<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
SECURITIES ACT FILE NO. 333-15265
INVESTMENT COMPANY ACT FILE NO. 811-7899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 1 [X]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH INDEX FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
P.O. BOX 9011,
PRINCETON, NEW JERSEY 08543-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
JOEL H. GOLDBERG, ESQ. MERRILL LYNCH ASSET MANAGEMENT, L.P.
SHEREFF, FRIEDMAN, HOFFMAN & P.O. BOX 9011
GOODMAN, LLP PRINCETON, NEW JERSEY 08543-9011
919 THIRD AVENUE, NEW YORK, NEW YORK 10022
</TABLE>
------------------------
THE REGISTRANT DECLARES THAT AN INDEFINITE AMOUNT OF COMMON STOCK, PAR
VALUE $.0001 PER SHARE, IS BEING REGISTERED BY THIS REGISTRATION STATEMENT
PURSUANT TO SECTION 24(F) UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED,
AND RULE 24F-2 THEREUNDER.
MERRILL LYNCH INDEX TRUST HAS ALSO EXECUTED THIS REGISTRATION STATEMENT
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH INDEX FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION IN PROSPECTUS
- ------------- ---------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page............................... Cover Page
Item 2. Synopsis................................. Fee Table
Item 3. Condensed Financial Information.......... Not Applicable
Item 4. General Description of Registrant........ Investment Objectives and Policies;
Management of the Fund; Other
Investment Policies and Practices;
Additional Information
Item 5. Management of the Fund................... Fee Table; Management of the Fund
Item 5A. Management's Discussion of Fund
Performance............................ Not Applicable
Item 6. Capital Stock and Other Securities....... Additional Information
Item 7. Purchase of Securities Being Offered..... Purchase of Shares; Additional
Information
Item 8. Redemption or Repurchase................. Fee Table; Redemption of Shares
Item 9. Pending Legal Proceedings................ Not Applicable
PART B
Item 10. Cover Page............................... Cover Page
Item 11. Table of Contents........................ Back Cover Page
Item 12. General Information and History.......... Not Applicable
Item 13. Investment Objectives and Policies....... Investment Objectives and Policies
Item 14. Management of the Fund................... Management of the Funds
Item 15. Control Persons and Principal Holders of
Securities............................. Not Applicable
Item 16. Investment Advisory and Other Services... Management of the Funds; Purchase of
Shares; Additional Information
Item 17. Brokerage Allocation..................... Brokerage
Item 18. Capital Stock and Other Securities....... Additional Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............... Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status............................... Dividends and Distributions; Taxes
Item 21. Underwriters............................. Purchase of Shares
Item 22. Calculations of Performance Data......... Performance Data
Item 23. Financial Statements..................... Financial Statements
</TABLE>
PART C
Information required to be included is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
JANUARY 31, 1997
MERRILL LYNCH INDEX FUNDS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Index Funds, Inc. (the "Corporation") currently consists of
four portfolios or series: Merrill Lynch S&P 500 Index Fund ("S&P 500 Index
Fund"), Merrill Lynch Small Cap Index Fund ("Small Cap Index Fund"), Merrill
Lynch Aggregate Bond Index Fund ("Aggregate Bond Index Fund") and Merrill Lynch
International Index Fund ("International Index Fund")(collectively, the "Funds,"
and each, a "Fund"). Each Fund is a non-diversified mutual fund whose investment
objective is to provide investment results that, before expenses, seek to
replicate the total return (i.e., the combination of capital changes and income)
of a securities index that has been selected as a proxy for the performance of a
selected market segment. The index is subject to change if, in the Directors'
judgment, a different index would serve as a better proxy for such market
segment. Each Fund will seek to achieve its objective by investing all of its
assets in the series (collectively, the "Series," and each, a "Series") of
Merrill Lynch Index Trust (the "Trust") that has the same investment objective
as the Fund. Each Fund's investment experience will correspond directly to the
investment experience of the respective Series in which it invests. There can be
no assurance that the investment objectives of the Funds will be achieved. For
more information on the Funds' and the Series' investment objectives and
policies, see "Investment Objectives and Policies" on page 4.
------------------------
Each Fund offers two classes of shares, Class A shares and Class D shares.
Class A shares of each Fund are offered at a price equal to the next determined
net asset value per share without the imposition of any front-end or deferred
sales charge, and are not subject to any ongoing account maintenance or
distribution fee. Distribution of Class A shares of each Fund is limited to
certain eligible investors. Class D shares of each Fund are offered at a price
equal to the next determined net asset value per share without the imposition of
any front-end or deferred sales charge and are not subject to any ongoing
distribution fee, but are subject to an ongoing account maintenance fee at an
annual rate of 0.25% of average daily net assets.
