<PAGE>
As filed with the Securities and Exchange Commission on October 29, 1996
File No. 811-____
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO.___ / /
(Check appropriate box or boxes)
MERRILL LYNCH INDEX TRUST
(Exact Name of Registrant as Specified in Charter)
P.O. Box 9011, Princeton, New Jersey 08543-9011
(Address of Principal Executive Offices)
(609) 282-2800
(Registrant's Telephone Number, including Area Code)
ARTHUR ZEIKEL
Box 9011
Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
Copies to:
Counsel for the Fund: and
JOEL H. GOLDBERG, Esq. PHILIP L. KIRSTEIN, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP Merrill Lynch Asset Management
919 Third Avenue P.O. Box 9011
New York, New York 10022 Princeton, New Jersey 08543-9011
<PAGE>
EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940, as amended (the "Investment
Company Act"). However, beneficial interests in the Registrant are not being
registered under the Securities Act of 1933, as amended (the "1933 Act") because
such interests will be issued solely in private placement transactions that do
not involve any "public offering" within the meaning of Section 4(2) of the 1933
Act. Investments in the Registrant may be made only by a limited number of
institutional investors, including investment companies, common or commingled
trust funds, group trusts and certain other "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
beneficial interests in the Registrant.
<PAGE>
PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant.
Merrill Lynch Index Trust (the "Trust") is a no-load, open-end management
investment company which was organized as a Delaware business trust on August
28, 1996. The Trust currently consists of four separate series or portfolios:
Merrill Lynch Large Cap Index Series, Merrill Lynch Small Cap Index Series,
Merrill Lynch Aggregate Bond Index Series and Merrill Lynch International Equity
Index Series (collectively, the "Series," and each, a "Series"). Beneficial
interests in the Trust corresponding to each Series are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in each Series may be made
only by a limited number of institutional investors, including investment
companies, common or commingled trusts, group trusts, and certain other
"accredited investors" within the meaning of Regulation D under the 1933 Act
("Investing Funds"). This Registration Statement does not constitute an offer to
sell, or a solicitation of an offer to buy, any "security" within the meaning of
the 1933 Act.
Each of the Series has different investment objectives and policies, so
that investors may choose the Series which are most appropriate to their
specific needs.
There can, of course, be no assurance that the respective investment
objectives of the Series can be achieved. Except for certain investment
restrictions designated as fundamental in this Part A or in Part B of this
Registration Statement, the investment objectives and policies of each Series
may be changed by the Trustees of the Trust without the approval of the
investors in the respective Series.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Merrill Lynch Large Cap Index Series
The investment objective of the Merrill Lynch Large Cap Index Series is to
provide investment results that, before expenses, seek to replicate the total
return (i.e., the combination of capital changes and income) of the Standard &
Poor's(R) 500 Composite Stock Price Index (the "S&P 500"). Additional
information about the investment policies of the Series appears in Part B. There
can be no assurance that the investment objective of the Series will be
achieved.
In seeking to replicate the total return of the S&P 500, Merrill Lynch Asset
Management, L.P. (the "Manager") generally will allocate the Series'
investments among common stocks in
3
<PAGE>
approximately the same weightings as the index. In addition, the Manager may use
options and futures contracts and other types of financial instruments relating
to all or a portion of the index. The Series may also engage in securities
lending and index arbitrage. See "About Indexing and Management of the Series -
Other Types of Investments and Investment Techniques."
The S&P 500 is composed of the common stocks of 500 large capitalization
companies from various industrial sectors, most of which are listed on the New
York Stock Exchange Inc. A company's stock market capitalization is the total
market value of its outstanding shares. The S&P 500 represents a significant
portion of the market value of all common stocks publicly traded in the United
States.
Merrill Lynch Small Cap Index Series
The investment objective of the Merrill Lynch Small Cap Index Series is to
provide investment results that, before expenses, seek to replicate the total
return (i.e., the combination of capital changes and income) of the Russell 2000
Index (the "Russell 2000"). Additional information about the investment policies
of the Series appears in Part B. There can be no assurance that the investment
objective of the Series will be achieved.
In seeking to replicate the total return of the Russell 2000, the Manager may
not allocate the Series' investments among all of the common stocks in the
index, or in the same weightings as the index. Instead, the Series may invest in
a statistically selected sample of the stocks included in the Russell 2000 and
other types of financial instruments. The Manager may use options and futures
contracts and other types of financial instruments relating to all or a portion
of the index. The investments to be included in the Series will be selected
with the objective of reducing the selected investment portfolio's deviation
from the performance of the Russell 2000 (this deviation is referred to as
"tracking error"). The Series may also engage in securities lending and index
arbitrage. See "About Indexing and Management of the Series - Other Types of
Investments and Investment Techniques."
The Russell 2000 is composed of approximately 2,000 smaller-capitalization
common stocks from various industrial sectors. A company's stock market
capitalization is the total market value of its outstanding shares.
Merrill Lynch Aggregate Bond Index Series
The investment objective of the Merrill Lynch Aggregate Bond Index Series is to
provide investment results that, before expenses, seek to replicate the total
return (i.e., the combination of capital changes and income) of the Lehman
Brothers Aggregate Bond Index (the "Aggregate Bond Index"). Additional
information about the investment policies of the Series appears in Part B. There
can be no assurance that the investment objective of the Series will be
achieved.
4
<PAGE>
In seeking to replicate the total return of the Aggregate Bond Index, the
Manager may not allocate the Series' investments among all of the fixed-income
securities in the index, or in the same weightings as the index. Instead, the
Series may invest in a statistically selected sample of fixed-income securities
and other types of financial instruments. The Manager may use options and
futures contracts and other types of financial instruments relating to all or a
portion of the index. The investments to be included in the Series will be
selected with the objective of reducing the selected investment portfolio's
deviation from the performance of the Aggregate Bond Index (tracking error).
The Series may, from time to time, substitute a different type of bond for one
included in the index. Substitution may result in levels of interest rate,
credit or prepayment risks that differ from the levels of risks on the
securities composing the Aggregate Bond Index. See "Risk Factors - Investments
in Fixed-Income Securities." The Series may also engage in securities lending
and index arbitrage. See "About Indexing and Management of the Series - Other
Types of Investments and Investment Techniques."
The Aggregate Bond Index is composed primarily of dollar-denominated investment
grade fixed-income securities in the following major classes: U.S. Treasury and
agency securities, U.S. corporate bonds, foreign corporate bonds, foreign
sovereign debt (debt securities issued or guaranteed by foreign governments and
governmental agencies), supranational debt (debt securities issued by entities),
such as the World Bank, constituted by the governments of several countries to
promote economic development) and mortgage-backed securities with maturities
greater than one year. Corporate bonds contained in the index represent issuers
from various industrial sectors.
The Series may invest in U.S. Treasury bills, notes and bonds and other "full
faith and credit" obligations of the U.S. Government. The Series may also invest
in U.S. Government agency securities, which are debt obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government. "Agency"
securities may not be backed by the "full faith and credit" of the U.S.
Government. U.S. Government agencies may include the Federal Farm Credit Bank,
the Resolution Trust Corporation and the Government National Mortgage
Association. "Agency" obligations are not explicitly guaranteed by the U.S.
Government and so are perceived as somewhat riskier than comparable Treasury
bonds.
5
<PAGE>
The Series' corporate fixed-income securities will be primarily of investment
grade quality -- i.e., those rated at least Baa3 by Moody's Investors Service,
Inc. ("Moody's") or BBB- by Standard & Poor's Ratings Services ("S&P"), the
equivalent by another nationally recognized statistical rating organization
("NRSRO") or, if unrated, of equal quality in the opinion of the Manager.
Securities rated Baa or BBB are considered medium grade obligations. Interest
payments and principal are regarded as adequate for the present but certain
protective elements found in higher rated bonds may be lacking. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics. Descriptions of the ratings of fixed-income securities are
contained in Appendix B hereto.
The Series may also invest in other instruments that "pass through" payments on
such bonds, such as collateralized mortgage obligations ("CMOs").
Merrill Lynch International Equity Index Series
The investment objective of the Merrill Lynch International Equity Index Series
is to provide investment results that, before expenses, seek to replicate the
total return (i.e., the combination of capital changes and income) of the Morgan
Stanley Capital International EAFE(R) Index (the "EAFE Index"). Additional
information about the investment policies of the Series appears in Part B. There
can be no assurance that the investment objective of the Series will be
achieved.
In seeking to replicate the total return of the EAFE Index, the Manager may not
allocate the Series' investments among all of the countries, or all of the
companies within a country, represented in the index, or in the same weightings
as the index. Instead, the Series may invest in a statistically selected sample
of the equity securities included in the EAFE Index and other types of financial
instruments. In addition, the Manager may use options and futures contracts and
other types of financial instruments relating to all or a portion of the index.
The investments to be included in the Series will be selected with the objective
of reducing the selected investment portfolio's deviation from the performance
of the EAFE Index (tracking error). The Series may also engage in securities
lending and index arbitrage. See "About Indexing and Management of the Series -
Other Types of Investments and Investment Techniques."
The EAFE Index is composed of equity securities of companies from various
industrial sectors whose primary trading markets are located outside the United
States and which are selected from among the larger capitalization companies in
such markets. A company's stock market capitalization is the total market value
of its outstanding shares. The countries currently included in the EAFE Index
are Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Malaysia, The Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and United Kingdom.
ABOUT INDEXING AND THE MANAGEMENT OF THE SERIES
About Indexing.
The Series are not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial, and market
6
<PAGE>
analyses and investment judgment. Instead, each Series, utilizing essentially a
"passive" or "indexing" investment approach, seeks to replicate, before each
Series' expenses (which can be expected to reduce the return on the Series), the
total return of its respective index.
Indexing and Managing the Series.
Under normal conditions each Series will invest at least 80% of its assets
(exclusive of assets held as collateral for securities loans or as margin for
futures transactions) in securities or other financial instruments which are
contained in, or related to the securities contained in, the applicable index
(equity securities, in the case of the Merrill Lynch Large Cap Index Series,
Merrill Lynch Small Cap Index Series and Merrill Lynch International Equity
Index Series (the "Equity Series"), and debt securities in the case of the
Merrill Lynch Aggregate Bond Index Series (the "Fixed-Income Series")).
Because each Series seeks to replicate the total return of its respective index,
generally the Manager will not attempt to judge the merits of any particular
security as an investment but will seek only to replicate the total return of
the securities in the relevant index. However, the Manager may omit or remove a
security which is included in an index from the portfolio of a Series if,
following objective criteria, the Manager judges the security to be
insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions.
In managing the Series, the Manager may employ index arbitrage. Index arbitrage
involves the sale of a perfectly replicating selection, or "basket" of stocks
with the simultaneous purchase of an equivalent dollar value of related futures
contracts, or alternatively the purchase of such an equity basket with a
simultaneous sale of related futures contracts. This technique is designed to
take advantage of a possible mispricing which could arise between the securities
market and the futures market. Extensive use of this technique would, however,
be limited by applicable tax laws.
In addition, the Manager may acquire certain financial instruments based upon
individual securities or upon one or more baskets of securities (which basket
may be based upon a target index ). Certain of these instruments may represent
an indirect ownership interest in such securities or baskets. Others may provide
for the payment to a Series or by a Series of amounts based upon the performance
(positive, negative or both) of a particular security or basket. The Manager
will select such instruments when it believes that the use of the instrument
will correlate substantially with the expected total return of a target security
or index.
Each Series' ability to replicate the total return of its respective index may
be affected by, among other things, transaction costs, administration and other
expenses incurred by the Series, taxes (including foreign withholding taxes,
which will affect the Merrill Lynch International Equity Index Series due to
foreign tax withholding practices), changes in either the composition of the
index or the assets of a Series, and the timing and amount of Series investor
contributions and withdrawals, if any.
7
<PAGE>
Other Types of Investments and Investment Techniques.
Cash Management. Generally, the Manager will employ futures and options on
futures to provide liquidity necessary to meet anticipated redemptions or for
day-to-day operating purposes.
However, if considered appropriate in the opinion of the Manager, a portion of a
Series' assets may be invested in certain types of short-term instruments with
remaining maturities of 397 days or less for liquidity purposes. Such
short-term instruments would consist of: (i) short-term obligations of the U.S.
Government, its agencies, instrumentalities, authorities or political
subdivisions ("U.S. Government Securities"); (ii) other short-term debt
securities rated Aa or higher by Moody's or AA or higher by S&P or, if unrated,
of comparable quality in the opinion of the Manager; (iii) commercial paper;
(iv) bank obligations, including negotiable certificates of deposit, time
deposits and bankers' acceptances; and (v) repurchase agreements. At the time
the Series invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding debt rated
Aa or higher by Moody's or AA or higher by S&P or outstanding commercial paper
or bank obligations rated Prime-1 by Moody's or A-1 by S&P; or, if no such
ratings are available, the instrument must be of comparable quality in the
opinion of the Manager.
Futures, Options, Swaps and Indexed Instruments. Each Series will also utilize
options, futures, options on futures, swaps and other indexed instruments.
Futures and options on futures may be employed to provide liquidity as described
in the preceding paragraph, and may also be employed in connection with a
Series' index arbitrage strategies. Futures, options on futures, swaps and other
indexed instruments may be employed as a proxy for a direct investment in
securities underlying the Series' index.
The Manager will choose among the foregoing strategies based on its judgment of
how best to meet each Series' goals. In connection therewith, the Manager will
assess such factors as current and anticipated securities prices, relative
liquidity and price levels in the options, futures and swap markets compared to
the securities markets, and the Series' cash flow and cash management needs.
The Series' use of the foregoing instruments and the associated risks are
described in detail in Appendix A attached to this Part A.
Foreign Exchange Transactions. The Merrill Lynch International Equity Index
Series may engage in foreign currency forward and spot transactions in
connection with transactions or anticipated transactions in securities
denominated in foreign currencies. Specifically, the Series may purchase or sell
a currency to settle a security transaction or sell a currency in which the
Series has received or anticipates receiving a dividend or distribution.
Other Investment Policies and Practices.
Illiquid Investments. Each of the Series may invest up to 15% of its net assets
in illiquid investments. Pursuant to that restriction the Series may not invest
in instruments which cannot be
8
<PAGE>
readily resold because of legal or contractual restrictions, which cannot
otherwise be marketed, redeemed, put to the issuer or a third party, which do
not mature within seven days, or which the Trustees have not determined to be
liquid, if, regarding all such instruments, more than 15% of its net assets,
taken at market value, would be invested in such instruments.
The Series may purchase, without regard to the above limitation, securities that
are not registered under the 1933 Act but that can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act, provided
that the Trustees, or the Manager pursuant to guidelines adopted by the
Trustees, continuously determines, based on the trading markets for the specific
Rule 144A security, that it is liquid. The Trustees, however, will retain
oversight and are ultimately responsible for these determinations. The Trustees
monitor the Series' investments in these securities, focusing on such factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of illiquidity
in the Series to the extent that qualified institutional buyers become for a
time uninterested in purchasing these securities.
Repurchase Agreements. Each Series may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System, primary dealers in U.S. Government
securities, or an affiliate thereof, or with other entities which the Manager
otherwise deems to be creditworthy. Under repurchase agreements, the
counterparty agrees, upon entering into the contract, to repurchase the security
from the Series at a mutually agreed upon time and price in a specified
currency, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during such
period although it may be affected by currency fluctuations. In the event of
default by the seller under a repurchase agreement the Series may suffer time
delays and incur costs or possible losses in connection with disposition of the
collateral. Repurchase agreements maturing in more than seven days are deemed
illiquid by the Securities and Exchange Commission and are therefore subject to
the Series' investment restrictions limiting investments in securities that are
not readily marketable to 15% of the Series' net assets.
Lending of Portfolio Securities. To the extent permitted by law, each Series may
from time to time lend securities from its portfolio to banks, brokers and other
financial institutions and receive collateral in cash or securities issued or
guaranteed by the United States government. Such collateral will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. Each Series' policy concerning lending is fundamental and
it may not be changed without the approval of the holders of a majority of the
Series' outstanding voting securities, as defined in the Investment Company Act.
During the period of such a loan, the Series receives the income on the loaned
securities and either receives the income on the collateral or other
compensation, i.e., negotiated loan premium or fee, for entering into the loan
and thereby increases its yield. In the event that the borrower defaults on its
obligation to return borrowed securities, because of insolvency or otherwise,
the Series could experience delays and costs in gaining access to the collateral
and could suffer a loss to the extent that the value of the collateral
9
<PAGE>
falls below the market value of the borrowed securities. Presently, the Series
does not intend to lend portfolio securities representing in excess of 33 1/3%
of its total assets.
When-Issued Securities and Delayed Delivery Transactions. The Merrill Lynch
Aggregate Bond Index Series may purchase securities on a when-issued basis, and
it may purchase or sell securities for delayed delivery. These transactions
occur when securities are purchased or sold by the Series with payment and
delivery taking place in the future to secure what is considered an advantageous
yield and price to the Series at the time of entering into the transaction.
Although the Series has not established any limit on the percentage of its
assets that may be committed in connection with such transactions, the Series
will maintain a segregated account with its custodian of liquid securities in an
aggregate amount equal to the amount of its commitment in connection with such
purchase transactions.
Standby Commitment Agreements. The Merrill Lynch Aggregate Bond Index Series may
from time to time enter into standby commitment agreements. Such agreements
commit the Series, for a stated period of time, to purchase a stated amount of a
fixed income security which may be issued and sold to the Series at the option
of the issuer. The price and coupon of the security is fixed at the time of the
commitment. At the time of entering into the agreement, the Series is paid a
commitment fee, regardless of whether or not the security is ultimately issued,
which is typically approximately 0.5% of the aggregate purchase price of the
security which the Series has committed to purchase. The Series will enter into
such agreements only for the purpose of investing in the security underlying the
commitment at a yield and price which is considered advantageous to the Series.
The Series will not enter into a standby commitment with a remaining term in
excess of 90 days and will limit its investment in such commitments so that the
aggregate purchase price of the securities subject to such commitments, together
with the value of all other illiquid securities, will not exceed 15% of its
total assets taken at the time of acquisition of such commitment or security.
The Series will at all times maintain a segregated account with its custodian of
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 Series may bear
the risk of a decline in the value of such security and may not benefit from an
appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Series' 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.
10
<PAGE>
Investment Restrictions.
Each Series has adopted a number of policies and restrictions which are
described below and in Part B. A Series' investment policies and restrictions
are not fundamental policies unless otherwise specified in this Part A or in
Part B. Any restriction or policy that is not fundamental may be changed without
investor approval. Fundamental policies may not be changed without the approval
of the holders of a majority of the respective Series' outstanding voting
securities (as defined in the Investment Company Act).
Each Series is classified as a non-diversified fund under the Investment Company
Act and is not subject to the diversification requirements of the Investment
Company Act. Accordingly, any Series may invest more than 5% of the value of its
assets in the obligations of a single issuer. Under the Declaration of Trust,
each Series is to be managed in compliance with the provisions of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to
regulated investment companies ("RICs") as though such requirements were
applicable to the Series. Thus, consistent with its investment objectives, each
Series will meet the income and diversification of assets tests of the Code
applicable to RICs. Those requirements include limiting its investments so that
at the close of each quarter of the taxable year (i) not more than 25% of the
market value of the Series' total assets are invested in the securities of a
single issuer, or any two or more issuers which are controlled by the Series and
engaged in the same, similar or related businesses, and (ii) with respect to 50%
of the market value of its total assets, not more than 5% of the market value of
its total assets are invested in the securities of a single issuer, and the
Series does not own more than 10% of the outstanding voting securities of a
single issuer. The U.S. Government, its agencies and instrumentalities are not
included within the definition of "issuer" for purposes of the diversification
requirements of the Code.
