CDSC due on this
redemption since by "tacking" the two-and-a-half year holding period of the
Fund's Class B shares to the four year holding period for the New Mercury Fund
Class B shares, the investor will be deemed to have held the New Mercury Fund
Class B shares for more than six years.

Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made. To
exercise the exchange privilege, shareholders should contact their financial
consultant, who will advise the Fund of the exchange. Shareholders of the Fund,
and shareholders of the other funds described above with shares for which
certificates have not been issued, may exercise the exchange privilege by wire
through their securities dealers. The Fund reserves the right to require a
properly completed Exchange Application. This exchange privilege may be modified
or terminated in accordance with the rules of the Commission. The Fund reserves
the right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares to
the general public at any time and may thereafter resume such offering from time
to time. The exchange privilege is available only to U.S. shareholders in states
where the exchange legally may be made.

FEE-BASED PROGRAMS

Certain fee-based programs, including pricing alternatives for securities
transactions (each referred to in this paragraph as a "Program"), may permit the
purchase of Class I shares at net asset value. Under specified circumstances,
participants in certain Programs may deposit other classes of shares, which will
be exchanged for Class I shares. Initial or deferred sales charges otherwise due
in connection with such exchanges may be waived or modified, as may the
Conversion Period applicable to the deposited shares. Termination of
participation in certain Programs may result in the redemption of shares held
therein or the automatic exchange thereof to another class at net asset value.
In addition, upon termination of participation in certain Programs, shares that
have been held for less than specified periods within such Program may be
subject to a fee based upon the current value of such shares. These Programs
also generally prohibit such shares from being transferred to another account,
to another broker-dealer or to the Transfer Agent. Except in limited
circumstances (which may also involve an exchange as described above), such
shares must be redeemed and another class of shares purchased (which may involve
the imposition of initial or deferred sales charges and distribution and account
maintenance fees) in order for the investment not to be subject to Program fees.
Additional information regarding certain specific Programs offered through
particular selected dealers (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in the Program's client agreement and from the shareholder's selected
dealer.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to distribute all its net investment income, if any.
Dividends from such net investment income will be paid at least annually. All
net realized capital gains, if any, will be distributed to the Fund's
shareholders annually. From time to time, the Fund may declare a special
distribution at or about the end of the calendar year in order to comply with a
Federal income tax requirement that certain percentages of its ordinary income
and capital gains be distributed during the calendar year. See "Shareholder
Services -- Automatic Dividend Reinvestment Plan" for information concerning the
manner in which dividends and distributions may be reinvested automatically in
shares of the Fund. Shareholders may elect in writing to receive any such
dividends or distributions, or both, in cash. Dividends and distributions are
taxable to shareholders, as discussed below, whether they are reinvested in
shares of the Fund or received in cash. The per share dividends and
distributions on Class B and Class C shares will be lower than the per share
dividends

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<PAGE> 73

and distributions on Class I and Class A shares as a result of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to the Class B and Class C shares; similarly, the per share dividends
and distributions on Class A shares will be lower than the per share dividends
and distributions on Class I shares as a result of the account maintenance fees
applicable with respect to the Class A shares. See "Determination of Net Asset
Value." Within 60 days after the end of the Fund's taxable year, each
shareholder will receive notification summarizing the dividends and
distributions he or she received that year. This notification will also indicate
whether those distributions should be treated as ordinary income or long-term
capital gains.

TAXES

The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as the
Fund so qualifies, the Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains that it distributes to Class I, Class A, Class B and Class C
shareholders ("shareholders"). The Fund intends to distribute substantially all
of such income. To qualify for this treatment, the Fund must, among other
things, (a) derive at least 90% of its gross income (without offset for losses
from the sale or other disposition of securities or foreign currencies) from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of securities or foreign currencies and certain
financial futures, options and forward contracts (the "Income Test"); and (b)
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the value of its assets is represented by cash, U.S.
Government securities and other securities limited in respect of any one issuer
to an amount no greater than 5% of its assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
securities).

Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income,
whether or not reinvested.

Any net capital gains (i.e., the excess of net capital gains from the sale
of assets held for more than 12 months over net short-term capital losses, and
including such gains from certain transactions in futures and options)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 20% with respect to assets held for more than 12 months. The
maximum capital gains rate for corporate shareholders currently is the same as
the maximum corporate tax rate for ordinary income.

Not later than 60 days after the close of its taxable year, the Fund will
provide its shareholders with a written notice designating the amounts of any
dividends or capital gains distributions. A portion of the dividends paid by the
Fund out of dividends paid by certain corporations located in the U.S. may be
eligible for the dividends received deduction allowed to corporations under the
Code. Because the Fund invests a large portion of its assets in securities of
non-U.S. issuers, it is not anticipated that a significant portion, if any, of
the dividends paid by the Fund will be eligible for the dividends received
deduction. If the Fund pays a dividend in January that was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend or distribution will be treated
for tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.

Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by non-U.S. countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. If more than
50% of the value of the Fund's assets at the close of a taxable year consists of
stock or securities in non-U.S. corporations, shareholders of the Fund may be
able to claim U.S. foreign tax credits with respect to foreign taxes paid by the
Fund, subject to certain provisions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held by the Fund. The Fund expects to be
eligible, and intends, to file an election with the Internal

32
<PAGE> 74

Revenue Service pursuant to which shareholders of the Fund will be required to
include their proportionate share of such withholding taxes as gross income for
U.S. income tax purposes, treat such proportionate share as taxes paid by them,
and deduct such proportionate share in computing their taxable incomes or,
alternatively, subject to certain limitations, restrictions, and holding period
requirements, use them as foreign tax credits against their U.S. income taxes.
No deductions for foreign taxes, however, may be claimed by noncorporate
shareholders who do not itemize deductions. A shareholder that is a nonresident
alien individual or a foreign corporation may be subject to U.S. withholding tax
on the income resulting from the Fund's election described in this paragraph but
may not be able to claim a credit or deduction against such U.S. tax for the
foreign taxes treated as having been paid by such shareholder. The Fund will
report annually to its shareholders the amount per share of such withholding
taxes. For this purpose, the Fund will allocate foreign taxes and foreign source
income among the Class I, Class A, Class B and Class C shareholders.

Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the United States
dollar). In general, foreign currency gains or losses from certain forward
contracts, from futures contracts that are not "regulated futures contracts" and
from unlisted options will be treated as ordinary income or loss under Code
Section 988. In certain circumstances, the Fund may elect capital gain or loss
treatment for such transactions. In general, however, Code Section 988 gains or
losses will increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income,
rather than increasing or decreasing the amount of the Fund's net capital gains.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each shareholder's Fund
shares.

Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains distributions
and redemption payments ("backup withholding"). Generally, shareholders subject
to backup withholding will be those for whom a certified taxpayer identification
number is not on file with the Fund or who, to the Fund's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
shareholder is not otherwise subject to backup withholding.

Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provisions of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax.

No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares for Class A shares. A shareholder's basis in
the Class A shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class A shares
will include the holding period of the converted Class B shares.

Upon a sale or exchange of its shares, a shareholder will realize a taxable
gain or loss depending on its basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will be
treated as short-term capital gain, taxable at the same rates as ordinary income
if the shares were held for not more than 12 months and capital gain taxable at
the maximum rate of 20% if such shares were held for more than 12 months. In the
case of a corporation, any such capital gain will be treated as long-term
capital gain, taxable at the same rates as ordinary income, if such shares were
held for more than 12 months. Any such loss will be treated as long-term capital
loss if such shares were held for more than 12 months. A loss recognized on the
sale or exchange of shares held for six months or less, however, will be treated
as long-term capital loss to the extent of any long-term capital gains
distribution with respect to such shares.

If a shareholder exercises an exchange privilege within 90 days of
acquiring shares of the Fund, then any loss recognized on the exchange will be
reduced (or any gain increased) to the extent the sales charge paid to

33
<PAGE> 75

the Fund reduces any sales charge that would have been owed upon the purchase of
the new shares in the absence of the exchange privilege. Instead, such sales
charge will be treated as an amount paid for the new shares.

Generally, any loss realized on a sale or exchange of shares of the Fund
will be disallowed if other shares of the Fund are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.

The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. The Fund anticipates that it will make sufficient
timely distributions to avoid imposition of the excise tax.

TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS

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

Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's transactions in options, futures and forward foreign
exchange contracts. Under Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in options, futures and forward foreign exchange contracts. Similarly, Code
Section 1091, which deals with "wash sales," may cause the Fund to postpone
recognition of certain losses for tax purposes; and Code Section 1258, which
deals with "conversion transactions," may apply to recharacterize certain
capital gains as ordinary income for tax purposes. Code Section 1259, which
deals with "constructive sales" of appreciated financial positions (e.g.,
stock), may treat the Fund as having recognized income before the time that such
income is economically recognized by the Fund.

OTHER TAX MATTERS

The Fund has received a private letter ruling from the Internal Revenue
Service ("IRS") to the effect that, because each Portfolio is classified as a
partnership for tax purposes, the Fund will be entitled to look to the
underlying assets of the Portfolio in which it has invested for purposes of
satisfying various requirements of the Code applicable to RICs. If any of the
facts upon which such ruling is premised change in any material respect (e.g.,
if the Trust were required to register its interests under the Securities Act
and the Trust is unable to obtain a private letter ruling from the IRS or an
opinion of counsel indicating that each Portfolio will continue to be classified
as a partnership), then the Board of Directors of the Corporation will
determine, in its discretion, the appropriate course of action for the Fund. One
possible course of action would be to withdraw the Fund's investments from the
Portfolio and to retain an investment adviser to manage the Fund's assets in
accordance with the investment policies applicable to the Fund. See "Investment
Objectives and Policies."
------------------------

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.

Dividends and capital gains distributions and gains on the sale or exchange
of shares in the Fund may also be subject to state and local taxes.

34
<PAGE> 76

Shareholders are urged to consult their own tax advisors regarding specific
questions as to Federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.

PERFORMANCE DATA

From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return is based on the Fund's historical
performance and is not intended to indicate future performance. Average annual
total return is determined separately for Class I, Class A, Class B and Class C
shares in accordance with a formula specified by the 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, including the maximum sales charge in the case of Class I and Class A
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.

The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges will not be included. 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.

In order to reflect the reduced sales charges in the case of Class I or
Class A shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares," respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may take into account the CDSC and
therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses is deducted.

On occasion, the Fund may compare its performance to, among other things,
the Standard & Poor's 500 Index, the Value Line Composite Index, the Dow Jones
Industrial Average, the MSCI Europe, the MSCI World Index, Salomon World
Government Bond Index, TSE 1st Section (TOPIX) or other published indices, or to
data contained in publications such as Lipper Analytical Services, Inc.,
Morningstar Publications, Inc. ("Morningstar"), other competing universes, Money
Magazine, U.S. News & World Report, Business Week, Forbes Magazine, Fortune
Magazine and CDA Investment Technology, Inc. When comparing its performance to a
market index, the Fund may refer to various statistical measures derived from
the historical performance of the Fund and the index, such as standard deviation
and beta. As with other performance data, performance comparisons should not be
considered indicative of the Fund's relative performance for any future period.
From time to time, the Fund may include its Morningstar risk-adjusted
performance rating in advertisements or supplemental sales literature. The Fund
may from time to time quote in advertisement or other materials other applicable
measures of performance and may also make references to awards that may be given
to the Investment Adviser.

35
<PAGE> 77

GENERAL INFORMATION

DESCRIPTION OF SHARES

The Corporation is a Maryland corporation incorporated on April 24, 1998.
It has an authorized capital of 2,800,000,000 shares of Common Stock, par value
$.0001 per share, divided into 100,000,000 shares of each of Class I, Class A,
Class B and Class C shares for each of its series.

Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Directors (to the
extent hereinafter provided) and on other matters submitted to vote of
shareholders, except that shareholders of the class bearing distribution
expenses as provided above shall have exclusive voting rights with respect to
matters relating to such distribution expenditures (except that Class B
shareholders may vote upon any material changes to expenses charged under the
Class A Distribution Plan). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of Directors can,
if they choose to do so, elect all the Directors of the Corporation, in which
event the holders of the remaining shares are unable to elect any person as a
Director. No amendment may be made to the Articles of Incorporation without the
affirmative vote of a majority of the outstanding shares of the Corporation.

There normally will be no meeting of shareholders for the purpose of
electing Directors unless and until such time as less than a majority of the
Directors holding office have been elected by the shareholders, at which time
the Directors then in office will call a shareholders' meeting for the election
of Directors. Shareholders may, in accordance with the terms of the Articles of
Incorporation, cause a meeting of shareholders to be held for the purpose of
voting on the removal of Directors. Also, the Corporation will be required to
call a special meeting of shareholders in accordance with the requirements of
the Investment Company Act to seek approval of new management and advisory
arrangements, of a material increase in account maintenance fees or of a change
in fundamental policies, objectives or restrictions. Except as set forth above,
the Directors shall continue to hold office and appoint successor Directors.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared and in net assets upon liquidation or
dissolution remaining after satisfaction of outstanding liabilities, except
that, as noted above, Class A shares bear certain additional expenses. Shares
issued are fully-paid and non-assessable by the Corporation or the Fund. Voting
rights for Directors are not cumulative.