------------------------
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 (609)
282-2800), which has entered into a dealer agreement with Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"). Shareholders may redeem their
shares at any time at the next determined net asset value. The minimum initial
purchase is $1,000 and the minimum subsequent purchase is $50, except that for
retirement plans the minimum initial investment is $100 and the minimum
subsequent purchase is $1. Merrill Lynch may charge its customers a processing
fee (presently $4.85) for confirming purchases and repurchases. Purchases and
redemptions directly through the Funds' transfer agent are not subject to
processing fees. See "Purchase of Shares" and "Redemption of Shares."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Funds that
is relevant to making an investment in the Funds. This Prospectus should be
retained for future reference. A statement containing additional information
about the Funds, dated January 31, 1997 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and is
available, without charge, by calling or by writing the Funds at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT, L.P.--ADMINISTRATOR
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE> 4
FEE TABLE
The following table provides a summary of estimated expenses, both
recurring and non-recurring, relating to shares of the Fund and the Series. For
purposes of this table, expenses of the Series in which each Fund invests are
treated as if they were expenses of that Fund, since that is their practical
effect. It is expected that there will be little duplication of expenses by the
Funds and the Series, and that, accordingly, the combined per share expenses of
each Fund and corresponding Series should not be significantly greater than the
expenses of each Fund alone would be if, instead of investing in shares of the
Series, the Fund retained an investment adviser and invested directly in the
types of securities held by the Series.
CLASS A SHARES
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases....... None None None None
Sales Charge Imposed on Dividend Reinvestment... None None None None
Deferred Sales Charge........................... None None None None
Redemption Fee.................................. None None None None
Exchange Fee.................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Advisory Fees (a).................... 0.05% 0.08% 0.06% 0.11%
Other Expenses:
Administrative Fees(b)........................ 0.20% 0.22% 0.14% 0.24%
Custodian Fees................................ 0.01% 0.02% 0.02% 0.07%
Other (expenses of the Funds and the
Series)(c).................................. 0.18% 0.25% 0.23% 0.25%
---- ---- ---- ----
Total Other Expenses........................ 0.39% 0.49% 0.39% 0.56%
Reinbursement of Expenses(d).................. (0.04%) (0.07%) (0.10%) (0.02%)
---- ---- ---- ----
TOTAL OPERATING EXPENSES OF THE FUNDS AND THE
SERIES........................................ 0.40% 0.50% 0.35% 0.65%
==== ==== ==== ====
</TABLE>
CLASS D SHARES
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases....... None None None None
Sales Charge Imposed on Dividend Reinvestment... None None None None
Deferred Sales Charge........................... None None None None
Redemption Fee.................................. None None None None
Exchange Fee.................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Advisory Fees (a).................... 0.05% 0.08% 0.06% 0.11%
Rule 12b-1 Account Maintenance Fees............. 0.25% 0.25% 0.25% 0.25%
Other Expenses..................................
Administrative Fees(b)........................ 0.20% 0.22% 0.14% 0.24%
Custodian Fees................................ 0.01% 0.02% 0.02% 0.07%
Other (expenses of the Funds and the
Series)(c).................................. 0.18% 0.25% 0.23% 0.25%
---- ---- ---- ----
Total Other Expenses........................ 0.39% 0.49% 0.39% 0.56%
---- ---- ---- ----
Reinbursement of Expenses(d).................. (0.04%) (0.07%) (0.10%) (0.02%)
TOTAL OPERATING EXPENSES OF THE FUNDS AND THE
SERIES........................................ 0.65% 0.75% 0.60% 0.90%
==== ==== ==== ====
</TABLE>
- ---------------
(a) Paid by the Series of the Trust. See "Management of the
Funds--Expenses"--page .
(b) Paid by the Funds. See "Management of the Funds--Expenses"--page .
2
<PAGE> 5
(c) Includes fees of the Transfer Agent. See "Management of the Funds--Transfer
Agency Services"--page .
(d) Merrill Lynch Asset Management, L.P. (the "Administrator") anticipates
voluntarily reimbursing a portion of other expenses. The Administrator may
discontinue or reduce such reimbursement at any time without notice. Absent
such reimbursement, the total operating expenses of the Funds and the Series
are shown below.
