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As filed with the Securities and Exchange Commission on February 3,1997
File No. 811-7885
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 1 [X]
(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
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant
to Section 8(b) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"). However, beneficial interests in the Registrant are
not being registered under the Securities Act of 1933, as amended (the "1933
Act") because such interests will be issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Registrant may be made only by
a limited number of institutional investors, including investment companies,
common or commingled trust funds, group trusts and certain other "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any beneficial interests in the Registrant.
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PART A
Responses to Items 1 through 3 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 S&P 500 Index Series, Merrill Lynch Small Cap Index
Series, Merrill Lynch Aggregate Bond Index Series and Merrill Lynch
International 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 is a non-diversified investment company with
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. THE TRUSTEES MAY ALSO CHANGE THE TARGET
INDEX OF ANY RESPECTIVE SERIES IF THEY CONSIDER THAT A DIFFERENT INDEX WOULD
FACILITATE THE MANAGEMENT OF THE SERIES IN A MANNER WHICH BETTER ENABLES THE
SERIES TO SEEK TO REPLICATE THE TOTAL RETURN OF THE MARKET SEGMENT REPRESENTED
BY THE CURRENT INDEX.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
MERRILL LYNCH S&P 500 INDEX SERIES
The investment objective of the Merrill Lynch S&P 500 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.
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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 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 several 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(R) 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 so
that the market capitalizations, industry weightings and other fundamental
characteristics of the stocks, and of the stocks underlying or otherwise related
to the foregoing financial instruments, closely approximate those same factors
in the Russell 2000, with the objective of reducing the selected investment
portfolio's deviation from the performance of the Index (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
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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.
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.
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,
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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 obligations, such as collateralized mortgage obligations ("CMOs").
MERRILL LYNCH INTERNATIONAL INDEX SERIES
The investment objective of the Merrill Lynch International 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) (GDP weighted) 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 so that the market
capitalizations, industry weightings and other fundamental characteristics of
the stocks, and of the stocks underlying or otherwise related to the foregoing
financial instruments, closely approximate those same factors in the EAFE Index,
with the objective of reducing the selected investment portfolio's deviation
from the performance of the 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. The weighting of the
index among these countries is based upon gross domestic product (GDP). (Market
capitalization is the basis for country weightings in another version of the
EAFE Index. Using GDP weighting tends to decrease the relative weighting of
Japan and the United Kingdom while increasing the weighting of certain European
countries, generally resulting in a more diversified index).
ABOUT INDEXING AND MANAGEMENT OF THE SERIES
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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 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 of 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 S&P 500 Index Series,
Merrill Lynch Small Cap Index Series and Merrill Lynch International 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 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. In connection with the use of such instruments, the Manager may enter
into short sales in an effort to adjust the weightings of particular securities
represented in the basket to more accurately reflect such securities' weightings
in the target index.
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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 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. Under normal circumstances, it is
anticipated that each Series' total return over periods of one year and longer
will, on a gross basis and before taking into account expenses, be within 5
basis points (a basis point is one one-hundredth of one percent (0.01%)) for the
S&P 500 Index Series, 100 basis points for the Small Cap Index Series, 150 basis
points for the International Index Series, and 25 basis points for the Aggregate
Bond Index Series, of the total return of the applicable indices. There can be
no assurance, however, that these levels of correlation will be achieved. In the
event that this correlation is not achieved over time, the Trustees of the Trust
will consider alternative strategies for the Series.
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 instruments with remaining maturities of 397 days or less for liquidity
purposes. Such instruments would consist of: (i) obligations of the U.S.
Government, its agencies, instrumentalities, authorities or political
subdivisions ("U.S. Government Securities"); (ii) other fixed-income securities
rated Aa or higher by Moody's or AA or higher by S&P or, if unrated, of
comparable quality in the opinion of the 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, bank obligations
or other short-term obligations rated Prime-1 by Moody's or A-1 by S&P; or, if
no such ratings are available, the instrument must be of comparable quality in
the opinion of the 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. In addition, the Merrill Lynch
International Index Series may engage in futures contracts on foreign currencies
in connection with certain foreign securities transactions.
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The Manager will choose among the foregoing instruments 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 Index Series may
engage in futures contracts on foreign currencies and 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 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 Securities Act of 1933(the "Securities Act") but
that can be offered and sold to "qualified institutional buyers" under Rule 144A
under the Securities 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
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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 falls
below the market value of the borrowed securities. Presently, the Series does
not intend to lend portfolio securities representing in excess of 331/
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.
Dollar Rolls. The Aggregate Bond Index Series may enter into dollar rolls, in
which the Series will sell securities for delivery in the current month and
simultaneously contract to repurchase substantially similar (the same type and
coupon) securities on a specified future date from the same party. During the
roll period, the Series forgoes principal and interest paid on the securities
sold. The Series is compensated by the difference between the current sales
price and the forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale.
The Series will establish a segregated account with its custodian in which it
will maintain liquid securities in an aggregate amount equal to the amount of
the forward commitment.
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Dollar rolls involve the risk that the market value of the securities subject to
the Series' forward purchase commitment may decline below the price of the
securities the Series has sold. In the event the buyer of the securities files
for bankruptcy or becomes insolvent, the Series' use of the proceeds of the
current sale portion of the transaction may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Series' obligation to purchase the similar securities in the forward
transaction. Dollar rolls are speculative techniques which can be deemed to
involve leverage and are considered borrowings by the Series for purposes of the
percentage limitations applicable to borrowings.
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.
Short Sales. In connection with the use of certain instruments based upon or
consisting of one or more baskets of securities, the Manager may sell a security
a Series does not own, or in an amount greater than the Series owns (i.e., make
short sales). Such transactions will be
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used only in an effort to adjust the weightings of particular securities
represented in the basket to reflect such securities' weightings in the target
index. The Manager will not employ short sales in reflection of the Manager's
outlook for the securities markets or for the performance of the securities sold
short. Generally, to complete a short sale transaction, the Series will borrow
the security to make delivery to the buyer. The Series is then obligated to
replace the security borrowed. The price at the time of replacement may be more
or less than the price at which the security was sold by the Series. Until the
- -security is replaced, the Series is required to pay to the lender any interest
which accrues during the period of the loan. To borrow the security, the Series
may be required to pay a premium which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker to the
extent necessary to meet margin requirements until the short position is closed
out. Until the Series replaces the borrowed security, it will (a) maintain in a
segregated account with its custodian cash or liquid securities at such a level
that the amount deposited in the account plus the amount deposited with the
broker as collateral will equal the current market value of the security sold
short or (b) otherwise cover its short position.
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).
The trustees may change the target index of any respective series if they
consider that a different index would facilitate the management of the Series in
a manner which better enables the Series to seek to replicate the total return
of the market segment represented by the current index.
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 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%
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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.
Among the more significant fundamental restrictions, a Series may not invest
more than 25% of its total assets (taken at market value at the time of each
investment) in the securities of issuers in any particular industry (excluding
the U.S. Government and its agencies and instrumentalities); provided, that in
replicating the weighting of a particular industry in its target index, a Series
may invest more that 25% of its total asssets in securities of issuers in that
industry.
RISK FACTORS
Cash Flows; Expenses. 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 the Series'
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 instruments 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
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<PAGE> 14
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.
Since the Merrill Lynch International 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 generally fluctuate more in price than
shorter-maturity bonds. To compensate investors for these larger fluctuations,
longer-maturity bonds usually offer higher yields than shorter-maturity bonds,
other factors, including credit quality, being equal. These basic principles of
bond prices also apply to U.S. Government Securities. A security backed by the
"full faith and credit" of the U.S. Government is guaranteed only as to its
stated interest rate and face value at maturity, not its current market price.
Just like other fixed-income securities, government-guaranteed securities will
fluctuate in value when interest rates change.
Credit risk is the possibility that an issuer of securities held by the 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.
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 or
the termination of express or implied governmental credit support) may also
result in decreased credit quality of a particular issuer.
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<PAGE> 15
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.
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.
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 not exceed 100%.
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 S&P 500 Index Series is not sponsored,
endorsed, sole or promoted by Standard & Poor's, a
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<PAGE> 16
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.
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 limiting any of the
foregoing, in no event shall Standard & Poor's have any liability for any
special, punitive, indirect, or consequential damages (including lost profits),
even if notified of the possibility of such damages.
Russell 2000. The Merrill Lynch Small Cap Index Series is not promoted,
sponsored or endorsed by, nor in any way affiliated with Frank Russell Company.
Frank Russell Company is not responsible for and has not reviewed the Series nor
any associated literature or publications and Frank Russell Company makes no
representation or warranty, express or implied, as to their accuracy, or
completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without notice, to
alter, amend, terminate or in any way change the Russell 2000(R) Index. Frank
Russell Company has no obligation to take the needs of any particular fund or
its participants or any other product or person into consideration in
determining, composing or calculating the Index.
Frank Russell Company's publication of the Russell 2000(R) Index in no way
suggests or implies an opinion by Frank Russell Company as to the attractiveness
or appropriateness of investment in any or all securities upon which the Index
is based. Frank Russell
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<PAGE> 17
company makes no representation, warranty, or guarantee as to the accuracy,
completeness, reliability, or otherwise of the Index or any data included in the
Index. Frank Russell company makes no representation or warranty regarding the
use, or the results of use, of the Index or any data included therein, or any
security (or combination thereof) comprising the Index. Frank Russell company
makes no other express or implied warranty, and expressly disclaims any
warranty, of any kind, including, without means of limitation, any warranty of
merchantability or fitness for a particular purpose with respect to the Index or
any data or any security (or combination thereof) included therein.
EAFE Index. The Morgan Stanley Capital International ("MSCI") EAFE(R) Index is
the exclusive property of Morgan Stanley & Co. Incorporated ("Morgan Stanley").
The MSCI EAFE(R) Index is a service mark of Morgan Stanley Group Inc. and has
been licensed for use by MLAM and certain of its affiliates.
The Merrill Lynch International Equity Series is not sponsored, endorsed, sold
or promoted by Morgan Stanley. Morgan Stanley 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 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. Morgan Stanley 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 EAFE Index. Morgan Stanley is not responsible for and has not
participated in the determination of the timing of, prices at, or quantities of
shares of the Series to be issued or in the determination or calculation of the
equation by which shares of the Series are redeemable for cash. Morgan Stanley
has no obligation or liability to owners of shares of the Series in connection
with the administration, marketing or trading of the Series.