The Trust consists of seven portfolios and is organized as a Delaware
Business Trust. Whenever the Fund is requested to vote on any matter relating to
the Portfolio, the Corporation will hold a meeting of the Fund's shareholders
and will cast its vote as instructed by the Fund's shareholders.

Mercury International provided the initial capital for the Fund by
purchasing 10,000 shares of the Fund, for an aggregate of $100,000. Such shares
were acquired for investment and can only be disposed of by redemption. To the
extent the organizational expenses of the Corporation are paid by the
Corporation they will be expensed and immediately charged to net asset value.
See "Determination of Net Asset Value."

Prior to the offering of the Fund's shares, Mercury International will be
the Fund's sole shareholder and deemed a controlling person of the Fund.

COMPUTATION OF OFFERING PRICE PER SHARE

An illustration of the computation of the offering price for Class I, Class
A, Class B and Class C shares of the Fund based on the projected value of the
Fund's estimated net assets and projected number of shares outstanding on the
date its shares are offered for sale to public investors is as follows:

<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets........................ 50,000,000 50,000,000 50,000,000 50,000,000
Number of Shares Outstanding...... 5,000,000 5,000,000 5,000,000 5,000,000
Net Asset Value Per Share (net
assets divided by number of
shares outstanding)............. $ 10.00 $ 10.00 $ 10.00 $ 10.00
</TABLE>

36
<PAGE> 78

<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales Charge (for Class I and
Class A Shares: 5.25% of
Offering Price (5.54% of net
amount invested))*.............. 0.55 0.55 * *
Offering Price.................... $ 10.55 $ 10.55 $ 10.00 $ 10.00
</TABLE>

- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption. See "Account Choices -- Class B and Class
C Shares -- Deferred Sales Charge Options" in the Prospectus and "Redemption
of Shares -- Deferred Sales Charges -- Class B and Class C Shares" herein.

INDEPENDENT AUDITORS

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

CUSTODIAN

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

TRANSFER AGENT

Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, which is a wholly owned subsidiary of ML & Co., acts as the
Fund's Transfer Agent pursuant to a transfer agency, dividend disbursing agency
and shareholder servicing agency agreement (the "Transfer Agency Agreement").
The Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts.

LEGAL COUNSEL

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

REPORTS TO SHAREHOLDERS

The Fund sends to its shareholders at least semi-annually reports showing
the Fund's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year, shareholders will receive Federal income
tax information regarding dividends and capital gains distributions.

ADDITIONAL INFORMATION

The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Corporation has filed with the Commission,
Washington, D.C., under the Securities Act and the Investment Company Act, to
which reference is hereby made.
------------------------

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<PAGE> 79

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<PAGE> 80

APPENDIX A

INVESTMENT POLICIES INVOLVING THE USE OF INDEXED
SECURITIES, OPTIONS, FUTURES AND SWAPS

The Fund and the Portfolio 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 Fund 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 Fund will not
subject the Fund to the risks frequently associated with the speculative use of
options and futures transactions. While the Fund's use of hedging strategies is
intended to reduce the volatility of the net asset value of Fund shares, the
Fund's net asset value will fluctuate. There can be no assurance that the Fund's
hedging transactions will be effective. Furthermore, the Fund 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 Fund may invest in securities the potential return of which is based on
the change in particular measurements of value or rate, including interest rates
(an "index"). As an illustration, the Fund 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 interest rate or based on the
relative changes of two indices. In addition, the Fund may invest in securities
the potential return of which is based inversely on the change in an index. For
example, the Fund 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 the Fund
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, the Fund 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
Fund believes that indexed and inverse securities may provide portfolio
management flexibility that permits the Fund 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. The Fund 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 the
Fund purchases a put option, in consideration for an upfront payment (the
"option premium") the Fund acquires a right to sell to another party specified
securities owned by the Fund 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 the Fund'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, the
Fund 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.
A-1
<PAGE> 81

The Fund 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 the Fund purchases a call option, in consideration for the option premium
the Fund 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 the Fund 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 Fund 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 Fund believes to be attractive, in the case of an option on an index
(an "anticipatory hedge"). In the event the Fund determines not to purchase a
security underlying a call option, however, the Fund may lose the entire option
premium.

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

Writing Options. The Fund 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 the
Fund writes a call option, in return for an option premium the Fund is legally
obligated to sell specified securities owned by the Fund 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. The Fund may write call options to earn income, through the receipt of
option premiums. In the event the party to which the Fund 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 Fund 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 Fund 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.

The Fund may also write put options on securities or securities indices.
When the Fund writes a put option, in return for an option premium the Fund
gives another party the right to sell to the Fund a specified security at the
exercise price on or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount based on any decline in a
specified securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write put
options to earn income, through the receipt of option premiums. In the event the
party to which the Fund 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 Fund will profit by the amount of the option premium. By
writing a put option, however, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of the
security at the time of exercise as long as the put option is outstanding, in
the case of an option on a security, or make a cash payment reflecting any
decline in the index, in the case of an option on an index. Accordingly, when
the Fund 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 Fund for writing the put option. The Fund will write a put option on a
security or a securities index only if the Fund 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").

The Fund 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, the Fund will write only
call or put options that are "covered." A put option will be considered covered
if the Fund has segregated assets with respect to such

A-2
<PAGE> 82

option in the manner described in "Risk Factors in Options, Futures and Currency
Instruments" below. A call option will be considered covered if the Fund 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. The Fund may engage in transactions in options on
securities or securities indices, on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and 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 Fund 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
the Fund 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 Fund's exchanges or in a third-party account
with the Fund's Custodian. Each day thereafter until the futures position is
closed, the Fund 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
the Fund and its shareholders. Even if a transaction is profitable, the Fund 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 Fund'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, the Fund 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 the Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive. In
the event that such securities decline in value or the Fund determines not to
complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.

The Fund 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 Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a "commodity pool" under regulations of the
Commodity Futures Trading Commission. The Fund will only engage in futures and
options transactions from time to time. The Fund is under no obligation to use
such transactions and may not do so.

SWAPS

The Fund is 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,
A-3
<PAGE> 83

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.

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

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, the
Fund will experience a gain or loss that will not be completely offset by
movements in the value of the hedged instruments.

The Fund intends 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 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 the Fund 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
the Fund to potential losses that exceed the amount originally invested by the
Fund in such instruments. When the Fund engages in such a transaction, the Fund
will deposit in a segregated account at its custodian liquid securities with a
value at least equal to the Fund's exposure, on a mark-to-market basis, to the
transaction (as calculated pursuant to requirements of the Commission). Such
segregation will ensure that the Fund has assets available to satisfy its
obligations with respect to the transactions, but will not limit the Fund'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 the Fund may invest. The absence of liquidity may make it
difficult or impossible for the Fund to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for
the Fund to ascertain a market value for such instruments. The Fund 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 Fund 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 Fund has therefore adopted an investment policy pursuant to which the Fund
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 Fund, the market value of
the securities underlying OTC call options currently outstanding that have been
sold by the Fund and margin deposits on the Fund's outstanding OTC options
exceeds 15% of the net assets of the Fund, taken at market value, together with
all other assets of the Fund that are deemed to be illiquid or are otherwise not
readily marketable. However, if an OTC option is sold by the Fund to a dealer in
U.S. government securities recognized as a "primary dealer" by the Federal
Reserve Bank of New York and the Fund has the unconditional contractual right to
repurchase such OTC option at a predetermined price, then the Fund will treat as
illiquid such amount of the underlying securities as equal to the repurchase
price less the
A-4
<PAGE> 84

amount by which the option is "in-the-money" (i.e., current market value of the
underlying security minus the option's exercise price).

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 the Fund has unrealized gains in such instruments or
has deposited collateral with its counterparty, the Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Fund 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

The Fund 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.

A-5
<PAGE> 85

APPENDIX B

RATINGS OF FIXED INCOME SECURITIES

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

<TABLE>
<S> <C>
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.
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.
</TABLE>

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

B-1
<PAGE> 86

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 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:

<TABLE>
<S> <C>
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.
</TABLE>

B-2
<PAGE> 87
<TABLE>
<S> <C>
a An issue that is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are judged
to be somewhat greater than in the "aaa" and "aa"
classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue that is rated "baa" is considered to be medium
grade, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be
questionable over any great length of time.
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.
</TABLE>

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.

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.

<TABLE>
<S> <C>
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.
</TABLE>

B-3
<PAGE> 88
<TABLE>
<S> <C>
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.
</TABLE>

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.

<TABLE>
<S> <C>
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 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.
</TABLE>

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.

<TABLE>
<S> <C>
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.
</TABLE>

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.

B-4
<PAGE> 89

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA," "AA," "A," "BBB," commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

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:

<TABLE>
<S> <C>
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.
</TABLE>

The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.

DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS

A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher 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:

<TABLE>
<S> <C>
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.
</TABLE>

B-5
<PAGE> 90
<TABLE>
<S> <C>
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
B, balance, as predominantly speculative with respect to the
CCC issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely
have some quality and protection characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is
currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue in default
on debt instruments.
</TABLE>

NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.

PLUS (+) or MINUS (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.

The preferred stock ratings are not a recommendation to purchase or sell a
security, inasmuch as market price is not considered in arriving at the rating.
Preferred stock ratings are wholly unrelated to Standard & Poor's earnings and
dividend rankings for common stocks.

The ratings are based on current information furnished to Standard & Poor's
by the issuer, and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information.

DESCRIPTION OF FITCH IBCA, INC.'S ("FITCH") INVESTMENT GRADE BOND RATINGS

Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and of any
guarantor, as well as the economic and political environment that might affect
the issuer's future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.

Bonds carrying the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.

B-6
<PAGE> 91

Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

<TABLE>
<S> <C>
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.
</TABLE>

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.

<TABLE>
<S> <C>
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 "Evolving," where ratings may be
raised or lowered. FitchAlert is relatively short-term, and
should be resolved within 12 months.
</TABLE>

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.

B-7
<PAGE> 92

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.

<TABLE>
<S> <C>
BB Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time
by adverse economic changes. However, business and financial
alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if
not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic
environment.
CC Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD Bonds are in default on interest and/or principal payments.
DD Such bonds are extremely speculative and should be valued on
D the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
</TABLE>

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:

<TABLE>
<S> <C>
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.
</TABLE>

B-8
<PAGE> 93

(This page intentionally left blank.)
<PAGE> 94

CODE # 19055-0399
(C) Mercury Asset Management International Ltd.
<PAGE> 95

PART C. OTHER INFORMATION

ITEM 23. EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
1(a) -- Articles of Incorporation of Registrant.
1(b) -- Amended Articles of Incorporation of Registrant.
1(c) -- Articles of Amendment of Registrant.
1(d) -- Articles of Amendment of Registrant.
1(e) -- Articles of Amendment of Registrant.
2(a) -- By-Laws of Registrant.
2(b) -- Amended and Restated By-Laws of Registrant.
3 -- Instrument Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.
4 -- Not Applicable.
5(a) -- Class I Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(b) -- Class A Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(c) -- Class B Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(d) -- Class C Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
6 -- None.
7 -- Custody Agreement between Registrant and Brown Brothers
Harriman & Co.
8(a) -- Administration Agreement between Registrant and Fund Asset
Management, L.P.
8(b) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc.
8(c) -- 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.
8(d) -- License Agreement relating to Use of Name among Mercury
Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.
9 -- Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel for Registrant.
10 -- Consent of Deloitte & Touche, LLP, independent auditors for
the Registrant.
11 -- None.
12 -- Certificate of Mercury Asset Management International Ltd.
13(a) -- Class A Distribution Plan and Class A Plan Sub-Agreement.
13(b) -- Class B Distribution Plan and Class B Plan Sub-Agreement.
13(c) -- Class C Distribution Plan and Class C Plan Sub-Agreement.
14 -- Not Applicable.
15(a) -- Rule 18f-3 Plan.
15(b) -- Powers of Attorney for Officers, Directors and Trustees.
</TABLE>

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Prior to the effective date of this Registration Statement, the Registrant
will sell shares of its series, Mercury Global Balanced Fund to Mercury Asset
Management International Ltd. ("Mercury International"). Prior to the effective
date of this Registration Statement, Mercury Asset Management Master Trust will
also sell interests of its series, Mercury Master Global Balanced Portfolio to
Registrant. Therefore, the Mercury Master Global Balanced Portfolio of Mercury
Asset Management Master Trust will be under control by and under common control
with the Registrant.

C-1
<PAGE> 96

ITEM 25. INDEMNIFICATION.

Reference is made to Article V of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws and Section 2-418 of the Maryland General
Corporation Law.

Article VI of the By-Laws provides that each officer and Director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the Maryland General Corporation Law, except that such indemnity shall not
protect any such person against any liability to the Registrant or any
stockholder thereof to which such person 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. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination by special legal counsel in a written opinion or the vote of a
quorum of the Directors who are neither "interested persons," as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties
to the proceeding ("non-party independent Directors"), after review of the
facts, that such officer or Director is not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.

Each officer and Director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the Maryland General Corporation Law without a preliminary
determination as to his or her ultimate entitlement to indemnification (except
as set forth below); provided, however, that the person seeking indemnification
shall provide to the Registrant a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Registrant has
been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Registrant for his undertaking; (b) the Registrant is
insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent Directors, or independent legal counsel in a
written opinion, shall determine, based on a review of facts readily available
to the Registrant at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.