CLASS A SHARES
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
- ---------- ---------- -------------- -------------
<S> <C> <C> <C>
0.44% 0.57% 0.45% 0.67%
</TABLE>
CLASS D SHARES
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
- ---------- ---------- -------------- -------------
<S> <C> <C> <C>
0.69% 0.82% 0.70% 0.92%
</TABLE>
EXAMPLE:
An investor would pay the following expenses on a $1,000 investment
assuming (1) the Total Operating Expenses in respect of each class of shares of
each Fund as set forth on page 2, (2) a 5% annual return throughout the period
and (3) redemption at the end of:
Class A Shares
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
One year.................................. $ 4 $ 5 $ 4 $ 7
Three years............................... $ 13 $ 16 $ 11 $ 21
</TABLE>
Class D Shares
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
One year.................................. $ 7 $ 8 $ 6 $ 9
Three years............................... $ 21 $ 24 $ 19 $ 29
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in each class of each Fund will bear
directly or indirectly. The expenses set forth under "Other Expenses" are based
on estimated amounts through the end of a Series' and a Fund's first full fiscal
year on an annualized basis.
The example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND ACTUAL
EXPENSES OR ANNUAL RATE OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR
PURPOSES OF THE EXAMPLE. Merrill Lynch may charge its customers a processing fee
(presently $4.85) for confirming purchases and repurchases. Purchases and
redemptions directly through the Funds' transfer agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."
3
<PAGE> 6
INVESTMENT OBJECTIVES AND POLICIES
The Corporation currently consists of four series: Merrill Lynch S&P 500
Index Fund, Merrill Lynch Small Cap Index Fund, Merrill Lynch Aggregate Bond
Index Fund and Merrill Lynch International Index Fund. Each Fund is a
non-diversified mutual fund whose investment objective is to provide investment
results that, before expenses, seek to replicate the total return (i.e., the
combination of capital changes and income) of a specified securities index. Each
Fund will seek to achieve its objective by investing all of its assets in the
series of Merrill Lynch Index Trust that has the same investment objective as
the Fund. Each Fund's investment experience will correspond directly to the
investment experience of the respective Series in which it invests. There can be
no assurance that the investment objectives of the Funds will be achieved.
The Funds' and Series' investment objectives are not fundamental policies,
and may be changed by the Directors of the Corporation and the Trustees of the
Trust, respectively, without shareholder approval. THE TRUSTEES AND THE
DIRECTORS MAY ALSO CHANGE THE TARGET INDEX OF ANY RESPECTIVE SERIES AND FUND IF
THEY CONSIDER THAT A DIFFERENT INDEX WOULD FACILITATE THE MANAGEMENT OF THE
SERIES AND FUND IN A MANNER WHICH BETTER ENABLES THE FUND AND SERIES TO SEEK TO
REPLICATE THE TOTAL RETURN OF THE MARKET SEGMENT REPRESENTED BY THE CURRENT
INDEX.
STRUCTURE OF THE FUNDS AND THE SERIES
Unlike many other mutual funds, which directly acquire and manage their own
portfolio securities, each Fund seeks to achieve its investment objective by
investing all of its assets in the corresponding Series of the Trust. Each
Series is a separate series of a registered investment company with the same
investment objective as its corresponding investing Fund. Because the Funds will
not invest in any securities other than shares of the respective Series,
investors in the Funds will acquire an indirect interest in the Series.
In addition to selling their shares to the Funds, the Series may sell their
shares to other mutual funds and institutional investors. All investors in the
Series invest on the same terms and conditions and pay a proportionate share of
the Series' expenses. However, other investors in the Series may sell their
shares at prices different from those of the Funds as a result of the imposition
of sales charges or different operating expenses. Therefore, investors in the
Funds should be aware that these differences may result in different returns
experienced by the various entities investing in the Series. Information
concerning other holders of shares of the Series is available from the
Administrator by calling 1-800-MER-FUND.
The Board of Directors of the Corporation believes that this structure may
enable the Funds to benefit from certain economies of scale. This view is based
on the premise that (i) certain of the expenses of managing an investment
portfolio that seeks to replicate the total return of a securities index are
relatively fixed so that a larger investment portfolio may achieve a lower ratio
of operating expenses to net assets and (ii) a larger investment portfolio may
be able to reduce certain securities transaction costs to the extent that
contributions to and redemptions from the investment portfolio from different
investing entities may offset each other and thus produce a lower net cash flow.
A Fund's investment in a Series may be withdrawn by the Board of Directors
at any time if the Board determines that it is in the best interests of the Fund
to do so. If any such withdrawal were made, the Board would consider what action
might be taken, including the investment of all of the assets of the Fund in
another pooled investment entity having the same investment objective as the
Fund or the retaining of an investment adviser to manage the Fund's assets
directly in accordance with the investment objective of the Fund. The
4
<PAGE> 7
inability to find another such pooled entity or equivalent investment management
could have a significant impact on the investments of the Fund's shareholders.