Although Morgan Stanley shall obtain information for inclusion in or for use in
the calculation of the index from sources which Morgan Stanley considers
reliable, Morgan Stanley does not guarantee the accuracy and/or the completeness
of the index or any data included therein. Morgan Stanley makes no warranty,
express or implied, as to results to be obtained by licensee, licensee's
customers and counterparties, owners of the shares of the Series, or any other
person or entity from the use of the index or any data included therein in
connection with the rights licensed therefrom 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.
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<PAGE> 18
The Trustees of the Trust are responsible for the general oversight of the
conduct of the Trust's business.
INVESTMENT MANAGER.
The Trust on behalf of each Series has entered 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) acts as manager for the Trust and each
Series and provides them 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 October 31, 1996, the Manager and FAM had a total of
approximately $217.6 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.
<TABLE>
<CAPTION>
Name of Series Total Management Fee
-------------- --------------------
<S> <C>
Merrill Lynch S & P 500 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%
</TABLE>
Eric Mitofsky is primarily responsible for the day-to-day management of the
investments of the Merrill Lynch S&P 500 Index Series, Merrill Lynch Small Cap
Index Series and Merrill Lynch International Index Series. Mr. Mitofsky has been
associated with MLAM since 1987, and has been a Vice President of MLAM since
1992. Jay C. Harbeck and Gregory M. Maunz are primarily responsible for the
day-to-day management of the investments of
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<PAGE> 19
the Merrill Lynch Aggregate Bond Index Series. Mr. Harbeck has been a Vice
President of MLAM since 1986, and Mr. Maunz has been a Vice President of MLAM
since 1985.
CUSTODY ARRANGEMENTS.
Merrill Lynch Trust Company, 800 Scudders Mill Road, Plainsbor, New Jersey, acts
as custodian of the assets of Merrill Lynch S&P 500 Index Series, Merrill Lynch
Small Cap Index Series and Merrill Lynch Aggregate Bond Index Series. State
Street Bank and Trust Company "State Street"), P.O. Box 351, Boston
Massachusetts 02101 acts as custodian of the assets of Merrill Lynch
International Index Series, Under its contract with the Trust, State Street is
authorized to establish separate accounts in foreign currencies and to cause
foreign securities owned by the International Index Series to be held in its
offices outside the United States and with certain foreign banks and securities
depositories. Each Custodian is responsible for safeguarding and controlling
cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on investments.
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 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.
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<PAGE> 20
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).
A Series' securities which are traded on stock exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued, or, lacking any sales, at the closing bid price. Securities traded in
the over-the-counter market are valued at the last quoted bid prices as at the
close of trading on the New York Stock Exchange on each day by brokers that make
markets in the securities. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Other investments, including futures
contracts and related options, are stated at market value. Securities and assets
for which market quotations are not readily available are valued at fair market
value, as determined in good faith by or under the direction of the Trustees of
the Trust. 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 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.
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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").
DIVIDENDS AND DISTRIBUTIONS.
It is the Trust's intention to distribute all of its net investment income, if
any. Dividends from such net investment income will be paid at least annually
with respect to each of the S&P 500 Index Series, Small Cap Index Series and
International Index Series. Dividends with respect to the Aggregate Bond Series
will be declared daily and paid monthly. All net realized long- or short-term
capital gains, if any, are distributed to Series interestholders at least
annually. From time to time, a Series may declare a special distribution at or
about the end of the calendar year in order to comply with certain Federal
income tax requirements. All Dividends and Distributions will be credited ot the
accounts of interestholders or paid to interestholders, in each case as the
interestholder directs.
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, 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.
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<PAGE> 22
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.
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<PAGE> 23
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 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
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<PAGE> 24
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 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.
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<PAGE> 25
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.
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 also 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.
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RISK FACTORS IN STRATEGIC INSTRUMENTS
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 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
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<PAGE> 27
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.
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<PAGE> 28
APPENDIX B - DESCRIPTION OF COMMERCIAL
PAPER AND BOND RATINGS
COMMERCIAL PAPER
Description of relevant commercial paper ratings of Standard & Poor's Ratings
Group ("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
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<PAGE> 29
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.
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<PAGE> 30
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.
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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.
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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.
<TABLE>
<CAPTION>
Item 11. Table of Contents. Page
----
<S> <C>
General Information and History.....................................32
Investment Objectives and Policies..................................32
Management of the Registrant........................................34
Control Persons and Principal Holders of Securities.................36
Investment Advisory And Other Services .............................37
Brokerage Allocation and Other Practices............................40
Capital Stock and Other Securities..................................41
Purchase, Redemption and Pricing of Securities......................42
Tax Status..........................................................42
Underwriters........................................................44
Calculations of Performance Data....................................44
Financial Statements................................................45
</TABLE>
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.
The Trustees may also change the target index of any respective Series if they
consider that a different index would facilitate the management of the Series in
a manner which better enables the Series to seek to replicate the total return
of the market segment represented by the current index.
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<PAGE> 33
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 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); provided, that in
replicating the weighting of a particular industry in its target index, a Series
may invest more that 25% of its total asssets in securities of issuers in that
industry.
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent
permitted by applicable law, a Series may invest in securities directly or
indirectly secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of
bonds, debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments, certificates
of deposit, bankers' acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except further
that a Series may lend its portfolio securities, provided that the lending of
portfolio securities may be made only in accordance with applicable law and the
guidelines set forth in the Trust's Registration Statement 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) a Series may borrow from banks
(as defined in the Investment Company Act) in amounts up to 331/3% of its total
assets (including the amount borrowed), (ii) a Series may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) a Series may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities and (iv) a Series may purchase securities on
margin to the extent permitted by applicable law. A Series may not pledge its
assets other than to secure such borrowings or, to the extent permitted by the
Series' investment policies as set forth in its Registration Statement, as it
may be amended from time to time, in connection with hedging
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<PAGE> 34
transactions, short sales, when-issued and forward commitment transactions and
similar investment strategies.
8. Underwrite securities of other issuers except insofar as a
Series technically may be deemed an underwriter under the Securities Act of
1933, as amended (the "Securities Act") in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities,
except to the extent that a 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.
In addition, the Trust has adopted as an operating policy, which may be changed
by the Trustees without shareholder approval, that no Series will make any
additional investments if the amount of its borrowings exceeds 5% of its total
assets. For purposes of this policy, borrowings will not include the use of
investment techniques that may be deemed to create leverage, including, but not
limited to, such techniques as dollar rolls, when-issued securities, options and
futures.
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.
The Trustees and executive officers of the Trust and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Trustee is P.O. Box
9011, Princeton, New Jersey 08543-9011.
TERRY K. GLENN (56) - President and Trustee(1)(2) - Executive Vice
President of MLAM and Fund Asset Management, L.P. ("FAM") since 1983; Executive
Vice President and Director of Princeton Services, Inc. since 1993; President of
Merrill Lynch Funds Distributor, Inc. (the "Distributor") since 1986 and
Director thereof since 1991; President
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<PAGE> 35
of Princeton Administrators, L.P. since 1988; and Director of Merrill Lynch
Financial Data Services, Inc. since 1985.
JACK B. SUNDERLAND (68) - Trustee(2) - P.O. Box 7, West Cornwall,
Connecticut. 06796. President and Director of American Independent Oil Company,
Inc. (energy company) since 1987; Member of Council on Foreign Relations since
1971.
STEPHEN B. SWENSRUD (63) - Trustee(2) - 24 Federal Street, Suite 400,
Boston, Massachusetts 02110. Principal of Fernwood Associates (financial
consultants).
J. THOMAS TOUCHTON (58) - Trustee(2) - Suite 3405, One Tampa City
Center, Tampa, Florida 33602. Managing Partner of The Witt-Touchton Company and
its predecessor The Witt Co. (private placement partnership) since 1972; Trustee
Emeritus of Washington and Lee University; Director of TECO Energy, Inc.
(electric utility holding company).
NORMAN R. HARVEY (63) - Senior Vice President(1)(2) - Senior Vice
President of MLAM and FAM since 1982.
JOSEPH T. MONAGLE, JR. (48) - Senior Vice President(1)(2) - Senior Vice
President of MLAM since 1990; Vice President of MLAM from 1978 to 1990.
GREGORY MAUNZ (44) - Vice President (1)(2) - Vice President of MLAM
since 1985; Portfolio Manager of MLAM since 1984.
ERIC MITOFSKY (42) - Vice President (1)(2) - Vice President of MLAM
since 1992; Senior Desk Analyst with Merrill Lynch Program Trading Desk from
1987 to 1992.
JAY C. HARBECK (62) - Vice President(1)(2) - Vice President of the
Manager and FAM since 1986.
GERALD M. RICHARD (47) - Treasurer(1)(2) - Senior Vice President and
Treasurer of the Manager since 1984; Senior Vice President and Treasurer of FAM
since 1984; Treasurer of the Distributor since 1984 and Vice President since
1981.
MARK B. GOLDFUS (50) - Secretary (1)(2) - Vice President of MLAM and
FAM since 1985.
- ----------
(1) Interested person, as defined in the Investment Company Act, of the
Corporation.
(2) Such Trustee or officer is a director, trustee or officer of other
investment companies for which MLAM or FAM acts as investment adviser.
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<PAGE> 36
As of the date of this Part B, the officers and Trustees of the Trust
as a group (nine persons) owned an aggregate of less than 1/4 of 1% of the
outstanding shares of Common Stock of Merrill Lynch & Co., Inc. and owned an
aggregate of less than 1% of the outstanding shares of any of the Series.
Pursuant to the terms of the Management Agreement with the Trust, the
Manager pays all compensation of officers of the Trust as well as the fees of
all Trustees who are affiliated persons of MLAM. The Trust and Merrill Lynch
Index Funds, Inc. (the "Corporation") pay each individual that serves ans a
Director/Trustee not affiliated with the Manager a fee of $2,500 per year plus
$250 per meeting attended, together with such individual's out-of-pocket
expenses relating to attendance at meetings. The Corporation and the Trust also
compensate members of the Audit and Nominating Committee, which consists of all
of the Directors/Trustees who are not interested persons of the Funds of the
Corporation and the Series, with a fee of $1,000 per year.