The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his activities as officer or
Director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or Director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director 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 Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or Director of the Registrant.

In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, as amended (the "Act"), against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus
and Statement of Additional Information.

Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the Registrant
and the principal

C-2
<PAGE> 97

underwriter in connection with the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person or the
principal underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

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
January, 1997 for his own account or in the capacity of director, officer,
partner or trustee.

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS 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
Debra Ann Searle.......................... 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).

Ms. Searle also serves as officer of the following companies:

Forum House Limited; Grosvenor Alternate Partner Limited; Grosvenor General
Partner Limited; Grosvenor Ventures Limited; Grosvenor Venture Managers Limited;
33 King William Street, Ltd.; Mercury Asset Management Employee Trust Co. Ltd.;
Mercury Asset Management Finance Ltd.; Mercury Asset Management Group Ltd;
Mercury Asset Management Group Services Ltd; Mercury Asset Management Holdings
Ltd.; Mercury Asset Management International Ltd.; Mercury Asset Management No.
1 Limited; Mercury Asset Management Ltd.; Mercury Asset Management Pension
Trustee Co. 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; Third Grosvenor Limited; Wimco
Nominees Ltd.; Toll Company; SNC International (Holdings) Limited; SNC
Securities Limited; SNCS Limited; Storey Saver Limited; Merrill Lynch Private
Capital Limited; Merrill Lynch, Pierce, Fenner & Smith (Brokers & Dealers)
Limited; Merrill Lynch, Pierce, Fenner & Smith Limited; Mership Nominees
Limited; ML Europe Property Ltd.; ML Invest Holdings Limited; ML Invest Holdings
Limited; ML Invest Holdings Limited; ML Invest Limited; N.Y. Nominees Limited;
Paramount Nominees Limited; Prismbond Limited; Prismbond Limited; RNML Limited;
S.N.C. Nominees Limited; Sealion Nominees Limited; Smith Bros (Services &
Leasing) Limited; Smith Bros Nominees Limited; Smith Bros Participations
Limited; Smith Bros PLC; SNC Corporate Finance Limited; SNC Financial Services;

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<PAGE> 98

McIntosh Services (UK) Limited; Merrill Lynch (UK) Pension Plan Trustees
Limited; Merrill Lynch Capital Markets Bank Limited; Merrill Lynch Equities
Limited; Merrill Lynch Europe Funding; Merrill Lynch Europe Holdings Limited;
Merrill Lynch Europe Holdings Limited; Merrill Lynch Europe PLC; Merrill Lynch
Financial Services Limited; Merrill Lynch Gilts (Nominees) Limited; Merrill
Lynch Gilts Holdings Limited; Merrill Lynch Gilts Investments Limited; Merrill
Lynch Gilts Limited; Merrill Lynch Group Holdings Limited; Merrill Lynch
International; Merrill Lynch International; Merrill Lynch International Bank
Limited; Merrill Lynch Investment Services Limited; Merrill Lynch Investments
Limited; Merrill Lynch Limited; Merrill Lynch Limited; Merrill Lynch Nominees
Limited; Merrill Lynch Private Capital Limited; Benson Nominees Limited; C.P.W.
Limited; C.P.W. Limited; C.P.W. Limited; Capital Markets; Chetwynd Nominees
Limited; Citygale Nominees Limited; CLO Funding Limited; and McIntosh Services
(UK) Limited.

Set forth below is a list of each executive officer and director of Fund
Asset Management, L.P. ("FAM") indicating each business, profession, vocation or
employment of a substantial nature in which each such person has been engaged
since January, 1997 for his own account or in the capacity of director, officer,
partner or trustee.

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH FAM PROFESSION, 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;
President Executive Vice President and Director
of Princeton Services; President and
Director of Princeton Funds
Distributor, Inc.; Director of FDS;
President of Princeton Administrators,
L.P.
</TABLE>

C-4
<PAGE> 99

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH FAM PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------- ---------------------------------------
<S> <C> <C>
Donald C. Burke..................... Senior Vice President Senior Vice President and Treasurer of
and Treasurer MLAM since 1999; Senior Vice President
and Treasurer of Princeton Services;
Vice President and Treasurer of
Princeton Funds Distributor, Inc.;
First Vice President of MLAM from 1997
to 1999; Vice President of MLAM from
1990 to 1997; Director of Taxation of
MLAM since 1990.
Michael G. Clark.................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services.
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 Senior Vice President, Secretary and
President, Secretary General Counsel of MLAM; Senior Vice
and General Counsel President of 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
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.
</TABLE>

C-5
<PAGE> 100

Mr. Zeikel is President, Mr. Glenn is Executive Vice President and Mr.
Burke 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, and Mr. Glenn is an officer of such companies.
Messrs. Giordano, Harvey, Kirstein, and Monagle are 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 California Insured Fund IV, Inc., MuniHoldings New
York Fund, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York
Insured Fund II, Inc., MuniHoldings New York Insured Fund III, Inc.,
MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III, MuniHoldings Florida Insured Fund IV,
MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings, New Jersey Insured
Fund II, Inc., MuniHoldings New Jersey Insured Fund III, 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 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

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<PAGE> 101

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 the principal underwriter for the Registrant and 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 of other investment companies.

(b) Set forth below is information concerning each director and officer of
MFD. The principal business address of each such person is 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>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH THE DISTRIBUTOR WITH REGISTRANT
---- --------------------- ------------------------
<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
James T. Fatseas......................... Vice President None
Debra W. Landsman-Yaros.................. Vice President None
Michelle T. Lau.......................... Vice President None
Donald C. Burke.......................... Vice President and Treasurer Treasurer
Salvatore Venezia........................ Vice President None
William Wasel............................ Vice President None
Robert Harris............................ Secretary None
</TABLE>

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<PAGE> 102

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 Funds, Inc., 800 Scudders Mill
Road, Plainsboro, New Jersey 08536;

(2) the transfer agent, Financial Data Services, Inc., 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484;

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

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

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

ITEM 29. MANAGEMENT SERVICES.

Other than as set forth under the caption "Management of the Fund" in the
Prospectus constituting Part A of the Registration Statement and under
"Management of the Fund -- Management and Advisory Arrangements" in the
Statement of Additional Information constituting Part B of the Registration
Statement, the Registrant is not party to any management related service
contract.

ITEM 30. UNDERTAKINGS.

None.

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<PAGE> 103

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and State of New Jersey, on the 12th
day of February, 1999.

MERCURY GLOBAL BALANCED FUND OF
MERCURY ASSET MANAGEMENT FUNDS, INC.

Registrant

By: /s/ JEFFREY M. PEEK
------------------------------------
Jeffrey M. Peek, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>

/s/ JEFFREY M. PEEK President and Director February 12, 1999
- ----------------------------------------------------- (Principal Executive
(Jeffrey M. Peek) Officer)

* Executive Vice President
- ----------------------------------------------------- and Director
(Terry K. Glenn)

* Treasurer (Principal
- ----------------------------------------------------- Financial
(Donald C. Burke) Accounting Officer)
and Vice President

* Director
- -----------------------------------------------------
(David O. Beim)

* Director
- -----------------------------------------------------
(James T. Flynn)

* Director
- -----------------------------------------------------
(W. Carl Kester)

* Director
- -----------------------------------------------------
(Karen P. Robards)

*By: /s/ JEFFREY M. PEEK February 12, 1999
----------------------------------------------
(Jeffrey M. Peek, Attorney-in-Fact)
</TABLE>

* This amendment has been signed by each
of the persons so indicated by the
undersigned as Attorney-in-Fact.

C-9
<PAGE> 104

SIGNATURES

Mercury Asset Management Master Trust has duly caused this Registration
Statement of Mercury Global Balanced Fund of Mercury Asset Management Funds,
Inc. to be signed on its behalf by the undersigned, thereunto duly authorized,
in the Township of Plainsboro and State of New Jersey on the 12th day of
February, 1999.

MERCURY ASSET MANAGEMENT MASTER TRUST

By: /s/ JEFFREY M. PEEK
------------------------------------
Jeffrey M. Peek, President

This Registration Statement of Mercury Global Balanced Fund of Mercury
Asset Management Funds, Inc., has been signed below by the following persons in
the capacities and on dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>

/s/ JEFFREY M. PEEK President and Trustee February 12, 1999
- ----------------------------------------------------- (Principal Executive
(Jeffrey M. Peek) Officer)

* Executive Vice President
- ----------------------------------------------------- and Trustee
(Terry K. Glenn)

* Treasurer (Principal
- ----------------------------------------------------- Financial
(Donald C. Burke) Accounting Officer)
and Vice President

* Trustee
- -----------------------------------------------------
(David O. Beim)

* Trustee
- -----------------------------------------------------
(James T. Flynn)

* Trustee
- -----------------------------------------------------
(W. Carl Kester)

* Trustee
- -----------------------------------------------------
(Karen P. Robards)

*By /s/ JEFFREY M. PEEK February 12, 1999
-----------------------------------------------
(Jeffrey M. Peek, Attorney-in-Fact)
</TABLE>

* This amendment has been signed by each
of the persons so indicated by the
undersigned as Attorney-in-Fact.

C-10
<PAGE> 105

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C> <C>
1(a) -- Articles of Incorporation of Registrant.
1(b) -- Amended Articles of Incorporation of Registrant.
1(c) -- Articles of Amendment of Registrant.
1(d) -- Articles of Amendment of Registrant.
2(a) -- By-Laws of Registrant.
2(b) -- Amended and Restated By-Laws of Registrant.
7 -- Custody Agreement between Registrant and Brown Brothers
Harriman & Co.
8(b) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc.
8(c) -- 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.
8(d) -- License Agreement relating to Use of Name among Mercury
Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.
15(a) -- Rule 18f-3 Plan.
15(b) -- Powers of Attorney for Officers, Directors and Trustees.
</TABLE>

C-11

<PAGE> 1
Exhibit 1(a)

ARTICLES OF INCORPORATION

MERCURY ALPHA FUND, INC.

THE UNDERSIGNED, Judith L. Shandling, whose post office address is
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New York
10022, being at least eighteen years of age, does hereby act as an incorporator,
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.

ARTICLE I
NAME

The name of the corporation is Mercury Alpha Fund, Inc. (the
"Corporation").

ARTICLE II
PURPOSES AND POWERS

The purpose or purposes for which the Corporation is formed, the
powers, rights and privileges that the Corporation shall be authorized to
exercise and enjoy, and the business or objects to be transacted, carried on and
promoted by it are as follows:

(1) To conduct and carry on business of an investment company of the
management type.

(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.

(3) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or kind
of consideration now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation, as its Board of Directors may
determine; provided, however, that the value of the consideration per share to
be received by the Corporation upon the sale or other disposition of any shares
of its capital stock shall not be less than the net asset value per share of
such capital stock outstanding at the time of such event.

(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its issued or unissued capital stock
of any class or series, as its Board of Directors may determine, in any manner
and to the extent now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation.
<PAGE> 2
(5) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.

(6) The Corporation shall be authorized to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing purposes, powers, rights and privileges, shall not
be deemed to exclude any powers, rights or privileges so granted or conferred.

ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT

The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a corporation
of this State, and the post office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.

ARTICLE IV
CAPITAL STOCK

(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Two Billion, Eight Hundred Million
(2,800,000,000) shares, of the par value of One Hundredth of One Cent ($.0001)
per share, and of the aggregate par value of Two Hundred and Eighty Thousand
Dollars ($280,000). The capital stock initially consists of seven series, known
as Mercury European Growth Fund, Mercury International Fund, Mercury Japan Fund,
Mercury Alpha Fund 4, Mercury Alpha Fund 5, Mercury Alpha Fund 6, and Mercury
Alpha Fund 7 (collectively, the "Series", and each, a "Series"). Each Series
shall consist, until further changed, of Four Hundred Million (400,000,000)
shares. The shares of each Series shall consist, until further changed, of four
classes of shares designated Class A shares, Class B shares, Class C shares and
Class D shares (the "Classes"). Each Class of each Series shall consist, until
further changed, of One Hundred Million (100,000,000) shares.

(2) Unless otherwise expressly provided in the charter of the
Corporation, the Class A, Class B, Class C and Class D shares of each Series
shall represent an equal proportionate interest in the assets belonging to that
Series (subject to the liabilities of that Series) and each share of a
particular Series shall have identical voting, dividend, liquidation and other
rights; provided, however, that notwithstanding anything in the charter of the
Corporation to the contrary:

2
<PAGE> 3
to time establish in accordance with the Investment Company
Act of 1940, as amended, and other applicable law.

(ii) Liabilities of a Series which are determined by or under
the supervision of the Board of Directors to be attributable
to a particular Class of that Series may be charged to that
Class and appropriately reflected in the net asset value of,
or dividends payable on, the shares of that Class of the
Series.

(iii) The Class A, Class B, Class C and Class D shares of a
particular Series may have such different exchange and
conversion rights as the Board of Directors shall provide in
compliance with the Investment Company Act of 1940, as
amended.

(3) The Board of Directors may classify and reclassify any unissued
shares of capital stock, of any class or series, into one or more additional or
other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any existing class or series.