Investors in the Funds should be aware that smaller entities investing in
the Series may be materially affected by the actions of larger entities
investing in the Series. For example, investors in the Series holding larger
positions than the Funds could have greater voting power and effective voting
control over the operations of the Series. Changes in the investment objective,
policies or restrictions of a Series might cause a Fund to have difficulty in
finding a substitute Series or equivalent investment management and might cause
it to redeem its shares of the Series, and such a redemption could result in a
distribution in kind of portfolio securities held by the Series, instead of
cash. If securities were distributed to a Fund, and the Fund desired to convert
the securities to cash, it would incur brokerage, tax or other charges in
converting securities to cash. In addition, such a distribution in kind might
result in a less diversified portfolio of investments of a Fund. These
possibilities also exist for traditionally structured funds which have large or
institutional investors who may withdraw from the fund.
Whenever a Fund is requested to vote on matters pertaining to a Series, the
Fund will hold a meeting of shareholders, and the Fund's votes with respect to
the Series will all be cast in the same proportion as the shares of the Fund for
which voting instructions are received.
MERRILL LYNCH S&P 500 INDEX FUND
The investment objective of the Merrill Lynch S&P 500 Index Fund 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"). There can be no
assurance that the investment objective of the Fund will be achieved.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Merrill Lynch S&P 500 Index Series of the Trust, which has the
same investment objective as the Fund. The following is a description of the
investment policies of the Series.
In seeking to replicate the total return of the S&P 500, Merrill Lynch
Asset Management, L.P. ("MLAM" or 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 "Other
Types of Investments and Investment Techniques."
The S&P 500 is composed of the common stocks of 500 large capitalization
companies from various industrial sectors, most of which are listed on the New
York Stock Exchange Inc. A company's stock market capitalization is the total
market value of its outstanding shares. The S&P 500 represents a significant
portion of the market value of all common stocks publicly traded in the United
States.
MERRILL LYNCH SMALL CAP INDEX FUND
The investment objective of the Merrill Lynch Small Cap Index Fund is to
provide investment results that, before expenses, seek to replicate the total
return (i.e., the combination of capital changes and income)
5
<PAGE> 8
of the Russell 2000(R) Index (the "Russell 2000"). There can be no assurance
that the investment objective of the Fund will be achieved.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Merrill Lynch Small Cap Index Series of the Trust, which has the
same investment objective as the Fund. The following is a description of the
investment policies of the Series.
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 "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 FUND
The investment objective of the Merrill Lynch Aggregate Bond Index Fund is
to provide investment results that, before expenses, seek to replicate the total
return (i.e., the combination of capital changes and income) of the Lehman
Brothers Aggregate Bond Index (the "Aggregate Bond Index"). There can be no
assurance that the investment objective of the Fund will be achieved.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Merrill Lynch Aggregate Bond Index Series of the Trust, which has
the same investment objective as the Fund. The following is a description of the
investment policies of the Series.
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 "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 classes: U.S. Treasury
and agency securities, U.S. corporate bonds, foreign
6
<PAGE> 9
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 Group ("S&P"),
the equivalent by another nationally recognized statistical rating organization
("NRSRO") or, if unrated, of equal quality in the opinion of the Manager.
Securities rated Baa or BBB are considered medium grade obligations. Interest
payments and principal are regarded as adequate for the present but certain
protective elements found in higher rated bonds may be lacking. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics. Descriptions of the ratings of fixed-income securities are
contained in Appendix B to this Prospectus.
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 FUND
The investment objective of the Merrill Lynch International Index Fund 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").
There can be no assurance that the investment objective of the Fund will be
achieved.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Merrill Lynch International Index Series of the Trust, which has
the same investment objective as the Fund. The following is a description of the
investment policies of the Series.
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
7
<PAGE> 10
(tracking error). The Series may also engage in securities lending and index
arbitrage. See "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 the GDP weighting tends to decrease the relative weighting of
Japan and the United Kingdom while increasing the weighting of certain European
countries, generally resulting in a more diversified index.)
ABOUT INDEXING AND MANAGEMENT OF THE SERIES
About Indexing. The Series are not managed according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based upon economic, financial, and market 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 total 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 fixed-income
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 could, however,
be limited by applicable tax laws.
In addition, the Manager may acquire certain financial instruments based
upon individual securities or based upon or consisting of one or more baskets of
securities (which basket may be based upon a target index). Certain of these
instruments may represent an indirect ownership interest in such securities or
baskets.
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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.
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 International Index Series and the Aggregate Bond
Index Series due to foreign tax withholding practices), changes in either the
composition of the index or the assets of a Series, and the timing and amount of
Series investor contributions and withdrawals, if any. In addition, each Fund's
total return will be affected by incremental operating costs (e.g., transfer
agency, accounting) that will be borne by the Fund. 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 Fund, 100 basis points for the Small Cap Index Fund, 150 basis
points for the International Index Fund, and 25 basis points for the Aggregate
Bond Index Fund, 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
and the Directors of the Corporation will consider alternative strategies for
the Series and the Funds.