Each Series will not invest more than 25% of its assets in the securities of
issuers in any one industry. In the unlikely event that the target index should
concentrate to an extent greater than that amount, the Series' ability to
achieve its investment objective may be impaired. These are fundamental
investment policies of the Series.
Portfolio Turnover.
Although the Series will use a passive, indexing approach to investing, each
Series may engage in a substantial number of portfolio transactions. The rate of
portfolio turnover will be a limiting factor when the Manager considers whether
to purchase or sell securities for a Series only to the extent that the Manager
will consider the impact of transaction costs on a Series' tracking error.
Changes in the securities comprising a Series' index will tend to increase that
Series' portfolio turnover rate, as the Manager restructures the Series'
holdings to reflect the changes in the index. The portfolio turnover rate is, in
summary, the percentage computed by dividing the lesser of a Series' purchases
or sales of securities by the average net asset value of the Series. High
portfolio turnover involves correspondingly greater brokerage commissions for a
Series investing in equity securities and other transaction costs which are
borne directly by a Series. A high portfolio
11
<PAGE>
turnover rate may also result in the realization of taxable capital gains,
including short-term capital gains taxable at ordinary income rates.
While it is impossible to predict the portfolio turnover rates for each of the
Series, it is anticipated that the portfolio turnover rates for each of the
Series will exceed 100%.
RISK FACTORS
The ability of each Series to satisfy its investment objective depends to some
extent on the Manager's ability to manage cash flow (primarily from purchases
and redemptions and distributions from its investments). The Manager will make
investment changes to a Series' portfolio to accommodate cash flow while
continuing to seek to replicate the total return of the Series' target index.
Investors should also be aware that the investment performance of each index is
a hypothetical number which does not take into account brokerage commissions and
other transaction costs, custody and other costs of investing, which will be
borne by the Series. Finally, since each Series seeks to replicate the total
return of its target index, the Manager generally will not attempt to judge the
merits of any particular security as an investment.
Options, Futures, Swaps and Indexed Instruments.
The Manager expects to use options, futures, options on futures, swaps and
indexed instruments as described above under "About Indexing and Management of
the Series -- Other Types of Investments and Techniques -- Futures Options,
Swaps and Indexed Instruments." Use of such investments may involve investment
risks and transaction costs to which the Series would not be subject absent the
use of these instruments. A discussion of these instruments is contained in
Appendix A to this Part A.
Investment in Foreign Securities.
Investments on an international basis involve certain risks not typically
involved in domestic investments, including fluctuations in foreign exchange
rates, future political and economic developments, and the possible imposition
of exchange controls or other foreign or U.S. governmental laws or restrictions
applicable to such investments. Securities prices in different countries are
subject to different economic, financial, political and social factors.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in such respects as growth of gross domestic product,
rate of inflation, capital reinvestment, resources, self-sufficiency and balance
of payments position. Also, it is anticipated that most of the foreign
securities held by a Series will not be registered with the Securities and
Exchange Commission nor will the issuers thereof be subject to the reporting
requirements of such agency. In addition, foreign investors such as the Series
may be subject to withholding taxes in certain countries, which may reduce the
returns of the Series.
12
<PAGE>
Since the Merrill Lynch International Equity Index Series will invest heavily in
securities denominated or quoted in currencies other than the United States
dollar, changes in foreign currency exchange rates will affect the value of
securities in the Series' portfolio and the unrealized appreciation or
depreciation of investments so far as United States investors are concerned.
Currencies of certain foreign countries may be volatile and therefore may affect
the value of securities denominated in such currencies. Changes in foreign
currency exchange rates relative to the United States dollar will affect the
United States dollar value of the Series' assets denominated in that currency
and the return on such assets. The rate of exchange between the dollar and other
currencies is determined by forces of supply and demand in the foreign exchange
markets. These forces are, in turn, affected by the international balance of
payments, the level of interest and inflation rates and other economic and
financial conditions, government intervention, speculation and other factors.
Investment in Fixed-Income Securities.
Because the Merrill Lynch Aggregate Bond Index Series will invest in
fixed-income securities, it will be subject to the general risks inherent is
such securities, primarily interest rate risk, credit risk and prepayment risk.
Interest rate risk is the potential for fluctuations in bond prices due to
changing interest rates. As a rule bond prices vary inversely with interest
rates. If interest rates rise, bond prices generally decline; if interest rates
fall, bond prices generally rise. In addition, for a given change in interest
rates, longer-maturity bonds fluctuate more in price than shorter-maturity
bonds. To compensate investors for these larger fluctuations, longer-maturity
bonds usually offer higher yields than shorter-maturity bonds, other factors,
including credit quality, being equal. These basic principles of bond prices
also apply to U.S. Government Securities. A security backed by the "full faith
and credit" of the U.S. Government is guaranteed only as to its stated interest
rate and face value at maturity, not its current market price. Just like other
fixed-income securities, government-guaranteed securities will fluctuate in
value when interest rates change.
Credit risk is the possibility that an issuer of securities held by the Series
will be unable to make payments of either interest or principal or will be
perceived to have a diminished capacity to make such payments in the future. The
credit risk of the Series is a function of the diversification and credit
quality of its underlying securities. As of December 31, 1995, the average
quality, as rated by Moody's, of the Aggregate Bond Index was Aa1.
The Series may also be exposed to event risk, which includes the possibility
that fixed-income securities held by the Series may suffer a substantial decline
in credit quality and market value due to issuer restructurings. Certain
restructurings such as mergers, leveraged buyouts, takeovers or similar events,
are often financed by a significant expansion of corporate debt. As a result of
the added debt burden, the credit quality and market value of a firm's existing
debt securities may decline significantly. Other types of restructurings (such
as corporate spinoffs or privatizations of governmental or agency borrowers) may
also result in decreased credit quality of a particular issuer.
13
<PAGE>
Prepayment risk is the possibility that the principal of the mortgage loans
underlying mortgage-backed securities may be prepaid at any time. As a general
rule, prepayments increase during a period of falling interest rates and
decrease during a period of rising interest rates. As a result of prepayments,
in periods of declining interest rates the Series may be required to reinvest
its assets in securities with lower interest rates. In periods of increasing
interest rates, prepayments generally may decline, with the effect that the
mortgage-backed securities held by the Series may exhibit price characteristics
of longer-term debt securities.
The corporate substitution strategy used by the Series (discussed above) may
increase or decrease the Series' exposure to the foregoing risks relative to
those of the Aggregate Bond Index.
Investments in Small Companies.
The Merrill Lynch Small Cap Index Series will invest primarily in securities of
smaller capitalization issuers. Investments in securities of smaller
capitalization issuers involve special considerations and risks not typically
associated with investments in securities of larger capitalization issuers,
including an issuer's limited product lines, markets or financial resources, or
dependence on a limited management group. In addition, many smaller
capitalization stocks trade less frequently and in smaller volume, and may be
subject to more abrupt or erratic price movements, than stocks of larger
companies. The securities of smaller companies may also be more sensitive to
market changes than the securities of larger companies.
Additional Information concerning the Indices.
S&P 500. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's
500", and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by the Trust. The Series is not sponsored, endorsed, sole or
promoted by Standard & Poor's, a division of the McGraw Hill Companies, Inc.
("Standard & Poor's") and Standard & Poor's makes no representation regarding
the advisability of investing in the Series.
The Series is not sponsored, endorsed, sold or promoted by Standard & Poor's.
Standard & Poor's makes no representation or warranty, express or implied, to
the owners of shares of the Series or any member of the public regarding the
advisability of investing in securities generally or in the Series particularly
or the ability of the S&P 500 to track general stock market performance.
Standard & Poor's only relationship to the Series is the licensing of certain
trademarks and trade names of Standard & Poor's and of the S&P 500 which is
determined, composed and calculated by Standard & Poor's without regard to the
Series. Standard & Poor's has no obligation to take the needs of the Series or
the owners of shares of the Series into consideration in determining, composing
or calculating the S&P 500 Index. Standard & Poor's is not responsible for and
has not participated in the determination of the prices and amount of the Series
or the timing of the issuance of sale of shares of the Series or in the
determination or calculation of the equation by which the Series is to be
converted into cash. Standard & Poor's has no obligation or liability in
connection with the administration, marketing or trading of the Series.
14
<PAGE>
STANDARD & POOR'S DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND STANDARD & POOR'S SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. STANDARD & POOR'S
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
SERIES, OWNERS OF SHARES OF THE SERIES, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. STANDARD & POOR'S MAKES
NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITED ANY OF THE
FOREGOING, IN NO EVENT SHALL STANDARD & POOR'S HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Russell 2000. The Merrill Lynch Small Cap Index Series is neither sponsored by
nor affiliated with the Frank Russell Company. Frank Russell's only relationship
to the Series is the licensing of the use of the Russell 2000 Small Stock Index.
Frank Russell Company is the owner of the trademarks and copyrights relating to
the Russell indices.
EAFE Index. The Merrill Lynch International Equity Series is not sponsored,
endorsed, sold or promoted by Morgan Stanley & Co. Incorporated ("Morgan
Stanley"). Morgan Stanley makes no representation or warranty, express or
implied, to the owners of the Series or any member of the public regarding the
advisability of investing in securities generally or in the Series particularly
or the ability of the EAFE Index to track general stock market performance.
Morgan Stanley is the licensor of certain trademarks, service marks and trade
names of Morgan Stanley and of the EAFE Index which is determined, composed and
calculated by Morgan Stanley without regard to the issuer of the Series. Morgan
Stanley has no obligation to take the needs of the issuer of the Series or the
owners of the Series into consideration in determining, composing or calculating
the EAFE Index. Inclusion of a security in the EAFE Index in no way implies an
opinion by Morgan Stanley as to its attractiveness as an investment. Morgan
Stanley is not responsible for and has not participated in the determination of
the timing of, prices at, or quantities of the Series to be issued or in the
determination or calculation of the equation by which the Series is redeemable
for cash. Morgan Stanley has no obligation or liability to owners of the Series
in connection with the administration, marketing or trading of the Series. The
Series is neither sponsored by nor affiliated with Morgan Stanley.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, MORGAN STANLEY DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDEXES OR ANY DATA INCLUDED THEREIN. MORGAN STANLEY MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
15
<PAGE>
LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE PRODUCTS, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE INDEXES OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. MORGAN
STANLEY MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MORGAN STANLEY HAVE ANY LIABILITY FOR ANY DIRECT,
INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST
PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Item 5. Management of the Series.
The Trustees of the Trust are responsible for the general oversight of the
conduct of the Trust's business.
Investment Manager.
The Trust will enter into an investment management agreement (the "Management
Agreement") with the Manager. The Manager, with offices at 800 Scudders Mill
Road, Plainsboro, New Jersey (mailing address: Box 9011, Princeton, New Jersey
08543-9011) will act as manager for the Trust and provide the Trust with
management and investment advisory services. The Manager is owned and controlled
by Merrill Lynch & Co., Inc. ("ML&Co."), a financial services holding company
and the parent of Merrill Lynch. The Manager or its affiliate, Fund Asset
Management, L.P. ("FAM") acts as the manager for more than 130 other registered
investment companies. The Manager also offers portfolio management and portfolio
analysis services to individuals and institutions. As of [date], 1996, the
Manager and FAM had a total of approximately $_____ billion in investment
company and other portfolio assets under management, including accounts of
certain affiliates of the Manager.
The Trust will pay the Manager a monthly fee with respect to each Series equal
to a percentage of the average daily net assets of that Series at the rates
described below. In addition, the Management Agreement obligates the Trust to
pay certain expenses incurred in its operations including, among other things,
the investment advisory fee, legal and audit fees, registration fees,
unaffiliated Trustees' fees and expenses, custodian and transfer agency fees,
accounting costs, the costs of issuing and redeeming shares and certain of the
costs of printing proxies, shareholder reports, prospectuses and statements of
additional information. Accounting services are provided to the Trust by the
Manager, and the Trust reimburses the Manager for its costs in connection with
such services on a semi-annual basis.
The following table sets forth the annual management fee rates to be paid by
each Series, expressed as a percentage of the Series' average daily net assets.
16
<PAGE>
Name of Series Total Management Fee
-------------- --------------------
Merrill Lynch Large Cap Index Series......................0.05%
Merrill Lynch Small Cap Index Series......................0.08%
Merrill Lynch Aggregate Bond Index Series.................0.06%
Merrill Lynch International Equity Index Series...........0.11%
_____________________ is primarily responsible for the day-to-day management of
the Series' investments. For the past five years, _____________________ has
[insert employment experience.]
Transfer Agent.
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which is a
wholly-owned subsidiary of ML&Co., will act as the Trust's Transfer Agent
pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives
a fee per shareholder account and is entitled to reimbursement for out-of-pocket
expenses incurred by it under the Transfer Agency Agreement.
The custodian is _______________________. The address of
________________________________________________________________ is
__________________________________________________.
Item 6. Capital Stock and Other Securities.
Investors in the Trust have no preemptive or conversion rights and beneficial
interests in the Trust are fully paid and non-assessable. The Trust has no
current intention to hold annual meetings of investors, except to the extent
required by the Investment Company Act, but will hold special meetings of
investors when in the judgment of the Trustees it is necessary or desirable to
submit matters for an investor vote. Investors have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Trustees by a specified number of investors) the right to communicate with other
investors in connection with requesting a meeting of investors for the purpose
of removing one or more Trustees. Investors also have the right to remove one or
more Trustees without a meeting by a declaration in writing by a specified
number of investors. Upon liquidation of the Trust or any Series, investors
would be entitled to share, in proportion to their investment in the Trust or
Series (as the case may be), in the assets of the Trust or Series available for
distribution to investors.
The Trust is organized as a Delaware business trust and currently consists of
four Series. Each investor is entitled to a vote in proportion to its investment
in the Trust or the Series (as the case
17
<PAGE>
may be). Investors in any Series will participate equally in accordance with
their pro rata interests in the earnings, dividends and assets of the particular
Series. The Trust reserves the right to create and issue interests in additional
Series.
Investments in the Trust may not be transferred, but an investor may withdraw
all or any portion of its investment in any Series on any day on which the New
York Stock Exchange is open at net asset value. The complete withdrawal of any
investor from a Series will result in the dissolution of the Series unless the
remaining investors unanimously agree to continue the Series.
The net asset value of each Series is determined on each day during which the
New York Stock Exchange is open for trading ("Pricing Day"). This determination
is made once during each such day by deducting the amount of the Series' total
liabilities (including accrued expenses) from the value of its total assets.
Total assets consist of the value of the securities held by the Series plus cash
and other assets (including interest and dividends accrued and not yet
received).
The value of each security for which readily available market quotations exist
is based on the most recent sale, the most recent available bid price, or the
mean between the most recent available bid and asked prices in the broadest and
most representative market for that security as determined by the Manager.
Securities and other assets for which market quotations are not readily
available are valued by appraisal at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Trustees. The Trust may use an independent pricing service to value the Series'
assets at such times and to such extent that the Manager deems appropriate. An
exception to the foregoing valuation procedures is that the net asset value per
share of a Series holding foreign securities may not, under certain
circumstances, be determined on days when the New York Stock Exchange is open
for trading but one or more foreign stock exchanges are not open for trading.
See "Item 19. Purchase, Redemption and Pricing of Securities" in Part B.
Each investor in the Trust may add to or reduce its investment in any Series on
each Pricing Day. On each Pricing Day, the value of each investor's beneficial
interest in a Series will be determined 15 minutes after the close of business
of the New York Stock Exchange (generally 4:00 p.m., New York time) by
multiplying the net asset value of the Series by the percentage, effective for
that day, that represents that investor's share of the aggregate beneficial
interests in such Series. Any additions or withdrawals, which are to be effected
on that day, will then be effected. The investor's percentage of the aggregate
beneficial interests in a Series will then be re-computed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Series as of the time or determination on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals from
the investor's investment in the Series effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Series as of such
time on such day plus or minus, as the case may be, the amount of the net
additions to or withdrawals from the aggregate investments in the Series by all
investors in the Series. The percentage so determined will then be applied to
determine the value of the investor's
18
<PAGE>
interest in such Series as of 15 minutes after the close of business of the New
York Stock Exchange on the next Pricing Day of the Series.
Under the anticipated method of operation of the Series, each Series will be
treated as a separate partnership for tax purposes and, thus, will not be
subject to any income tax. As of the commencement of the Trust's operations, the
Series will have received a ruling from the Internal Revenue Service
establishing their status as partnerships. Based upon the status of each Series
as a partnership, each investor in a Series will be taxable on its share (as
determined in accordance with the governing instruments of the Series) of such
Series' ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Code and Treasury Regulations promulgated thereunder.
It is intended that each Series' assets, income and distributions will be
managed in such a way that an investor in any Series will be able to satisfy the
requirements of Subchapter M of the Code assuming that the investor invested all
of its assets in the Series.
Investor inquiries should be made by contacting Merrill Lynch Funds Distributor,
Inc. (the "Placement Agent").
Item 7. Purchase of Securities.
Beneficial interests in the Trust are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in each Series of the Trust may only
be made by a limited number of institutional investors including investment
companies, insurance company separate accounts, common or commingled trust
funds, group trusts, and certain other "accredited investors" within the meaning
of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
Investments in the Series will be made without a sales load. All investments are
made at net asset value next determined after an order is received by the
Series. The net asset value of each Series is determined on each Pricing Day.
There is no minimum initial or subsequent investment in each Series. However,
because each Series intends to be as fully invested at all times as is
reasonably consistent with its investment objectives and policies in order to
enhance the yield on its assets, investments must be made in federal funds
(i.e., monies credited to the account of the respective Series' custodian bank
by a Federal Reserve Bank).
Each Series reserves the right to cease accepting investments at any time or to
reject any investment order.
The Trust's placement agent is Merrill Lynch Funds Distributor, Inc.
19
<PAGE>
Item 8. Redemption or Repurchase.
An investor in the Trust may withdraw all or a portion of its investment in any
Series on any Pricing Day at the net asset value next determined after a
withdrawal request in proper form is furnished by the investor to the Series.
The proceeds of the withdrawal will be paid by the Series normally on the
business day on which the withdrawal is effected, but in any event within seven
days. Investments in any Series of the Trust may not be transferred.
Item 9. Pending Legal Proceedings.
Not applicable.
20
<PAGE>
APPENDIX A
The Series are authorized to use certain instruments, including indexed
securities, options, futures and swaps, as described below. Such instruments,
which may be regarded as derivatives, are referred to collectively herein as
"Strategic Instruments."
Indexed Securities
The Series may invest in securities the potential return of which is based on
the change in particular measurements of value or rate (an "index"). As an
illustration, a Series may invest in a debt security that pays interest and
returns principal based on the change in the value of a securities index or a
basket of securities, or based on the relative changes of two indices. If a
Series 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.