COMPENSATION OF TRUSTEES
The following table sets forth the aggregate compensation the Corporation and
the Trust expect to pay to the non-interested Directors/Trustees for the current
fiscal year and the total compensation paid by all investment companies
advised by MLAM and its affiliate, FAM ("MLAM/FAM-Advised Funds") to the
non-interested Directors/Trustees for the calendar year ended December 31, 1996
(the most recent year for which such information is available).
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
TOTAL COMPENSATION
PENSION OR RETIREMENT FROM FUNDS/SERIES AND
AGGREGATE BENEFITS ACCRUED AS MLAM/FAM ADVISED
NAME OF TRUSTEE COMPENSATION FROM PART OF FUND/SERIES FUNDS PAID TO
FUNDS/SERIES EXPENSES DIRECTORS(1)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jack B. Sunderland $ 4,500 None $ 128,100
- -----------------------------------------------------------------------------------------------------------------------
Stephen B. Swensrud $ 4,500 None $ 154,250
- -----------------------------------------------------------------------------------------------------------------------
J. Thomas Touchton $ 4,500 None $ 128,100
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In addition to the Trust, the Trustees served on other MLAM/FAM Advised
Funds as follows: Mr. Sunderland (20 registered investment companies
consisting of 29 portfolios); Mr. Swensrud (20 registered investment
companies consisting of 49 portfolios); Mr. Touchton (20 registrered
investment companies consisting of 29 portfolios).
Item 15. Control Persons and Principal Holders of Securities.
The Manager initially owned all of the outstanding interests in the Trust, which
interests were allocated equally among the four Series.
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<PAGE> 37
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 has engaged 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 has entered 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, 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
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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.
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.
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York 10022, is
counsel for the Trust.
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
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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 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
39
<PAGE> 40
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.
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
40
<PAGE> 41
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust provides that
the Trust may maintain appropriate insurance (for example, fidelity 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.
DIVIDENDS AND DISTRIBUTIONS.
It is the Trust's intention to distribute all of its net investment income, if
any. Dividends from such net investment income will be paid at least annually
with respect to each of the S&P 500 Index Series, Small Cap Index Series and
International Index Series. Dividends with respect to the Aggregate Bond Series
will be declared daily and paid monthly. All net realized long- or short-term
capital gains, if any, are distributed to Series interestholders at least
annually. From time to time, a Series may declare a special distribution at or
about the end of the calendar year in order to comply with certain Federal
income tax requirements. All Dividends and Distributions will be credited ot the
accounts of interestholders or paid to interestholders, in each case as the
interestholder directs.
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, 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.
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<PAGE> 42
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, and
the valuation of the Series' assets, see Part A.
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.
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 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.
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<PAGE> 43
Foreign currency gains or losses on non-U.S. dollar denominated bonds and other
similar debt instruments and on any non-U.S. dollar denominated futures
contracts, options and forward contracts that are not section 1256 contracts
generally will be treated as ordinary income or loss.
Certain hedging transactions undertaken by a Series may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Series. In addition, losses realized by the
Series on positions that are part of a straddle may be deferred, rather than
being taken into account in calculating taxable income for the taxable year in
which such losses are realized. 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 receipt by the Series, such as investments in obligations
having original issue discount or market discount (if a Series elects to accrue
the market discount on a current basis with respect to such instruments).
Because such income may not be matched by a corresponding cash receipt, the
Series may be required to borrow money or dispose of other securities to be able
to make distributions to investors.
Each Series' taxable income will in most cases be determined on the basis of
reports made to such Series by the issuers of the securities in which such
Series invests. The tax treatment of certain securities in which a Series may
invest is not free from doubt, and it is possible that an Internal Revenue
Service examination of the issuers of such securities or of such Series could
result in adjustments to the income of the Series.
Under the Trust, each Series is to be managed in compliance with the provisions
of the Code applicable to RICs as though such requirements were applied at the
Series level. Thus, consistent with its investment objectives, each Series will
meet the income and diversification of assets tests of the Code applicable to
RICs. 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
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<PAGE> 44
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.
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.
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<PAGE> 45
Item 23. Financial Statements.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Investor,
Merrill Lynch Index Trust:
We have audited the accompanying statements of assets and liabilities of the
Merrill Lynch S&P 500 Index Series, Merrill Lynch SmallCap Index Series, Merrill
Lynch Aggregate Bond Index Series and Merrill Lynch International Index Series
of the Merrill Lynch Index Trust as of January 30, 1997. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such statements of assets and liabilities present fairly, in
all material respects, the financial position of the Merrill Lynch S&P 500 Index
Series, Merrill Lynch SmallCap Index Series, Merrill Lynch Aggregate Bond Index
Series and Merrill Lynch International Index Series of the Merrill Lynch
Index Trust as of January 30, 1997, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
January 31, 1997
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<PAGE> 46
Merrill Lynch Index Trust
Statement of Assets and Liabilities
January 30, 1997
Merrill Lynch Merrill Lynch Merrill Lynch Merrill Lynch
S&P 500 Small Cap Aggregate Bond International
Index Series Index Series Index Series Index Series
____________ ____________ ____________ ____________
Assets:
Cash in Bank $25,000 $25,000 $25,000 $25,000
Deferred organization
expenses (Note 3) 53,685 13,421 8,947 8,947
_______ _______ _______ _______
Total Assets 78,685 38,421 33,947 33,947
Liabilities:
Liabilities and
accrued expenses 53,685 13,421 8,947 8,947
_______ _______ _______ _______
Net Assets applicable
to investors' interest
in each Portfolio
(Note 1) $25,000 $25,000 $25,000 $25,000
======= ======= ======= =======
___________________________________________
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Index Trust (the "Trust") was organized as a Delaware business
trust on August 28, 1996 and consists of four portfolios or series: Merrill
Lynch S&P 500 Index Series, Merrill Lynch Small Cap Index Series, Merrill
Lynch Aggregate Bond Index Series and Merrill Lynch International Index
Series. The Trust is registered under the Investment Company Act of 1940
as a management investment company. To date, the Trust has not had any
transactions other than those relating to organizational matters and an
indirect $25,000 capital contribution to each of the portfolios by Merrill
Lynch Asset Management, L.P. ("the Manager") through the corresponding
portfolios in the Merrill Lynch Index Funds, Inc.
(2) The Trust has entered into an investment management agreement (the
"Management Agreement") with the Manager. (See "Management of the Fund -
Management and Advisory Arrangements" in Part B of the Registration
Statement). Certain officers and/or Trustees of the Trust are officers
and/or directors of the Manager.
(3) Deferred organization expenses will be amortized over a period from the date
the Trust commences operations not exceeding five years. In the event that
the Manager (or any subsequent holder) redeems any of its original interest
prior to the end of the five-year period, the proceeds of the redemption
payable in respect of such interest shall be reduced by the pro rata share
(based on the proportionate share of the original interest redeemed to the
total original interest outstanding at the time of redemption) of the
unamortized deferred organization expenses as of the date of such
redemption. In the event that the Trust is liquidated prior to the end of
the five-year period, the Manager (or any subsequent holder) shall bear the
unamortized deferred organization expenses.
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PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Included in Part A:
None.
(2) Included in Part B:
Statement of Assets and Liabilities.
(3) Included in Part C:
None.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1(a). Declaration of Trust of Registrant*
1(b) Certificate of Trust*
1(c) Amendment to Declaration 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. Placement Agent Agreement with Merrill Lynch Funds Distributor,
Inc.
7. Not applicable
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
8(a). Form of Custody Agreement with Merrill Lynch Trust Company
8(b). Form of Custody Agreement with State Street Bank and Trust
9 Licensing Agreement
10. Not applicable
11. Accountant's Consent
12. Not applicable
13. Not Applicable
14. Not applicable
15. Not applicable
16. Not applicable
17(a). Financial Data Schedules - Not applicable
17(b). Powers of Attorney
18. Not applicable
</TABLE>
- ----------------------
* Previously Filed.
Item 25. Persons Controlled By or Under Common Control with Registrant.
As of the date of this Registration Statement, the sole Holder
of interests in the Series of the Trust was Merrill Lynch
Asset Management, L.P.
Item 26. Number of Holders of Securities.
One.
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<PAGE> 49
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:
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
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<PAGE> 50
to the action, suit or proceeding, or by written
opinion from independent legal counsel approved by
the Trustees. The rights accruing to any Person under
these provisions shall not exclude any other right to
which he may be lawfully entitled; provided that no
Person may satisfy any right of indemnity or
reimbursement granted herein or to which he may be
otherwise entitled except out of the Trust Property.
The Trustees may make advance payments in connection
with indemnification under this Section 8.3; Provided
that any advance payment of expenses by the Trust to
any Trustee, officer, employee or agent shall be made
only upon the undertaking by such Trustee, officer,
employee or agent to repay the advance unless it is
ultimately determined that he is entitled to
indemnification as above provided, and only if one of
the following conditions is met:
(a) the Trustee, officer, employee or agent to
be indemnified provided a security for an
undertaking; or
(b) the Trust shall be insured against losses
arising by reason of any lawful advances; or
(c) there is a determination, based on a review
of readily available facts, that there is
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
50
<PAGE> 51
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 may insure its Trustees and officers against
certain liabilities, and certain costs of defending claims
against such Trustees and officers, to the extent such
Trustees and officers are not found to have committed conduct
constituting conflict of interest, intentional non-compliance
with statutes or regulations or dishonest, fraudulent or
criminal acts or omissions. The Registrant will purchase an
insurance policy to cover such indemnification obligation. The
insurance policy also will insure the Registrant against the
cost of indemnification payments to Trustees and officers
under certain circumstances. Insurance will not be purchased
that protects, or purports to protect, any Trustee or officer
from liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty.
The Registrant hereby undertakes that it will apply
the indemnification provisions of its Declaration of Trust and
Bylaws in a manner consistent with Release No. 11330 of the
Securities and Exchange Commission under the 1940 Act so long
as the interpretation of Section 17(h) and 17(i) of such Act
remain in effect and are consistently applied.