OTHER TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES OF THE SERIES
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 to this Prospectus.
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 OF THE SERIES
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 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.
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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 33 1/3% of its total assets.
When-Issued Securities and Delayed Delivery Transactions. The Merrill
Lynch Aggregate Bond Index Series may purchase securities on a when-issued
basis, and it may purchase or sell securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Series with
payment and delivery taking place in the future to secure what is considered an
advantageous yield and price to the Series at the time of entering into the
transaction. Although the Series has not established any limit on the percentage
of its assets that may be committed in connection with such transactions, the
Series will maintain a segregated account with its custodian of liquid
securities in an aggregate amount equal to the amount of its commitment in
connection with such purchase transactions.
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. 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
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<PAGE> 14
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 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
The Funds' and the Series' investment activities are subject to further
restrictions that are described in the Statement of Additional Information.
Investment restrictions and policies which are fundamental policies may not be
changed without the approval of the holders of a majority of the Funds' or
Series' outstanding voting securities as defined in the Investment Company Act.
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Among the more significant fundamental restrictions, a Series or Fund 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 or Fund may invest more that 25% of its total assets in
securities of issuers in that industry. In addition, although each Fund 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., each
Fund is required to comply with certain requirements under the Internal Revenue
Code of 1986, as amended (the "Code"). To ensure that the Funds satisfy these
requirements, the Declaration of Trust requires that each Series be managed in
compliance with the Code requirements as though such requirements were
applicable to the Series. These requirements include limiting its investments so
that at the close of each quarter of the taxable year (i) not more than 25% of
the market value of a Fund's total assets are invested in the securities of a
single issuer, or any two or more issuers which are controlled by the Fund and
engaged in the same, similar or related businesses, and (ii) with respect to 50%
of the market value of its total assets, not more than 5% of the market value of
its total assets are invested in the securities of a single issuer, and the Fund
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. These requirements will be satisfied at the Series
level and not at the level of the Funds based upon a ruling received from the
Internal Revenue Service ("IRS") which entitles the Funds to "look through" the
shares of the Series to the underlying investments of the Series for purposes of
these diversification requirements.
The Funds' and Series' investment objectives are not fundamental policies,
and may be changed by the Directors and the Trustees, respectively, without
shareholder approval. THE TRUSTEES AND THE DIRECTORS MAY ALSO CHANGE THE TARGET
INDEX OF ANY RESPECTIVE SERIES AND FUND IF THEY CONSIDER THAT A DIFFERENT INDEX
WOULD FACILITATE THE MANAGEMENT OF THE SERIES AND FUND IN A MANNER WHICH BETTER
ENABLES THE FUND AND SERIES TO SEEK TO REPLICATE THE TOTAL RETURN OF THE MARKET
SEGMENT REPRESENTED BY THE CURRENT INDEX.
RISK FACTORS
Each Fund will be subject to the risks associated with an investment in its
corresponding Series. These risks are set forth below.
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, and any incremental
operating costs (e.g., transfer agency, accounting) that will be borne by the
Funds. 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."
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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 Prospectus.
Investment in Foreign Securities. Investments on an international basis
involve certain risks not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
or U.S. governmental laws or restrictions applicable to such investments.
Securities prices in different countries are subject to different economic,
financial, political and social factors. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
Also, it is anticipated that most of the foreign securities held by a Series
will not be registered with the Securities and Exchange Commission nor will the
issuers thereof be subject to the reporting requirements of such agency. In
addition, foreign investors such as the Series may be subject to withholding
taxes in certain countries, which may reduce the returns of the Series.
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.
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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.
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 Corporation and the Trust. The S&P 500 Index
Fund and the S&P 500 Index Series are not sponsored, endorsed, sold or promoted
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<PAGE> 18
by Standard & Poor's, a division of the McGraw Hill Companies, Inc. ("Standard &
Poor's") and Standard & Poor's makes no representation regarding the
advisability of investing in the Fund or the Series.
The Fund and the Series are 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 Fund or the Series or any
member of the public regarding the advisability of investing in securities
generally or in the Fund or the Series particularly or the ability of the S&P
500 to track general stock market performance. Standard & Poor's only
relationship to the Fund and 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 Fund and the
Series. Standard & Poor's has no obligation to take the needs of the Fund and
the Series or the owners of shares of the Fund and the Series into consideration
in determining, composing or calculating the S&P 500. Standard & Poor's is not
responsible for and has not participated in the determination of the prices and
amount of the Fund and the Series or the timing of the issuance of sale of
shares of the Fund and the Series or in the determination or calculation of the
equation by which the Fund and 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 Fund and 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 Fund, the Series, owners of shares of the Fund and 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 Fund and the Merrill Lynch
Small Cap Index Series are 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 Fund or 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 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.