Options on Securities and Securities Indices
Purchasing Options. Each Series is authorized to purchase put options on
securities held in its portfolio or securities indices the performance of which
is substantially replicated by securities held in its portfolio. When a Series
purchases a put option, in consideration for an upfront payment (the "option
premium") the Series acquires a right to sell to another party specified
securities owned by the Series at a specified price (the "exercise price") on or
before a specified date (the "expiration date"), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a put option limits the Series' risk of loss in the event of a decline in the
market value of the portfolio holdings underlying the put option prior to the
option's expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases, however, the
Series will lose the option premium and will consequently realize a lower return
on the portfolio holdings than would have been realized without the purchase of
the put.
Each Series is also authorized to purchase call options on securities it intends
to purchase or securities indices. When a Series purchases a call option, in
consideration for the option premium the Series acquires the right to purchase
from another party specified securities at the exercise
21
<PAGE>
price on or before the expiration date, in the case of an option on securities,
or to receive from another party a payment based on the amount a specified
securities index increases beyond a specified level on or before the expiration
date, in the case of an option on a securities index. The purchase of a call
option may protect the Series from having to pay more for a security as a
consequence of increases in the market value for the security during a period
when the Series is contemplating its purchase, in the case of an option on a
security, or attempting to identify specific securities in which to invest in a
market the Series believes to be attractive, in the case of an option on an
index (an "anticipatory hedge"). In the event the Series determines not to
purchase a security underlying a call option, however, the Series may lose the
entire option premium.
Each Series is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Options. Each Series is authorized to write (i.e., sell) call options on
securities held in its portfolio or securities indices the performance of which
is substantially replicated by securities held in its portfolio. When a Series
writes a call option, in return for an option premium the Series gives another
party the right to buy specified securities owned by the Series at the exercise
price on or before the expiration date, in the case of an option on securities,
or agrees to pay to another party an amount based on any gain in a specified
securities index beyond a specified level on or before the expiration date, in
the case of an option on a securities index. In the event the party to which a
Series has written an option fails to exercise its rights under the option
because the value of the underlying securities is less than the exercise price,
the Series will partially offset any decline in the value of the underlying
securities through the receipt of the option premium. By writing a call option,
however, a Series limits its ability to sell the underlying securities, and
gives up the opportunity to profit from any increase in the value of the
underlying securities beyond the exercise price, while the option remains
outstanding.
Each Series may also write put options on securities or securities indices. When
a Series writes a put option, in return for an option premium the Series gives
another party the right to sell to the Series a specified security at the
exercise price on or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount based on any decline in a
specified securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. In the event the party to
which the Series has written an option fails to exercise its rights under the
option because the value of the underlying securities is greater than the
exercise price, the Series will profit by the amount of the option premium. By
writing a put option, however, a Series will be obligated to purchase the
underlying security at a price that may be higher than the market value of the
security at the time of exercise as long as the put option is outstanding, in
the case of an option on a security, or make a cash payment reflecting any
decline in the index, in the case of an option on an index. Accordingly, when
the Series writes a put option it is exposed to a risk of loss in the event the
value of the underlying securities falls below the exercise price, which loss
potentially may substantially exceed the amount of option premium received by
the Series for writing the put option. A Series will write a put option on a
security or
22
<PAGE>
a securities index only if the Series would be willing to purchase the security
at the exercise price for investment purposes (in the case of an option on a
security) or is writing the put in connection with trading strategies involving
combinations of options -- for example, the sale and purchase of options with
identical expiration dates on the same security or index but different exercise
prices (a technique called a "spread").
Each Series is also authorized to sell call or put options in connection with
closing out call or put options it has previously purchased.
Other than with respect to closing transactions, the Series will only write call
or put options that are "covered." A call or put option will be considered
covered if a Series has segregated assets with respect to such option in the
manner described in "Risk Factors in Strategic Instruments" below. A call option
will also be considered covered if a Series owns the securities it would be
required to deliver upon exercise of the option (or, in the case of option on a
securities index, securities which substantially replicate the performance of
such index) or owns a call option, warrant or convertible instrument which is
immediately exercisable for, or convertible into, such security.
Types of Options. Each Series may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and seller,
but generally do not require the parties to post margin and are subject to
greater risk of counterparty default. See "Additional Risk Factors of OTC
Transactions" below.
Futures
Each Series may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts which obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of 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 Series is required to deposit collateral ("margin") equal to a percentage
(generally less than 10%) of the contract value. Each day thereafter until the
futures position is closed, the Series will pay additional margin representing
any loss experienced as a result of the futures position the prior day or be
entitled to a payment representing any profit experienced as a result of the
futures position the prior day. The Series will further limit transactions in
futures and options on futures to the extent necessary to prevent the Series
from being deemed a "commodity pool" under regulations of the Commodity Futures
Trading Commission.
23
<PAGE>
Swaps
The Series are authorized to enter into equity swap agreements, which are OTC
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified equity security, basket of equity
securities or equity index in return for periodic payments based on a fixed or
variable interest rate or the change in market value of a different equity
security, basket of securities or equity index. Swap agreements may be used to
obtain exposure to an equity or market without owning or taking physical custody
of securities in circumstances in which direct investment is restricted by local
law or is otherwise impractical.
Risk Factors in Strategic Investments
The Series intend to enter into transactions involving Strategic Instruments
only if there appears to be a liquid secondary market for such instruments or,
in the case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions." However, there can be no assurance that, at any specific time,
either a liquid secondary market will exist for a Strategic Instrument or a
Series will otherwise be able to sell such instrument at an acceptable price. It
may therefore not be possible to close a position in a Strategic Instrument
without incurring substantial losses, if at all.
Certain transactions in Strategic Instruments (e.g., futures transactions, sales
of put options) may expose a Series to potential losses which exceed the amount
originally invested by the Series in such instruments. When a Series engages in
such a transaction, the Series will deposit in a segregated account at its
custodian liquid securities with a value at least equal to the Series' exposure,
on a mark-to-market basis, to the transaction (as calculated pursuant to
requirements of the Securities and Exchange Commission). Such segregation will
ensure that the Series has assets available to satisfy its obligations with
respect to the transaction, but will not limit the Series' exposure to loss.
Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Strategic Instruments
Certain Strategic Instruments traded in OTC markets, including indexed
securities, swaps and OTC options, may be substantially less liquid than other
instruments in which a Series may invest. The absence of liquidity may make it
difficult or impossible for a Series to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for
the Series to ascertain a market value for such instruments. A Series will
therefore acquire illiquid OTC instruments (i) if the agreement pursuant to
which the instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the Manager
24
<PAGE>
anticipates the Series can receive on each business day at least two independent
bids or offers, unless a quotation from only one dealer is available, in which
case that dealer's quotation may be used.
The staff of the Securities and Exchange Commission has taken the position that
purchased OTC options and the assets underlying written OTC options are illiquid
securities. The Series have therefore adopted an investment policy pursuant to
which they 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 which are held by the Series, the
market value of the securities underlying OTC call options currently outstanding
which have been sold by the Series and margin deposits on the Series'
outstanding OTC options exceeds 15% of the total assets of the Series, taken at
market value, together with all other assets of the Series which are deemed to
be illiquid or are otherwise not readily marketable. However, if an OTC option
is sold by the Series to a dealer in U.S. government securities recognized as a
"primary dealer" by the Federal Reserve Bank of New York and the Series has the
unconditional contractual right to repurchase such OTC option at a predetermined
price, then the Series will treat as illiquid such amount of the underlying
securities as is equal to the repurchase price less the amount by which the
option is "in-the-money" (i.e., current market value of the underlying 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 a Series has unrealized gains in such instruments or has
deposited collateral with its counterparty the Series is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Series will attempt to minimize the risk that a counterparty will become
bankrupt or otherwise fail to honor its obligations by engaging in transactions
in Strategic Instruments traded in OTC markets only with financial institutions
which have substantial capital or which have provided the Series with a
third-party guaranty or other credit enhancement.
Additional Limitations on the Use of Strategic Instruments. The Series 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.
25
<PAGE>
APPENDIX B - DESCRIPTION OF COMMERCIAL
PAPER AND BOND RATINGS
Commercial Paper
Description of relevant commercial paper ratings of Standard & Poor's Ratings
Services ("S&P") are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have an adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
Description of the relevant commercial paper ratings of Moody's Investors
Service, Inc. ("Moody's") are as follows:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Capitalization
26
<PAGE>
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurement and
may require relatively high financial leverage. Adequate alternate
liquidity is maintained.
Corporate Bonds
Descriptions of the bond ratings of S&P are:
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 higher rated issues only in small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
BB, B, CCC, CC or C--Debt rated BB, B, CCC, CC or C is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse debt
conditions.
C1 -- The rating C1 is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D is in default and payment of interest and/or
repayment of principal is in arrears.
The ratings from AA to CC may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
27
<PAGE>
Descriptions of the bond ratings of Moody's are as follows:
Aaa -- Bonds which 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 more unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat greater than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds which 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 which 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 thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. 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 which 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 which are rated Ca represent obligations which are speculative
to a high degree. Such issues are often in default or have other marked
shortcomings.
28
<PAGE>
C -- Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its 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 rating category.
29
<PAGE>
PART B
Except as otherwise indicated herein, all capitalized terms shall have the
meaning assigned to them in Part A hereof.
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents Page
General Information and History.............................................30
Investment Objectives and Policies..........................................30
Management of the Registrant................................................32
Control Persons and Principal Holders of Securities.........................33
Investment Advisory And Other Services .....................................33
Brokerage Allocation and Other Practices....................................35
Capital Stock and Other Securities..........................................36
Purchase, Redemption and Pricing of Securities..............................37
Tax Status..................................................................39
Underwriters................................................................41
Calculations of Performance Data............................................41
Financial Statements........................................................42
Item 12. General Information and History
Not applicable
Item 13. Investment Objectives and Policies.
The investment objectives and policies of the Series are described in Part A.
There can be no assurance that the Series will achieve their investment
objectives.
Except as described below under "Investment Restrictions" and except as
otherwise specifically stated in Part A or this Part B, the investment objective
and policies of each Series are not fundamental and may be changed without
shareholder approval.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by each Series and may
be changed with respect to a particular Series only by the vote of the holders
of a majority of that Series' outstanding beneficial interests ("shares"), which
as used in this Part B means the lesser of (a) 67% of the shares of the Series
present at a meeting of shareholders if the holders of more than
30
<PAGE>
50% of the Series' shares are present or represented at that meeting, or (b)
more than 50% of the shares of the Series. Accordingly, no Series may:
1. Make any investment inconsistent with the Series' classification as a
non-diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S. Government
and its agencies and instrumentalities).
3. Make 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 Series may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which invest
in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances, repurchase agreements or any similar instruments
shall not be deemed to be the making of a loan, and except further that the
Series may lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law and the guidelines
set forth in the Trust's Registration Statement under the Investment Company Act
(the "Registration Statement"), as such Registration Statement 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 Series may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its total
assets (including the amount borrowed), (ii) the Series may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) the Series may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities and (iv) the Series may purchase securities on
margin to the extent permitted by applicable law. The Series may not pledge its
assets other than to secure such borrowings or, to the extent permitted by the
Series' investment policies as set forth in its Registration Statement, as it
may be amended from time to time, in connection with hedging transactions, short
sales, when-issued and forward commitment transactions and similar investment
strategies.
8. Underwrite securities of other issuers except insofar as the Series
technically may be deemed an underwriter under the Securities Act of 1933, as
amended (the "Securities Act") in selling portfolio securities.
31
<PAGE>
9. Purchase or sell commodities or contracts on commodities, except to the
extent that the Series may do so in accordance with applicable law and the
Trust's Registration Statement, as it may be amended from time to time, and
without registering as a commodity pool operator under the Commodity Exchange
Act.
Portfolio securities of a Series generally may not be purchased from, sold or
loaned to the Manager or its affiliates or any of their directors, officers or
employees, acting as principal, unless pursuant to a rule or exemptive order
under the Investment Company Act.
Because of the affiliation of the Manager with the Trust, the Trust is
prohibited from engaging in certain transactions involving the Manager's
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage." Without such an exemptive order, the
Trust is prohibited from engaging in portfolio transactions with Merrill Lynch
or its affiliates acting as principal and from purchasing securities in public
offerings which are not registered under the Securities Act of 1933 in which
such firms or any of their affiliates participate as an underwriter or dealer.
Item 14. Management of the Registrant.
Trustees and officers of the Trust and their principal occupation during the
past five years are as follows:
Principal Occupation
Name and Address Position with Trust During Past 5 Years
---------------- ------------------- -------------------
[To be Added by
Amendment]
*Trustee who is an interested person of the Trust (as defined in Section
2(a)(19) of the 1940 Act).
As indicated by the above chart, certain of the Trust's officers also hold
positions with the Manager.
32
<PAGE>
Item 15. Control Persons and Principal Holders of Securities.
The Manager will initially own all of the outstanding interests in the Trust,
which interests will be allocated equally among the four Series.
All holders of shares ("Holders") are entitled to one vote for each share held.
There is no cumulative voting. Accordingly, the Holder or Holders of more than
50% of the shares of the Trust would be able to elect all the Trustees. With
respect to the election of Trustees and ratification of accountants the
shareholders of separate Series vote together; they generally vote separately by
Series on other matters.
The Manager's address is 800 Scudders Mill Road, Plainsboro, New Jersey (mailing
address: Box 9011, Princeton, New Jersey 08543-9011).
Item 16. Investment Advisory And Other Services.
Investment Advisory Services
The Trust will engage the Manager as investment manager to each of the Series.
The Manager is owned and controlled by Merrill Lynch & Co., Inc., a financial
services holding company and the parent of Merrill Lynch. Reference is made to
Part A for certain information concerning the management and advisory
arrangements of the Trust.
Securities held by the Series may also be held by, or be appropriate investments
for, other funds or investment advisory clients for which the Manager 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 Manager for the Series or other funds for which it acts as investment
adviser or for its advisory clients arise for consideration at or about the same
time, transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Manager 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.
The Trust will enter into a Management Agreement (the "Management Agreement")
with the Manager. As discussed in Part A, the Manager will receive for its
services to the Portfolios monthly compensation based upon a percentage of the
average daily net assets of the Series.
The Management Agreement obligates the Manager to provide investment advisory
services and to pay all compensation of and furnish office space for officers
and employees of the Trust connected with investment and economic research,
trading and investment management of the Trust, as well as the fees of all
Trustees who are affiliated persons of the Manager or any of their affiliates.
The Trust pays all other expenses incurred in the operation of the Trust,
including,
33
<PAGE>
among other things, taxes, expenses for legal and auditing services, costs of
printing proxies, stock certificates, shareholder reports and its registration
statement. (except to the extent paid by Merrill Lynch Funds Distributor, Inc.
as Placement Agent, charges of the Custodian, any Sub-custodian and Transfer
Agent, expenses of redemption of shares, registration and other regulatory fees,
expenses of registering the shares under federal, state or foreign laws, fees
and expenses of unaffiliated Trustees, accounting and pricing costs (including
the daily calculation of net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Trust. The Placement Agent will pay the expenses of the
Trust incurred in connection with the placement of its shares.
Unless earlier terminated as described below, the Management Agreement will
remain in effect for two years from the date of its adoption. Thereafter, it
will remain in effect from year to year if approved annually (a) by the Trustees
or, with respect to any Series, by a majority of the outstanding shares of the
Series and (b) by a majority of the Trustees who are not parties to such
contract or interested persons (as defined in the Investment Company Act) of any
such party. Such contracts are not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or,
with respect to any Series, by the vote of the shareholders of the Series.
Custodian
[To Follow by amendment.]
Transfer Agent
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, will be the Trust's Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
Part A.
Independent Accountants
Deloitte & Touche, LLP, has been selected as the independent auditors of the
Trust. The selection of independent auditors is subject to ratification by the
Trust's shareholders in years when an annual meeting of shareholders is held. In
addition, employment of such auditors may be terminated without any penalty by
vote of a majority of the outstanding shares of the Trust at a meeting called
for the purpose of terminating such employment. The independent auditors are
responsible for auditing the annual financial statements of the Trust. [To
follow by amendment.]
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York 10022, is
counsel for the Trust.
34
<PAGE>
Item 17. Brokerage Allocation and Other Practices.
The Manager is responsible for making portfolio decisions for each Series,
placing the Series' 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 Merrill Lynch. 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 practicable, the Manager surveys a number of brokers and
dealers in connection with proposed portfolio transactions and selects the
broker or dealer which offers the Trust the best price and execution or other
services which are of benefit to the Fund. 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.
The Trust does not use any particular broker or dealer, and brokers who provide
supplemental investment research to the Manager 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 Manager under the
Management Agreement. If in the judgment of the Manager the Trust will be
benefited by supplemental research services, the Manager is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. The expenses of the Manager will not necessarily be reduced as a
result of the receipt of such supplemental information, and the Manager may use
such information in servicing its other accounts.
A Series may invest in certain securities traded in the over-the-counter market
and, where possible, deal directly with the dealers who make a market in the
securities involved, except in those circumstances in which better prices and
execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Trust generally are prohibited from dealing with the Trust
as principal in purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own accounts, affiliated persons of the Trust, including
Merrill Lynch, will not serve as the Trust's dealer in such transactions.
However, affiliated persons of the Trust may serve as its broker in the
over-the-counter transactions conducted on an agency basis.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as amended,
Merrill Lynch may execute transactions for the Trust on the floor of any
national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to
35
<PAGE>
the Trust at least annually setting forth the compensation it has received in
connection with such transactions.
The Trustees 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 Manager. 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.
Portfolio Turnover. Although the Series will use a passive, indexing approach to
investing, each Series may engage in a substantial number of portfolio
transactions. The rate of portfolio turnover will be a limiting factor when the
Manager considers whether to purchase or sell securities for a Series only to
the extent that the Manager will consider the impact of transaction costs on a
Series' tracking error. Changes in the securities comprising a Series' index
will tend to increase that Series' portfolio turnover rate, as the Manager
restructures the Series' holdings to reflect the changes in the index. The
portfolio turnover rate is, in summary, the percentage computed by dividing the
lesser of a Series' purchases or sales of securities by the average net asset
value of the Series. High portfolio turnover involves correspondingly greater
brokerage commissions for a Series investing in equity securities and other
transaction costs which are borne directly by a Series. A high portfolio
turnover rate may also result in the realization of taxable capital gains,
including short-term capital gains taxable at ordinary income rates.
Item 18. Capital Stock and Other Securities.
Under the Declaration of Trust that establishes the Trust, a Delaware business
trust, the Trustees are authorized to issue beneficial interests in each Series
of the Trust. Investors are entitled to participate, in proportion to their
investment, in distributions of taxable income, loss, gain and deduction with
respect to the Series in which they have invested. Upon liquidation or
dissolution of a Series, investors are entitled to share in proportion to their
investment in such Series' net assets available for distribution to its
investors. Interests in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series generally may not be transferred.
Each investor is entitled to a vote in proportion to the amount of its interest
in a Series or in the Trust, as the case may be. Investors in the Trust, or in
any Series, do not have cumulative voting rights, and investors holding more
than 50% of the aggregate beneficial interests in the Trust may elect all of the
Trustees of the Trust if they choose to do so and in such event the other
investors in the Trust would not be able to elect any Trustee. The Trust is not
required and has no current intention to hold annual meetings of investors but
the Trust will hold special meetings of investors when in the judgment of the
Trustees it is necessary or desirable to submit matters for an investor vote.