(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class or series of capital stock shall be
entitled to dividends and distributions in such amounts and at such times as may
be determined by the Board of Directors, and the dividends and distributions
paid with respect to the various classes or series of capital stock may vary
among such classes and series. Dividends on a class or series may be declared or
paid only out of the net assets of that class or series. Expenses related to the
distribution of, and other identified expenses that should properly be allocated
to, the shares of a particular class or series of capital stock may be charged
to and borne solely by such class or series and the bearing of expenses solely
by a class or series of capital stock may be appropriately reflected (in a
manner determined by the Board of Directors) and cause differences in the net
asset value attributable to, and the dividend, redemption and liquidation rights
of, the shares of each class or series of capital stock.

(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Sections (2) and
(4) hereof and including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that (a) as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act of 1940, as amended, and in
effect from time to time, or any rules, regulations or orders issued thereunder,
or by the Maryland

3
<PAGE> 4
General Corporation Law, such requirement as to a separate vote by that class or
series shall apply in lieu of a general vote of all classes and series as
described above, (b) in the event that the separate vote requirements referred
to in (a) above apply with respect to one or more classes or series, then,
subject to paragraph (c) below, the shares of all other classes and series not
entitled to a separate class vote shall vote as a single class, and (c) as to
any matter which does not affect the interest of a particular class or series,
such class or series shall not be entitled to any vote and only the holders of
shares of the affected classes and series, if any, shall be entitled to vote.

(6) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all classes
or series of capital stock of the Corporation (or of any class or series
entitled to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized (subject to the requirements of the
Investment Company Act of 1940, as amended, and in effect from time to time, and
any rules, regulations and orders issued thereunder) to take such action upon
the concurrence of a majority of the votes entitled to be cast by holders of
capital stock of the Corporation (or a majority of the votes entitled to be cast
by holders of a class or series entitled to vote thereon as a separate class or
series).

(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, subject to compliance with the requirements of the Investment
Company Act of 1940, as amended, the Board of Directors shall have the authority
to provide that holders of shares of any class or series shall have the right to
convert or exchange said shares into shares of one or more other classes or
series in accordance with such requirements and procedures as may be established
by the Board of Directors.

(8) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of each class or
series of capital stock of the Corporation shall be entitled, after payment or
provision for payment of the debts and other liabilities of the Corporation, to
share ratably in the remaining net assets of the Corporation applicable to that
class or series.

(9) Any fractional shares shall carry proportionately all the rights of
a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends; provided, however, that the Corporation shall not be
required to issue share certificates for such fractional shares.

(10) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of stockholders, except with respect to any matter which
requires approval by a separate vote of one or more classes of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast

4
<PAGE> 5
one-third of the votes entitled to be cast by each class entitled to vote as a
separate class shall constitute a quorum.

(11) All persons who shall acquire stock in the Corporation, of any
class or series, shall acquire the same subject to the provisions of the charter
and By-Laws of the Corporation. Any reference to "shares," "stock" or "shares of
stock" in these Articles of Incorporation shall be deemed to refer, unless the
context otherwise requires, to the shares of each separate class and/or series.
As used in the charter of the Corporation, the terms "charter" and "Articles of
Incorporation" shall mean and include the Articles of Incorporation of the
Corporation as amended, supplemented and restated from time to time by Articles
of Amendment, Articles Supplementary, Articles of Restatement or otherwise.

(12) The Board of Directors may classify and reclassify any issued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely affect
the rights of holders of such issued shares. The Board's authority pursuant to
this paragraph shall include, but not be limited to, the power to vary among all
the holders of a particular class or series (a) the length of time shares must
be held prior to reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such Holding
Period(s) is determined and (c) the class or series into which the particular
class or series is being reclassified; provided, however, that, subject to the
first sentence of this section, with respect to holders of the Corporation's
shares issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s) (the "First Holding Period
Prospectus"), the Holding Period(s), the manner in which the time for such
Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's prospectus or statement of additional information in effect at the
time such shares, which are the subject of the reclassification, were issued.

(13)(a) Each series of capital stock of the Corporation shall relate to
a separate portfolio of investments. All shares of stock in each series shall be
identical except that there may be variations between the different series as to
the purchase price, determination of net asset value, designations, preferences,
conversion or other rights, voting powers, restrictions, special and relative
rights and limitations as to dividends and on liquidation, qualifications or
terms or conditions of redemption of such shares of stock.

(b) Each series of stock of the Corporation shall have the following
powers, preferences and voting or other special rights, and the qualifications,
restrictions and limitations thereof shall be as follows:

5
<PAGE> 6
(i) All consideration received by the Corporation for the
issue or sale of stock of each series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds received thereon, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets, funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the series of stock with respect to which such assets,
payments or funds were received by the Corporation for all purposes, subject
only to the rights of creditors, and shall be so handled in the books of account
of the Corporation. Such assets, funds and payments, including any proceeds
derived from the sale, exchange or liquidation thereof, and any assets, funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, are herein referred to as "assets belonging to" such series. In the
event that there are any income, earnings, profits, and proceeds thereof,
assets, funds or payments that are not readily identifiable as belonging to any
particular series, the Board of Directors of the Corporation shall allocate them
among any one or more of the series established and designated from time to time
in such manner and on such basis as the Board of Directors, in their sole
discretion, deem fair and equitable. Each allocation by the Board of Directors
shall be conclusive and binding on the stockholders of the Corporation of all
series for all purposes.

(ii) The assets belonging to each series of stock shall be
charged with the liabilities in respect of such series, and also shall be
charged with its share of the general liabilities of the Corporation, in
proportion to the asset value of the respective series determined in accordance
with the Articles of Incorporation of the Corporation. The determination of the
Board of Directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the same to a
given series, and as to whether the same or general assets of the Corporation
are allocable to one or more series.

ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS

(1) The number of directors of the Corporation shall be three, which
number may be increased pursuant to the By-Laws of the Corporation but shall
never be less than three. The names of the directors who shall act until their
successors are duly elected and qualify are:

Terry K. Glenn
Philip K. Kirstein
Robert E. Putney, III

(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, of any
class or series, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable,

6
<PAGE> 7
subject to such limitations as may be set forth in these Articles of
Incorporation or in the By-Laws of the Corporation or in the General Laws of the
State of Maryland.

(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation, of
any class or series, acquired by it after the issue thereof, or otherwise) other
than such right, if any, as the Board of Directors, in its discretion, may
determine.

(4) Each acting and former director and officer of the Corporation
shall be indemnified by the Corporation to the full extent permitted by the
General Laws of the State of Maryland, subject to the requirements of the
Investment Company Act of 1940, as amended. No amendment of these Articles of
Incorporation or repeal of any provision hereof shall limit or eliminate the
benefits provided to directors and officers under this provision in connection
with any act or omission that occurred prior to such amendment or repeal. The
foregoing rights of indemnification shall not be exclusive of any other rights
to which those seeking indemnification may be entitled.

(5) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940, as
amended, no director or officer of the Corporation shall be personally liable to
the Corporation or its security holders for money damages. No amendment of these
Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors and officers under this provision
in connection with any act or omission that occurred prior to such amendment or
repeal.

(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from time
to time any of the By-Laws of the Corporation except any particular By-Law which
is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.

(7) The Board of Directors of the Corporation from time to time may
change the Corporation's name, or change the name or other designation of any
class or series of its stock, without the vote or consent of the stockholders of
the Corporation, in any manner and to the extent now or hereafter permitted by
the General Laws of the State of Maryland and by these Articles of
Incorporation.

(8) Notwithstanding any other provision of these Articles of
Incorporation or the By-Laws of the Corporation, or the General Laws of the
State of Maryland, the Board of Directors of the Corporation may, upon the
affirmative vote of the majority of the entire Board of Directors and without
the vote or consent of the stockholders, dissolve the Corporation in the manner
otherwise provided by the laws of the State of Maryland.

7
<PAGE> 8
ARTICLE VI
REDEMPTION

(1) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the redemption
price of such shares as in effect from time to time as may be determined by the
Board of Directors of the Corporation in accordance with the provisions hereof,
subject to the right of the Board of Directors of the Corporation to suspend the
right of redemption of shares of capital stock of the Corporation or postpone
the date of payment of such redemption price in accordance with provisions of
applicable law.

(2) All shares of stock of the Corporation shall be redeemable at the
option of the Corporation. The Board of Directors may by resolution from time to
time authorize the Corporation to require the redemption of all or any part of
the outstanding shares of any class or series upon such terms and conditions as
the Board of Directors, in its discretion, shall deem advisable, and upon the
sending of written notice thereof to each holder whose shares are to be
redeemed.

(3) The redemption price of shares of capital stock of the Corporation
shall be the net asset value thereof as determined by the Board of Directors of
the Corporation from time to time in accordance with the provisions of
applicable law, less such redemption fee or other charge, if any, as may be
fixed by resolution of the Board of Directors of the Corporation. Payment of the
redemption price shall be made in cash by the Corporation at such time and in
such manner as may be determined from time to time by the Board of Directors of
the Corporation.

ARTICLE VII
DETERMINATION BINDING

Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which such reserves
or charges shall have been created, shall have been paid or discharged or shall
be then or thereafter required to be paid or discharged), as to the price of any
security owned by the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors as to whether any transaction
constitutes a purchase of securities on "margin," a sale of securities

8
<PAGE> 9
"short," or an underwriting or the sale of, or a participation in any
underwriting or selling group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and future, and
shares of the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision of these Articles of Incorporation
shall be effective to (a) require a waiver of compliance with any provision of
the Securities Act of 1933, as amended, or the Investment Company Act of 1940,
as amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its
security 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.

ARTICLE VIII
PERPETUAL EXISTENCE

The duration of the Corporation shall be perpetual.

ARTICLE IX
AMENDMENT

The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in any manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding stock
and substantially adversely affects the stockholder's rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.

IN WITNESS WHEREOF, the undersigned incorporator of Mercury Alpha Fund,
Inc. hereby executes the foregoing Articles of Incorporation and acknowledges
the same to be his act and further acknowledges that, to the best of his
knowledge, the matters and facts set forth therein are true in all material
respects under penalties for perjury.

Dated this 23rd day of April, 1998

_____________________________
Judith L. Shandling

<PAGE> 1
Exhibit 1(b)

AMENDED ARTICLES OF INCORPORATION OF
MERCURY ALPHA FUND, INC.

Mercury Alpha Fund, Inc. is filing these Amended Articles of
Incorporation prior to the organizational meeting of the Board of Directors. As
amended, the charter will read as follows. The stock amounts and aggregate par
value are unchanged by this document.

ARTICLE I
NAME

The name of the corporation is Mercury Asset Management Funds, Inc. (the
"Corporation").

ARTICLE II
PURPOSES AND POWERS

(1) To conduct and carry on business of an investment company of the
management type.

(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.

(5) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.

ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT

The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Service Company, 11 E. Chase
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Service Company, a corporation of
this State, and the post office address of the resident agent is 11 E. Chase
Street, Baltimore, Maryland 21202.

ARTICLE IV
CAPITAL STOCK

(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Two Billion, Eight Hundred Million
(2,800,000,000) shares, of the par value of One Hundredth of One Cent ($.0001)
per share, and of the aggregate par value of Two Hundred and Eighty Thousand
Dollars ($280,000). The capital stock initially consists of seven series, known
as Mercury Pan-European Growth Fund, Mercury International Fund, Mercury Japan
Capital Fund, Mercury Emerging Economies Fund, Mercury Gold and Mining Fund,
Mercury Core U.S. Growth Fund and Mercury Asset Management Fund 7 (collectively,
the "Series", and each, a "Series"). Each Series shall consist, until further
changed, of Four Hundred Million (400,000,000) shares. The shares of each Series
shall consist, until further changed, of four classes of shares designated Class
A shares, Class B shares, Class C shares and Class D shares (the "Classes").
Each Class of each Series shall consist, until further changed, of One Hundred
Million (100,000,000) shares.

2
<PAGE> 3
particular Series shall have identical voting, dividend, liquidation and other
rights; provided, however, that notwithstanding anything in the charter of the
Corporation to the contrary:

(i) The Class A, Class B, Class C and Class D shares may be
issued and sold subject to such different sales loads or
charges, whether initial, deferred or contingent, or any
combination thereof, as the Board of Directors may from time
to time establish in accordance with the Investment Company
Act of 1940, as amended, and other applicable law.

3
<PAGE> 4
stockholders, each holder of a share of capital stock of the Corporation shall
be entitled to one vote for each share standing in such holder's name on the
books of the Corporation, irrespective of the class or series thereof, and all
shares of all classes and series shall vote together as a single class;
provided, however, that (a) as to any matter with respect to which a separate
vote of any class or series is required by the Investment Company Act of 1940,
as amended, and in effect from time to time, or any rules, regulations or orders
issued thereunder, or by the Maryland General Corporation Law, such requirement
as to a separate vote by that class or series shall apply in lieu of a general
vote of all classes and series as described above, (b) in the event that the
separate vote requirements referred to in (a) above apply with respect to one or
more classes or series, then, subject to paragraph (c) below, the shares of all
other classes and series not entitled to a separate class vote shall vote as a
single class, and (c) as to any matter which does not affect the interest of a
particular class or series, such class or series shall not be entitled to any
vote and only the holders of shares of the affected classes and series, if any,
shall be entitled to vote.

4
<PAGE> 5
(10) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of stockholders, except with respect to any matter which
requires approval by a separate vote of one or more classes of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast by each class entitled to vote
as a separate class shall constitute a quorum.