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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 its affiliates.
The Merrill Lynch International Index Fund and the Merrill Lynch
International Index Series are 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 Fund and the Series or any member of the
public regarding the advisability of investing in securities generally or in the
Fund and a 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 Fund and the
Series or the owners of shares of the Fund and 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 Fund and the Series to be issued or in
the determination or calculation of the equation by which the shares of the Fund
and the Series is redeemable for cash. Morgan Stanley has no obligation or
liability to owners of shares of the Fund and the Series in connection with the
administration, marketing or trading of the Fund and 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 shares of the Fund and 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 hereunder or for any other use.
Morgan Stanley makes no express or implied warranties, and hereby expressly
disclaims all warranties of merchantability or fitness for a particular purpose
with respect to the index 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.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS
The Board of Directors of the Corporation consists of four individuals,
three of whom are not "interested persons" of the Fund as defined in the
Investment Company Act. The Board of Directors is responsible for the overall
supervision of the operations of the Funds and performs the various duties
imposed on the directors of investment companies by the Investment Company Act.
The Directors of the Fund are:
TERRY K. GLENN*--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 of Princeton Administrators, L.P. since 1988; and Director of
Merrill Lynch Financial Data Services, Inc. since 1985.
JACK B. SUNDERLAND--President and Director of American Independent Oil
Company, Inc. (energy company) since 1987; Member of Council on Foreign
Relations since 1971.
STEPHEN B. SWENSRUD--Principal of Fernwood Associates (financial
consultants).
17
<PAGE> 20
J. THOMAS TOUCHTON--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).
- ---------------
* Interested person, as defined by the Investment Company Act, of the Fund.
The Directors of the Corporation are also Trustees of the Trust. The
Directors have adopted procedures that they believe are reasonably designed to
resolve any conflicts that arise in connection with this overlap.
ADMINISTRATION OF THE CORPORATION AND THE FUNDS
The Corporation does not have an investment adviser, since all of each
Fund's assets will be invested in its corresponding Series. The Corporation has
retained the services of MLAM as administrator of the Funds (the
"Administrator"). Under the Administration Agreement, the Administrator provides
the Funds with administrative services.
ADVISORY ARRANGEMENTS OF THE TRUST AND THE SERIES
MLAM, with offices at 800 Scudders Mill Road, Plainsboro, New Jersey
(mailing address: Box 9011, Princeton, New Jersey 08543-9011) also acts as
manager for the Trust and each Series and provides them with management and
investment advisory services.
MLAM is owned and controlled by Merrill Lynch & Co., Inc. ("ML & Co."), a
financial services holding company and the parent of Merrill Lynch. MLAM or its
affiliate, FAM, acts as the manager and investment adviser for more than 130
other registered investment companies. MLAM also offers portfolio management and
portfolio analysis services to individuals and institutions. As of October 31,
1996, MLAM 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 MLAM.
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 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.
EXPENSES
The Funds pay the Administrator monthly compensation at the annual rates of
the average daily net assets of each Fund as follows:
<TABLE>
<CAPTION>
NAME OF FUND ADMINISTRATION FEE
----------------------------------------------------------------- ------------------
<S> <C>
Merrill Lynch S&P 500 Index Fund................................. 0.20%
Merrill Lynch Small Cap Index Fund............................... 0.22%
Merrill Lynch Aggregate Bond Index Fund.......................... 0.14%
Merrill Lynch International Index Fund........................... 0.24%
</TABLE>
18
<PAGE> 21
In addition, the administration agreement with the Administrator (the
"Administration Agreement") obligates the Corporation to pay certain expenses
incurred in its operations including, among other things, legal and audit fees,
registration fees, unaffiliated Directors' 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 each Fund by the Administrator, and each Fund reimburses the
Administrator for its costs in connection with such services on a semi-annual
basis.
The Series of the Trust pay the Manager monthly compensation at the annual
rates of the average daily net assets of each Series as follows:
<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>
In addition, the management agreement with the Manager (the "Management
Agreement") obligates the Trust to pay certain expenses incurred in its
operations including, among other things, 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 each Series reimburses the Manager for its costs in connection with
such services on a semi-annual basis.
The Directors of the Corporation believe that the aggregate per share
expenses of each Fund and corresponding Series should not be significantly
greater than the expenses which each Fund would incur if it retained the
services of an investment adviser and the assets of each Fund were invested
directly in the type of securities held by the corresponding Series.