Item 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 Bond Fund for Investment and
Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global
Holdings, Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap
Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value
Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement
Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global
Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology
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<PAGE> 52
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.,
Merrill Lynch Municipal Strategy 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 Emerging Tigers Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc. and The
Municipal Fund Accumulation Program, Inc.; and the following closed-end
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., 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 Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New
Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund,
Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield
New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., 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,
52
<PAGE> 53
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
July 1, 1994 for his own account or in the capacity of director, officer,
partner or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is Executive
Vice President, and Mr. Richard is Treasurer of substantially all of the
investment 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.
<TABLE>
<CAPTION>
=================================================================================================================
Other Substantial Business,
Name Positions with Manager Profession, Vocation or
Employment
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ML&Co............................ Limited Partner Financial Services Holding
Company; Limited Partner of FAM
- -----------------------------------------------------------------------------------------------------------------
Princeton Services............... General Partner General Partner of FAM
- -----------------------------------------------------------------------------------------------------------------
Arthur Zeikel.................... President and Director President of FAM; President and
Director of Princeton Services;
Director of MLFD; Executive Vice
President of ML & Co.
- -----------------------------------------------------------------------------------------------------------------
Terry K. Glenn................... Executive Vice President and Executive Vice President of FAM;
Director 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 President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Elizabeth Griffin ............... Senior Vice President Senior Vice President of FAM:
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Norman R. Harvey ................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
=================================================================================================================
</TABLE>
53
<PAGE> 54
<TABLE>
<CAPTION>
=================================================================================================================
Other Substantial Business,
Name Positions with Manager Profession, Vocation or
Employment
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael J. Hennewinkel........... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
N. John Hewitt................... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Philip L. Kirstein .............. Senior Vice President, Senior Vice President, General
General Counsel, Secretary Counsel and Secretary of FAM;
and Director Senior Vice President, General
Counsel, Director and Secretary of
Princeton Services; Director of
MLFD
- -----------------------------------------------------------------------------------------------------------------
Ronald M. Kloss ................. Senior Vice President and Senior Vice President 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
- -----------------------------------------------------------------------------------------------------------------
Joseph T. Monagle................ Senior Vice President Senior Vice President of FAM;
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
- -----------------------------------------------------------------------------------------------------------------
Richard L. Reller................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
=================================================================================================================
</TABLE>
54
<PAGE> 55
<TABLE>
<CAPTION>
=================================================================================================================
Other Substantial Business,
Name Positions with Manager Profession, Vocation or
Employment
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Gerald M. Richard ............... Senior Vice President and Senior Vice President 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
- -----------------------------------------------------------------------------------------------------------------
Anthony Wiseman ................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
=================================================================================================================
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: Merrill Lynch
EuroFund, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch International Equity Fund and Merrill Lynch
Short-Term Global Income Fund, Inc. The address of each of these investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
Set forth below is a list of each executive officer and director of
MLAM U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each person has been engaged since July 1, 1994, for
his or her own account or in the capacity of director, officer, partner or
trustee. In addition, Messrs. Zeikel, Albert, Bascand, Glenn, Richard and
Yardley are officers of one or more of the registered investment companies
listed in the first two paragraphs of this Item 28:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Name Position with MLAM U.K. Other Substantial Business,
Profession, Vocation or
Employment
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Arthur Zeikel.......................... Director and Chairman President of the Manager and
FAM; President and Director of
Princeton Services, Director of
MLFD; Executive Vice
President of ML & Co.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 56
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alan J. Albert......................... Senior Managing Director Vice President of the Manager
- -----------------------------------------------------------------------------------------------------------------------
Terry K. Glenn......................... Director Executive Vice President of
the Manager and FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of
MLFD; Director of MLFDS;
President of Princeton
Administrators
- -----------------------------------------------------------------------------------------------------------------------
Adrian Holmes.......................... Managing Director Director of Merrill Lynch
Global Asset Management
- -----------------------------------------------------------------------------------------------------------------------
Andrew John Bascand.................... Director Director of Merrill Lynch
Global Asset Management
- -----------------------------------------------------------------------------------------------------------------------
Edward Gobora.......................... Director Director of Merrill Lynch
Global Asset Management
- -----------------------------------------------------------------------------------------------------------------------
Richard Kilbride....................... Director Director of Merrill Lynch
Global Asset Management
- -----------------------------------------------------------------------------------------------------------------------
Robert M. Ryan ........................ Director Vice President, Institutional
Marketing, Debt and Equity
Group, Merrill Lynch Capital
Markets from 1989 to 1994
- -----------------------------------------------------------------------------------------------------------------------
Gerald M. Richard...................... Senior Vice President Senior Vice President and
Treasurer of the Manager and
FAM; Senior Vice President
and Treasurer of Princeton
Services; Vice President and
Treasurer of MLFD
- -----------------------------------------------------------------------------------------------------------------------
Stephen J. Yardley..................... Director Director of Merrill Lynch
Global Asset Management
- -----------------------------------------------------------------------------------------------------------------------
Carol Ann Langham...................... Company Secretary None
- -----------------------------------------------------------------------------------------------------------------------
Debra Anne Searle..................... Assistant Company Secretary None
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE> 57
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant, placement agent
for Merrill Lynch Index Trust and as principal underwriter for each of the
open-end investment companies referred to in the first two paragraphs 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 MLFD 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. Aldrich, Breen, Crook,
Fatseas and Wasel is One Financial Center, Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
=====================================================================================================================
(1) (2) (3)
Positions and Offices Positions and Offices
Name with the Distributor with Registrant
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Terry K. Glenn....................... President and Director President
- ---------------------------------------------------------------------------------------------------------------------
Arthur Zeikel ....................... Director None
- ---------------------------------------------------------------------------------------------------------------------
Philip L. Kirstein .................. Director None
- ---------------------------------------------------------------------------------------------------------------------
William E. Aldrich .................. Senior Vice President None
- ---------------------------------------------------------------------------------------------------------------------
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
=====================================================================================================================
</TABLE>
57
<PAGE> 58
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert Harris........................ Secretary None
=====================================================================================================================
</TABLE>
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
Trust" in Part A of the Registration Statement and under "Management of the
Trust" in Part B of the Registration Statement, the Registrant is not party to
any Management-related service contract.
Item 32. Undertakings
None.
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant certifies that it has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and State of New Jersey, on the 30th
day of January, 1997.
MERRILL LYNCH INDEX TRUST
By: /s/ Terry K. Glenn
---------------------------------
(Terry K. Glenn, President)
59
<PAGE> 60
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1(a). Declaration of Trust of Registrant*
1(b) Certificate of Trust*
1(c) Amendment to Declaration 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. Placement Agent Agreement with Merrill Lynch Funds Distributor,
Inc.
7. Not applicable
8(a). Form of Custody Agreement with Merrill Lynch Trust Company
8(b). Form of Custody Agreement with State Street Bank and Trust
9 Licensing Agreement
10. Not applicable
11. Accountant's Consent
12. Not applicable
13. Not Applicable
14. Not applicable
15. Not applicable
16. Not applicable
17(a). Financial Data Schedules - Not applicable
17(b). Powers of Attorney
18. Not applicable
</TABLE>
- ----------------------
* Previously Filed.
60
<PAGE> 1
EXHIBIT 1(c)
AMENDMENT TO DECLARATION OF TRUST
OF
MERRILL LYNCH INDEX TRUST
The undersigned certifies that he is the sole Trustee of Merrill Lynch
Index Trust (the "Trust"), and further certifies that as sole Trustee he has
duly adopted the following amendment pursuant to Section 10.4 of the
Declaration of Trust of the Trust:
The names of the following Series, previously designated in Section
5.2 of the Declaration of Trust of the Trust, are changed as follows:
<TABLE>
<CAPTION>
Old Name of Series New Name of Series
------------------ ------------------
<S> <C>
Merrill Lynch Large Cap Index Series Merrill Lynch S&P 500 Index Series
Merrill Lynch Intermediate Bond Index Series Merrill Lynch Aggregate Bond Index Series
Merrill Lynch International Equity Index Series Merrill Lynch International Index Series
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this
1st day of November, 1996.
/s/ Mark B. Goldfus
----------------------------------
Mark B. Goldfus, as Trustee
<PAGE> 1
EXHIBIT 5
MANAGEMENT AGREEMENT
AGREEMENT made as of January 1, 1997, by and between MERRILL LYNCH
INDEX TRUST, a Delaware business trust (hereinafter referred to as the "Trust")
on behalf of its series named in the one or more Addenda hereto (each, a
"Series") and MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited
partnership, doing business as MERRILL LYNCH ASSET MANAGEMENT (hereinafter
referred to as the "Manager"). This Agreement and the Addendum or Addenda
pertaining to a Series shall constitute the "investment advisory contract" for
the Series for purposes of Section 15(a) of the Investment Company Act of 1940,
as amended (hereinafter referred to as the "Investment Company Act").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to
establish separate series relating to separate portfolios of securities, each
of which may offer separate classes of shares; and
WHEREAS, the Trustees have established and designated the Series as
series of the Trust; and
WHEREAS, the Manager is engaged principally in rendering management
and investment advisory services and is registered as an investment adviser
under the Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Manager to provide management
and investment advisory services to the Series in the manner and on the terms
hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Series on the terms and conditions hereafter set
forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Manager hereby agree as follows:
<PAGE> 2
ARTICLE I
DUTIES OF THE MANAGER
The Trust hereby employs the Manager to act as a manager and
investment adviser of the Series and to furnish, or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to the policies of, review by and overall control of the Trustees, for
the period and on the terms and conditions set forth in this Agreement. The
Manager hereby accepts such employment and agrees during such period, at its
own expense, to render, or arrange for the rendering of, such services and to
assume the obligations herein set forth for the compensation provided for
herein. The Manager and its affiliates shall for all purposes herein be deemed
to be independent contractors and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust or the Series
in any way or otherwise be deemed agents of the Trust or the Series.