5
<PAGE> 6
(b) Each series of stock of the Corporation shall have the following
powers, preferences and voting or other special rights, and the qualifications,
restrictions and limitations thereof shall be as follows:

(i) All consideration received by the Corporation for the
issue or sale of stock of each series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds received thereon, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets, funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the series of stock with respect to which such assets,
payments or funds were received by the Corporation for all purposes, subject
only to the rights of creditors, and shall be so handled in the books of account
of the Corporation. Such assets, funds and payments, including any proceeds
derived from the sale, exchange or liquidation thereof, and any assets, funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, are herein referred to as "assets belonging to" such series. In the
event that there are any income, earnings, profits, and proceeds thereof,
assets, funds or payments that are not readily identifiable as belonging to any
particular series, the Board of Directors of the Corporation shall allocate them
among any one or more of the series established and designated from time to time
in such manner and on such basis as the Board of Directors, in their sole
discretion, deem fair and equitable. Each allocation by the Board of Directors
shall be conclusive and binding on the stockholders of the Corporation of all
series for all purposes.

ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS

Terry K. Glenn
Philip K. Kirstein
Robert E. Putney, III

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<PAGE> 7
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, of any
class or series, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable, subject to such limitations as may be
set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the General Laws of the State of Maryland.

(8) Notwithstanding any other provision of these Articles of
Incorporation or the By-Laws of the Corporation, or the General Laws of the
State of Maryland, the Board of Directors of the

7
<PAGE> 8
Corporation may, upon the affirmative vote of the majority of the entire Board
of Directors and without the vote or consent of the stockholders, dissolve the
Corporation in the manner otherwise provided by the laws of the State of
Maryland.

ARTICLE VI
REDEMPTION

ARTICLE VII
DETERMINATION BINDING

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<PAGE> 9
security owned by the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors as to whether any transaction
constitutes a purchase of securities on "margin," a sale of securities "short,"
or an underwriting or the sale of, or a participation in any underwriting or
selling group in connection with the public distribution of, any securities,
shall be final and conclusive, and shall be binding upon the Corporation and all
holders of its capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the condition and
understanding, evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such determinations shall be
binding as aforesaid. No provision of these Articles of Incorporation shall be
effective to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act of 1940, as
amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its
security 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.

ARTICLE VIII
PERPETUAL EXISTENCE

The duration of the Corporation shall be perpetual.

ARTICLE IX
AMENDMENT

IN WITNESS WHEREOF, the undersigned incorporator of Mercury Asset
Management Funds, Inc. hereby executes the foregoing Amended Articles of
Incorporation and acknowledges the same to be her act and further acknowledges
that, to the best of her knowledge, the matters and facts set forth therein are
true in all material respects under penalties for perjury.

9
<PAGE> 10
Dated this 8th day of July, 1998

______________________________
Judith L. Shandling

<PAGE> 1
Exhibit 1(c)

MERCURY ASSET MANAGEMENT FUNDS, INC.
ARTICLES OF AMENDMENT

Mercury Asset Management Funds, Inc. a Maryland corporation having its
principal office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:

FIRST: The charter of the Corporation is hereby amended by striking out
Article IV, paragraphs (1) and (2) and inserting in lieu thereof the following:

ARTICLE IV
CAPITAL STOCK

(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Two Billion, Eight Hundred Million
(2,800,000,000) shares, of the par value of One Hundredth of One Cent ($.0001)
per share, and of the aggregate par value of Two Hundred and Eighty Thousand
Dollars ($280,000). The capital stock initially consists of seven series, known
as Mercury Pan-European Growth Fund, Mercury International Fund, Mercury Japan
Capital Fund, Mercury Emerging Economies Fund, Mercury Gold and Mining Fund,
Mercury Core U.S. Growth Fund and Mercury Asset Management Fund 7 (collectively,
the "Series", and each, a "Series"). Each Series shall consist, until further
changed, of Four Hundred Million (400,000,000) shares. The shares of each Series
shall consist, until further changed, of four classes of shares designated Class
I shares, Class A shares, Class B shares and Class C shares (the "Classes").
Each Class of each Series shall consist, until further changed, of One Hundred
Million (100,000,000) shares.

(2) Unless otherwise expressly provided in the charter of the
Corporation, the Class I shares, Class A shares, Class B shares and Class C
shares of each Series shall represent an equal proportionate interest in the
assets belonging to that Series (subject to the liabilities of that Series) and
each share of a particular Series shall have identical voting, dividend,
liquidation and other rights; provided, however, that notwithstanding anything
in the charter of the Corporation to the contrary:

(i) The Class I shares, Class A shares, Class B shares and
Class C shares may be issued and sold subject to such
different sales loads or charges, whether initial, deferred or
contingent, or any combination thereof, as the Board of
Directors may from time to time establish in accordance with
the Investment Company Act of 1940, as amended, and other
applicable law.

(ii) Liabilities of a Series which are determined by or under
the supervision of the Board of Directors to be attributable
to a particular Class of that Series may be
<PAGE> 2
charged to that Class and appropriately reflected in the net
asset value of, or dividends payable on, the shares of that
Class of the Series.

(iii) The Class I shares, Class A shares, Class B shares and
Class C shares of a particular Series may have such different
exchange and conversion rights as the Board of Directors shall
provide in compliance with the Investment Company Act of 1940,
as amended.

SECOND: The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised by the entire board of directors and the
amendment is limited to a change expressly permitted by Section 2-605 (4) of
Maryland General Corporation Law, to be made without action by the stockholders,
and the Corporation is registered as an open-end company under the Investment
Company Act of 1940.

IN WITNESS WHEREOF: Mercury Asset Management Funds, Inc., has caused
these presents to be signed in its name on its behalf by its President or one of
its Vice Presidents and attested by its Secretary or one of its Assistant
Secretaries on August __, 1998.

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

ATTEST: Mercury Asset Management Funds, Inc.

- ----------------------------------
Robert E. Putney, III, Secretary

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<PAGE> 3

THE UNDERSIGNED, President (or Vice President) of Mercury Asset Management
Funds, Inc., who executed on behalf of said corporation, the foregoing Articles
of Amendment, of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, the foregoing Articles of Amendment
to be the corporate act of said corporation and further certifies that, to the
best of his knowledge, information, and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.

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

<PAGE> 1
EXHIBIT 1(d)

MERCURY ASSET MANAGEMENT FUNDS, INC.

ARTICLES OF AMENDMENT

FIRST: Article IV, paragraph (1) is hereby amended to change the name of
one of the series of the Corporation from "Mercury Core U.S. Growth Fund" to
"Mercury U.S. Large Cap Fund."

SECOND: The amendment of the charter of the Corporation as hereinabove set
forth has been duly advised by the entire board of directors and the amendment
is limited to a change expressly permitted by Section 2-605 (a)(4) of Maryland
General Corporation Law, to be made without action by the stockholders, and the
Corporation is registered as an open-end company under the Investment Company
Act of 1940.

IN WITNESS WHEREOF: Mercury Asset Management Funds, Inc., has caused these
presents to be signed in its name on its behalf by its President or one of its
Vice Presidents and attested by its Secretary or one of its Assistant
Secretaries on November 20, 1998.

/s/Terry K. Glenn
-----------------------------
Terry K. Glenn, Vice President

ATTEST: Mercury Asset Management Funds, Inc.

/s/Robert E. Putney, III
- ----------------------------------
Robert E. Putney, III, Secretary

<PAGE> 2

/s/Terry K. Glenn
------------------------------
Terry K. Glenn, Vice President

<PAGE> 1
Exhibit 2(a)

BY-LAWS
OF
MERCURY ALPHA FUND, INC.

ARTICLE I
Offices

Section 1. Principal Office. The principal office of Mercury Alpha
Fund, Inc. (the "Corporation") shall be in the City of Baltimore, State of
Maryland.

Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.

Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.

ARTICLE II
Meetings of Stockholders

Section 1. Annual Meeting. So long as the Corporation is registered as
an investment company under the Investment Company Act of 1940, as amended (such
term to include the rules and regulations promulgated under the Investment
Company Act of 1940, as amended, unless otherwise specified or the context
otherwise requires), annual meetings of the stockholders shall not be held,
except where required to be held by the Investment Company Act of 1940, as
amended, or by the Maryland General Corporation Law or when called by the Board
of Directors or by an officer or officers authorized to take such action by the
Board of Directors. If in any calendar year the Corporation is required or
elects to hold an annual meeting, the meeting shall be held on such day, not a
Saturday, Sunday or legal holiday, as the Board of Directors or the officer or
officers calling the meeting may prescribe. At each such annual meeting, the
stockholders shall elect a Board of Directors and transact such other business
as may properly come before the meeting. The provisions of these By-Laws which
contemplate the holding of an annual meeting of stockholders shall be suspended
during any calendar year in which no annual meeting of stockholders is held.

Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the written request of
the holders of at least 10% of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting if they comply with the applicable
requirements of the Maryland General Corporation Law.
<PAGE> 2
Section 3. Place of Meetings. Meetings of the stockholders shall be
held at such place within the United States as the Board of Directors may from
time to time determine.

Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the special meeting, shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.

Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original record date, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken.

Section 5. Quorum. At all meetings of the stockholders, the holders of
shares of stock of the Corporation entitled to cast one-third of the votes
entitled to be cast, present in person or by proxy, shall constitute a quorum
for the transaction of any business, except with respect to any matter which
requires approval by a separate vote of one or more series or classes of stock,
in which case the presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast by each class
entitled to vote as a separate series or class shall constitute a quorum. In the
absence of a quorum no business may be transacted, except that the holders of a
majority of the shares of stock present in person or by proxy and entitled to
vote may adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these By-Laws, until the
holders of the requisite amount of shares of stock shall be so present. At any
such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
The absence from any meeting, in person or by proxy, of holders of the number of
shares of stock of the Corporation in excess of a majority thereof which may be
required by the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Articles of Incorporation, or
these By-Laws, for action upon any given matter shall not prevent action at such
meeting upon any other matter or matters which may properly come before the
meeting, if there shall be present thereat, in person or by proxy, holders of
the number of shares of stock of the Corporation required for action in respect
of such other matter or matters.

Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President,

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<PAGE> 3
shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.

Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.

Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date shall not have been
so fixed, then at the later of (i) the close of business on the day on which
notice of the meeting is mailed or (ii) the thirtieth day before the meeting.

Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders (other than the
election of directors, which shall be by plurality vote) may be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.

If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.

Section 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than
ninety nor less than ten days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time, and
not others, shall be entitled to vote at such meeting and any adjournment
thereof.

Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any Stockholder entitled to vote thereto shall, appoint

3
<PAGE> 4
inspectors. Each inspector, before entering upon the discharge of his duties,
may be required to take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors may be empowered to determine the number of shares
outstanding and the voting powers of each, the number of shares represented at
the meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as inspector of an
election of directors. Inspectors need not be stockholders.

Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.

ARTICLE III
Board of Directors

Section 1. General Powers. Except as otherwise provided in the Articles
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Articles of Incorporation or
these By-Laws.

Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the entire Board of Directors; provided, however, that the number of
directors shall in no event be less than three nor more than fifteen. Any
vacancy created by an increase in Directors may be filled in accordance with
Section 6 of this Article III. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration of
his term unless such director is specifically removed pursuant to Section 5 of
this Article III at the time of such decrease. Directors need not be
stockholders.

Section 3. Election and Term of Directors. Directors shall be elected
annually at a

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<PAGE> 5
meeting of stockholders held for that purpose; provided, however, that if no
meeting of the stockholders of the Corporation is required to be held in a
particular year pursuant to Section 1 of Article II of these By-Laws, directors
shall be elected at the next meeting held for that purpose. The term of office
of each director shall be from the time of his election and qualification until
the election of directors next succeeding his election and until his successor
shall have been elected and shall have qualified, or until his death, or until
he shall have resigned or until December 31 of the year in which he shall have
reached seventy-two years of age, or until he shall have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Articles of Incorporation.

Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.

Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.

Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, may be filled by a vote of the majority of the Board of Directors then in
office even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than two-thirds of the directors then
holding office shall have been elected by the stockholders of the Corporation.
In the event that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
sixty days, for the purpose of filling said vacancy or vacancies.

Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.

Section 8. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.

Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.

Section 10. Telephone Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the

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<PAGE> 6
same time. Subject to the provisions of the Investment Company Act of 1940, as
amended, participation in a meeting by these means constitutes presence in
person at the meeting.

Section 11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.

Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need not state the
purposes of such meeting.

Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or
other applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.

Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.

Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in

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<PAGE> 7
writing, and the writings or writing are filed with the minutes of the
proceedings of the Board or committee.

Section 16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.

Section 17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus and Statement of Additional Information of the Corporation,
as filed from time to time with the Securities and Exchange Commission and as
required by the Investment Company Act of 1940, as amended. The Board however,
may delegate the duty of management of the assets and the administration of its
day to day operations to an individual or corporate management company and/or
investment adviser pursuant to a written contract or contracts which have
obtained the requisite approvals, including the requisite approvals of renewals
thereof, of the Board of Directors and/or the stockholders of the Corporation in
accordance with the provisions of the Investment Company Act of 1940, as
amended.