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. ("MLFDS" or the "Transfer
Agent"), which is a wholly-owned subsidiary of ML & Co., acts as the
Corporation's Transfer Agent pursuant to a Transfer Agency, Dividend Disbursing
Agency and Shareholder Servicing Agency Agreement (the "Transfer Agency
Agreement"). Pursuant to the Transfer Agency Agreement, the Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreement, the Transfer Agent receives a fee for its services and is entitled to
reimbursement for out-of-pocket expenses incurred by it under the Transfer
Agency Agreement. MLFDS also acts as the transfer agent to the Trust.
CODES OF ETHICS
The Board of Directors of the Corporation has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act which incorporates the
Codes of Ethics of the Trust and of MLAM (together, the "Ethics Codes"). The
Ethics Codes significantly restrict the personal investing activities of all
employees of
19
<PAGE> 22
the Manager and, as described below, impose additional, more onerous,
restrictions on fund investment personnel.
The Ethics Codes require that all employees of the Manager preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Manager include a ban on acquiring any securities in a "hot" initial public
offering and a prohibition from profiting on short-term trading in securities.
In addition, no employee may purchase or sell any security which at the time is
being purchased or sold (as the case may be), or to the knowledge of the
employee is being considered for purchase or sale, by any fund advised by the
Manager. Furthermore, the Ethics Codes provide for trading "blackout periods"
which prohibit trading by investment personnel of the Trust within periods of
trading by the Series in the same (or equivalent) security (15 or 30 days
depending upon the transaction).
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both MLAM and Merrill Lynch, acts as the distributor of the shares of the Fund.
The Fund offers two classes of shares, Class A shares and Class D shares.
Class A shares of the Fund are offered at a price equal to the next determined
net asset value per share without the imposition of any front-end or deferred
sales charge, and are not subject to any ongoing account maintenance or
distribution fee. Distribution of Class A shares of the Fund is limited to
certain eligible investors. Class D shares of each Fund are offered at a price
equal to the next determined net asset value per share without the imposition of
any front-end or deferred sales charge and are not subject to any ongoing
distribution fee, but are subject to an ongoing account maintenance fee at an
annual rate of 0.25% of average daily net assets.
Class A shares are offered to a limited group of investors who participate
in certain investment programs which charge a fee for participation, including
the Merrill Lynch Mutual Fund Adviser program. In addition, Class A shares are
offered to ML & Co. and its subsidiaries and their directors and employees and
to members of the Boards of MLAM-advised investment companies, including the
Corporation. For more information about these programs, contact the Distributor
at 1-800-MER-FUND.
Shares may be purchased directly from the Distributor, P.O. Box 9081,
Princeton, New Jersey 08543-9081 (609) 282-2800), which has entered into a
dealer agreement with Merrill Lynch. Shareholders may redeem their shares at any
time at the next determined net asset value. The minimum initial purchase is
$1,000 and the minimum subsequent purchase is $50, except that for retirement
plans the minimum initial investment is $100 and the minimum subsequent purchase
is $1. Merrill Lynch may charge its customers a processing fee (currently $4.85)
for confirming purchases and repurchases. Purchase and redemptions directly
through the Corporation's transfer agent are not subject to processing fees.
The Distributor also acts as the placement agent for the Trust.
ACCOUNT MAINTENANCE PLAN
Pursuant to a plan adopted by the Corporation with respect to the Class D
shares of each Fund pursuant to Rule 12b-1 under the Investment Company Act (the
"Plan"), the Class D shares of each Series pay the
20
<PAGE> 23
Distributor an ongoing account maintenance fee, accrued daily and paid monthly,
at the annual rate of 0.25% of the average daily net assets attributable to such
shares. Pursuant to a sub-agreement with the Distributor, Merrill Lynch also
provides account maintenance services in respect of the Class D shares of each
Fund. The ongoing account maintenance fee compensates the Distributor and
Merrill Lynch for providing account maintenance services to Class D
shareholders.