(a) Management Services. The Manager shall perform (or arrange for
the performance by affiliates of) the management and administrative services
necessary for the operation of the Trust and the Series including administering
shareholder accounts and handling shareholder relations. The Manager shall
provide the Trust and the Series with office space, facilities, equipment and
necessary personnel and such other services as the Manager, subject to review
by the Trustees, shall from time to time determine to be necessary or useful to
perform its obligations under this Agreement. The Manager shall also, on
behalf of the Trust and the Series, conduct relations with custodians,
depositories, transfer agents, dividend disbursing agents, other shareholder
servicing agents, accountants, attorneys, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and such other persons in any such other
capacity deemed to be necessary or desirable. The Manager shall generally
monitor the Trust's and the Series' compliance with investment policies and
restrictions as set forth in the Registration Statement of the Trust filed with
the Securities and Exchange Commission under the Investment Company Act, as
amended from time to time (the "Registration Statement"). The Manager shall
make reports to the Trustees of its performance of obligations hereunder and
furnish advice and recommendations with respect to such other aspects of the
business and affairs of the Series as it shall determine to be desirable.
(b) Investment Advisory Services. The Manager shall provide (or
arrange for affiliates to provide) the Trust with such investment research,
advice and supervision as the latter may from time to time consider necessary
for the proper supervision of the assets of the Series, shall furnish
continuously an investment program for the Series and shall determine from time
to time which securities shall be purchased, sold or exchanged and what portion
of the assets of the Series shall be held in the various securities and other
financial instruments in which the Series invests or cash, subject always to
the restrictions of the Declaration of Trust and By-Laws of the Trust, as
amended from time to time, the provisions of the Investment Company Act and the
statements relating to the Series' investment objectives, investment policies
and investment restrictions as the same are set forth in the Trust's current
Registration Statement. The Manager shall make decisions for the Trust as to
the manner in which voting rights, rights to consent to corporate action and
any other rights pertaining to the Series' portfolio securities shall be
exercised. Should the Trustees at any time,
2
<PAGE> 3
however, make any definite determination as to investment policy and notify the
Manager thereof in writing, the Manager shall be bound by such determination
for the period, if any, specified in such notice or until similarly notified
that such determination has been revoked. The Manager shall take, on behalf of
the Series, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders
for the purchase or sale of portfolio securities for the Series' account with
brokers or dealers selected by it, and to that end, the Manager is authorized
as the agent of the Trust to give instructions to the custodian of the Series
as to deliveries of securities and payments of cash for the account of the
Series. In connection with the selection of such brokers or dealers and the
placing of such orders with respect to assets of the Series, the Manager is
directed at all times to seek to obtain execution and price within the policy
guidelines determined by the Trustees and set forth in the current Registration
Statement. Subject to this requirement and the provisions of the Investment
Company Act, the Securities Exchange Act of 1934, as amended, and other
applicable provisions of law, the Manager may select brokers or dealers with
which it or the Trust is affiliated.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Manager. The Manager assumes and shall pay for
maintaining the staff and personnel necessary to perform its obligations under
this Agreement, and shall, at its own expense, provide the office space,
facilities and necessary personnel which it is obligated to provide under
Article I hereof, and shall pay compensation of all Officers of the Trust and
all Trustees of the Trust who are affiliated persons of the Manager.
(b) The Trust. The Trust assumes and shall pay or cause to be
paid all other expenses of the Trust and the Series (except for the expenses
paid by the Distributor), including, without limitation: taxes, expenses for
legal and auditing services, costs of printing proxies, stock certificates,
shareholder reports, copies of the Registration Statement, charges of the
custodian, any sub-custodian and transfer agent, expenses of portfolio
transactions, expenses of redemption of shares, Securities and Exchange
Commission fees, expenses of registering the shares under Federal, state and
foreign laws, fees and actual out-of-pocket expenses of Trustees who are not
affiliated persons of the Manager, accounting and pricing costs (including the
daily calculation of the net asset value), insurance, interest, brokerage
costs, litigation and other extraordinary or non-recurring expenses, and other
expenses properly payable by the Series. It is also understood that the Trust
shall reimburse the Manager for its costs in providing accounting services to
the Trust and the Series. The Distributor will pay certain of the expenses of
the Series incurred in connection with the continuous offering of shares of
beneficial interest of each the Series.
ARTICLE III
COMPENSATION OF THE MANAGER
Management and Investment Advisory Fee. For the services rendered,
the facilities furnished and expenses assumed by the Manager, the Series shall
pay to the Manager at the end of each
3
<PAGE> 4
calendar month a fee based upon the average daily value of the net assets of
the Series, as determined and computed in accordance with the description of
the determination of net asset value contained in the Registration Statement,
at the annual rate of set forth on the Addendum or Addenda pertaining to the
Series, commencing on the day following effectiveness hereof. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fee as set forth above. Payment of the Manager's
compensation for the preceding month shall be made as promptly as possible
after completion of the computations contemplated above. During any period
when the determination of net asset value is suspended by the Trustees, the net
asset value of a share as of the last business day prior to such suspension
shall for this purpose be deemed to be the net asset value at the close of each
succeeding business day until it is again determined.
ARTICLE IV
LIMITATION OF LIABILITY OF THE MANAGER
The Manager shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the management of the Trust and the Series, except for willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article IV, the term "Manager" shall include any affiliates of the Manager
performing services for the Trust or the Series contemplated hereby and
partners, directors, officers and employees of the Manager and such affiliates.
ARTICLE V
ACTIVITIES OF THE MANAGER
The services of the Manager to the Trust and the Series are not to be
deemed to be exclusive, and the Manager and each affiliate is free to render
services to others. It is understood that Trustees, officers, employees and
shareholders of the Trust and the Series are or may become interested in the
Manager and its affiliates, as directors, officers, employees, partners and
shareholders or otherwise, and that the Manager and directors, officers,
employees, partners and shareholders of the Manager and its affiliates are or
may become similarly interested in the Trust or the Series as shareholders or
otherwise.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective with respect to a Series as of
the date such Series commences investment operations, and shall remain in force
with respect to such Series for two years thereafter or, if sooner, until such
date as may be set forth in the Addendum pertaining to the Series, and
thereafter, but only so long as such continuance is specifically approved at
least annually by (i) the Trustees, or with respect to any Series by the vote
of a majority of the outstanding voting
4
<PAGE> 5
securities of the Series, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees or with respect to a Series by the vote of a
majority of the outstanding voting securities of the Series, or by the Manager,
on sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) (a) with respect to all Series, by the vote of a
majority of outstanding voting securities of the Series, and (b) with respect
to any one Series by the vote of a majority of outstanding voting securities of
such Series; and (ii) a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
The terms "vote of majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To
the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
ARTICLE X
Limitation of Obligations of the Series
The obligations of each Series hereunder shall be limited to the
assets of that Series, shall be separate from the obligations of each other
Series, and no Series shall be liable for the obligations of any other Series.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH INDEX TRUST
By: /s/ Terry K. Glenn
Title: President
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By: /s/ Arthur Zeikel
Title: President
6
<PAGE> 7
ADDENDUM A TO MANAGEMENT AGREEMENT
<TABLE>
<CAPTION>
Name of Series Management Fee
-------------- --------------
<S> <C>
Merrill Lynch S&P 500 Index Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.05%
Merrill Lynch Small Cap Index Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.08%
Merrill Lynch Aggregate Bond Index Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.06%
Merrill Lynch International Index Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.11%
</TABLE>
<PAGE> 1
EXHIBIT 6
PLACEMENT AGENT AGREEMENT
AGREEMENT made as of January 1, 1997, between MERRILL LYNCH INDEX
TRUST, a Delaware business trust (the "Trust"), on behalf of its series listed
on Appendix A hereto (the "Series"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC.,
a Delaware corporation (the "Placement Agent"). The obligations of each Series
hereunder shall be limited to the assets of that Series, shall be separate from
the obligations of each other Series, and no Series shall be liable for the
obligations of any other Series.
W I T N E S S E T H :
WHEREAS, the Trust has filed a registration statement (the
"Registration Statement") pursuant to Section 8(b) of the Investment Company
Act of 1940, as amended (the "Investment Company Act"); and
WHEREAS, the Trustees (the "Trustees") are authorized to establish
separate series relating to separate portfolios of securities, each of which
may offer beneficial interests in the Series ("Interests"); and
WHEREAS, the Trustees have established and designated the Series as
series of the Trust; and
WHEREAS, the Trust and the Placement Agent wish to enter into an
agreement with each other with respect to the distribution of Interests in the
Series.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Placement Agent; Private Offering.
(a) The Trust hereby appoints the Placement Agent as placement
agent in connection with the distribution of the Interests.
(b) The Placement Agent understands that: (i) The Interests are
not being registered under the Securities Act of 1933, as amended (the
"Securities Act"); (ii) Such Interests are to be issued
<PAGE> 2
solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the Securities Act; (iii)
Investments in the Series 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 Securities Act; and (iv) The Registration Statement is
not intended to constitute an offer to sell, or the solicitation of an offer to
buy, any beneficial interests in the Series.
(c) In carrying out its duties hereunder, the Placement Agent
agrees that it will act in a manner consistent with the foregoing and, unless
otherwise instructed by the Trust in writing, will not take any actions which
would cause the Trust to make a "public offering" within the meaning of Section
4(2) of the Securities Act.
Section 2. Exclusive Nature of Duties. The Placement Agent shall be
the exclusive representative of the Series to act as placement agent in respect
of the distribution of the Interests, except that:
(a) The Trust may, with respect to any Series, upon written notice to
the Placement Agent, from time to time designate other placement agents with
respect to areas other than the United States as to which the Placement Agent
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Placement Agent under this
Agreement in respect of such areas so designated shall terminate, but this
Agreement shall remain otherwise in full effect until terminated in accordance
with the other provisions hereof.
(b) The exclusive right granted to the Placement Agent hereunder
shall not apply to Interests issued in connection with the merger or
consolidation of any other investment company or personal
2
<PAGE> 3
holding company with a Series or the acquisition by purchase or otherwise of
all (or substantially all) the assets or the outstanding shares of any such
company by a Series.
(c) Such exclusive right also shall not apply to Interests issued by
a Series pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive right also shall not apply to Interests issued by
a Series pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Interests as shall be agreed
between the Trust and the Placement Agent from time to time.
Section 3. Duties of the Trust.
(a) The Trust shall furnish to the Placement Agent copies of all
information, financial statements and other papers which the Placement Agent
may reasonably request for use in connection with its duties hereunder, and
this shall include, upon request by the Placement Agent, one certified copy of
all financial statements prepared for the Trust by independent public
accountants.