ARTICLE IV
Committees

Section 1. Executive Committee. The Board may, by resolution adopted by
a majority of the entire board, designate an Executive Committee consisting of
two or more of the directors of the corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:

(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;

(b) the filling of vacancies on the Board of Directors;

(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;

(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken by the Board of Directors by the Investment Company Act of 1940, as
amended;

(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;

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<PAGE> 8
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;

(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and

(h) the approval of any merger or share exchange which does not require
stockholder approval.

The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.

Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other com mittees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.

Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority or
power of the Board in the management of the business or affairs of the
Corporation, except as may be prescribed by the Board.

ARTICLE V
Officers, Agents and Employees

Section 1. Number, Qualification, Election and Tenure. The officers of
the Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may

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<PAGE> 9
also appoint such other officers, agents and employees as it may deem necessary
or proper. Any two or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Such officers
shall be elected by the Board of Directors each year at a meeting of the Board
of Directors, each to hold office for the ensuing year and until his successor
shall have been duly elected and shall have qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws. The Board may from time to time elect, or delegate to the
President the power to appoint, such officers (including one or more Assistant
Vice Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable for the business
of the Corporation. Such officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board or by the
appointing authority.

Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.

Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.

Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.

Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.

Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.

Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board Directors. He shall have, subject to the

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<PAGE> 10
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.

Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from time
to time prescribe.

Section 9. Treasurer. The Treasurer shall

(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank or trust company
or member of a national securities exchange as custodian of the property of the
Corporation;

(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;

(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;

(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and

(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.

Section 10. Secretary. The Secretary shall

(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;

(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;

(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;

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<PAGE> 11
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and

(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.

Section 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.

ARTICLE VI
Indemnification

Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the Maryland General
Corporation Law, except that such indemnity shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person 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. Absent a court determination that an officer or director
seeking indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Corporation to
indemnify such person must be based upon the reasonable determination by special
legal counsel in a written opinion or the vote of a majority of a quorum of the
directors who are neither "interested persons," as defined in Section 2(a)(19)
of the Investment Company Act of 1940, as amended, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the Maryland General Corporation Law without a preliminary
determination as to his or her ultimate entitlement to indemnification (except
as set forth below); provided, however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation
is insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent directors, or independent legal counsel in a

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written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.

The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his activities as
officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director 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 Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.

ARTICLE VII
Capital Stock

Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the Chairman, President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.

Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.

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<PAGE> 13
with a transfer agent or transfer clerk, and on surrender of the certificate or
certificates, if issued, for such shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes thereon. Except
as otherwise provided by law, the Corporation shall be entitled to recognize the
exclusive right of a person in whose name any share or shares stand on the
record of stockholders as the owner of such share or shares for all purposes,
including, without limitation, the rights to receive dividends or other
distributions, and to vote as such owner, and the Corporation shall not be bound
to recognize any equitable or legal claim to or interest in any such share or
shares on the part of any other person.

Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.

Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.

Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.

Section 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.

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<PAGE> 14
ARTICLE VIII
Seal

The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.

ARTICLE IX
Fiscal Year

Unless otherwise determined by the Board, the fiscal year of the
Corporation shall be as determined by the Board of Directors from time to time.

ARTICLE X
Depositories and Custodians

Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.

Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.

ARTICLE XI
Execution of Instruments

Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.

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<PAGE> 15
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.

ARTICLE XII
Independent Public Accountants

The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act of 1940, as
amended, ratified by the stockholders.

ARTICLE XIII
Annual Statement

The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting, within 120 days after the end
of the fiscal year), be placed on file at the Corporation's principal office.
Each such report shall show the assets and liabilities of the Corporation as of
the close of the annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then invested. Such report
shall also show the Corporation's income and expenses for the period from the
end of the Corporation's preceding fiscal year to the close of the annual or
quarterly period covered by the report and any other information required by the
Investment Company Act of 1940, as amended, and shall set forth such other
matters as the Board or such firm of independent public accountants shall
determine.

ARTICLE XIV
Amendments

These By-Laws or any of them may be amended, altered or repealed by the
Board of Directors. The stockholders shall have no power to make, amend, alter
or repeal By-Laws.

<PAGE> 1
Exhibit 2(b)

AMENDED AND RESTATED BY-LAWS
OF
MERCURY ASSET MANAGEMENT FUNDS, INC.

ARTICLE I
Offices

Section 1. Principal Office. The principal office of Mercury Asset
Management Funds, Inc. (the "Corporation") shall be in the City of Baltimore,
State of Maryland.

Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.

Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.

ARTICLE II
Meetings of Stockholders

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<PAGE> 2
Section 3. Place of Meetings. Meetings of the stockholders shall be
held at such place within the United States as the Board of Directors may from
time to time determine.

Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.

ARTICLE III
Board of Directors

Section 3. Election and Term of Directors. Directors shall be elected
annually at a

Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.

Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.

Section 8. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.

Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.

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<PAGE> 6
same time. Subject to the provisions of the Investment Company Act of 1940, as
amended, participation in a meeting by these means constitutes presence in
person at the meeting.

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<PAGE> 7
writing, and the writings or writing are filed with the minutes of the
proceedings of the Board or committee.

ARTICLE IV
Committees

(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;

(b) the filling of vacancies on the Board of Directors;

(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;

(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;

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<PAGE> 8
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;

(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and

(h) the approval of any merger or share exchange which does not require
stockholder approval.

Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.

ARTICLE V
Officers, Agents and Employees

Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from time
to time prescribe.

Section 9. Treasurer. The Treasurer shall

(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;

(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;

(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and

(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.

Section 10. Secretary. The Secretary shall

(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;

(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;

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<PAGE> 11
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and

(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.

ARTICLE VI
Indemnification

The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.

ARTICLE VII
Capital Stock

Section 1. Stock Certificates. The Corporation shall not issue stock
certificates.

Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.

Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and

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<PAGE> 13
registration of certificates for shares of stock of the Corporation. It may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents or one or more transfer clerks and one or more registrars and may require
all certificates for shares of stock to bear the signature or signatures of any
of them.

ARTICLE VIII
Seal

ARTICLE IX

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<PAGE> 14
Fiscal Year

Unless otherwise determined by the Board, the fiscal year of the
Corporation shall be as determined by the Board of Directors from time to time.

ARTICLE X
Depositories and Custodians

Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.

ARTICLE XI
Execution of Instruments

Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer or pursuant
to any procedure approved by the Board of Directors, subject to applicable law.

ARTICLE XII
Independent Public Accountants

The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall

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<PAGE> 15
be selected annually by the Board of Directors and, if required by the
provisions of the Investment Company Act of 1940, as amended, ratified by the
stockholders.

ARTICLE XIII
Annual Statement

ARTICLE XIV
Amendments

These By-Laws or any of them may be amended, altered or repealed by the
Board of Directors. The stockholders shall have no power to make, amend, alter
or repeal By-Laws.

<PAGE> 1

EXHIBIT 7

AGREEMENT BETWEEN

BROWN BROTHERS HARRIMAN & CO.

AND

MERCURY ASSET MANAGEMENT FUNDS, INC.

<PAGE> 2

CUSTODIAN AGREEMENT

AGREEMENT made this 27th day of October, 1998, between MERCURY ASSET
MANAGEMENT MASTER FUNDS, INC. (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 "Series") 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

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<PAGE> 3

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 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

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<PAGE> 4

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 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

4
<PAGE> 5

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 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

5
<PAGE> 6

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 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

6
<PAGE> 7

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 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

7
<PAGE> 8

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 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

8
<PAGE> 9

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 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

9
<PAGE> 10

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 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

10
<PAGE> 11

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 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

11
<PAGE> 12

to perform any of its obligations under the terms and conditions of the
applicable subcustodian 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

12
<PAGE> 13

Agent, 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

13
<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

14
<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

15
<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 Mercury Asset Management International Limited, 33 King
William Street, London EC4R 9A5, England or to such other address as the Fund
may have designated to the Custodian in writing, or to the Custodian at 40 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.

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<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: /s/ Stokley P. Towles
---------------------------------
Name: Stokley P. Towles
-------------------------------
Title: Partner
------------------------------

MERCURY ASSET MANAGEMENT FUNDS, INC.

By: /s/ Gerald M. Richard
---------------------------------
Name: Gerald M. Richard
-------------------------------
Title: Treasurer
------------------------------

17
<PAGE> 18

APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
MERCURY ASSET MANAGEMENT FUNDS, INC.

and

BROWN BROTHERS HARRIMAN & CO.

Dated as of October 27, 1998

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

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

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 8(b)

TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY AND
SHAREHOLDER SERVICING AGENCY AGREEMENT

THIS AGREEMENT, made as of October 28, 1998, by and between MERCURY ASSET
MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of
itself and each of its series listed on Exhibit A (each, a "Fund") and FINANCIAL
DATA SERVICES, INC., a Florida corporation ("FDS").

WITNESSETH:

WHEREAS, the Corporation wishes to appoint FDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds upon,
and subject to, the terms and provisions of this Agreement, and FDS is desirous
of accepting such appointment upon, and subject to, such terms and provisions;

NOW, THEREFORE, in consideration of mutual covenants contained in this
Agreement, the Corporation and FDS agree as follows:

1. APPOINTMENT OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.

(a) The Corporation hereby appoints FDS to act as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Funds upon, and subject
to, the terms and provisions of this Agreement.

<PAGE> 2

(b) FDS hereby accepts the appointment as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Funds, and agrees to
act as such upon, and subject to, the terms and provisions of this Agreement.

2. DEFINITIONS.

(a) In this Agreement:

(I) The term "Act" means the Investment Company Act of 1940 as amended
from time to time and any rule or regulation thereunder;

(II) The term "Account" means any account of a Shareholder, as defined
below, or, if the shares are held in an account in the name of a Broker-Dealer,
as defined below, for the benefit of an identified person, such account,
including a Plan Account, any account under a plan (by whatever name referred to
in the Prospectus) pursuant to the Self-Employed Individuals Retirement Act of
1962 ("Keogh Act Plan") and any account under a plan (by whatever name referred
to in the Prospectus) pursuant to Section 401(k) of the Internal Revenue Code
("Corporation Master Plan");

(III) The term "application" means an application made by a
shareholder or prospective shareholder respecting the opening of an Account;

(IV) The term "MFD" means Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc., a Delaware corporation;

(V) The term "Broker-Dealer" means a registered broker-dealer that
sells shares of the Funds pursuant to a selected dealers agreement with the
Corporation;
2

<PAGE> 3

(VI) The term "Officer's Instruction" means an instruction in writing
given on behalf of the Funds to FDS, and signed on behalf of the Funds by the
President, any Vice President, the Secretary or the Treasurer of the
Corporation;

(VII) The term "Plan Account" means an account opened by a Shareholder
or prospective Shareholder in respect to an open account, monthly payment or
withdrawal plan (in each case by whatever name referred to in the Prospectus),
and may also include an account relating to any other plan if and when provision
is made for such plan in the Prospectus;

(VIII) The term "Prospectus" means the Prospectus and the Statement of
Additional Information of the relevant Fund as from time to time in effect;

(IX) The term "Shareholder" means a holder of record of Shares;

(X) The term "Shares" means shares of stock of the Corporation
irrespective of class or series.

3. DUTIES OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.

(a) Subject to the succeeding provisions of the Agreement, FDS hereby
agrees to perform the following functions as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent for the Funds;

(I) Issuing, transferring and redeeming Shares;

(II) Opening, maintaining, servicing and closing Accounts;

(III) Acting as agent for the Fund's Shareholders and/or customers of
a Broker-Dealer in connection with Plan Accounts, upon the terms and subject to
the conditions contained in the Prospectus and application relating to the
specific Plan Account;
3

<PAGE> 4

(IV) Acting as agent of the Funds and/or a Broker-Dealer, maintaining
such records as may permit the imposition of such contingent deferred sales
charges as may be described in the Prospectus, including such reports as may be
reasonably requested by the Corporation with respect to such Shares as may be
subject to a contingent deferred sales charge;

(V) Upon the redemption of Shares subject to such a contingent
deferred sales charge, calculating and deducting from the redemption proceeds
thereof the amount of such charge in the manner set forth in the Prospectus. FDS
shall pay, on behalf of MFD, to a Broker-Dealer such deducted contingent
deferred sales charges imposed upon all Shares maintained in the name of that
Broker-Dealer, or maintained in the name of an account identified as a customer
account of that Broker-Dealer. Sales charges imposed upon any other Shares shall
be paid by FDS to MFD;

(VI) Exchanging the investment of a Shareholder into, or from, the
shares of other open-end investment companies or other series portfolios of the
Corporation, if any, if and to the extent permitted by the Prospectus at the
direction of such Shareholder;

(VII) Processing redemptions;

(VIII) Examining and approving legal transfers;

(IX) Furnishing such confirmations of transactions relating to their
Shares as required by applicable law;

(X) Acting as agent for the Corporation with respect to furnishing
each Shareholder such appropriate periodic statements relating to Accounts,
together with additional enclosures, including appropriate income tax
information and income tax forms duly completed, as

4
<PAGE> 5

required by applicable law, as well as furnishing such information to each
Broker-Dealer to enable the Broker-Dealer to provide such information to its
customers;

(XI) Acting as agent for the Corporation with respect to mailing
annual, semi-annual and quarterly reports prepared by or on behalf of the Funds,
and mailing new Prospectuses upon their issue to each Shareholder as required by
applicable law as well as causing such materials to be mailed to each
Broker-Dealer to enable the Broker-Dealer to deliver such materials to its
customers;

(XII) Furnishing such periodic statements of transactions effected by
FDS, reconciliations, balances and summaries as the Funds may reasonably
request;

(XIII) Maintaining such books and records relating to transactions
effected by FDS as are required by the Act, or by any other applicable provision
of law, rule or regulation, to be maintained by the Corporation or its transfer
agent with respect to such transactions, and preserving, or causing to be
preserved, any such books and records for such periods as may be required by any
such law, rule or regulation and as may be agreed upon from time to time between
FDS and the Corporation. In addition, FDS agrees to maintain and preserve master
files and historical computer tapes on a daily basis in multiple separate
locations a sufficient distance apart to ensure preservation of at least one
copy of such information;

(XIV) Withholding taxes on non-resident alien Accounts, preparing and
filing U.S. Treasury Department Form 1099 and other appropriate forms as
required by applicable law with respect to dividends and distributions; and

5
<PAGE> 6
(XV) Reinvesting dividends for full and fractional Shares and
disbursing cash dividends, as applicable, pursuant to instructions received from
the Shareholder at the time an Account is established.