36
<PAGE>
A Series shall be dissolved (i) by the affirmative vote of the Holders holding
not less than two-thirds of the beneficial interests in the Series, at any
meeting of such Holders or by an instrument in writing, without a meeting signed
by the Trustees and consented to by the Holders holding not less than two-thirds
of the beneficial interests in such Series, (ii) by the Trustees by written
notice of such dissolution to the Holders in such Series, (iii) upon the
complete withdrawal of a Holder from the Series, or (iv) upon the bankruptcy or
dissolution of a Holder in the Series; provided that in the case of (iii) or
(iv) the Holders in such Series may unanimously vote to continue the Series. The
Trust shall be dissolved upon the dissolution of the last remaining Series.
The Declaration of Trust provides that obligations of the Trust and the Series
are not binding upon the Trustees individually but only upon the property of the
Series and that the Trustees will not be liable for any action or failure to
act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust provides that
the Trust shall maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Series, their
Holders, Trustees, officers, employees and agents covering possible tort and
other liabilities.
The Trust currently consists of four Series. The Trust reserves the right to
create and issue interests in a number of additional Series. As indicated above,
Holders of each Series participate equally in the earnings and assets of the
particular Series. Holders of each Series are entitled to vote separately to
approve advisory agreements or changes in investment policy, but Holders of all
Series vote together in the election or selection of Trustees and accountants
for the Trust. Upon liquidation or dissolution of a Series, the Holders of such
Series are entitled to share in proportion to their investment in the net assets
of such Series available for distribution to Holders.
Item 19. Purchase, Redemption and Pricing of Securities.
Beneficial interests in the Trust are not offered to the public and are issued
solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Investments in the
Trust may be made only by a limited number of institutional investors, including
investment companies, insurance company separate accounts, common or commingled
trust funds, group trusts and certain other entities that are "accredited
investors" within the meaning of Regulation D under the 1933 Act. The number of
Holders of any Series shall be limited to fewer than 100. This Registration
Statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.
The net asset value of each Series is determined on each Pricing Day. During the
12 months following the date of this Registration Statement, the weekdays that
the New York Stock Exchange is expected to be closed are New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
37
<PAGE>
The net asset value of each Series is determined once each day as of 15 minutes
after the close of regular trading on the New York Stock Exchange (4:00 p.m. New
York time). For further information concerning the Series net asset value, see
Part A.
Assets of the Series are valued as follows:
Series securities listed on an exchange are valued on the basis of the last
quoted sale price on that exchange where such securities principally are traded
on the valuation date, prior to the close of trading on the New York Stock
Exchange, or, lacking any sales, on the basis of the last bid price on such
principal exchange prior to the close of trading on the New York Stock Exchange.
Over-the-counter securities for which market quotations are readily available
are valued on the basis of the last bid price on that date prior to the close of
trading on the New York Stock Exchange. Securities and other instruments for
which market quotations are not readily available are valued at fair value, as
determined in good faith and pursuant to procedures established by the Trustees.
If a fixed-income security is traded on an exchange and the exchange is the
broadest and most representative market, the security is valued at the last
quoted sale price on that exchange prior to the close of trading on the New York
Stock Exchange. However, fixed-income securities for which last quoted sale
prices are not readily available will be valued at fair market value, as
determined in good faith and pursuant to procedures established by the Trustees,
including but not limited to the use of such pricing services as the Trustees
may select.
Series securities which are primarily traded on foreign securities exchanges are
generally valued at the next preceding closing values of such securities on
their respective exchanges, except when an occurrence subsequent to the time a
value was so established is likely to have changed such value, in which case the
fair value of those securities is used. A security which is listed or traded on
more than one exchange is valued at the quotation on the exchange determined by
the Trustees to be the primary market for such security.
The calculation of net asset value of the EAFE Index Series does not take place
contemporaneously with the determination of the prices of the majority of such
Series's portfolio securities because trading in foreign exchanges may occur at
times other than times during which trading occurs on domestic securities
exchanges, and foreign exchange trading may not take place on all business days.
Therefore, the value of securities held by Merrill Lynch International Equity
Index Series may be affected by changes that will not be reflected in the Series
most recently determined net asset value.
For purposes of determining the net asset value of any Series which holds
non-dollar denominated portfolio instruments, all assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the bid quotations of such currencies against U.S. dollars as
last quoted by Reuters. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established in good
faith by the Trustees. Gains or losses between trade and settlement dates
resulting from changes in exchange rates between the U.S.
38
<PAGE>
dollar and a foreign currency are borne by the Series. To protect against such
losses, the Merrill Lynch International Equity Index Series may enter into
forward foreign currency exchange contracts, which will also have the effect of
limiting any such gains.
Withdrawals
An investor in the Trust may withdraw all or a portion of its investment in any
Series on any Pricing Day at the net asset value next determined after a
withdrawal request in proper form is furnished by the investor to the Series.
The proceeds of the withdrawal will be paid by the Series normally on the
business day on which the withdrawal is effected, but in any event within seven
days. Investments in any Series of the Trust may not be transferred.
Item 20. Tax Status.
The Trust is organized as a Delaware business trust. Under the anticipated
method of operation of the Series, each Series will be treated as a separate
partnership under the Internal Revenue Code of 1986 (the "Code") and thus, will
not be subject to income tax. As of the commencement of the Trust's operations,
the Series will have received rulings from the Internal Revenue Service
establishing their status as partnerships. Based upon the status of each Series
as a partnership, each investor in a Series will be taxable on its share (as
determined in accordance with the governing instruments of such Series) of such
Series's ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Code and regulations promulgated thereunder.
Each Series' taxable year-end will be December 31. Although, as described above,
the Series will not be subject to federal income tax, they will file appropriate
income tax returns. Each prospective Investing Fund which is a regulated
investment company ("RIC") will be required to agree, in its subscription
agreement, that, for any purposes of determining its required distribution under
Code Section 4982(a) it will account for its share of items of income, gain,
loss and deduction of a Series as they are taken into account by the Series.
All of the Series may invest in futures contracts or options. Certain options,
futures contracts and options on futures contracts are "section 1256 contracts."
Any gains or losses on section 1256 contracts are generally considered 60%
long-term and 40% short-term capital gains or losses ("60/40"). Also, section
1256 contracts held by a Series at the end of each taxable year are treated for
federal income tax purposes as being sold on such date for their fair market
value. The resultant paper gains or losses are also treated as 60/40 gains or
losses. When the section 1256 contract is subsequently disposed of, the actual
gain or loss will be adjusted by the amount of any preceding year-end gain or
loss.
Foreign currency gains or losses on non-U.S. dollar denominated bonds and other
similar debt instruments and on any non-U.S. dollar denominated futures
contracts, options and forward contracts that are not section 1256 contracts
generally will be treated as ordinary income or loss.
39
<PAGE>
Certain hedging transactions undertaken by a Series may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Series. In addition, losses realized by the
Series on positions that are part of a straddle may be deferred, rather than
being taken into account in calculating taxable income for the taxable year in
which such losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of hedging
transactions to the Series are not entirely clear. The Series may make one or
more of the elections available under the Code which are applicable to
straddles. If the Series makes any of the elections, the amount, character and
timing of the recognition of gains or losses from the affected straddle
positions will be determined under rules that vary according to the elections
made. The rules applicable under certain of the elections operate to accelerate
the recognition of gains or losses from the affected straddle positions.
Additionally, the conversion transaction rules may apply to certain transactions
(including straddles) to change the character of capital gains to ordinary
income.
The Series may be subject to a tax on dividend or interest income received from
securities of a non-U.S. issuer withheld by a foreign country at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Series to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of each Series' assets to be invested within various
countries is not known.
The Series may make investments that produce income that is not matched by a
corresponding cash distribution to the Series, such as investments in
obligations having original issue discount or market discount (if a Series
elects to accrue the market discount on a current basis with respect to such
instruments). Because such income may not be matched by a corresponding cash
distribution to such Series, the Series may be required to borrow money or
dispose of other securities to be able to make distributions to investors.
Each Series' taxable income will in most cases be determined on the basis of
reports made to such Series by the issuers of the securities in which such
Series invests. The tax treatment of certain securities in which a Series may
invest is not free from doubt and it is possible that an Internal Revenue
Service examination of the issuers of such securities or of such Series could
result in adjustments to the income of the Series.
Under the Trust, each Series is to be managed in compliance with the provisions
of the Code applicable to RICs as though such requirements were applied at the
Series level. Thus, consistent with its investment objectives, each Series will
meet the income and diversification of assets tests of the Code applicable to
RICs. As of the commencement of the Trust's operations, the Series will have
received rulings from the Internal Revenue Service that Holders of interests in
the Series that are RICs will be treated as owners of their proportionate shares
of the Series' assets and income for purposes of the Code's requirements
applicable thereto.
Item 21. Underwriters.
40
<PAGE>
The exclusive placement agent for each Series of the Trust is Merrill Lynch
Funds Distributors, Inc., which receives no compensation for serving in this
capacity. Investment companies, common and commingled trust funds and similar
organizations and entities may continuously invest in the Series.
Item 22. Calculations of Performance Data.
Beneficial interests in the Trust are not offered to the public and are issued
solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Accordingly, the
Trust will not advertise the Series' performance. However, certain of the
Trust's Holders may from time to time advertise their performance, which will be
based upon the Trust's performance.
Total return figures are based on historical performance and are not intended to
indicate future performance. Average annual total return is determined in
accordance with a formula specified by the Securities and Exchange Commission.
Average annual total return quotations for the specified periods are computed by
finding the average annual compounded rates of return (based on net investment
income and any realized and unrealized capital gains or losses on portfolio
investments over such periods) that would equate the initial amount invested to
the redeemable value of such investment at the end of each period. Average
annual total return is computed assuming all dividends and distributions are
reinvested and taking into account all applicable recurring and nonrecurring
expenses.
Annual, average annual and annualized total return and aggregate total return
performance data, both as a percentage and as a dollar amount, are based on a
hypothetical $1,000 investment and computed as described above, except that as
required by the periods of the quotations, actual annual, annualized or
aggregate data, rather than average annual data, may be quoted. Actual annual or
annualized total return data generally will be lower than average annual total
return data since the average rates of return reflect compounding of return;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time.
Yield quotations will be computed based on a 30-day period by dividing (a) the
net income based on the yield of each security earned during the period by (b)
the average number of shares outstanding during the period that were entitled to
receive dividends multiplied by the maximum offering price per share on the last
day of the period.
Item 23. Financial Statements.
[To follow by amendment.]
41
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Included in Part A:
None.
(2) Included in Part B:
None. [To follow by amendment.]
(3) Included in Part C:
None.
(b) Exhibits:
Exhibit
Number Description
------ -----------
1(a). Declaration of Trust of Registrant
1(b) Certificate of Trust
2. By-Laws of Registrant
3. Not applicable
4. Instrument Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.
5 Management Agreement between Registrant and Merrill Lynch
Asset Management, L.P.*
6. Not applicable
7. Not applicable
8. Custodian Agreement*
9(a) Transfer Agency Agreement*
10. Not applicable
42
<PAGE>
Exhibit
Number Description
------ -----------
11. Not applicable
12. Not applicable
13. Copies of subscription agreements from initial investors.*
14. Not applicable
15. Not applicable
16. Not applicable
17. Not applicable
18. Not applicable
- ----------
* To be supplied in an amendment to this Registration Statement.
Item 25. Persons Controlled By or Under Common Control with Registrant.
As of the date of this Registration Statement, there were no Holders of
interests in any of the Series of the Trust.
Item 26. Number of Holders of Securities.
None.
Item 27. Indemnification
As permitted by Section 17(h) and (i) of the Investment Company Act
of 1940, as amended (the "1940 Act"), and pursuant to Sections 8.2, 8.3
and 8.4, of Article VIII of the Registrant's Declaration of Trust (Exhibit
1 to this Registrant Statement), Trustees officers, employees and agents
of the Trust will be indemnified to the maximum extent permitted by
Delaware law and the 1940 Act.
Article VIII, Section 8.2 provides, inter alia, that no Trustee,
officer, employee or agent of the Registrant shall be liable to the
Registrant, its holders, or to any other Trustee, officer, employee or
agent for any action or omission except for his own bad faith, wilful
misfeasance, gross negligence or reckless disregard of his duties.
Article VIII, Section 8.3 of the Registrant's Declaration of Trust
provides:
43
<PAGE>
Section 8.3. Indemnification. The Trust shall indemnify each
of its Trustees, officers, employees, and agents (including persons
who serve at its request as directors, officers or trustees of
another organization in which it has any interest, as a shareholder,
creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise,
as fines and penalties, and as counsel fees) reasonably incurred by
him in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, in which he may
be involved or with which he may be threatened, while in office or
thereafter, by reason of his being or having been such a Trustee,
officer, employee or agent, except with respect to any matter as to
which he shall have been adjudicated to have acted in bad faith,
willful misfeasance, gross negligence or reckless disregard of his
duties, such liabilities and expenses being liabilities belonging to
the Series out of which such claim for indemnification arises;
provided, however, that as to any matter disposed of by a compromise
payment by such Person, pursuant to a consent decree or otherwise,
no indemnification either for said payment or for any other expenses
shall be provided unless there has been a determination that such
Person did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the
settlement or other disposition or, in the absence of a judicial
determination, by a reasonable determination, based upon a review of
readily available facts (as opposed to a full trial -type inquiry),
that he did not engage in such conduct, which determination shall be
made by a majority of a quorum of Trustees who are neither
interested persons of the Registrant (within the meaning of the 1940
Act) nor parties to the action, suit or proceeding, or by written
opinion from independent legal counsel approved by the Trustees. The
rights accruing to any Person under these provisions shall not
exclude any other right to which he may be lawfully entitled;
provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or to which he may be otherwise
entitled except out of the Trust Property. The Trustees may make
advance payments in connection with indemnification under this
Section 8.3; Provided that any advance payment of expenses by the
Trust to any Trustee, officer, employee or agent shall be made only
upon the undertaking by such Trustee, officer, employee or agent to
repay the advance unless it is ultimately determined that he is
entitled to indemnification as above provided, and only if one of
the following conditions is met:
(a) the Trustee, officer, employee or agent to be indemnified
provided a security for an undertaking; or
44
<PAGE>
(b) the Trust shall be insured against losses arising by reason of
any lawful advances; or
(c) there is a determination, based on a review of readily
available facts, that there is reason to believe that the
Trustee, officer, employee or agent to be indemnified
ultimately will be entitled to indemnification, which
determination shall be made by:
(i) a majority of a quorum of Trustees who are neither
Interested Persons of the Trust nor parties to the
Proceedings; or
(ii) an independent legal counsel in a written opinion.
Article VIII, Section 8.4 of the Registrants Declaration of Trust
further provides:
Section 8.4. No Protection Against Certain 1940 Act
Liabilities. Nothing contained in Sections 8.1, 8.2 or 8.3 hereof
shall protect any Trustee or officer of the Trust from any liability
to the Trust or its Holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office. Nothing contained in Sections 8.1, 8.2 or 8.3 hereof or in
any agreement of the character described in Section 4.1 or 4.2
hereof shall protect any Investment Manager or Asset Manager to the
Trust or any Series against any liability to the Trust or any Series
to which he would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of
his or its duties to the Trust or Series, or by reason of his or its
reckless disregard to his or its obligations and duties under the
agreement pursuant to which he serves as Investment Manager or Asset
Manager to the Trust or any Series.
As permitted by Article VIII, Section 8.7, the Registrant will
insure its Trustees and officers against certain liabilities, and certain
costs of defending claims against such Trustees and officers, to the
extent such Trustees and officers are not found to have committed conduct
constituting conflict of interest, intentional non-compliance with
statutes or regulations or dishonest, fraudulent or criminal acts or
omissions. The Registrant will purchase an insurance policy to cover such
indemnification obligation. The insurance policy also will insure the
Registrant against the cost of indemnification payments to Trustees and
officers under certain circumstances. Insurance will not be purchased that
protects, or purports to protect, any Trustee or officer from liability to
which he would
45
<PAGE>
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty.
The Registrant hereby undertakes that it will apply the
indemnification provisions of its Declaration of Trust and Bylaws in a
manner consistent with Release No. 11330 of the Securities and Exchange
Commission under the 1940 Act so long as the interpretation of Section
17(h) and 17(i) of such Act remain in effect and are consistently applied.
Item 28. Business and Other Connections of Investment Advisers.
Merrill Lynch Asset Management, L.P. (the "Manager" or "MLAM") also
acts as investment adviser for the following open-end 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 Developing
Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund
For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill
Lynch Global Fund for Investment and Retirement, Merrill Lynch Global
Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch
Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for Investment
and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Institutional Intermediate 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.A. Government Reserves,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income Fund,
Inc. and Merrill Lynch Variable Series Funds, Inc.; and the following
closed-end investment companies: Convertible Holdings, Inc., Merrill Lynch
High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating
Rate Fund, Inc. Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM,
acts as the investment adviser for the following open-end 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 Federal Securities Trust, Merrill Lynch Funds
for Institutions Series, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill
46
<PAGE>
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., Emerging Tigers Fund, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured
Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest New York Insured 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 Insured Fund II, 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 New York
Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings,
Inc., and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Institutional Intermediate
Fund is One Financial Center, 15th Floor, Boston, Massachusetts
02111-2646. The address of the Manager, FAM, Princeton Services, Inc.
("Princeton Services") and Princeton Administrators, L.P. ("Princeton
Administrators") is also P.O. Box 9011, Princeton, New Jersey 08543-9011.
The address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box
9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch &
Co., Inc. ("ML&Co.") is World Financial Center, North Tower, 250 Vesey
Street, New York, New York 10281. The address of Merrill Lynch Financial
Data Services ("FDS") is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
February 1, 1993 for his own account or in the capacity of director, officer,
partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard is
Treasurer and Mr. Glenn is Executive Vice President of substantially all of the
investment
47
<PAGE>
companies described in the first paragraph of Item 28, and Messrs. Giordano,
Harvey, Hewitt, Kirstein and Monagle are directors, trustees or officers of one
or more of such companies.
================================================================================
Other Substantial Business,
Name Positions with Manager Profession, Vocation or
---- ---------------------- -----------------------
Employment
----------
- --------------------------------------------------------------------------------
ML&Co.................. Limited Partner Financial Services Holding
Company; Limited Partner of FAM
- --------------------------------------------------------------------------------
Princeton Services..... General Partner General Partner of FAM
- --------------------------------------------------------------------------------
Arthur Zeikel.......... President President of FAM; President and
Director of Princeton
Services; Director of MLFD;
Executive Vice President of
ML & Co.