(b) Consistent with Section 1 hereof, the Trust shall use its best
efforts to qualify and maintain the qualification of the Interests for sale
under the securities laws of such jurisdictions as the Placement Agent and the
Trust may approve. Any such qualification may be withheld, terminated or
withdrawn by the Trust at any time in its discretion. The expense of
qualification and maintenance of qualification shall be borne by the Trust. The
Placement Agent shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualification.
(c) The Trust will furnish, in reasonable quantities upon request by
the Placement Agent, copies of annual and interim reports of the Series.
3
<PAGE> 4
Section 4. Duties of the Placement Agent.
(a) The Placement Agent shall devote reasonable time and effort to
its duties hereunder. The services of the Placement Agent to the Trust
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Placement Agent from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In performing its duties hereunder, the Placement Agent shall use
its best efforts in all respects duly to conform with the requirements of all
applicable laws relating to the sale of securities. Neither the Placement
Agent nor any other person is authorized by Trust to give any information or to
make any representations, other than those contained in the Trust's
registration statement or any supplemental literature specifically approved by
the Trust.
Section 5. Payment of Expenses.
(a) The Trust shall bear all costs and expenses of the Series,
including fees and disbursements of its counsel and auditors, in connection
with the preparation and filing of any required registration statements under
the Investment Company Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
such registration statements, or interim reports or proxy materials).
(b) The Trust shall bear any cost and expenses of qualification of
the Shares for sale pursuant to this Agreement and, if necessary or advisable
in connection therewith, of qualifying the Trust as a broker or dealer in such
states of the United States or other jurisdictions as shall be selected by the
Trust and the Placement Agent pursuant to Section 3 hereof and the cost and
expenses payable to
4
<PAGE> 5
each such state for continuing qualification therein until the Trust decides to
discontinue such qualification pursuant to Section 3 hereof.
Section 6. Indemnification.
(a) The Trust shall indemnify and hold harmless the Placement Agent
and each person, if any, who controls the Placement Agent against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Interests, which may be
based upon the Securities Act, or on any other statute or at common law, on the
ground that any registration statement or other offering materials, as from
time to time amended and supplemented, or an annual or interim report to
interestholders of the Series, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Trust in connection therewith by or on behalf of the Placement
Agent; provided, however, that in no case (i) is the indemnity of the Trust in
favor of the Placement Agent and any such controlling persons to be deemed to
protect such Placement Agent or any such controlling persons thereof against
any liability to the Trust or its interestholders to which the Placement Agent
or any such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of the reckless disregard of their obligations and duties under
this Agreement; or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Placement Agent or any such controlling persons, unless the Placement Agent or
such controlling persons, as the case may be, shall have
5
<PAGE> 6
notified the Trust in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon the Placement Agent or such controlling persons (or after
the Placement Agent or such controlling persons shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve it from any liability which it may have to the
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Trust will be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Trust
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Placement Agent or such controlling person or
persons, defendant or defendants in the suit. In the event the Trust elects to
assume the defense of any such suit and retain such counsel, the Placement
Agent or such controlling person or persons, defendant or defendants in the
suit shall bear the fees and expenses, as incurred, of any additional counsel
retained by them, but in case the Trust does not elect to assume the defense of
any such suit, it will reimburse the Placement Agent or such controlling person
or persons, defendant or defendants in the suit, for the reasonable fees and
expenses, as incurred, of any counsel retained by them. The Trust shall
promptly notify the Placement Agent of the commencement of any litigation or
proceedings against it or any of its officers or Directors in connection with
the issuance or sale of any of the Interests.
(b) The Placement Agent shall indemnify and hold harmless the Trust
and each of its Trustees and officers and each person, if any, who controls the
Trust against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance
upon, and in conformity
6
<PAGE> 7
with, information furnished to the Trust in writing by or on behalf of the
Placement Agent for use in connection with the registration statement or other
offering materials, as from time to time amended, or the annual or interim
reports to shareholders. In case any action shall be brought against the Trust
or any person so indemnified, in respect of which indemnity may be sought
against the Placement Agent, the Placement Agent shall have the rights and
duties given to the Trust, and the Trust and each person so indemnified shall
have the rights and duties given to the Placement Agent by the provisions of
subsection (a) of this Section 6.
Section 7. Duration and Termination of this Agreement. This
Agreement shall become effective as of the date first above written and shall
remain in force until December 31, 1998 and thereafter, but only for so long as
such continuance is specifically approved at least annually by (i) the Trustees
or by the vote of a majority of the outstanding voting securities of the Trust
and (ii) by the vote of a majority of those Trustees who are not parties to
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees or by vote of a majority of the outstanding voting
securities of the Trust, or by the Placement Agent, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 8. Amendments of this Agreement. This Agreement may be
amended by the parties only if such amendment is specifically approved by (i)
the Trustees or by the vote of a majority of
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<PAGE> 8
outstanding voting securities of the Trust and (ii) by the vote of a majority
of those Trustees who are not parties to this Agreement or interested persons
of any such party cast in person at a meeting called for the purpose of voting
on such approval.
Section 9. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York,
or any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MERRILL LYNCH INDEX TRUST
By /s/ Terry K. Glenn
-----------------------------------------------
Title: President
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Gerald M. Richard
-----------------------------------------------
Title: Vice President and Treasurer
8
<PAGE> 9
Appendix A
SERIES OF MERRILL LYNCH INDEX TRUST
Merrill Lynch S&P 500 Index Series
Merrill Lynch Small Cap Index Series
Merrill Lynch Aggregate Bond Index Series
Merrill Lynch International Index Series
As of January 1, 1997
9
<PAGE> 1
EXHIBIT 8(a)
FORM OF
CUSTODIAN CONTRACT
Between
MERRILL LYNCH INDEX TRUST
and
MERRILL LYNCH TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By
It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Availability of Federal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Payment of Fund Monies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.10 Deposit of Fund Assets in Securities System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
[2.10A Fund Assets Held in the Custodian's Direct
Paper System] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.11 Segregated Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Ownership Certificates for Tax Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.13 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.14 Communications Relating to Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.15 Reports to Fund by Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Foreign Securities Depositories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Agreements with Foreign Banking Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Access of Independent Accountants of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 Reports by Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7 Transactions in Foreign Custody Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Liability of Foreign Sub-Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.9 Liability of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.10 Reimbursement for Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.11 Monitoring Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.12 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.13 Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6. Actions Permitted Without Express Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. Duties of Custodian With Respect to the Books of Account and Calculation
of Net Asset Value and Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10. Opinion of Fund's Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13. Effective Period, Termination and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15. Interpretive and Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
16. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
17. New Jersey Law to Apply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
18. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19. Shareholder Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between Merrill Lynch Index Trust, a business trust
organized and existing under the laws of Delaware, having its principal place
of business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536 hereinafter
called the "Fund," and Merrill Lynch Trust Company, a ____________ trust
company, having its principal place of business at ___________________,
hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in __ series,
Merrill Lynch ________, Merrill Lynch ______, and Merrill Lynch _______ (such
series together with all other series subsequently established by the Fund and
made subject to this Contract in accordance with paragraph 17, being herein
referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets
of the Portfolio(s) of the Fund, including securities which the Fund, on behalf
of the applicable Portfolio desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the Articles
of Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to
the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of capital
stock of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible
for any property of a Portfolio held or received by the Portfolio and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only
in accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall be
responsible or liable to the Fund on account of any actions or omissions of any
sub-custodian as if the Custodian itself had acted or omitted to act. The
Custodian may employ as sub-custodian for the Fund's foreign securities on
behalf of the applicable Portfolio(s) the foreign banking institutions and
foreign securities depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3.
<PAGE> 5
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by
such Portfolio, other than (a) securities that are maintained pursuant
to Section 2.10 in a clearing agency that acts as a securities
depository or in a book-entry system authorized by the U.S. Department
of the Treasury, collectively referred to herein as "Securities
System") and (b) commercial paper of an issuer for which Merrill Lynch
Trust Company acts as issuing and paying agent ("[Direct Paper]") that
is deposited and/or maintained in the [Direct Paper] System of the
Custodian (the "[Direct Paper] System") pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian [or in the Custodian's
[Direct Paper] book entry system account ("[Direct Paper] System
Account")] only upon receipt of Proper Instructions from the Fund on
behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a
2
<PAGE> 6
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are
to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national
3
<PAGE> 7
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of Proper Instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Directors or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian, which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.9, or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the terms
of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name," the Custodian shall utilize all
reasonable efforts to timely collect income due the Fund on such
securities and to notify the Fund of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender
or exchange offers.
4
<PAGE> 8
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained
by the Portfolio in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for a Portfolio may be deposited by it to its credit
as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Directors of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due each Portfolio on
securities loaned pursuant to the provisions of Section 2.2 (10) shall
be the responsibility of the Fund. Subject to the exercise of
reasonable care, the Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
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<PAGE> 9
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.10 hereof; (c) in the case of a purchase
involving the [Direct Paper] System, in accordance with the
conditions set forth in Section 2.11 hereof; (d) in the case
of repurchase agreements entered into between the Fund on
behalf of the Portfolio and the Custodian, or another bank, or
a broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
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<PAGE> 10
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received
by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System," in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
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<PAGE> 11
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System
of transfers of securities for the account of the Portfolio
shall identify the Portfolio, be maintained for the Portfolio
by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund on behalf
of the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of
the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, the Fund shall be entitled to be
subrogated to the rights of the Custodian with respect to any
claim against the Securities System or any other person which
the Custodian may have as a consequence of any such loss or
damage if and to the extent that the Portfolio has not been
made whole for any such loss or damage.
[2.10A Fund Assets Held in the Custodian's [Direct Paper] System. The
Custodian may deposit and/or maintain securities owned by a Portfolio
in the [Direct Paper] System of the Custodian subject to the following
provisions:
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<PAGE> 12
1) No transaction relating to securities in the [Direct Paper]
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
[Direct Paper] System only if such securities are represented
in an account ("Account") of the Custodian in the [Direct
Paper] System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the [Direct Paper] System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of [Direct Paper] on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account of
the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.]