(b) FDS agrees to act as proxy agent in connection with the holding of
annual, if any, and special meetings of Shareholders, mailing such notices,
proxies and proxy statements in connection with the holding of such meetings as
may be required by applicable law, receiving and tabulating votes cast by proxy
and communicating to the Corporation the results of such tabulation accompanied
by appropriate certificates, and preparing and furnishing to the Corporation
certified lists of Shareholders as of such date, in such form and containing
such information as may be required by the Corporation.

(c) FDS agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of FDS under this
Agreement with respect to Accounts.

(d) FDS agrees to furnish to the Corporation such information and at such
intervals as is necessary for the Funds to comply with the registration and/or
the reporting requirements (including applicable escheat laws) of the Securities
and Exchange Commission, Blue Sky authorities or other governmental authorities.

(e) FDS agrees to provide to the Corporation such information as may
reasonably be required to enable the Funds to reconcile the number of
outstanding Shares between FDS's records and the account books of the
Corporation.

(f) Notwithstanding anything in the foregoing provisions of this
paragraph, FDS agrees to perform its functions thereunder subject to such
modification (whether in respect of

6
<PAGE> 7

particular cases or in any particular class of cases) as may from time to time
be agreed in a writing signed by both parties.

4. COMPENSATION.

(a) The Corporation agrees to pay FDS the fees and charges, as well as
FDS' out of pocket costs, for services described in this Agreement as set forth
in the Schedule of Fees attached hereto.

5. RIGHT OF INSPECTION.

(a) FDS agrees that it will, in a timely manner, make available to, and
permit, any officer, accountant, attorney or authorized agent of the Corporation
to examine and make transcripts and copies (including photocopies and computer
or other electronical information storage media and print-outs) of any and all
of its books and records which relate to any transaction or function performed
by FDS under or pursuant to this Agreement.

6. CONFIDENTIAL RELATIONSHIP.

(a) FDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Corporation, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Corporation by
way of an Officer's Instruction.

7. INDEMNIFICATION.

(a) The Corporation shall indemnify and hold FDS harmless from any loss,
costs, damage and reasonable expenses, including reasonable attorney's fees
(provided that such

7
<PAGE> 8

attorney is appointed with the Corporation's consent, which consent shall not be
unreasonably withheld) incurred by it resulting from any claim, demand, action
or suit in connection with the performance of its duties hereunder, provided
that this indemnification shall not apply to actions or omissions of FDS in
cases of willful misconduct, failure to act in good faith or negligence by FDS,
its officers, employees or agents, and further provided that prior to confessing
any claim against it which may be subject to this indemnification, FDS shall
give the Corporation reasonable opportunity to defend against said claim in its
own name or in the name of FDS. An action taken by FDS upon any Officer's
Instruction reasonably believed by it to have been properly executed shall not
constitute willful misconduct, failure to act in good faith or negligence under
this Agreement.

8. REGARDING FDS.

(a) FDS hereby agrees to hire, purchase, develop and maintain such
dedicated personnel, facilities, equipment, software, resources and capabilities
as both parties may mutually determine to be reasonably necessary for the
satisfactory performance of the duties and responsibilities of FDS. FDS warrants
and represents that its officers and supervisory personnel charged with carrying
out its functions as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Corporation possess the special skill and technical
knowledge appropriate for that purpose. FDS shall at all times exercise due care
and diligence in the performance of its functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Corporation. FDS agrees
that, in determining whether it has exercised due care and diligence, its
conduct shall be measured by the standard applicable to persons possessing such
special skill and technical knowledge.

8
<PAGE> 9

(b) FDS warrants and represents that it is duly authorized and permitted
to act as Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing
Agent under all applicable laws and that it will immediately notify the
Corporation of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.

9. TERMINATION.

(a) This Agreement shall become effective as of the date first above
written and shall remain in force for two years thereafter and shall thereafter
continue from year to year. This Agreement may be terminated by the Corporation
or FDS (without penalty to the Corporation or FDS) provided that the terminating
party gives the other party written notice of such termination at least sixty
(60) days in advance, except that the Corporation may terminate this Agreement
immediately upon written notice to FDS if the authority or permission of FDS to
act as Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
has been revoked or if any proceeding or other action which the Corporation
reasonably believes will lead to such revocation has been commenced.

(b) Upon termination of this Agreement, FDS shall deliver all Shareholder
records, books, stock ledgers, instruments and other documents (including
computerized or other electronically stored information) made or accumulated in
the performance of its duties as Transfer Agent, Disbursing Agent and
Shareholder Servicing Agent for the Corporation along with a certified locator
document clearly indicating the complete contents therein, to such successor as
may be specified in a notice of termination or Officer's Instruction; and the
Corporation assumes all

9
<PAGE> 10

responsibility for failure thereafter to produce any paper, record or document
so delivered and identified in the locator document, if and when required to be
produced.

10. AMENDMENT.

(a) Except to the extent that the performance by FDS or its functions
under this Agreement may from time to time be modified by an Officer's
Instruction, this Agreement may be amended or modified only by further written
agreement between the parties.

11. GOVERNING LAW.

(a) This Agreement shall be governed by the laws of the State of New York.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year above
written.

MERCURY ASSET MANAGEMENT FUNDS, INC.

By: /s/ Gerald M. Richard
---------------------------------
Name: Gerald M. Richard

Title: Treasurer

FINANCIAL DATA SERVICES, INC.

By: /s/ William A. Bridy
---------------------------------
Name: William A. Bridy
Title: President

10
<PAGE> 11

EXHIBIT A

Individual Series of MERCURY ASSET MANAGEMENT FUNDS, INC.

MERCURY CORE U.S. GROWTH FUND
MERCURY EMERGING ECONOMIES FUND
MERCURY GOLD AND MINING FUND
MERCURY JAPAN CAPITAL FUND
MERCURY INTERNATIONAL FUND
MERCURY PAN-EUROPEAN GROWTH FUND

<PAGE> 12

SCHEDULE OF FEES

MERCURY FUND PRICING SCHEDULE

<TABLE>
<CAPTION>
DISTRIBUTION CHANNEL CLOSED BASE TRANSACTION
CLASS I & A CLASS B & C ACCOUNT FEE FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MLPF&S $11.00 $14.00 $0.20/month N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
FDS $20.00 $23.00 $0.20/month N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
MFA ERISA* 0.10% 0.10% N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
"Large" and "Mid" market employee benefit $11.00 $14.00 N/A N/A $1.00
accounts
- -----------------------------------------------------------------------------------------------------------------------
"Small" market Account size** N/A N/A N/A N/A N/A
employee benefit ---------------------- --------------------------
accounts <$1,000 $7.00 N/A
---------------------- --------------------------
$1,000<$2,500 $11.00 N/A
---------------------- --------------------------
>$2,500 $11.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

*ERISA accounts held in the MFA (Mutual Fund Advisor) program or any other
program requiring equalization under ERISA

**As of the last business day of each month

Note 1: The above schedule is exclusive of out of pocket costs

Note 2: All charges are on an annual position basis

<PAGE> 13

SCHEDULE OF FEES (CONTINUED)

OUT OF POCKET COSTS

<TABLE>
<S> <C>
- Postage
- Envelopes/stationary - Handling costs (ADP)
- Record storage and retrieval - Fed wire charges (excluding wires to/from Funds'
- Telephone (local and Long distance custody accounts)
- Pre-authorized checks - Forms
- Returned check fees/charges and other similar fees/charges - Any other costs as agreed in writing by the parties
</TABLE>

<PAGE> 1
Exhibit 8(c)

LICENSE AGREEMENT RELATING TO USE OF NAME

AGREEMENT made as of by and between MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD., a corporation organized under the laws of England and Wales
("Mercury International") and MERCURY ASSET MANAGEMENT GROUP LTD., a corporation
organized under the laws of England and Wales ("Mercury Group") (Mercury
International and Mercury Group are hereinafter together referred to as
"Mercury") and MERCURY FUNDS DISTRIBUTOR (the "division") a division of
PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation ("MFD").

W I T N E S S E T H :

WHEREAS, Mercury International was originally incorporated under the
laws of England and Wales on March 12, 1981 under the name "Eighty-Ninth Shelf
Trading Company Limited", changed on May 20, 1981 to "Aetna Warburg Investment
Management Limited," which changed on October 1, 1981 to "Warburg Investment
Management International Ltd." and on July 27, 1995 it changed to "Mercury Asset
Management International Ltd." and Mercury Group was incorporated under the laws
of England and Wales on March 12, 1981 under the corporate name "Warburg
Investment Management Ltd." which was changed on April 14, 1986 to "Mercury
Warburg Investment Management Ltd.," changed on October 1, 1986 to "Mercury
Asset Management Holdings Ltd." on March 3, 1987 to Mercury Asset Management
plc" and was reregistered as a private limited company under the name "Mercury
Asset Management Group Ltd." on March 9, 1998, and have used such names at all
times thereafter;

WHEREAS, Princeton Funds Distributor, Inc. was originally incorporated
under the laws of the State of Delaware on February 28, 1969 and changed its
name to Princeton Funds Distributor, Inc. on July 21, 1998; and
<PAGE> 2
WHEREAS, MFD has requested Mercury to give its consent to the use of
the word "Mercury" or the words "Mercury Asset Management" in the name of the
division;

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

1. Mercury hereby grants MFD a non-exclusive license to use the word
"Mercury" or the words "Mercury Asset Management" in the name of the division;

2. The non-exclusive license hereinabove referred to has been given and
is given by Mercury on the condition that it may at any time, in its sole and
absolute discretion, withdraw the non-exclusive license to the use of the word
"Mercury" or the words "Mercury Asset Management" in the names of the division;
and, as soon as practicable after receipt by MFD of written notice of the
withdrawal of such non-exclusive license, and in no event later than ninety days
thereafter, MFD will change the name of the division so that such name will not
thereafter include the word "Mercury," the words "Mercury Asset Management" or
any variation thereof.

3. Mercury reserves and shall have the right to grant to any other
company, including without limitation any other investment company, the right to
use the word "Mercury," the words "Mercury Asset Management" or variations
thereof in its name and no consent or permission of MFD shall be necessary; but,
if required by an applicable law of any state, MFD will forthwith grant all
requisite consents.

4. MFD will not grant to any other company the right to use a name
similar to that of MFD or the Funds or Mercury without the written consent of
Mercury.

5. Regardless of whether MFD should hereafter change the name of the
division and eliminate the word "Mercury," the words "Mercury Asset Management"
or any variation thereof from such name, MFD hereby grants to Mercury the right
to cause the incorporation of other

2
<PAGE> 3
corporations or the organization of voluntary associations which may have names
similar to that of MFD or to that to which MFD may change its name and own all
or any portion of the shares of such other corporations or associations and to
enter into contractual relationships with such other corporations or
associations, subject to any requisite approval of a majority of each Fund's
shareholders and the Securities and Exchange Commission and subject to the
payment of a reasonable amount to be determined at the time of use, and MFD
agrees to give and execute such formal consents or agreements as may be
necessary in connection therewith.

6. This Agreement may be amended at any time by a writing signed by the
parties hereto. This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior agreements,
arrangements and understandings, whether written or oral, with respect thereto.

3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written. This Agreement may be executed by the
parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.

MERCURY ASSET MANAGEMENT INTERNATIONAL
LTD.

By:_____________________________________
Title:

MERCURY ASSET MANAGEMENT GROUP LTD.

By:_____________________________________
Title:

MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.

By:_____________________________________
Title:

<PAGE> 1
Exhibit 8(d)

LICENSE AGREEMENT RELATING TO USE OF NAME

AGREEMENT made as of ___________________ by and between MERCURY ASSET
MANAGEMENT INTERNATIONAL LTD., a corporation organized under the laws of England
and Wales ("Mercury International") and MERCURY ASSET MANAGEMENT GROUP LTD., a
corporation organized under the laws of England and Wales ("Mercury Group")
(Mercury International and Mercury Group are hereinafter together referred to as
"Mercury") and MERCURY ASSET MANAGEMENT FUNDS, INC., a Maryland corporation (the
"Corporation"), on its own behalf and on behalf of its currently existing
series, and on behalf of each series of the Corporation that may be formed in
the future (the "Funds").