- --------------------------------------------------------------------------------
Terry K. Glenn......... Executive Vice Executive Vice President of FAM;
President Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
President of Princeton
Administrators; Director of FDS
- --------------------------------------------------------------------------------
Vincent R. Giordano ... Senior Vice Senior Vice President of FAM;
President Senior Vice President of Princeton
Services
- --------------------------------------------------------------------------------
Elizabeth Griffin ..... Senior Vice Senior Vice President of FAM
President
- --------------------------------------------------------------------------------
Norman R. Harvey ...... Senior Vice Senior Vice President of FAM;
President Senior Vice President of Princeton
Services
- --------------------------------------------------------------------------------
Michael J. Hennewinkel Senior Vice Senior Vice President of FAM;
President Senior Vice President of Princeton
Services
- --------------------------------------------------------------------------------
N. John Hewitt........ Senior Vice Senior Vice President of FAM;
President Senior Vice President of Princeton
Services
- --------------------------------------------------------------------------------
48
<PAGE>
================================================================================
Other Substantial Business,
Name Positions with Manager Profession, Vocation or
---- ---------------------- -----------------------
Employment
----------
- --------------------------------------------------------------------------------
Philip L. Kirstein Senior Vice President, Senior Vice President, General
General Counsel and Counsel and Secretary of FAM;
Secretary Senior Vice President, General
Counsel, Director and Secretary of
Princeton Services; Director of
MLFD
- --------------------------------------------------------------------------------
Ronald M. Kloss .... Senior Vice President Senior Vice President and
and Controller Controller of FAM; Senior Vice
President and Controller of
Princeton Services
- --------------------------------------------------------------------------------
Stephen M.M. Miller Senior Vice President Executive Vice President of
Princeton Administrators; Senior
Vice President of Princeton
Services
- --------------------------------------------------------------------------------
Michael J. Quinn.... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Managing Director and
First Vice President of Merrill,
Lynch, Pierce, Fenner & Smith
Incorporated from 1989 to 1995.
- --------------------------------------------------------------------------------
Richard L. Reller... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- --------------------------------------------------------------------------------
Joseph T. Monagle... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- --------------------------------------------------------------------------------
Gerald M. Richard .. Senior Vice President Senior Vice President and
and Treasurer Treasurer of FAM; Senior Vice
President and Treasurer of
Princeton Services; Vice President
and Treasurer of MLFD
- --------------------------------------------------------------------------------
Ronald L. Welburn .. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- --------------------------------------------------------------------------------
49
<PAGE>
================================================================================
Other Substantial Business,
Name Positions with Manager Profession, Vocation or
---- ---------------------- -----------------------
Employment
----------
- --------------------------------------------------------------------------------
Anthony Wiseman ... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
================================================================================
Item 29. Principal Underwriters.
(a) MLFD acts as the placement agent for the Registrant and as principal
underwriter for each of the open-end investment companies referred
to in the first paragraph of Item 28 except CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc. and The Municipal Fund
Accumulation Program, Inc., and also acts as principal underwriter
for the following closed-end funds: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Senior Floating Rate Fund,
Inc. and Merrill Lynch Municipal Strategy Fund, Inc.
(b) Set forth below is information concerning each director and officer
of MLFD. 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, Boston, Massachusetts 02111-2646.
================================================================================
(1) (2) (3)
Positions and Offices Positions and Offices
Name with the Distributor with Registrant
---- -------------------- ---------------
- --------------------------------------------------------------------------------
Executive Vice
Terry K. Glenn........... President and Director President
- --------------------------------------------------------------------------------
Arthur Zeikel ........... Director President and Director
- --------------------------------------------------------------------------------
Philip L. Kirstein ...... Director None
- --------------------------------------------------------------------------------
William E. Aldrich ...... Senior Vice President None
- --------------------------------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
Robert W. Crook ......... Senior Vice President None
- --------------------------------------------------------------------------------
Kevin P. Boman .......... Vice President None
- --------------------------------------------------------------------------------
Michael J. Brady ........ Vice President None
- --------------------------------------------------------------------------------
William M. Breen ........ Vice President None
- --------------------------------------------------------------------------------
Mark A. DeSario......... Vice President None
- --------------------------------------------------------------------------------
James T. Fatseas ........ Vice President None
- --------------------------------------------------------------------------------
Debra W. Landsman-Yaros.. Vice President None
- --------------------------------------------------------------------------------
Michelle T. Lau ......... Vice President None
- --------------------------------------------------------------------------------
Gerald M. Richard........ Vice President and Treasurer Treasurer
- --------------------------------------------------------------------------------
Salvatore Venezia........ Vice President None
- --------------------------------------------------------------------------------
William Wasel............ Vice President None
- --------------------------------------------------------------------------------
Robert Harris............ Secretary None
================================================================================
Item 30. 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 the Registrant, 800
Scudders Mill Road, Plainsboro, New Jersey 08536, and its Transfer Agent,
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Item 31. Management Services.
Other than as set forth under the caption "Management of the" in Part A of
the Registration Statement and under "Management of the Fund" in Part B of
the Registration Statement, the Registrant is not party to any
Management-related service contract.
Item 32. Undertakings
None.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
sole Trustee of the Registrant has caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in in the
Township of Plainsboro and State of New Jersey on the 24th day of October, 1996.
MERRILL LYNCH INDEX TRUST
By: /s/ Mark B. Goldfus, Trustee
--------------------------------
Mark B. Goldfus, Trustee
52
<PAGE>
Exhibit
Number Description
- ------ -----------
1(a). Declaration of Trust of
Registrant dated August 28,
1996
1(b). Certificate of Trust of Registrant
2. By-laws of Registrant
53
<PAGE>
MERRILL LYNCH INDEX TRUST
DECLARATION OF TRUST
Dated: August 28, 1996
<PAGE>
TABLE OF CONTENTS PAGE
ARTICLE I
NAME AND DEFINITIONS...................................................1
Section 1.1. Name.....................................................1
Section 1.2. Definitions..............................................2
ARTICLE II
TRUSTEES...............................................................4
Section 2.1. Number of Trustees and Qualification.....................4
Section 2.2. Term and Election........................................4
Section 2.3. Resignation and Removal..................................5
Section 2.4. Vacancies................................................5
Section 2.5. Meetings.................................................5
Section 2.6. Officers; Chairman.......................................6
Section 2.7. By-Laws..................................................6
ARTICLE III
POWERS OF TRUSTEES.....................................................6
Section 3.1. General..................................................6
Section 3.2. Activities and Investments...............................7
Section 3.3. Legal Title..............................................8
Section 3.4. Sale of Interests; Reclassification......................9
Section 3.5. Borrowing Money; Pledging Trust Assets; Lending Property.9
Section 3.6. Delegation; Committees...................................9
Section 3.7. Collection and Payment...................................9
Section 3.8. Expenses.................................................9
Section 3.9. Common Items............................................10
Section 3.10. Litigation..............................................10
Section 3.11. Tax Matters.............................................10
Section 3.12. Miscellaneous Powers....................................11
Section 3.13. Manner of Acting........................................11
ARTICLE IV
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
AND PLACEMENT AGENT ARRANGEMENTS; CUSTODIAN...........................11
Section 4.1. Investment Advisory and Other Arrangements..............11
Section 4.2. Parties to Contract.....................................12
Section 4.3. Custodian...............................................12
ARTICLE V
INTERESTS IN THE TRUST................................................12
Section 5.1. Interests...............................................12
Section 5.2. Establishment and Designation of Series.................13
ii
<PAGE>
Section 5.3. Rights of Holders.......................................14
Section 5.4. Purchase of or Increase in Interests....................14
Section 5.5. Register of Interests...................................15
Section 5.6. Non-Transferability.....................................15
Section 5.7. Notices.................................................15
Section 5.8. Limitation on Number of Holders.........................15
Section 5.9. No Liability of Holders.................................15
ARTICLE VI
DECREASES AND WITHDRAWALS.............................................15
Section 6.1. Decreases and Withdrawals...............................15
ARTICLE VII
DETERMINATION OF BOOK CAPITAL ACCOUNT BALANCES,
NET INCOME AND DISTRIBUTIONS..........................................16
Section 7.1. Book Capital Account Balances...........................16
Section 7.2. Allocations and Distributions to Holders................16
Section 7.3. Power to Modify Foregoing Procedures....................16
ARTICLE VIII
LIABILITY FOR TRUST OBLIGATIONS.......................................17
Section 8.1. Liabilities of Series...................................17
Section 8.2. No Personal Liability of Trustees, etc..................17
Section 8.3. Indemnification.........................................17
Section 8.4. No Protection Against Certain 1940 Act Liabilities......18
Section 8.5. No Bond Required of Trustees............................19
Section 8.6. No Duty of Investigation; Notice in
Trust Instruments, etc. .............................19
Section 8.7. Insurance...............................................19
Section 8.8. Reliance on Experts, etc................................19
ARTICLE IX
HOLDERS...............................................................20
Section 9.1. Meetings of Holders.....................................20
Section 9.2. Notice of Meetings......................................20
Section 9.3. Record Date for Meetings................................20
Section 9.4. Proxies, etc............................................20
Section 9.5. Reports.................................................21
Section 9.6. Inspection of Records...................................21
Section 9.7. Holder Action by Written Consent........................21
ARTICLE X
DURATION; TERMINATION OF
TRUST OR SERIES; AMENDMENT; MERGERS; ETC..............................21
Section 10.1. Duration................................................21
iii
<PAGE>
Section 10.2. Dissolution of Series or Trust..........................21
Section 10.3. Termination of Trust or Series..........................22
Section 10.4. Amendment Procedure.....................................23
Section 10.5. Merger, Consolidation and Sale of Assets................23
ARTICLE XI
MISCELLANEOUS.........................................................24
Section 11.1. Certificate of Trust; Registered Agent..................24
Section 11.2. Governing Law...........................................24
Section 11.3. Counterparts............................................24
Section 11.4. Reliance by Third Parties...............................24
Section 11.5. Provisions in Conflict with Law or Regulations..........25
Section 11.6. Trust Only..............................................25
SIGNATURE PAGE..............................................................26
iv
<PAGE>
DECLARATION OF TRUST
OF
MERRILL LYNCH INDEX TRUST
Dated: August 28, 1996
DECLARATION OF TRUST of Merrill Lynch Index Trust made the 28th day of
August, 1996, by Mark B. Goldfus, as trustee (such individual, so long as he
shall continue in office in accordance with the provisions of this Declaration
of Trust, and all other Persons who may hereafter be duly elected or appointed,
qualified and serving as trustees in accordance with the provisions hereof,
being hereinafter called "Trustees").
W I T N E S S E T H:
WHEREAS, the Trustees desire to establish a business trust under the
Delaware Business Trust Act (the "Act") consisting of one or more series or
portfolios for the investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees hereby declare that all money and property
hereafter contributed to the Series established hereby shall be held and managed
in trust for the benefit of the holders of beneficial interests issued hereunder
with respect to each respective Series from time to time and subject to the
provisions hereof, to wit:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust established hereby (the "Trust")
is "Merrill Lynch Index Trust," and, insofar as may be practicable, the Trust
shall conduct its activities, execute all documents and sue or be sued under
that name, which name (and the word "Trust" wherever herein used) shall refer to
the Trust as a separate legal entity, and shall not refer to the Trustees,
officers, agents, employees or Holders. If the Trustees determine that the
Trust's use of such name is not advisable, the Trustees may adopt such other
name for the Trust as they deem proper and the Trust may hold its property and
conduct its activities under such other name. Any name change shall become
effective upon the execution by a majority of the then Trustees of an instrument
setting forth the new name and the filing of a Certificate of Amendment under
the Act. Any such instrument shall have the status of an amendment to this
Declaration.
<PAGE>
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the respective meanings assigned to them below:
(a) "Administrator" shall mean any party furnishing services to the
Trust and the Series pursuant to any administrative services contract
described in Section 4.1.
(b) "Act" shall mean the Delaware Business Trust Act, as the same
may be amended from time to time.
(c) "Affiliated Person" has the meaning assigned to it in Section
2(a)(3) of the 1940 Act.
(d) "Assets belonging to" a Series shall have the meaning ascribed
in Section 5.2(a).
(e) "Book Capital Account" shall mean, for any Holder at any time,
the Book Capital Account of the Holder at such time with respect to such
Holder's interest in the Trust Property of any Series, determined in
accordance with generally accepted accounting principles and the
provisions of the 1940 Act, and each Holder shall have a separate Book
Capital Account for each Series in which it holds an Interest.
(f) "By-Laws" means the By-Laws referred to in Section 2.7 hereof,
as amended and in effect from time to time.
(g) "Code" shall mean the Internal Revenue Code of 1986 and the
rules and regulations thereunder, each as amended from time to time.
(h) "Commission" means the Securities and Exchange Commission.
(i) "Custodian" means the party, other than the Trust or the Series,
to the agreement described in Section 4.3 hereof.
(j) "Declaration" means this Declaration of Trust, as amended and in
effect from time to time. Reference in this Declaration of Trust to
"Declaration," "hereof," "herein," "hereby" and "hereunder" shall be
deemed to refer to this Declaration rather than the article or section in
which such words appear.
(k) "Fundamental Policies" means the investment policies and
restrictions applicable to any Series which are set forth and designated
as fundamental policies in the Registration Statement.
(l) "Holders" shall mean as of any particular time all holders of
record of Interests in the Trust Property of any Series at such time.
2
<PAGE>
(m) "Institutional Investor(s)" shall mean any registered investment
company (including a unit investment trust), insurance company separate
account, common or commingled trust fund, group trust or similar
organization or entity that is an "accredited investor" within the meaning
of Regulation D under the Securities Act of 1933, and shall not include
any individual, S corporation, partnership, or grantor trust beneficially
owned by any individual, S corporation or partnership.
(n) "Interested Person" has the meaning ascribed to it in Section
2(a)(19) of the 1940 Act.
(o) "Interest(s)" shall mean the interest of a Holder in the Trust
Property of any Series, including all rights, powers and privileges
accorded to Holders in this Declaration, which interest may be expressed
as a percentage, determined by calculating, as the Trustees shall from
time to time determine, the ratio of each Holder's Book Capital Account
balance in the Trust Property of any Series to the total of all Holders'
Book Capital Account balances in the Trust Property of any such Series.
Reference herein to a specific percentage in, or fraction of, Interests of
the Holders means Holders whose combined Book Capital Accounts represent
such specified percentage or fraction of the Book Capital Accounts of all
Holders of the Trust Property of any Series or of the Trust as a whole (as
the context may require).
(p) "Investment Adviser" means the party, other than the Trust or
the Series, to any investment advisory contract described in Section 4.1
hereof.
(q) "Liabilities belonging to" a Series shall have the meaning
ascribed in Section 5.2(b).
(r) "1940 Act" means the provisions of the Investment Company Act of
1940 and the rules and regulations thereunder as amended from time to time
and any order or orders thereunder which may from time to time be
applicable to the Trust.
(s) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
(t) "Registration Statement" means the Trust's currently effective
Registration Statement under the 1940 Act, as it may be amended or
supplemented from time to time.
(u) "Series" refers to the Series of the Trust established and
designated under or in accordance with Sections 3804 and 3806 of the Act
and the provisions of Article V hereof, each of which shall be accounted
for and maintained as a separate series or portfolio of the Trust.
3
<PAGE>
(v) "Trust" means the master trust established hereby by whatever
name it may then be known, inclusive of each and every Series established
hereunder.
(w) "Trust Property" means any and all assets, real or personal,
tangible or intangible, which is owned or held by the Trust, each and
every asset of which shall be allocated and belong to a specific Series to
the exclusion of all other Series.
(x) "Trustees" means the individuals who have signed this
Declaration, so long as they shall continue in office in accordance with
the provisions hereof, and all other Persons who may from time to time be
duly elected or appointed, qualified and serving as Trustees in accordance
with the provisions hereof, and reference herein to a Trustee or the
Trustees shall refer to such individual or Persons in their capacity as
trustees hereunder.
(y) The use herein of the masculine or feminine gender or the
neutral shall be construed to refer to the other gender or the neutral as
well, and the use herein of the singular shall be construed to include the
plural and the plural to include the singular, as the context may require.
ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees and Qualification. The number of Trustees
shall initially be one (1) and shall thereafter be such number as shall be fixed
from time to time by a written instrument signed by a majority of the Trustees
then in office, provided, however, that the number of Trustees shall, subsequent
to any sale of Interests other than sales made solely for the purposes of
meeting any applicable seed money requirement under the 1940 Act, in no event be
less than three (3) or more than fifteen (15). Any vacancy created by an
increase in Trustees may be filled by the appointment of any Person having the
qualifications described in this Article made by a written instrument signed by
a majority of the Trustees then in office. Any such appointment shall not become
effective, however, until the Person named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office. Whenever
a vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section and Section 2.4 hereof, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this
Declaration.
Section 2.2. Term and Election. Each Trustee named herein, or elected or
appointed prior to the first meeting of the Holders, shall (except in the event
of resignations or removals or vacancies pursuant to Section 2.3 or 2.4 hereof)
hold office until his successor has been elected at such meeting and has
qualified to serve as Trustee, as required under the 1940 Act. Beginning with
the Trustees elected at the first meeting of Holders, each Trustee shall hold
office during the
4
<PAGE>
lifetime of this Trust and until its termination as hereinafter provided unless
such Trustee resigns or is removed as provided in Section 2.3 below.
Section 2.3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees, and such resignation shall be
effective upon such delivery or at any later date according to the terms of the
instrument. Any of the Trustees may be removed by the action of two-thirds of
the remaining Trustees; provided, that if the removal of one or more Trustees
would have the effect of reducing the number of remaining Trustees below the
minimum number prescribed by Section 2.1 hereof, then subject to Section 16(a)
of the 1940 Act, at the time of the removal of such Trustee or Trustees, the
remaining Trustees shall elect or appoint a number of additional Trustees at
least sufficient to increase the number of Trustees holding office to the
minimum number prescribed by Section 2.1 hereof. Upon the resignation or removal
of a Trustee, or his otherwise ceasing to be a Trustee due to death or legal
disability, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property held in his name. Upon the death or legal
disability of any Trustee, his legal representative shall execute and deliver on
his behalf such documents as the remaining Trustees shall require as provided in
the preceding sentence. However, the execution and delivery of such documents by
a former Trustee or his legal representative shall not be requisite to the
vesting of title to the Trust Property in the remaining Trustees as provided in
Section 3.3 hereof.
Section 2.4. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of such Trustee's death, resignation,
removal, bankruptcy, adjudicated incompetence or other legal disability to
perform the duties of the office of Trustee. No such vacancy shall operate to
annul this Declaration or to revoke any existing obligations created pursuant to
the terms of this Declaration. In the case of a vacancy, the Holders of at least
a majority of the Interests entitled to vote, acting at any meeting of the
Holders held in accordance with Section 9.1 hereof, or, to the extent permitted
by the 1940 Act, a majority vote of the Trustees continuing in office acting by
written instrument or instruments, may fill such vacancy, and any Trustee so
elected by the Trustees or the Holders shall hold office as provided in this
Declaration.
Section 2.5. Meetings. Regular meetings of the Trustees may be held on
such notice at such place or places and times as may be fixed by the By-Laws or
by resolution of the Trustees. Special Meetings of the Trustees shall be held
upon the call of the Chairman, if any, the president, the secretary or any two
Trustees, by oral or telegraphic or written notice duly served on or sent,
mailed or sent by telecopy to each Trustee not less than one day before the
meeting. No notice need be given to any Trustee who attends in person or to any
Trustee who, in writing signed and filed with the records of the meeting either
before or after the holding thereof, waives notice. Notice or waiver of notice
need not state the purpose or purposes of the meeting. The Trustees may act with
or without a meeting, subject to the requirements of the 1940 Act. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
provided otherwise in this Declaration, any action of the Trustees may be taken
at a meeting by vote of a majority of the
5
<PAGE>
Trustees present (a quorum being present) or without a meeting by written
consent of a majority of the Trustees.