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of
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<PAGE> 13
segregating cash or government securities in connection with options
purchased, sold or written by the Portfolio or commodity futures
contracts or options thereon purchased or sold by the Portfolio, (iii)
for the purposes of compliance by the Portfolio with the procedures
required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Portfolio such proxies, all
proxy soliciting materials and all notices relating to such
securities.
2.14 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund for each Portfolio all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on
behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to
the Portfolio all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from
the party (or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Portfolio shall
notify the Custodian at least three business days prior to the date on
which the Custodian is to take such action.
2.15 Reports to Fund by Independent Public Accountants The Custodian shall
provide the Fund, on behalf of each of the Portfolios at such times as
the Fund may reasonably require, with reports by independent public
accountants on the accounting system, internal accounting
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<PAGE> 14
control and procedures for safeguarding securities, futures contracts
and options on futures contracts, including securities deposited
and/or maintained in a Securities System, relating to the services
provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be
required by the Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the
Portfolio's securities and other assets maintained outside the United
States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions," as defined
in Section 5 of this Contract, together with a certified resolution of
the Fund's Board of Directors, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to
act as sub-custodian. Upon receipt of Proper Instructions, the Fund
may instruct the Custodian to cease the employment of any one or more
such sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to:
(a) "foreign securities," as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign
securities transactions. The Custodian shall identify on its books as
belonging to the applicable Portfolio of the Fund, the foreign
securities of that Portfolio of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in foreign securities depositories only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets of each Portfolio will be freely transferable without the
payment of money or value other than for custody or administration;
(c) adequate records will be
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<PAGE> 15
maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the
Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use all reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians. (b) Notwithstanding any provision of this
Contract to the contrary, settlement and payment for securities
received for the account of each applicable Portfolio and delivery of
securities maintained for the account of each applicable Portfolio may
be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained
in the name of such entity's nominee to the same extent as set forth
in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such
securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense,
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<PAGE> 16
liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been
made whole for any such loss, damage, cost, expense, liability or
claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.12 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign
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<PAGE> 17
branch of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The appointment
of any such branch as a sub-custodian shall be governed by paragraph 1
of this Contract.
3.13 Tax Law. Subject to the exercise of reasonable care, the Custodian
shall have no responsibility or liability for any obligations now or
hereafter imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of the United States of America or any state or
political subdivision thereof. It shall be the responsibility of the
Fund to notify the Custodian of the obligations imposed on the Fund or
the Custodian as custodian of the Fund by the tax law of jurisdictions
other than those mentioned in the above sentence, including
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The
sole responsibility of the Custodian with regard to such tax law shall
be to use reasonable efforts to assist the Fund with respect to any
claim for exemption or refund under the tax law of jurisdictions for
which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares of a Portfolio, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire funds to or
through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund on behalf of each such Portfolio and
the Transfer Agent of any receipt by it of payments for Shares of such
Portfolio.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a
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<PAGE> 18
specific statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause
all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Directors of the Fund accompanied by a detailed description of
procedures approved by the Board of Directors, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for the Portfolios' assets.
For purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires
a segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be promptly accounted for to the Fund on behalf of the
Portfolio, and the Fund shall not object to such payments;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Directors of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed by or on behalf
of the Fund. The Custodian may receive and accept a certified copy of a vote
of the Board of Directors of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Directors pursuant to the
Articles of Incorporation as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
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8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Directors of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such
Portfolio and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net
asset value per share and the daily income of each Portfolio shall be made at
the time or times described from time to time in the Fund's currently effective
prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
16
<PAGE> 20
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall
be entitled to rely on and may act upon advice of counsel (who may be counsel
for the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) for the benefit of a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign exchange or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in
17
<PAGE> 21
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors of the Fund has
approved the initial use of a particular Securities System by such Portfolio,
as required by Rule 17f-4 under the Investment Company Act of 1940, as amended
and that the Custodian shall not with respect to a Portfolio act under Section
2.10A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors has approved
the initial use of the [Direct Paper] System by such Portfolio; provided
further, however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Articles of Incorporation, and further provided, that the Fund on behalf
of one or more of the Portfolios may at any time by action of its Board of
Directors (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately
terminate this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate regulatory agency
or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Directors of the Fund, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.
18
<PAGE> 22
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Directors of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Directors shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in _________, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held
by the Custodian on behalf of each applicable Portfolio and all instruments
held by the Custodian relative thereto and all other property held by it under
this Contract on behalf of each applicable Portfolio and to transfer to an
account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust
company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Articles of Incorporation
of the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
16. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Merrill Lynch International Index Fund with respect to which it
desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian
agrees in writing to provide such services, such series of Shares shall become
a Portfolio hereunder.
19
<PAGE> 23
17. New Jersey Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The State of New Jersey.
18. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
19. Shareholder Communications
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's
name and address for any purpose other than corporate communications. Please
indicate below whether the Fund consent or object by checking one of the
alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
20
<PAGE> 24
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the day of
, 1997.
ATTEST MERRILL LYNCH INDEX TRUST
By
- --------------------------- ---------------------------------
ATTEST MERRILL LYNCH TRUST COMPANY
By
- --------------------------- ---------------------------------
Executive Vice President
<PAGE> 25
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Merrill Lynch Index
Trust for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
- --------------------------
Fund's Authorized Officer
Date:
---------------------
<PAGE> 1
EXHIBIT 8(b)
CUSTODIAN CONTRACT
Between
MERRILL LYNCH INDEX TRUST
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By
It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Availability of Federal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Payment of Fund Monies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.10 Deposit of Fund Assets in Securities System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.10A Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.11 Segregated Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Ownership Certificates for Tax Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.13 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.14 Communications Relating to Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.15 Report of Funds Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Foreign Securities Depositories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Agreements with Foreign Banking Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Access of Independent Accountants of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 Reports by Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.7 Transactions in Foreign Custody Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Liability of Foreign Sub-Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.9 Liability of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.10 Reimbursement for Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.11 Monitoring Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.12 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.13 Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
4. Payments for Sales or Repurchases or Redemptions
of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6. Actions Permitted Without Express Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10. Opinion of Fund's Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13. Effective Period, Termination and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15. Interpretive and Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
16. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
17. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
19. Shareholder Communications Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between Merrill Lynch Index Trust, a business trust
organized and existing under the laws of Delaware, having its principal place
of business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian,"
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series,
Merrill Lynch International Equity Index Series (such series together with all
other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets
of the Portfolio(s) of the Fund, including securities which the Fund, on behalf
of the applicable Portfolio desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside
the United States ("foreign securities") pursuant to the provisions of the
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be responsible
for any property of a Portfolio held or received by the Portfolio and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only
in accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
<PAGE> 5
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by
such Portfolio, other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury , collectively referred to herein as a
"Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian (the "Direct Paper System") pursuant to
Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of
the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
2
<PAGE> 6
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant
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registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian, which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.9, or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the terms
of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize all
reasonable efforts to timely collect income due the Fund on such
securities and to notify the Fund of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender
or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained
by the Portfolio in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for a Portfolio may be deposited by it to its credit
as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that
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<PAGE> 8
every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such
bank or trust company and the funds to be deposited with each such
bank or trust company shall on behalf of each applicable Portfolio be
approved by vote of a majority of the Board of Trustees of the Fund.
Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due each Portfolio on
securities loaned pursuant to the provisions of Section 2.2(10) shall
be the responsibility of the Fund. Subject to the exercise of
reasonable care, the Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.10
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<PAGE> 9
hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.10A hereof; (d) in the case of repurchase agreements
entered into between the Fund on behalf of the Portfolio and
the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely
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<PAGE> 10
liable to the Fund for such securities to the same extent as if the
securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System
of transfers of securities for the account of the Portfolio
shall identify the Portfolio, be maintained for the Portfolio
by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund on behalf
of the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of
the Portfolio;
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4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, the Fund shall be entitled to be
subrogated to the rights of the Custodian with respect to any
claim against the Securities System or any other person which
the Custodian may have as a consequence of any such loss or
damage if and to the extent that the Portfolio has not been
made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Portfolio
in the Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
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5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account of
the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of
compliance by the Portfolio with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance
of segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all
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proxies, without indication of the manner in which such proxies are to
be voted, and shall promptly deliver to the Portfolio such proxies,
all proxy soliciting materials and all notices relating to such
securities.
2.14 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund for each Portfolio all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on
behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to
the Portfolio all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from
the party (or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Portfolio shall
notify the Custodian at least three business days prior to the date on
which the Custodian is to take such action.
2.15 Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this
Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed
by such examination, and, if there are no such inadequacies, the
reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the
Portfolio's securities and other assets maintained outside the United
States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined
in Section 5 of this Contract, together with a certified resolution of
the Fund's Board of Trustees, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to
act as sub-custodian. Upon receipt of Proper Instructions, the Fund
may instruct the Custodian to cease the employment of any one or more
such sub-custodians for maintaining custody of the Portfolio's assets.
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3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to:
(a) "foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign
securities transactions. The Custodian shall identify on its books as
belonging to the applicable Portfolio of the Fund, the foreign
securities of that Portfolio of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in foreign securities depositories only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets of each Portfolio will be freely transferable without the
payment of money or value other than for custody or administration;
(c) adequate records will be maintained identifying the assets as
belonging to each applicable Portfolio; (d) officers of or auditors
employed by, or other representatives of the Custodian, including to
the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and
records of the foreign banking institution relating to its actions
under its agreement with the Custodian; and (e) assets of the
Portfolios held by the foreign sub-custodian will be subject only to
the instructions of the Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use all reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
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3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance
with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and the Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.12 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.9, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses
(excluding a bankruptcy
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<PAGE> 16
or insolvency of State Street London Ltd. not caused by political
risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be
subject to the direction of the Custodian, State Street London Ltd. or
both.
3.13 Tax Law. Subject to the exercise of reasonable care, the Custodian
shall have no responsibility or liability for any obligations now or
hereafter imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of the United States of America or any state or
political subdivision thereof. It shall be the responsibility of the
Fund to notify
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the Custodian of the obligations imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of jurisdictions other than
those mentioned in the above sentence, including responsibility for
withholding and other taxes, assessments or other governmental
charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be
to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which
the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon
from time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund on behalf of each such Portfolio and
the Transfer Agent of any receipt by it of payments for Shares of such
Portfolio.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of
Trustees of the Fund accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the Portfolios' assets.
For purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires
a segregated asset account in accordance with Section 2.11.
14
<PAGE> 18
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio
and provided that the Fund shall not object to such payments;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed by or on behalf
of the Fund. The Custodian may receive and accept a certified copy of a vote
of the Board of Trustees of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to the
Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such
Portfolio and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various
15
<PAGE> 19
components. The calculations of the net asset value per share and the daily
income of each Portfolio shall be made at the time or times described from time
to time in the Fund's currently effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall
be entitled to rely on and may act upon advice of counsel (who may be counsel
for the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
16
<PAGE> 20
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) for the benefit of a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign exchange or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio,
as required by Rule 17f-4 under the Investment Company Act of 1940, as amended
and that the Custodian shall not with respect to a Portfolio act under Section
2.11 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use of the
17
<PAGE> 21
Direct Paper System by such Portfolio ; provided further, however, that the
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the
event of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Trustees of the Fund, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to
transfer to an account of such successor custodian all of the securities of
each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
18
<PAGE> 22
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of
the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
16. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Merrill Lynch International Equity Index Series with respect to
which it desires to have the Custodian render services as custodian under the
terms hereof, it shall so notify the Custodian in writing, and if the Custodian
agrees in writing to provide such services, such series of Shares shall become
a Portfolio hereunder.
17. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
18. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
19. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian
"no", the Custodian will not provide this information to requesting companies.
If the Fund tells the Custodian "yes" or does not check either "yes" or "no"
below, the Custodian is required by the rule to treat the Fund as consenting to
disclosure of this information for all securities owned by the Fund or any
funds or accounts established by the Fund. For the Fund's protection, the Rule
prohibits the requesting company from using the Fund's name and
19
<PAGE> 23
address for any purpose other than corporate communications. Please indicate
below whether the Fund consents or objects by checking one of the alternatives
below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
20
<PAGE> 24
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the day of
, 1997.
ATTEST MERRILL LYNCH INDEX TRUST
By
- ------------------------------ --------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- ------------------------------ --------------------------------
Executive Vice President
21
<PAGE> 25
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Merrill Lynch Index
Trust for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
- ---------------------------
Fund's Authorized Officer
Date:
----------------------
22
<PAGE> 1
EXHIBIT 9
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of January 1, 1997 by and between MERRILL LYNCH &
CO., INC. ("ML&Co."), a Delaware corporation, and MERRILL LYNCH INDEX TRUST, a
Delaware business trust (the "Trust"), on its own behalf and on behalf of its
currently existing series, and on behalf of each series of the Trust that may
be formed in the future (the "Series").
W I T N E S S E T H :
WHEREAS, ML&Co. was incorporated under the laws of the State of
Delaware on March 27, 1973 under the corporate name "Merrill Lynch & Co., Inc."
and has used such name at all times thereafter;
WHEREAS, ML&Co. was duly qualified as a foreign corporation under the
laws of the State of New York on April 25, 1973 and has remained so qualified
at all times thereafter;
WHEREAS, the Trust was organized under the laws of the State of
Delaware on August 28, 1996; and
WHEREAS, the Trust desires to qualify to do business under the laws of
the State of New York and has requested ML&Co. to give its consent to the use
of the words "Merrill Lynch" in its name and in the name of each Series;
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, ML&Co. and the Trust hereby agree as follows:
1. ML&Co. hereby grants the Trust a non-exclusive license to use
the words "Merrill Lynch" in its name and in the name of the Series.
2. ML&Co. hereby consents to the qualification of the Trust to do
business under the laws of the State of New York with the words "Merrill Lynch"
in its name and in the name of the Series and agrees to execute such formal
consents as may be necessary in connection with such filing.
<PAGE> 2
3. The non-exclusive license hereinabove referred to has been
given and is given by ML&Co. on the condition that it may at any time, in its
sole and absolute discretion, withdraw the non-exclusive license to the use of
the words "Merrill Lynch" in the names of the Trust and of the Series; and, as
soon as practicable after receipt by the Trust of written notice of the
withdrawal of such non-exclusive license, and in no event later than ninety
days thereafter, the Trust will change its name and the name of the Series so
that such names will not thereafter include the words "Merrill Lynch" or any
variation thereof.
4. ML&Co. reserves and shall have the right to grant to any other
company, including without limitation any other investment company, the right
to use the words "Merrill Lynch" or variations thereof in its name and no
consent or permission of the Trust shall be necessary; but, if required by an
applicable law of any state, the Trust will forthwith grant all requisite
consents.
5. The Trust will not grant to any other company the right to use
a name similar to that of the Trust or the Series or ML&Co. without the written
consent of ML&Co.
6. Regardless of whether the Trust and/or the Series should
hereafter change their names and eliminate the words "Merrill Lynch" or any
variation thereof from such names, the Trust hereby grants to ML&Co. the right
to cause the incorporation of other corporations or the organization of
voluntary associations which may have names similar to that of the Trust and/or
the Series or to that to which the Trust and/or the Series may change their
names and own all or any portion of the shares of such other corporations or
associations and to enter into contractual relationships with such other
corporations or associations, subject to any requisite approval of a majority
of each Series' shareholders and the Securities and Exchange Commission and
subject to the payment of a reasonable amount to be determined at the time of
use, and the Trust agrees to give and execute such formal consents or
agreements as may be necessary in connection therewith.
2
<PAGE> 3
7. This Agreement may be amended at any time by a writing signed
by the parties hereto. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and understandings, whether written or oral, with
respect thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH & CO., INC.
By: /s/ Arthur Zeikel
-------------------------------------
Executive Vice President
MERRILL LYNCH INDEX TRUST
By: /s/ Terry K. Glenn
-------------------------------------
President
3
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Index Trust
We consent to the use in Amendment No. 1 to Registration Statement No. 811-7885
of our report dated January 31, 1997 appearing in Part B of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
January 31, 1997
<PAGE> 1
EXHIBIT 17(b)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose name appears
below hereby nominates, constitutes and appoints Terry K. Glenn, Gerald M.
Richard and Mark B. Goldfus (with full power to each of them to act alone) his
true and lawful attorney-in-fact and agent, for him and on his behalf and in
his place and stead in any and all capacities, to execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH
INDEX FUNDS, INC. (the "Corporation"), and to make, execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Investment Company Act of 1940 of MERRILL LYNCH INDEX TRUST (the "Trust"), and
to file the same with the Securities and Exchange Commission, and any other
regulatory authority having jurisdiction over the Corporation and/or the Trust,
and any and all exhibits and other documents requisite in connection therewith,
granting unto said attorneys and each of them, full power and authority to
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as the undersigned
himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
10th day of December, 1996.
/s/ Jack B. Sunderland
----------------------------
Jack B. Sunderland
Trustee
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose name appears
below hereby nominates, constitutes and appoints Terry K. Glenn, Gerald M.
Richard and Mark B. Goldfus (with full power to each of them to act alone) his
true and lawful attorney-in-fact and agent, for him and on his behalf and in
his place and stead in any and all capacities, to execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH
INDEX FUNDS, INC. (the "Corporation"), and to make, execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Investment Company Act of 1940 of MERRILL LYNCH INDEX TRUST (the "Trust"), and
to file the same with the Securities and Exchange Commission, and any other
regulatory authority having jurisdiction over the Corporation and/or the Trust,
and any and all exhibits and other documents requisite in connection therewith,
granting unto said attorneys and each of them, full power and authority to
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as the undersigned
himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
10th day of December, 1996.
/s/ Stephen B. Swensrud
----------------------------
Stephen B. Swensrud
Trustee
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose name appears
below hereby nominates, constitutes and appoints Terry K. Glenn, Gerald M.
Richard and Mark B. Goldfus (with full power to each of them to act alone) his
true and lawful attorney-in-fact and agent, for him and on his behalf and in
his place and stead in any and all capacities, to execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH
INDEX FUNDS, INC. (the "Corporation"), and to make, execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Investment Company Act of 1940 of MERRILL LYNCH INDEX TRUST (the "Trust"), and
to file the same with the Securities and Exchange Commission, and any other
regulatory authority having jurisdiction over the Corporation and/or the Trust,
and any and all exhibits and other documents requisite in connection therewith,
granting unto said attorneys and each of them, full power and authority to
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as the undersigned
himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
10th day of December, 1996.
/s/ J. Thomas Touchton
----------------------------
J. Thomas Touchton
Trustee
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose name appears
below hereby nominates, constitutes and appoints Terry K. Glenn and Mark B.
Goldfus (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him and on his behalf and in his place and
stead in any and all capacities, to execute and sign all amendments and
supplements to the Registration Statement on Form N-1A under the Securities Act
of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH INDEX FUNDS,
INC. (the "Corporation"), and to make, execute and sign all amendments and
supplements to the Registration Statement on Form N-1A under the Investment
Company Act of 1940 of MERRILL LYNCH INDEX TRUST (the "Trust"), and to file the
same with the Securities and Exchange Commission, and any other regulatory
authority having jurisdiction over the Corporation and/or the Trust, and any
and all exhibits and other documents requisite in connection therewith,
granting unto said attorneys and each of them, full power and authority to
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as the undersigned
himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
12th day of December, 1996.
/s/ Gerald M. Richard
----------------------------
Gerald M. Richard
Treasurer
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose name appears
below hereby nominates, constitutes and appoints Gerald M. Richard and Mark B.
Goldfus (with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him and on his behalf and in his place and
stead in any and all capacities, to execute and sign all amendments and
supplements to the Registration Statement on Form N-1A under the Securities Act
of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH INDEX FUNDS,
INC. (the "Corporation"), and to make, execute and sign all amendments and
supplements to the Registration Statement on Form N-1A under the Investment
Company Act of 1940 of MERRILL LYNCH INDEX TRUST (the "Trust"), and to file the
same with the Securities and Exchange Commission, and any other regulatory
authority having jurisdiction over the Corporation and/or the Trust, and any
and all exhibits and other documents requisite in connection therewith,
granting unto said attorneys and each of them, full power and authority to
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as the undersigned
himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
12th day of December, 1996.
/s/ Terry K. Glenn
----------------------------
Terry K. Glenn
President and Trustee