W I T N E S S E T H :

WHEREAS, the Corporation was incorporated under the laws of the State of
Maryland on April 24, 1998; and
<PAGE> 2
WHEREAS, the Corporation desires to qualify as a foreign corporation
under the laws of the State of New York and has requested Mercury to give its
consent to the use of the word "Mercury" or the words "Mercury Asset Management"
in its name and in the name of each Fund;

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

1. Mercury hereby grants the Corporation a non-exclusive license to use
the word "Mercury" or the words "Mercury Asset Management" in its corporate name
and in the name of the Funds.

2. Mercury hereby consents to the qualification of the Corporation as a
foreign corporation under the laws of the State of New York with the word
"Mercury" or the words "Mercury Asset Management" in its corporate name and in
the name of the Funds and agrees to execute such formal consents as may be
necessary in connection with such filing.

3. The non-exclusive license hereinabove referred to has been given and
is given by Mercury on the condition that it may at any time, in its sole and
absolute discretion, withdraw the non-exclusive license to the use of the word
"Mercury" or the words "Mercury Asset Management" in the names of the
Corporation and of the Funds; and, as soon as practicable after receipt by the
Corporation of written notice of the withdrawal of such non-exclusive license,
and in no event later than ninety days thereafter, the Corporation will change
its name and the name of the Funds so that such names will not thereafter
include the word "Mercury," the words "Mercury Asset Management" or any
variation thereof.

4. Mercury reserves and shall have the right to grant to any other
company, including without limitation any other investment company, the right to
use the word "Mercury," the words "Mercury Asset Management" or variations
thereof in its name and no consent or permission of the

2
<PAGE> 3
Corporation shall be necessary; but, if required by an applicable law of any
state, the Corporation will forthwith grant all requisite consents.

5. The Corporation will not grant to any other company the right to use
a name similar to that of the Corporation or the Funds or Mercury without the
written consent of Mercury.

6. Regardless of whether the Corporation and/or the Funds should
hereafter change their names and eliminate the word "Mercury," the words
"Mercury Asset Management" or any variation thereof from such names, the
Corporation hereby grants to Mercury the right to cause the incorporation of
other corporations or the organization of voluntary associations which may have
names similar to that of the Corporation and/or the Funds or to that to which
the Corporation and/or the Funds may change their names and own all or any
portion of the shares of such other corporations or associations and to enter
into contractual relationships with such other corporations or associations,
subject to any requisite approval of a majority of each Fund's shareholders and
the Securities and Exchange Commission and subject to the payment of a
reasonable amount to be determined at the time of use, and the Corporation
agrees to give and execute such formal consents or agreements as may be
necessary in connection therewith.

7. This Agreement may be amended at any time by a writing signed by the
parties hereto. This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior agreements,
arrangements and understandings, whether written or oral, with respect thereto.

MERCURY ASSET MANAGEMENT INTERNATIONAL
LTD.

By:___________________________________
Title:

MERCURY ASSET MANAGEMENT GROUP LTD.

By:___________________________________
Title:

MERCURY ASSET MANAGEMENT FUNDS, INC.

By:___________________________________
Title:

<PAGE> 1
Exhibit 15 (a)

PLAN PURSUANT TO RULE 18f-3 UNDER THE INVESTMENT COMPANY ACT

The mutual funds operating pursuant to this Plan (individually a "Fund"
and, collectively, the "Funds") offer Class I Shares, Class A Shares, Class B
Shares and Class C Shares as follows:

Account Maintenance and Distribution Fees

Class A Shares, Class B Shares and Class C Shares bear the expenses of
the ongoing account maintenance fees applicable to the particular Class. Class B
Shares and Class C Shares bear the expenses of the ongoing distribution fees
applicable to the particular Class. Specific shareholders within a Class may be
subject to initial or contingent deferred sales charges as set forth in each
Fund's current prospectus and statement of additional information (together, the
"prospectus").

Transfer Agency Expenses

Each Class shall bear any incremental transfer agency cost applicable
to the particular Class.

Voting Rights

Each Class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its account maintenance fees or ongoing
distribution fees, as may be applicable. Each Class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
Class differ from the interests of any other Class.

Dividends

Dividends paid on each Class will be calculated in the same manner at
the same time and will differ only to the extent that any account maintenance
fee, any distribution fee and any incremental transfer agency cost relates to a
particular Class.

Conversion Features

Holders of Class B Shares will have such conversion features to Class A
Shares as set forth in each Fund's current prospectus. Conversion features may
vary among holders of Class B Shares.

Exchange Privileges
<PAGE> 2
Holders of Class I Shares, Class A Shares, Class B Shares and Class C
Shares shall have such exchange privileges as set forth in each Fund's current
prospectus. Exchange privileges may vary among Classes and among holders of a
Class.

Other Rights and Obligations

Except as otherwise described above, in all respects, each Class shall
have the same rights and obligations as each other Class.

<PAGE> 1
EXHIBIT 15(b)
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose name
appear below hereby nominates, constitutes and appoints Jeffrey M. Peek, Gerald
M. Richard, Terry K. Glenn and Stephen M. M. Miller (with full power to each of
them to act alone) his or her true and lawful attorney-in-fact and agent, for
him or her and on his or her behalf and in his or her place and stead in any and
all capacities, to make, execute and sign all amendments and supplements to the
Registration Statement on Form N-1A under the Securities Act of 1933 and the
Investment Company Act of 1940 of MERCURY ASSET MANAGEMENT FUNDS, INC. (the
"Corporation"), and to file the same with the Securities and Exchange
Commission, and any other regulatory authority having jurisdiction over the
offer and sale of shares of common stock, par value $0.0001 per share, of the
Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and purposes as each
of the undersigned Directors himself or herself might or could do.

IN WITNESS WHEREOF, THE UNDERSIGNED DIRECTORS HAVE HEREUNTO SET THEIR
HANDS THIS 21st DAY OF JULY, 1998.

/s/ Jeffrey M. Peek /s/ James T.Flynn
- -------------------------------- --------------------------------
Jeffrey M. Peek, Director James T. Flynn, Director

/s/ Terry K. Glenn /s/ W. Carl Kester
- -------------------------------- --------------------------------
Terry K. Glenn, Director W. Carl Kester, Director

/s/ David O. Beim /s/ Karen P. Robards
- -------------------------------- --------------------------------
David O. Beim, Director Karen P. Robards, Director
<PAGE> 2
EXHIBIT 15(b)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Jeffrey M. Peek, being a Trustee of
Mercury Asset Management Master Trust, hereby nominates, constitutes and
appoints Gerald M. Richard, Terry K. Glenn and Stephen M. M. Miller (with full
power to each of them to act alone) his true and lawful attorney-in-fact and
agent, for him and on his behalf and in his place and stead and in any and all
capacities, to execute and sign all amendments and supplements to the
Registration Statements on Form N-1A under the Securities Act of 1933 and the
Investment Company Act of 1940 of Mercury Asset Management Funds, Inc. (the
"Corporation"), and to file the same with the Securities and Exchange
Commission, and any other regulatory authority having jurisdiction over the
offer and sale of shares of common stock, par value $0.0001 per share, of the
Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and purposes as the
undersigned himself might or could do.

IN WITNESS WHEREOF, the undersigned Trustee has hereunto set his hand
this 20th day of November, 1998.

/s/ Jeffrey M. Peek
----------------------------
Jeffrey M. Peek
Trustee
<PAGE> 3
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Terry K. Glenn, being a Trustee of
Mercury Asset Management Master Trust, hereby nominates, constitutes and
appoints Jeffrey M. Peek, Gerald M. Richard and Stephen M. M. Miller (with full
power to each of them to act alone) his true and lawful attorney-in-fact and
agent, for him and on his behalf and in his place and stead and in any and all
capacities, to execute and sign all amendments and supplements to the
Registration Statements on Form N-1A under the Securities Act of 1933 and the
Investment Company Act of 1940 of Mercury Asset Management Funds, Inc. (the
"Corporation"), and to file the same with the Securities and Exchange
Commission, and any other regulatory authority having jurisdiction over the
offer and sale of shares of common stock, par value $0.0001 per share, of the
Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and purposes as the
undersigned himself might or could do.

IN WITNESS WHEREOF, the undersigned Trustee has hereunto set his hand
this 20th day of November, 1998.

/s/ Terry K. Glenn
----------------------------
Terry K. Glenn
Trustee
<PAGE> 4
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that David O. Beim, being a Trustee of
Mercury Asset Management Master Trust, hereby nominates, constitutes and
appoints Jeffrey M. Peek, Gerald M. Richard, Terry K. Glenn and Stephen M. M.
Miller (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him and on his behalf and in his place and stead
and in any and all capacities, to execute and sign all amendments and
supplements to the Registration Statements on Form N-1A under the Securities Act
of 1933 and the Investment Company Act of 1940 of Mercury Asset Management
Funds, Inc. (the "Corporation"), and to file the same with the Securities and
Exchange Commission, and any other regulatory authority having jurisdiction over
the offer and sale of shares of common stock, par value $0.0001 per share, of
the Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and purposes as the
undersigned himself might or could do.

IN WITNESS WHEREOF, the undersigned Trustee has hereunto set his hand
this 20th day of November, 1998.

/s/ David O. Beim
----------------------------
David O. Beim
Trustee
<PAGE> 5
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that James T. Flynn, being a Trustee of
Mercury Asset Management Master Trust, hereby nominates, constitutes and
appoints Jeffrey M. Peek, Gerald M. Richard, Terry K. Glenn and Stephen M. M.
Miller (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him and on his behalf and in his place and stead
and in any and all capacities, to execute and sign all amendments and
supplements to the Registration Statements on Form N-1A under the Securities Act
of 1933 and the Investment Company Act of 1940 of Mercury Asset Management
Funds, Inc. (the "Corporation"), and to file the same with the Securities and
Exchange Commission, and any other regulatory authority having jurisdiction over
the offer and sale of shares of common stock, par value $0.0001 per share, of
the Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and purposes as the
undersigned himself might or could do.

IN WITNESS WHEREOF, the undersigned Trustee has hereunto set his hand
this 20th day of November, 1998.

/s/ James T. Flynn
----------------------------
James T. Flynn
Trustee
<PAGE> 6
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that W. Carl Kester, being a Trustee of
Mercury Asset Management Master Trust, hereby nominates, constitutes and
appoints Jeffrey M. Peek, Gerald M. Richard, Terry K. Glenn and Stephen M. M.
Miller (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him and on his behalf and in his place and stead
and in any and all capacities, to execute and sign all amendments and
supplements to the Registration Statements on Form N-1A under the Securities Act
of 1933 and the Investment Company Act of 1940 of Mercury Asset Management
Funds, Inc. (the "Corporation"), and to file the same with the Securities and
Exchange Commission, and any other regulatory authority having jurisdiction over
the offer and sale of shares of common stock, par value $0.0001 per share, of
the Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and purposes as the
undersigned himself might or could do.

IN WITNESS WHEREOF, the undersigned Trustee has hereunto set his hand
this 20th day of November, 1998.

/s/ W. Carl Kester
----------------------------
W. Carl Kester
Trustee
<PAGE> 7
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Karen P. Robards, being a Trustee of
Mercury Asset Management Master Trust, hereby nominates, constitutes and
appoints Jeffrey M. Peek, Gerald M. Richard, Terry K. Glenn and Stephen M. M.
Miller (with full power to each of them to act alone) her true and lawful
attorney-in-fact and agent, for her and on her behalf and in her place and stead
and in any and all capacities, to execute and sign all amendments and
supplements to the Registration Statements on Form N-1A under the Securities Act
of 1933 and the Investment Company Act of 1940 of Mercury Asset Management
Funds, Inc. (the "Corporation"), and to file the same with the Securities and
Exchange Commission, and any other regulatory authority having jurisdiction over
the offer and sale of shares of common stock, par value $0.0001 per share, of
the Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and purposes as the
undersigned herself might or could do.

IN WITNESS WHEREOF, the undersigned Trustee has hereunto set her hand
this 20th day of November, 1998.

/s/ Karen P. Robards
----------------------------
Karen P. Robards
Trustee
<PAGE> 8
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the person whose name appears
below hereby nominates, constitutes and appoints Jeffrey M. Peek, Terry K.
Glenn and Stephen M. M. Miller (with full power to each of them to act alone)
his true and lawful attorney-in-fact and agent, for him and on his behalf and
in his place and stead in any and all capacities to make, execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940 of MERCURY ASSET
MANAGEMENT FUNDS, INC. (the "Corporation"), and to file the same with the
Securities and Exchange Commission, and any other regulatory authority having
jurisdiction over the offer and sale of shares of common stock, par value
$0.0001 per share, of the Corporation, and any and all exhibits and other
documents requisite in connection therewith, granting unto said attorneys and
each of them, full power and authority to perform each and every act and thing
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as the undersigned himself might or could do.

IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND THIS 11TH
DAY OF FEBRUARY, 1999.

/s/ DONALD C. BURKE
- -----------------------------------
Donald C. Burke, Treasurer
Mercury Asset Management Master Trust
<PAGE> 9
POWER OF ATTORNEY

IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND THIS 11TH
DAY OF FEBRUARY, 1999.

/s/ DONALD C. BURKE
- ------------------------------------
Donald C. Burke, Treasurer
Mercury Asset Management Funds, Inc.