Any committee of the Trustees, including an executive committee, if any,
may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the Trustees,
Trustees who are Interested Persons of the Trust within the meaning of Section
1.2 hereof or otherwise interested in any action to be taken may be counted for
quorum purposes under this Section 2.5 and shall be entitled to vote to the
extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting pursuant to such
communications system shall constitute presence in person at such meeting.
Section 2.6. Officers; Chairman. The Trustees shall, from time to time,
elect a President, a Secretary and a Treasurer. The Trustees may elect or
appoint, from time to time, a Chairman who shall preside at all meetings of the
Trustees and carry out such other duties as the Trustees shall designate. The
Trustees may elect or appoint or authorize the President to appoint such other
officers or agents with such powers as the Trustees may deem to be advisable.
The President, the Secretary and the Treasurer may, but need not, be Trustees,
and shall be agents of the Trust.
Section 2.7. By-Laws. The Trustees may adopt By-Laws not inconsistent with
this Declaration for the conduct of activities of the Trust and may amend or
repeal such By-Laws to the extent such power is not reserved to the Holders by
express provision of such By-Laws. This Declaration and the By-Laws shall
together constitute the "governing instrument" of the Trust within the meaning
of Section 3801(f) of the Act.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the activities of the Trust and each
Series to the same extent as if the Trustees were the sole owners of the Trust
Property in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
activities of the Trust and any Series and to carry on their operations and
maintain offices both within and without the State of Delaware, in any and all
states of the United States of America,
6
<PAGE>
and in the District of Columbia, in any foreign country, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
and each Series although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust or any Series made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees. The Trustees will not be required to obtain any court order to deal
with Trust Property.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2. Activities and Investments. The Trustees shall have the power
with respect to the Trust and each Series:
(a) to conduct, operate and carry on the activities of an investment
company, and, in connection therewith:
(i) to subscribe for, purchase or otherwise acquire and invest
and reinvest in, to hold for investment or otherwise, to sell,
transfer, assign, negotiate, exchange, lend or otherwise dispose of,
and to turn to account or realize upon and generally deal in and
with, domestic or foreign securities (which term, "securities,"
shall include without limitation any and all bills, notes, bonds,
debentures or other obligations or evidences of indebtedness,
certificates of deposit, bankers acceptances, commercial paper,
repurchase agreements or other money market instruments; stocks,
shares or other equity ownership interests (including non-publicly
traded or illiquid securities and those securities the disposition
of which is restricted under the Federal securities laws);
convertible securities; mortgage-backed or other asset-backed
securities; and warrants, options or other instruments representing
rights to subscribe for, purchase, receive or otherwise acquire or
to sell, transfer, assign or otherwise dispose of, and scrip,
certificates, receipts or other instruments evidencing any ownership
rights or interests in, any of the foregoing; and "forward
commitment", "when issued" and "delayed delivery" contracts for
securities, issued, guaranteed or sponsored by any governments,
political subdivisions or governmental authorities, agencies or
instrumentalities, by any individuals, firms, companies,
corporations, syndicates, associations or trusts, or by any other
organizations or entities whatsoever, irrespective of their forms or
the names by which they may be described, whether or not they be
organized and operated for profit, and whether they be domestic or
foreign with respect to the State of Delaware or the United States
of America); and
7
<PAGE>
(ii) to acquire and become the owner of or interested in any
securities by delivering or issuing in exchange or payment therefor,
in any lawful manner, any of the Trust Property; and
(iii) to exercise while the owner of any securities or
interests therein any and all of the rights, powers and privileges
of ownership of such securities or interests, including without
limitation any and all voting rights and rights of assent, consent
or dissent pertaining thereto, and to do any and all acts and things
for the preservation, protection, improvement and enhancement in
value thereof; and
(iv) to purchase, sell and hold currencies and enter into
contracts for the future purchase or sale of currencies, including
but not limited to forward foreign currency exchange contracts; and
(v) to enter into futures and forward contracts, and to
purchase and write put and call options on futures contracts,
securities, currencies and securities indexes; and
(vi) to make loans to the extent provided in the Registration
Statement from time to time; and
(vii) to engage in such other activities as may be disclosed
in the Registration Statement from time to time; and
(b) to conduct, operate and carry on any other lawful activities
which the Trustees, in their sole and absolute discretion, consider to be
(i) incidental to the activities of the Trust and each Series as an
investment company, (ii) conducive to or expedient for the benefit or
protection of the Trust or any Series or the Holders, or (iii) calculated
in any other manner to promote the interests of the Trust or any Series or
the Holders.
The Trustees shall not be limited to investing in securities maturing before the
possible termination of the Trust or any Series, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
Notwithstanding anything to the contrary herein contained but consistent with
the applicable investment objectives, the Trust and each Series shall be managed
in compliance with the requirements of the Code applicable to regulated
investment companies as though such requirements were applied at the Series
level.
Section 3.3. Legal Title. Legal title to all the Trust Property shall be
vested in the Trust as a separate legal entity, except that the Trustees shall
have power to cause legal title to any Trust Property to be held by or in the
name of one or more of the Trustees or in the name of any Series of the Trust,
or in the name of any other Person as nominee, on such terms as the Trustees may
determine, provided, that the interest of the Trust or any Series therein is
appropriately protected. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the termination of the
8
<PAGE>
term of office of a Trustee as provided in Section 2.2 or 2.4 hereof, such
Trustee shall automatically cease to have any right, title or interest in any of
the Trust Property, and all right, title and interest of such Trustee in the
Trust Property shall vest automatically in the remaining Trustees. Such vesting
and cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered as provided in Section 2.3 hereof.
Section 3.4. Sale of Interests; Reclassification. Subject to more detailed
provisions set forth in Article V and the Trustees' duty of impartiality to the
Holders, the Trustees shall have the power to permit Persons to purchase
Interests and to add to or reduce, in whole or in part, their Interests in any
Series, provided that from and after the commencement of the private placement
of Interests, Interests shall be sold only to Institutional Investors, and the
original Holders shall withdraw their entire Interests from the Series. The
Trustees shall also have the power to acquire, hold, resell, dispose of,
transfer, classify, reclassify and otherwise deal in Interests of the Trust or
any Series. The Trustees may hold as treasury Interests, re-issue for such
consideration and on such terms as they determine, or cancel, in their
discretion from time to time, any Interests of any Series or class thereof
reacquired by the Trust.
Section 3.5. Borrowing Money; Pledging Trust Assets; Lending Property.
Subject to any applicable Fundamental Policies of the Trust or any Series or any
applicable provision of the By-Laws, the Trustees shall have power, on behalf of
the Trust or any Series, to borrow money or otherwise obtain credit and to
secure the same by mortgaging, pledging or otherwise subjecting as security any
of the Trust Property, to endorse, guarantee, or undertake the performance of
any obligation, contract or engagement of any other Person and to lend Trust
Property; provided that Trust Property belonging to a Series shall not be
pledged, encumbered or subject to liabilities belonging to any other Series.
Section 3.6. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust, each Series and the Trust Property, to delegate from time to time to such
committee or committees as they may from time to time appoint from among their
own number or to such officers, employees or agents of the Trust as they may
from time to time designate the doing of such things and the execution of such
instruments either in the name of the Trust or any Series or the names of the
Trustees or otherwise as the Trustees may deem expedient.
Section 3.7. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust or any Series; to pay all claims,
including taxes, against the Trust Property; to prosecute, defend, compromise or
abandon any claims relating to the Trust Property; to foreclose any security
interest securing any obligations by virtue of which any property is owed to the
Trust or any Series; and to enter into releases, agreements and other
instruments.
Section 3.8. Expenses. The Trustees shall have the power to incur and pay,
out of the income or the principal of the Trust Property of the Series, any
expenses which, in the opinion of the Trustees, are necessary or incidental to
carrying out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees;
9
<PAGE>
provided that no Series will be liable for the debts and obligations of any
other Series, and expenses, fees, charges, taxes, and liabilities incurred or
arising in connection with a particular Series, or in connection with the
management thereof, shall be paid out of the Trust Property belonging to that
Series and not out of the Trust Property belonging to any other Series. The
Trustees shall not be obligated to account to the Holders for the retention of
compensation, and each Holder agrees that compliance with the accounting
requirements of the 1940 Act and of this Declaration shall constitute
satisfactory accounting with respect to all acts of the Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees of the Trust
and may pay such compensation out of the Trust Property without reduction of the
Trustees' compensation.
Section 3.9. Common Items. All expenses and other items of the Trust which
are common to the Series shall be borne by or allocated to the Series
proportionately based upon the relative net asset values of each. Such common
items shall include, but not be limited to, Trustees' fees; 1940 Act
registration expenses; organizational expenses of the Trust, exclusive of
organizational expenses attributable to any specific Series; and accounting
expenses relating to the Trust which are not attributable to any specific
Series.
Section 3.10. Litigation. The Trustees shall have the power to engage in
and to prosecute, defend, compromise, abandon, or adjust, by arbitration or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust or any Series or the Trust Property, and, out of the Trust
Property, to pay or to satisfy any debts, claims or expenses incurred in
connection therewith, including those of litigation, and such power shall
include without limitation the power of the Trustees or any appropriate
committee thereof, in the exercise of their or its good faith business judgment,
consenting to dismiss any action, suit, proceeding, dispute, claim or demand,
brought by any Person, including, to the extent permitted by applicable law, a
Holder in such Holder's own name or in the name of the Trust or any Series,
whether or not the Trust, a Series or any of the Trustees may be named
individually therein or the subject matter arises by reason of business for or
on behalf of the Trust or any Series.
Section 3.11. Tax Matters. The Trustees shall have the exclusive power,
authority and responsibility with respect to the Trust and the Series regarding
(i) preparation and filing of tax returns; (ii) providing reports to the Holders
regarding tax information necessary to the filing of their respective tax
returns; (iii) making any and all available elections with respect to the tax
treatment of the Series and their investments; (iv) representing the Series
before the Internal Revenue Service and/or any state taxing authority and
exercising the powers and authorities of a tax matters partner under the Code
with respect to the Series' partnership tax returns; (v) exercising such
responsibility as may be imposed by law with respect to withholding from a
Holder's share of income or distributions; (vi) providing to the accountants of
the Series such instructions regarding allocations of realized income, gains and
losses as may be necessary or appropriate to assure compliance with applicable
provisions of the Code and Treasury Regulations; and (vii) any and all other tax
matters.
10
<PAGE>
Section 3.12. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the activities of the Trust or any Series and eliminate such
employees or contractual relationships as they consider appropriate; (b) enter
into joint ventures, partnerships and any other combinations or associations;
(c) remove Trustees or fill vacancies in or add to their number, subject to and
in accordance with Sections 2.3 and 2.4 hereof; elect and remove at will such
officers and appoint and terminate such agents or employees as they consider
appropriate; and appoint from their own number and terminate at will any one or
more committees which may exercise some or all of the power and authority of the
Trustees as the Trustees may determine; (d) purchase, and pay for out of Trust
Property, insurance policies insuring the Trust Property, and, to the extent
permitted by law and not inconsistent with any applicable provision of this
Declaration or the By-Laws, insuring the Investment Adviser, Administrator,
placement agent, Holders, Trustees, officers, employees, agents or independent
contractors of the Trust or any Series against all claims arising by reason of
holding any such position or by reason of any action taken or omitted to be
taken by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust or any Series would have the power to
indemnify such Person against such liability; (e) indemnify any person with whom
the Trust or any Series has dealings, including the Holders, Trustees, officers,
employees, agents, Investment Adviser, Administrator, placement agent and
independent contractors of the Trust or any Series, to such extent permitted by
law and not inconsistent with the applicable provisions of this Declaration; (f)
subject to applicable Fundamental Policies, guarantee indebtedness or
contractual obligations of others; (h) determine and change the fiscal year of
the Trust or any Series and the method by which its accounts shall be kept; and
(g) adopt a seal for the Trust or any Series, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust or
Series.
Section 3.13. Manner of Acting. Except as otherwise provided herein, in
the By-Laws, in the 1940 Act or in any other applicable provision of law, any
action to be taken by the Trustees may be taken in the manner set forth in
Section 2.5 hereof.
ARTICLE IV
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
AND PLACEMENT AGENT ARRANGEMENTS; CUSTODIAN
Section 4.1. Investment Advisory and Other Arrangements. The Trustees may
in their discretion, from time to time, cause the Series to separately enter
into investment advisory and administrative services contracts or placement
agent agreements whereby the other party to such contract or agreement shall
undertake to furnish to the Series specified therein such investment advisory,
administrative, placement agent and/or other services as the Trustees shall,
from time to time, consider desirable with respect to such Series and all upon
such terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any other provisions of this Declaration, the Trustees may
authorize any Investment Adviser (subject to such general or specific
instructions as the Trustees may, from time to time, adopt) to effect purchases,
sales, loans or exchanges of Trust Property on behalf of any Series or may
authorize any officer,
11
<PAGE>
employee or Trustee to effect such purchases, sales, loans or exchanges pursuant
to recommendations of any such Investment Adviser (and all without further
action by the Trustees). Any such purchase, sales, loans and exchanges shall be
deemed to have been authorized by all of the Trustees.
Section 4.2. Parties to Contract. Any contract of the character described
in Section 4.1 of this Article IV or in the By-Laws of the Trust may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract; and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust or any Series
under or by reason of said contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when entered into
was reasonable and fair and not inconsistent with the provisions of this Article
IV or the By-Laws. The same Person (including a firm, corporation, trust, or
association) may be the other party to contracts entered into pursuant to
Section 4.1 above or the By-Laws of the Trust, and any individual may be
financially interested or otherwise affiliated with Persons who are parties to
any or all of the contracts mentioned in this Section 4.2.
Section 4.3. Custodian. The Trustees may appoint one or more banks or
trust companies as custodian of the securities and cash belonging to the Series.
The agreement providing for such appointment shall contain such terms and
conditions as the Trustees in their discretion determine to be not inconsistent
with this Declaration, the applicable provisions of the 1940 Act and any
applicable provisions of the By-Laws of the Trust. One or more subcustodians may
be appointed in a manner not inconsistent with this Declaration, the applicable
provisions of the 1940 Act and any applicable provisions of the By-Laws of the
Trust.
ARTICLE V
INTERESTS IN THE TRUST
Section 5.1. Interests. Subject to the limitations contained in Section
5.8 relating to the number of permitted Holders, the beneficial interests in the
Trust Property shall consist of an unlimited number of non-transferable
Interests which shall be denominated in dollars corresponding to the value of
such Interests determined by reference to the corresponding Book Capital
Accounts. All Interests shall be validly issued, fully paid and nonassessable
when issued for such consideration as the Trustees shall determine. The Trustees
may permit the purchase of Interests (for cash or other consideration acceptable
to the Trustees, subject to the requirements of the 1940 Act) but only if the
purchaser is an Institutional Investor. Subject to applicable law, the
provisions hereof and such restrictions as may be adopted by the Trustees, a
Holder may increase its Interest by contributions or decrease its Interest by
withdrawals without limitation.
Pursuant to Section 3806(b) of the Act, the Trustees shall have authority,
from time to time, to establish Interests of a Series, each of which shall be
separate and distinct from the
12
<PAGE>
Interests in any other Series. The Series shall include, without limitation,
those Series specifically established and designated in Section 5.2 hereof, and
such other Series as the Trustees may deem necessary or desirable. The Trustees
shall have exclusive power without the requirement of Holder approval to
establish and designate such separate and distinct Series, and, subject to the
provisions of this Declaration and the 1940 Act, to fix and determine the rights
of Holders of Interests in such Series, including with respect to the price,
terms and manner of purchase and redemption, dividends and other distributions,
rights on liquidation, sinking or purchase fund provisions, conversion rights
and conditions under which the Holders of the several Series shall have separate
voting rights or no voting rights.
Section 5.2. Establishment and Designation of Series. The establishment
and designation of any Series shall be effective upon the execution by the
Secretary or an Assistant Secretary of the Trust, pursuant to authorization by a
majority of the Trustees, of an instrument setting forth such establishment and
designation and the relative rights and preferences of the Interests of such
Series, or as otherwise provided in such instrument. At any time that there are
no Interests outstanding of any particular Series previously established and
designated, the Trustees may by resolution adopted by a majority of their
number, and evidenced by an instrument executed by the Secretary or an Assistant
Secretary of the Trust, abolish that Series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration of Trust.
Without limiting the authority of the Trustees set forth above to
establish and designate further Series, the Trustees hereby establish and
designate four Series: Merrill Lynch Large Cap Index Series, Merrill Lynch Small
Cap Index Series, Merrill Lynch Intermediate Bond Index Series and Merrill Lynch
International Equity Index Series. The Interests of each of these Series and any
Interests of any further Series that may from time to time be established and
designated by the Trustees shall (unless the Trustees otherwise determine with
respect to some further Series at the time of establishing and designating the
same) have the following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by the
Trust for the issue or sale of Interests of a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall be held by the Trustees in a separate
trust for the benefit of the holders of Interests of that Series and shall
irrevocably belong to that Series for all purposes, and shall be so
recorded upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets,
and any 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" that Series. No Series shall have any right to or interest
in the assets belonging to any other Series, and no Holder shall have
13
<PAGE>
any right or interest with respect to the assets belonging to any Series
in which it does not hold an Interest.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged with the liabilities in respect of that
Series and all expenses, costs, charges and reserves attributable to that
Series. The liabilities, expenses, costs, charges and reserves so charged
to a Series are herein referred to as "liabilities belonging to" that
Series. Subject to Section 8.1 hereof, no Series shall be liable for or
charged with the liabilities belonging to any other Series.
(c) Voting. On each matter submitted to a vote of the Holders, each
Holder of an Interest in each Series shall be entitled to a vote
proportionate to its Interest in such Series as recorded on the books of
the Trust and all Holders of Interests in each Series shall vote as a
separate class except as to voting for Trustees and as otherwise required
by the 1940 Act, in which case all Holders shall vote together as a single
class. As to any matter which does not affect the interest of a particular
Series, only the Holders of Interests of the one or more affected Series
shall be entitled to vote.
Section 5.3. Rights of Holders. The ownership of the Trust Property of
every description and the right to conduct any activities hereinbefore described
shall be vested exclusively in the Trust, and the Holders shall have no interest
therein other than the beneficial interest conferred by their Interests, and
they shall have no right to call for any partition or division of any property,
profits, rights or interests of the Trust or any Series. No Holder shall have
any interest in or rights with respect to any Series in which it does not hold
an Interest. The Interests shall be personal property giving only the rights
specifically set forth in this Declaration. The Holders shall have no right to
demand payment for their Interests or any other rights of dissenting
shareholders in the event the Trust participates in any transaction which would
give rise to appraisal or dissenter's rights by a shareholder of a corporation
organized under the General Corporation Law of the State of Delaware or
otherwise. Holders shall have no preemptive or other rights to subscribe for
additional Interests or other securities issued by the Trust. No action may be
brought by a Holder on behalf of the Trust unless Holders owning not less than
25% of the then-outstanding Interests join in the bringing of such action. All
Persons, by virtue of acquiring an Interest in the Trust and being registered as
a Holder in accordance with Section 5.5 hereof, shall be deemed to have assented
to, and shall be bound by, this Declaration to the same extent as if such Person
was a party hereto.
Section 5.4. Purchase of or Increase in Interests. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit the
purchase of additional Interests of any Series by such Person or Persons
(including existing Holders), subject to the provisions of Section 5.1 hereof,
and for such type of consideration, including cash or property, at such time or
times (including, without limitation, each business day), and on such terms as
the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of, liabilities) and businesses.
14
<PAGE>
Section 5.5. Register of Interests. A register shall be kept by the Trust
which shall contain the names and addresses of the Holders and the Book Capital
Account balances of each Holder in each Series. Each such register shall be
conclusive as to who the Holders are and who shall be entitled to payments of
distributions or otherwise to exercise or enjoy the rights of Holders. No Holder
shall be entitled to receive payment of any distribution, nor to have notice
given to it as herein provided, until it has given its address to such officer
or agent of the Trust as shall keep the said register for entry thereon.
Section 5.6. Non-Transferability. Interests shall not be transferable
except with the prior written consent of all of the Trustees and all remaining
Holders of Interests.
Section 5.7. Notices. Any and all notices to which any Holder hereunder
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Holder of record at its last
known address as recorded on the register of the Trust.
Section 5.8. Limitation on Number of Holders. Notwithstanding any
provision hereof to the contrary, the number of Holders of Interests in any
Series shall be limited to fewer than 100. Solely for purposes of determining
the number of Holders of Interests in any Series under this Section 5.8, each
beneficial owner of a grantor trust which is itself a Holder shall be treated as
a Holder of such Interest.
Section 5.9. No Liability of Holders. All Interests, when issued in
accordance with this Declaration, shall be fully paid and nonassessable. Holders
shall be entitled to the protection against personal liability for the
obligations of the Trust under Section 3803(a) of the Act. The Trust shall
indemnify and hold each Holder harmless from and against any claim or liability
to which such Holder may become subject solely by reason of his or her being or
having been a Holder and not because of such Holder's acts or omissions or for
some other reason, and shall reimburse such Holder for all legal and other
expenses reasonably incurred by him or her in connection with any such claim or
liability (upon proper and timely request by the Holder); provided, however,
that no Holder shall be entitled to indemnification by an Series unless such
Holder is a Holder of Interests of such Series.
ARTICLE VI
DECREASES AND WITHDRAWALS
Section 6.1. Decreases and Withdrawals. A Holder shall have the right on
any day the New York Stock Exchange is open to decrease its Interest in any
Series, and to withdraw completely from any Series, at the next determined net
asset value attributable to the Interest (or portion thereof) being withdrawn,
and an appropriate adjustment therefor shall be made to such Holder's Book
Capital Account. The rights of a Holder upon withdrawal from a Series shall be
limited to the assets belonging to the Series from which the withdrawal is made.
The Trust may, subject to compliance with the 1940 Act, charge fees for
effecting such decrease or withdrawal, at
15
<PAGE>
such rates as the Trustees may establish, and may at any time and from time to
time, suspend such right of decrease or withdrawal. The procedures for effecting
decreases or withdrawals shall be as determined by the Trustees from time to
time, subject to the requirements of the 1940 Act.
ARTICLE VII
DETERMINATION OF BOOK CAPITAL ACCOUNT BALANCES,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Book Capital Account Balances. The Book Capital Account
balances of Holders of the Trust with respect to each Series shall be determined
on such days and at such time or times as the Trustees may determine, consistent
with the requirements of the 1940 Act, with income, gains and losses of each
Series determined in accordance with generally accepted accounting principles to
be allocated among the Holders of such Series in accordance with their
Interests. The power and duty to make calculations of the Book Capital Account
balances of the Holders may be delegated by the Trustees to the Investment
Adviser, Administrator, Custodian, or such other person as the Trustees may
determine.
Section 7.2. Allocations and Distributions to Holders. In compliance with
the Treasury Regulations promulgated under applicable provisions of the Code,
the Trustees shall (i) allocate items of taxable income, gain, loss and
deduction with respect to each Series to Holders of the Interests in such
Series, provided that, except as may otherwise be specifically provided in the
Treasury Regulations, in all cases allocations of specific types of income shall
be proportionate to the Interests of the Holders in that Series, and (ii) upon
liquidation of a Series, make final distribution of the net assets of such
Series among the Holders of the Interests in such Series in accordance with
their respective Book Capital Accounts. The Trustees shall provide each Holder
that is a regulated investment company, as defined in Section 851(a) of the
Code, information which will enable it to take into account its share of items
of taxable income, gain, loss and deduction as they are taken into account by
the Series in order to facilitate compliance with Code Section 4982. Any income
tax withholding or other withholding of taxes required by law with respect to
the allocable share of income of, or distributions to, a Holder shall be
accounted for as a distribution to and charged to the Book Capital Account of
such Holder at the time of payment of such taxes to the applicable taxing
authority. The Trustees may always retain from the assets belonging to a Series
such amount as they may deem necessary to pay the liabilities belonging to that
Series.
Section 7.3. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the net
income and net assets of the Trust and of each Series as they may deem necessary
or desirable to enable the Trust to comply with any provision of the 1940 Act,
any rule or regulation thereunder, or any order of exemption issued by said
Commission, all as in effect now or hereafter amended or modified.
16
<PAGE>
ARTICLE VIII
LIABILITY FOR TRUST OBLIGATIONS
Section 8.1. Liabilities of Series. Without limitation of the provisions
of Section 5.2(b) hereof, but subject to the right of the Trustees in their
discretion to allocate general liabilities, expenses, costs, charges or services
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets of such Series only, and not against the
assets of any other Series. Notice of this limitation on interseries liabilities
shall be set forth in the certificate of trust of the Trust (whether originally
or by amendment) as filed or to be filed in the Office of the Secretary of State
of the State of Delaware pursuant to Section 3810 of the Act, and upon the
giving of such notice in the certificate of trust, the statutory provisions of
Section 3804 of the Act relating to limitations on interseries liabilities (and
the statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series.
Every note, bond, contract or other undertaking issued by or on behalf of a
particular Series shall include a recitation limiting the obligation represented
thereby to that Series and its assets.
Section 8.2. No Personal Liability of Trustees, etc.
(a) Trustees. The Trustees shall be entitled to the protection
against personal liability for the obligations of the Trust under Section
3803(b) of the Act. No Trustee shall be liable to the Trust, its Holders,
or to any Trustee, officer, employee, or agent thereof for any action or
failure to act (including, without limitation, the failure to compel in
any way any former or acting Trustee to redress any breach of trust)
except for his own bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties.
(b) Officers, Employees or Agents of the Trust. The officers,
employees and agents of the Trust shall be entitled to the protection
against personal liability for the obligations of the Trust under Section
3803(c) of the Act. No officer, employee or agent of the Trust shall be
liable to the Trust, its Holders, or to any Trustee, officer, employee, or
agent thereof for any action or failure to act (including, without
limitation, the failure to compel in any way any former or acting Trustee
to redress any breach of trust) except for his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties.
(c) The provisions of this Declaration, to the extent that they
expand or restrict the duties and liabilities of the Trustees, officers,
employees or agents of the Trust otherwise existing at law or in equity,
are agreed by the Holders to modify to that extent such other duties and
liabilities.
Section 8.3. Indemnification. The Trust shall indemnify each of its
Trustees, officers, employees, and agents (including persons who serve at its
request as directors, officers or trustees of another organization in which it
has any interest, as a shareholder, creditor or otherwise) against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection
17
<PAGE>
with the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his being or having been
such a Trustee, officer, employee or agent, except with respect to any matter as
to which he shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties, such
liabilities and expenses being liabilities belonging to the Series out of which
such claim for indemnification arises; provided, however, that as to any matter
disposed of by a compromise payment by such Person, pursuant to a consent decree
or otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless there has been a determination that such
Person did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or, in the
absence of a judicial determination, by a reasonable determination, based upon a
review of readily available facts (as opposed to a full trial-type inquiry),
that he did not engage in such conduct, which determination shall be made by a
majority of a quorum of Trustees who are neither Interested Persons of the Trust
nor parties to the action, suit or proceeding, or by written opinion from
independent legal counsel approved by the Trustees. The rights accruing to any
Person under these provisions shall not exclude any other right to which he may
be lawfully entitled; provided that no Person may satisfy any right of indemnity
or reimbursement granted herein or to which he may be otherwise entitled except
out of the Trust Property. The Trustees may make advance payments in connection
with indemnification under this Section 8.3; provided that any advance payment
of expenses by the Trust to any Trustee, officer, employee or agent shall be
made only upon the undertaking by such Trustee, officer, employee or agent to
repay the advance unless it is ultimately determined that he is entitled to
indemnification as above provided, and only if one of the following conditions
is met:
(a) the Trustee, officer, employee or agent to be indemnified
provides a security for his undertaking; or
(b) the Trust shall be insured against losses arising by reason of
any lawful advances; or
(c) there is a determination, based on a review of readily
available facts, that there is reason to believe that the
Trustee, officer, employee or agent to be indemnified
ultimately will be entitled to indemnification, which
determination shall be made by:
(i) a majority of a quorum of Trustees who are neither
Interested Persons of the Trust nor parties to the
Proceedings; or
(ii) an independent legal counsel in a written opinion.
Section 8.4. No Protection Against Certain 1940 Act Liabilities. Nothing
contained in Sections 8.1, 8.2 or 8.3 hereof shall protect any Trustee or
officer of the Trust from any liability to the Trust or its Holders to which he
would otherwise be subject by reason of willful
18
<PAGE>
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Nothing contained in Sections 8.1, 8.2 or
8.3 hereof or in any agreement of the character described in Section 4.1 or 4.2
hereof shall protect any Investment Adviser to the Trust or any Series against
any liability to the Trust or any Series to which he would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his or its duties to the Trust or Series, or by reason of his or
its reckless disregard to his or its obligations and duties under the agreement
pursuant to which he serves as Investment Adviser to the Trust or any Series.
Section 8.5. No Bond Required of Trustees. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.
Section 8.6. No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, seller or other Person dealing with the Trustees or with
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, lent or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every contract, undertaking, instrument,
certificate, interest or obligation or other security of the Trust, and every
other act or thing whatsoever executed in connection with the Trust, shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the Trust
made or sold by the Trustees or by any officer, employee or agent of the Trust,
in his capacity as such, may contain an appropriate recital to the effect that
the Holders, Trustees, officers, employees and agents of the Trust shall not
personally be bound by or liable thereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder, and
appropriate references shall be made therein to the Declaration, and may contain
any further recital which they may deem appropriate, but the omission of such
recital shall not operate to impose personal liability on any of the Holders,
Trustees, officers, employees or agents of the Trust.
Section 8.7. Insurance. The Trustees may maintain insurance for the
protection of the Trust Property, its Holders, Trustees, officers, employees and
agents in such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
Section 8.8. Reliance on Experts, etc. Each Trustee, officer or employee
of the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by any Investment Adviser, the Administrator,
accountant, appraiser or other expert or consultant selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee;
19
<PAGE>
provided that nothing in this Section shall be deemed to exonerate the Trustees
from their duties of reasonable care, diligence and prudence or any other duties
imposed by the 1940 Act.
ARTICLE IX
HOLDERS
Section 9.1. Meetings of Holders. Meetings of the Holders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests of a Series (if the meeting relates solely to that Series), or not
less than 10% of the Interests of the Trust (if the meeting relates to the Trust
and not solely to a particular Series), such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall be held
within or without the State of Delaware on such day and at such time as the
Trustees shall designate. Holders of at least one-third of the Interests of the
Series (if the meeting relates solely to that Series) or Holders of at least
one-third of the Interests of the Trust (if the meeting relates to the Trust and
not solely to a particular Series), present in person or by proxy, shall
constitute a quorum for the transaction of any business, except as may otherwise
be required by the 1940 Act or other applicable law or by this Declaration or
the By-Laws of the Trust. If a quorum is present at a meeting, an affirmative
vote by the Holders present, in person or by proxy, holding more than 50% of the
total Interests of the Holders present, either in person or by proxy, at such
meeting constitutes the action of the Holders, unless the 1940 Act, other
applicable law, this Declaration or the By-Laws of the Trust require a greater
number of affirmative votes.
Section 9.2. Notice of Meetings. Notice of all meetings of the Holders
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Holder of the Series or the Trust, as the case may be,
at his registered address, mailed at least 10 days and not more than 50 days
before the meeting. At any such meeting, any business properly before the
meeting may be considered whether or not stated in the notice of the meeting.
Any adjourned meeting may be held as adjourned without further notice.
Section 9.3. Record Date for Meetings. For the purpose of determining
Holders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time fix a date, not more than 90 days prior to the
date of any meeting of the Holders or payment of distributions or other action,
as the case may be, as a record date for the determination of the Persons to be
treated as Holders of record of a particular Series or the Trust for such
purposes.
Section 9.4. Proxies, etc. At any meeting of Holders, any Holder entitled
to vote thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Secretary, or with
such other officer or agent of the Trust as the Secretary may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of a majority of the Trustees, proxies may be solicited in the name
of one or more Trustees or one or more of the officers of the Trust. Only
Holders of record shall be entitled to
20
<PAGE>
vote. Each Holder shall be entitled to vote proportionate to his Interest in the
Trust or in any Series (as the context may require). When Interests are held
jointly by several persons, any one of them may vote at any meeting in person or
by proxy in respect of such Interest, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Interest. A proxy purporting to be executed by or on
behalf of a Holder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger. If
the Holder is a minor or a person of unsound mind, and subject to guardianship
or to the legal control of any other person as regards the charge or management
of his Interest, he may vote by his guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy.
Section 9.5. Reports. The Trustees shall cause to be prepared, at least
annually, a report of operations containing a balance sheet and statement of
income and undistributed income of each Series prepared in conformity with
generally accepted accounting principles and an opinion of an independent public
accountant on such financial statements. The Trustees shall, in addition,
furnish to the Holders at least semi-annually interim reports containing an
unaudited balance sheet as of the end of such period and an unaudited statement
of income and surplus for the period from the beginning of the current fiscal
year to the end of such period.
Section 9.6. Inspection of Records. The records of the Trust shall be open
to inspection by Holders during normal business hours for any purpose not
harmful to the Trust.
Section 9.7. Holder Action by Written Consent. Any action which may be
taken by Holders may be taken without a meeting if Holders holding more than 50%
of the total Interests entitled to vote (or such larger proportion thereof as
shall be required by any express provision of this Declaration) shall consent to
the action in writing and the written consents are filed with the records of the
meetings of Holders. Such consent shall be treated for all purposes as a vote
taken at a meeting of Holders.
ARTICLE X
DURATION; TERMINATION OF
TRUST OR SERIES; AMENDMENT; MERGERS; ETC.
Section 10.1. Duration. Subject to possible termination or dissolution in
accordance with Sections 10.2 and 10.3, respectively, the Trust created hereby
shall have perpetual existence.
Section 10.2. Dissolution of Series or Trust. Any Series shall be
dissolved (i) by the affirmative vote of the Holders of not less than two-thirds
of the total outstanding Interests of the Series, at any meeting of the Holders
or by an instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the Holders of not less than two-thirds of such
Interests, (ii) by unanimous consent of the Trustees by written notice of
dissolution to the Holders of the Interests of the Series, (iii) upon the
complete withdrawal of a Holder from the Series, or
21
<PAGE>
(iv) upon the bankruptcy or dissolution of a Holder of an Interest in the
Series; provided, that in the case of an event of dissolution described in (iii)
or (iv), the procedure for termination shall be deferred for 120 days after the
event and the remaining Holders of Interests in such Series may, by affirmative
vote of over 50% of total outstanding Interests, agree to continue the Series.
The Trust shall be dissolved upon the dissolution of the last remaining Series.
Section 10.3. Termination of Trust or Series.
(a) Upon an event of dissolution of the Trust or a Series, unless
the Trust or Series is continued in accordance with the proviso to Section
10.2 above, the Trust or Series shall be terminated in accordance with the
following provisions:
(i) The Trust (or Series, as applicable) shall thereafter
carry on no business except for the purpose of winding up its
affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust (or Series, as applicable) and all of the powers of the
Trustees under this Declaration shall continue until the affairs of
the Trust (or Series, as applicable) shall have been wound up,
including the power to fulfill or discharge the contracts of the
Trust (or Series, as applicable), collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part
of the remaining Trust Property (or assets belonging to the Series,
as applicable) to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and to do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all of the
Trust Property or substantially all of the assets belonging to a
particular Series other than for cash, shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by the vote at a meeting, or by written consent, of
Holders holding more than 50% of the total outstanding Interests of
the Trust or Series, as the case may be, entitled to vote.
(iii) After paying or adequately providing for the payment of
all liabilities belonging to the Series subject of termination and
upon receipt of such releases, indemnities and refunding agreements
as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or assets belonging to such
Series, in cash or in kind or partly each, among the Holders of such
Series according to their Book Capital Accounts in such Series. In
all cases, as herein provided, the rights of Holders of Interests in
a Series upon termination and liquidation of that Series shall be
limited to the assets belonging to that Series.
(b) After termination of the Trust or Series and distribution to the
Holders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting
forth the fact of such termination. Upon
22
<PAGE>
termination of the Trust, the Trustees shall file a certificate of
cancellation in accordance with Section 3810 of the Act and such Trustees
shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Holders shall thereupon
cease.
Section 10.4. Amendment Procedure.
(a) Two-thirds (2/3) of the Trustees then in office may amend this
Declaration at any time for any purpose without the approval of the
Holders of Interests; provided, that the vote or a written consent of
Holders holding more than 50% of the total outstanding Interests shall be
necessary to approve any amendment whenever such vote or consent is
required under the 1940 Act.
(b) Nothing contained in this Declaration shall permit the amendment
of this Declaration to impair the exemption from personal liability of
Holders, Trustees, officers, employees and agents of the Trust.
(c) A certificate signed by a Trustee or by the Secretary or any
Assistant Secretary of the Trust, setting forth an amendment and reciting
that it was duly adopted by the Holders or by the Trustees as aforesaid or
a copy of the Declaration, as amended, certified by a Trustee or the
Secretary or any Assistant Secretary of the Trust, certifying that such
Declaration is a true and correct copy of the Declaration as amended,
shall be conclusive evidence of such amendment when lodged among the
records of the Trust.
Notwithstanding any other provision hereof, until such time as Interests
are first sold to an Institutional Investor, this Declaration may be terminated
or amended in any respect by vote or written consent of the Trustees.
Section 10.5. Merger, Consolidation and Sale of Assets.
(a) Any Series may merge into or consolidate with any corporation,
association, other trust or other organization or may sell, lease or
exchange all or substantially all of the Trust Property belonging to such
Series, including its good will, upon such terms and conditions and for
such consideration when and as authorized by vote or written consent of
two-thirds (2/3) of the Trustees then in office. In accordance with
Section 3815(f) of the Act, an agreement of merger or consolidation may
effect any amendment to this Declaration or the By-Laws or effect the
adoption of a new declaration or by-laws of the Trust if the Trust is the
surviving or resulting entity.
(b) The Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any
other trust, partnership, association or other organization to take over
all of the Trust Property, or Series thereof or to carry on any business
in which the Trust shall directly or indirectly have any interest, and to
sell, convey and transfer the Trust Property or Series thereof to any such
23
<PAGE>
corporation, trust, association or organization in exchange for the equity
interests thereof or otherwise, and to lend money to, subscribe for the
equity interests of, and enter into any contracts with any such
corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the
Trust holds or is about to acquire equity interests. The Trustees may also
cause a merger or consolidation between the Trust or any successor thereto
and any such corporation, trust, partnership, association or other
organization if and to the extent permitted by law, as provided under the
law then in effect. Nothing contained herein shall be construed as
requiring approval of the Holders for the Trustees to organize or assist
in organizing one or more corporations, trusts, partnerships, associations
or other organizations and selling, conveying or transferring a portion of
the Trust Property to such organizations or entities.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Certificate of Trust; Registered Agent. The initial Trustees
shall file a certificate of trust in accordance with Section 3810 of the Act.
Section 11.2. Governing Law. This Declaration is executed by all of the
Trustees and delivered with reference to Act and the laws of the State of
Delaware, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the Act
and the laws of the State of Delaware (unless and to the extent otherwise
provided for and/or preempted by the 1940 Act or other applicable federal
securities laws); provided, however, that there shall not be applicable to the
Trust, the Trustees or this Declaration (a) the provisions of Section 3540 of
Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or
common) of the State of Delaware (other than the Act) pertaining to trusts which
are inconsistent with the rights, duties, powers, limitations or liabilities of
the Trustees or the Holders set forth or referenced in this Declaration.
Section 11.3. Counterparts. The Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
Section 11.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a Trustee
hereunder, or Secretary, Assistant Secretary, Treasurer or Assistant Treasurer
of the Trust, certifying to: (a) the number or identity of Trustees or Holders,
(b) the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Holders, (d) the fact that
the number of Trustees or Holders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (e) the form
of any By-Laws adopted by or the identity of any officers elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
24
<PAGE>
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
Section 11.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment
company provisions of the Code, the Act or, consistent with Section 11.2,
any other applicable Delaware law regarding administration of trusts, or
with other applicable laws and regulations, the conflicting provisions
shall be deemed superseded by such law or regulation to the extent
necessary to eliminate such conflict; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall pertain only to such provision in such jurisdiction and shall not in
any manner affect such provision in any other jurisdiction or any other
provision of this Declaration in any jurisdiction.
Section 11.6. Trust Only. It is the intention of the Trustees to create
only a business trust under the Act with the relationship of trustee and
beneficiary between the Trustees and each Holder from time to time. It is not
the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a Delaware business trust except to the extent
such trust is deemed to constitute a partnership under the Code and applicable
state tax laws. Nothing in this Declaration shall be construed to make the
Holders, either by themselves or with the Trustees, partners or members of a
joint stock association.
25
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has executed this instrument this 28th
day of August, 1996.
/s/ Mark B. Goldfus
- ----------------------------
Mark B. Goldfus, as Trustee
26
<PAGE>
CERTIFICATE OF TRUST OF
MERRILL LYNCH INDEX TRUST
THIS Certificate of Trust of Merrill Lynch Index Trust (the
"Trust"), dated August 28, 1996, is being duly executed and filed by Mark B.
Goldfus, as trustee, to form a business trust under the Delaware Business Trust
Act (12 Del. C. Section 3801, et seq.).
1. Name. The name of the business trust formed hereby is Merrill
Lynch Index Trust.
2. Registered Agent. The business address of the registered office
of the Trust in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of the Trust's registered
agent at such address is The Corporation Trust Company.
3. Effective Date. This Certificate of Trust shall be effective upon
the date and time of filing.
4. Series Trust. Notice is hereby given that pursuant to Section
3804 of the Delaware Business Trust Act, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series of the Trust shall be enforceable against the assets of such
series only and not against the assets of the Trust generally. The Trust will be
a registered investment company under the Investment Company Act of 1940, as
amended.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first
above-written.
/s/ Mark B. Goldfus
-------------------
Mark B. Goldfus, Sole Trustee
<PAGE>
BY-LAWS
OF
MERRILL LYNCH INDEX TRUST
<PAGE>
TABLE OF CONTENTS
ARTICLE I
HOLDERS' MEETINGS......................................................1
Section 1.1 Chairman...................................................1
Section 1.2 Proxies; Voting............................................1
Section 1.3 Fixing Record Dates........................................1
Section 1.4. Inspectors of Election....................................1
Section 1.5. Records at Holders' Meetings: Inspection of Records.......2
ARTICLE II
TRUSTEES...............................................................2
Section 2.1. Annual and Regular Meetings...............................2
Section 2.2. Special Meetings..........................................2
Section 2.3. Chairman: Records.........................................2
ARTICLE III
OFFICERS...............................................................3
Section 3.1. Executive Officers........................................3
Section 3.2. Other Officers and Agents.................................3
Section 3.3. Election and Tenure.......................................3
Section 3.4. Removal of Officers.......................................3
Section 3.5. Authority and Duties......................................3
Section 3.6. Chairman..................................................4
Section 3.7. President.................................................4
Section 3.8. Vice Presidents...........................................4
Section 3.9. Assistant Vice President..................................4
Section 3.10. Secretary................................................5
Section 3.11. Assistant Secretaries....................................5
Section 3.12. Treasurer................................................5
Section 3.13. Assistant Treasurers.....................................5
Section 3.14. Bonds and Surety.........................................5
ARTICLE IV
MISCELLANEOUS..........................................................6
Section 4.1. Depositories..............................................6
Section 4.2. Signatures................................................6
Section 4.3. Seal......................................................6
ARTICLE V
NON-TRANSFERABILITY OF INTERESTS.......................................6
Section 5.1. Non-Transferability of Interests..........................6
Section 5.2. Regulations...............................................6
ARTICLE VI
MISCELLANEOUS..........................................................6
Section 6.1. Amendment and Repeal of By-Laws...........................6
Section 6.2. Limitation of Liability...................................7
ii
<PAGE>
BY-LAWS
OF
MERRILL LYNCH INDEX TRUST
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing Merrill Lynch Index Trust (the "Trust"), dated
August 28, 1996, as from time to time amended (the "Declaration"). All words and
terms capitalized in these By-Laws that are not otherwise defined herein shall
have the meaning or meanings set forth for such words or terms in the
Declaration.
ARTICLE I
HOLDERS' MEETINGS
Section 1.1 Chairman. The president shall act as chairman at all meetings
of the Holders, or the Trustee or Trustees present at each meeting may elect a
temporary chairman for the meeting, who may be one of themselves.
Section 1.2 Proxies; Voting. Holders may vote either in person or by duly
executed proxy and each Holder shall be entitled to a vote proportionate to his
Interest in the Trust or any Series (as the context may require), all as
provided in Article IX of the Declaration. No proxy shall be valid after eleven
(11) months from the date of its execution, unless a longer period is expressly
stated in such proxy.
Section 1.3 Fixing Record Dates. For the purpose of determining the
Holders who are entitled to notice of or to vote or act at a meeting, including
any adjournment thereof, the Trustees may from time to time fix a record date in
the manner provided in Section 9.3 of the Declaration. If the Trustees do not,
prior to any meeting of the Holders, so fix a record date, then the record date
for determining Holders entitled to notice of or to vote at the meeting of
Holders shall be the later of (i) the close of business on the day on which the
notice of meeting is first mailed to any Holder; or (ii) the thirtieth day
before the meeting.
Section 1.4. Inspectors of Election. In advance of any meeting of the
Holders, the Trustees may appoint one or more Inspectors of Election to act at
the meeting or any adjournment thereof. If Inspectors of Election are not
appointed in advance by the Trustees, the chairman, if any, of any meeting of
the Holders may, and on the request of any Holder or his proxy shall, appoint
one or more Inspectors of Election of the meeting. In case any person appointed
as Inspector fails to appear or fails or refuses to act, the vacancy may be
filled by appointment made by the Trustees in advance of the convening of the
meeting or at the meeting by the person acting as chairman. The Inspectors of
Election shall determine the Interests owned by Holders, the Interests
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents, shall
hear and determine all challenges and questions in any way arising in connection
with the right to vote, shall count and
<PAGE>
tabulate all votes or consents, determine the results, and do such other acts as
may be proper to conduct the election or vote with fairness to all Holders. If
there is more than one Inspector of Election, the decision, act or certificate
of a majority is effective in all respects as the decision, act or certificate
of all Inspectors of Election. On request of the chairman, if any, of the
meeting, or of any Holder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them and
shall execute a certificate of any facts found by them.
Section 1.5. Records at Holders' Meetings: Inspection of Records. At each
meeting of the Holders there shall be open for inspection the minutes of the
last previous meeting of Holders of the Trust and a list of the Holders of the
Trust, certified to be true and correct by the secretary or other proper agent
of the Trust, as of the record date of the meeting. Such list of Holders shall
contain the name of each Holder in alphabetical order and the address and
Interests owned by such Holder. Holders shall have the right to inspect books
and records of the Trust during normal business hours and for any purpose not
harmful to the Trust.
ARTICLE II
TRUSTEES
Section 2.1. Annual and Regular Meetings. The Trustees shall hold an
annual meeting for the election of officers and the transaction of other
business which may come before such meeting. Regular meetings of the Trustees
may be held on such notice at such place or places and times as the Trustees may
by resolution provide from time to time.
Section 2.2. Special Meetings. Special Meetings of the Trustees shall be
held upon the call of the chairman, if any, the president, the secretary or any
two Trustees, by oral or telegraphic or written notice duly served on or sent or
mailed to each Trustee not less than one day before the meeting. No notice need
be given to any Trustee who attends in person or to any Trustee who, in writing
signed and filed with the records of the meeting either before or after the
holding thereof, waives notice. Notice or waiver of notice need not state the
purpose or purposes of the meeting.
Section 2.3. Chairman: Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in his absence the President shall act
as chairman; and, in the absence of the Chairman and the President, the Trustees
present shall elect one of their number to act as temporary chairman. The
results of all actions taken at a meeting of the Trustees, or by written consent
of the Trustees, shall be recorded by the Secretary.
ARTICLE III
OFFICERS
2
<PAGE>
Section 3.1. Executive Officers. The executive officers of the Trust shall
be a president, a secretary, a chief accounting officer and a chief financial
officer or treasurer. If the Trustees shall elect a chairman pursuant to Section
3.6, then the chairman shall also be an executive officer of the Trust. If the
Trustees shall elect one or more vice presidents, each such vice president shall
be an executive officer. The Chairman, if there be one, shall be elected from
among the Trustees, but no other executive officer need be a Trustee. Any two or
more executive offices, except those of president and vice president, may be
held by the same person. A person holding more than one office may not act in
more than one capacity to execute, acknowledge or verify on behalf of the Trust
an instrument required by law to be executed, acknowledged and verified by more
than one officer. The executive officers of the Trust shall be elected at each
annual meeting of Trustees.
Section 3.2. Other Officers and Agents. The Trustees may also elect or may
delegate to the president authority to appoint, remove, or fix the duties,
compensation or terms of office of one or more assistant vice-presidents,
assistant secretaries and assistant treasurers, and such other officers and
agents as the Trustees shall at any time and from time to time deem to be
advisable.
Section 3.3. Election and Tenure. At the initial organization meeting and
thereafter at each annual meeting of the Trustees, the Trustees shall elect the
Chairman, if any, President, Secretary, Chief Accounting Officer, Chief
Financial Officer or Treasurer and such other officers as the Trustees shall
deem necessary or appropriate in order to carry out the business of the Trust.
Such officers shall hold office until the next annual meeting of the Trustees
and until their successors have been duly elected and qualified. The Trustees
may fill any vacancy in office or add any additional officers at any time.
Section 3.4. Removal of Officers. Any officer may be removed at any time,
with or without cause, by action of a majority of the Trustees. This provision
shall not prevent the making of a contract of employment for a definite term
with any officer and shall have no effect upon any cause of action which any
officer may have as a result of removal in breach of a contract of employment.
Any officer may resign at any time by notice in writing signed by such officer
and delivered or mailed to the chairman, if any, president, or secretary, and
such resignation shall take effect immediately, or at a later date according to
the terms of such notice in writing.
Section 3.5. Authority and Duties. All officers as between themselves and
the Trust shall have such powers, perform such duties and be subject to such
restrictions, if any, in the management of the Trust as may be provided in these
By-Laws, or, to the extent not so provided, as may be prescribed by the Trustees
or by the president acting under authority delegated by the Trustees pursuant to
Section 3.2.
Section 3.6. Chairman. When and if the Trustees deem such action to be
necessary or appropriate, they may elect a Chairman from among the Trustees. The
Chairman shall preside at meetings of the Holders and of the Trustees; and he
shall have such other powers and duties as may be prescribed by the Trustees.
The Chairman shall in the absence or disability of the president exercise the
powers and perform the duties of the president.
3
<PAGE>
Section 3.7. President. The president shall be the chief executive officer
of the Trust. He shall have general and active management of the activities of
the Trust, shall see to it that all orders, policies and resolutions of the
Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to any vice president of the Trust such of his powers and
duties as president and at such times and in such manner as he shall deem
advisable. In the absence or disability of the Chairman, or if there be no
Chairman, the president shall preside at all meetings of the Holders and of the
Trustees; and he shall have such other powers and perform such other duties as
are incident to the office of a corporate president and as the Trustees may from
time to time prescribe. The president shall be, ex officio, a member of all
standing committees. Subject to direction of the Trustees, the president shall
have the power, in the name and on behalf of the Trust, to execute any and all
loan documents, contracts, agreements, deeds, mortgages, and other instruments
in writing, and to employ and discharge employees and agents of the Trust.
Unless otherwise directed by the Trustees, the president shall have full
authority and power, on behalf of all of the Trustees. to attend and to act and
to vote, on behalf of the Trust at any meetings of business organizations in
which the Trust holds an interest or to confer such powers upon any other
persons, by executing any proxies duly authorizing such persons.
Section 3.8. Vice Presidents. The vice president, if any, or, if there be
more than one, the vice presidents, shall assist the president in the management
of the activities of the Trust and the implementation of orders, policies and
resolutions of the Trustees at such times and in such manner as the president
may deem to be advisable. If there be more than one vice president, the Trustees
may designate one as the executive vice president, in which case he shall be
first in order of seniority, and the Trustees may also grant to other vice
presidents such titles as shall be descriptive of their respective functions or
indicative of their relative seniority. In the absence or disability of both the
president and the Chairman, or in the absence or disability of the president if
there be no Chairman, the vice president, or, if there be more than one, the
vice presidents in the order of their relative seniority, shall exercise the
powers and perform the duties of those officers. Subject to the direction of the
president, each the vice president shall have the power in the name and on
behalf of the Trust to execute any and all loan documents, contracts,
agreements, deeds, mortgages and other instruments in writing, and, in addition,
shall have such other powers and perform such other duties as from time to time
may be prescribed by the president or by the Trustees.
Section 3.9. Assistant Vice President. The assistant vice president, if
any, or if there be more than one, the assistant vice presidents, shall perform
such duties as may from time to time be prescribed by the Trustees or by the
president acting under authority delegated by the Trustees pursuant to Section
3.7.
Section 3.10. Secretary. The secretary shall (a) keep the minutes of the
meetings and proceedings and any written consents evidencing actions of the
Holders, the Trustees and any committees of the Trustees in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these By-Laws or as required by law; (c) be custodian of
the corporate records and of the seal of the Trust and each Series, and, when
4
<PAGE>
authorized by the Trustees, cause the seal of the Trust and each Series to be
affixed to any document requiring it, and when so affixed attested by his
signature as secretary or by the signature of an assistant secretary; (d)
perform any other duties commonly incident to the office of secretary in a New
York corporation; and (e) in general, perform such other duties as from time to
time may be assigned to him by the president or by the Trustees.
Section 3.11. Assistant Secretaries. The assistant secretary, if any, or,
if there be more than one, the assistant secretaries in the order determined by
the Trustees or by the president, shall in the absence or disability of the
secretary exercise the powers and perform the duties of the secretary, and he or
they shall perform such other duties as the Trustees, the president or the
secretary may from time to time prescribe.
Section 3.12. Treasurer. The treasurer shall be the chief financial
officer of the Trust. The treasurer shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and each Series,
shall deposit all monies and other valuable effects in the name and to the
credit of the Trust and each Series in such depositories as may be designated by
the Trustees, and shall render to the Trustees and the president, at regular
meetings of the Trustees or whenever they or the president may require it, an
account of all his transactions as treasurer and of the financial condition of
the Trust and each Series. Certain of the duties of the treasurer may be
delegated to a chief accounting officer.
If required by the Trustees, the treasurer shall give the Trust a bond in
such sum and with such surety or sureties as shall be satisfactory to the
Trustees for the faithful performance of the duties of his office and for the
restoration to the Trust, in case of his death, resignation, retirement or
removal from office, all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the Trust.
Section 3.13. Assistant Treasurers. The assistant treasurer, if any, or,
if there be more than one, the assistant treasurers in the order determined by
the Trustees or by the president, shall in the absence or disability of the
treasurer exercise the powers and perform the duties of the treasurer, and he or
they shall perform such other duties as the Trustees, the president or the
treasurer may from time to time prescribe.
Section 3.14. Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his duties in such amount
and with such sureties as the Trustees may determine.
5
<PAGE>
ARTICLE IV
MISCELLANEOUS
Section 4.1. Depositories. Subject to Section 7.1 of the Declaration, the
funds of the Trust and each Series shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any adviser,
administrator or manager), as the Trustees may from time to time authorize.
Section 4.2. Signatures. All contracts and other instruments shall be
executed on behalf of the Trust and each Series by such officer, officers, agent
or agents, as provided in these ByLaws or as the Trustees may from time to time
by resolution provide.
Section 4.3. Seal. The seal of the Trust, if any, may be affixed to any
document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same effect
as if done by a Delaware corporation.
ARTICLE V
NON-TRANSFERABILITY OF INTERESTS
Section 5.1. Non-Transferability of Interests. Except as provided in
Section 5.6 of the Declaration, Interests shall not be transferable. Except as
otherwise provided by law, the Trust and each Series shall be entitled to
recognize the exclusive right of a person in whose name Interests stand on the
record of Holders as the owner of such Interests for all purposes, including,
without limitation, the rights to receive distributions, and to vote as such
owner, and the Trust and each Series shall not be bound to recognize any
equitable or legal claim to or interest in any such Interests on the part of any
other person.
Section 5.2. Regulations. The Trustees may make such additional rules and
regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the sale and purchase of Interests of the Trust.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Amendment and Repeal of By-Laws. In accordance with Section
2.7 of the Declaration, the Trustees shall have the power to alter, amend or
repeal the By-Laws or adopt new By-Laws at any time. Action by the Trustees with
respect to the By-Laws shall be taken by an affirmative vote of a majority of
the Trustees. The Trustees shall in no event adopt By-Laws which are in conflict
with the Declaration.
6
<PAGE>
Section 6.2. Limitation of Liability. The Declaration refers to the
Trustees as Trustees, but not as individuals or personally; and no Trustee,
officer, employee or agent of the Trust shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Trust;
provided, that nothing contained in the Declaration or the By-Laws shall protect
any Trustee or officer of the Trust from any liability to the Trust, any Series
or its Holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the involved
in the conduct of his office.
7