REDEMPTION OF SHARES
Each Fund is required to redeem all full and fractional shares of the Fund
upon receipt of a written request in proper form. The redemption price is the
net asset value per share next determined after the initial receipt of proper
notice of redemption. There will be no additional charge for redemption if the
redemption request is sent directly to the Transfer Agent. Shareholders
liquidating their holdings will receive upon redemption all dividends reinvested
through the date of redemption. The value of shares at the time of redemption
may be more or less than the shareholder's cost, depending on the market value
of the securities held by the Fund at such time. The Corporation will generally
pay redemptions in cash; however, if requested by a shareholder, at the
discretion of the Administrator the Corporation may pay a redemption or
repurchase of shares in an amount of $10,000,000 or more (which amount may be
decreased or increased by the Administrator from time to time) with portfolio
securities.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by
tendering the shares directly to the Transfer Agent, Merrill Lynch Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to Merrill
Lynch Financial Data Services, Inc., Transfer Agency Operations Department, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484. Redemption requests
should not be sent to the Corporation. Proper notice of redemption in the case
of shares deposited with the Transfer Agent may be accomplished by a written
letter requesting redemption. Proper notice of redemption in the case of shares
for which certificates have been issued may be accomplished by a written letter
as noted above accompanied by certificates for the shares to be redeemed. The
notice in either event requires the signatures of all persons in whose names the
shares are registered, signed exactly as their names appear on the Transfer
Agent's register or on the certificate, as the case may be. The signature(s) on
the notice must be guaranteed by an "eligible guarantor institution" as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, the
existence and validity of which may be verified by the Transfer Agent through
the use of industry publications. "Eligible guarantor institution(s)" include
certain banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings association. Notarized signatures
are not sufficient. In certain instances, the Transfer Agent may require
additional documents, such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or certificates of
corporate authority. For shareholders redeeming directly with the Transfer
Agent, payment will be mailed within seven days of receipt of a proper notice of
redemption.
At various times a Fund may be requested to redeem shares for which it has
not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (e.g., cash or certified check drawn on a United States bank) has been
collected for the purchase of such shares. Normally, this delay will not exceed
10 days.
21
<PAGE> 24
REPURCHASE
Each Fund also will repurchase shares through a shareholder's listed
securities dealer. The Funds normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the close of business on the New
York Stock Exchange on the day received, and such request is received by a Fund
from such dealer not later than 30 minutes after the close of business on the
New York Stock Exchange (generally 4:00 P.M., New York time), on the same day.
Dealers have the responsibility to submit such repurchase requests to the Fund
not later than 30 minutes after the close of business on the New York Stock
Exchange in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by a Fund. Securities firms which do
not have selected dealer agreements with the Distributor, however, may impose a
transaction charge on the shareholder for transmitting the notice of repurchase
to the Fund. Merrill Lynch may charge its customers a processing fee (presently
$4.85) to confirm a repurchase of shares to such customers. Redemptions directly
through the Fund's Transfer Agent are not subject to the processing fee. The
Corporation reserves the right to reject any order for repurchase, which right
of rejection might adversely affect shareholders seeking redemption through the
repurchase procedure. A shareholder whose order for repurchase is rejected by a
Fund, however, may redeem shares as set forth above.
SHAREHOLDER SERVICES
The Corporation offers a number of shareholder services and investment
plans designed to facilitate investment in its shares. Full details as to each
of such services, copies of the various plans described below and instructions
as to how to participate in the various plans and services, or to change options
with respect thereto, can be obtained from the Corporation, the Distributor or
Merrill Lynch. Included in such services are the following:
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gains distributions. The statement will also show any
other activity in the account since the preceding statements. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchase and the reinvestment of ordinary income
dividends and long-term capital gains distribution. Shareholders may make
additions to their Investment Account at any time by mailing a check directly to
the Transfer Agent. Shareholders may also maintain their accounts through
Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch brokerage
account, an Investment Account in the transferring shareholder's name will be
opened automatically, without charge, at the Transfer Agent. Shareholders
interested in transferring their shares from Merrill Lynch and who do not wish
to have an Investment Account maintained for such shares at the Transfer Agent
may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder.
If the new brokerage firm is willing to accommodate the shareholder in this
manner, the shareholder must request that he be issued certificates for his
shares, and then must turn the certificates over
22
<PAGE> 25
to the new firm for re-registration as described in the preceding sentence.
Shareholders considering transferring from Merrill Lynch to another brokerage
firm or financial institution should be aware that, if the firm to which the
account is to be transferred will not take delivery of shares of a Fund, a
shareholder must either redeem the shares so that the cash proceeds can be
transferred to the account at the new firm, or such shareholder must continue to
maintain an account at Merrill Lynch for those shares.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Funds at the net asset value per share next
determined on the ex-dividend date of such dividends and distributions. A
shareholder may at any time, by written notification or by telephone
(1-800-MER-FUND) or by written notification to Merrill Lynch if the
shareholder's account is maintained with Merrill Lynch, or the Transfer Agent,
if the shareholder's account is maintained with the Transfer Agent, elect to
have subsequent dividends, or both dividends and capital gains distributions,
paid in cash rather than reinvested, in which event payment will be mailed on or
about the payment date.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from such
shareholder's Investment Account in the form of payments by check or through
automatic payment by direct deposit to such shareholder's bank account on either
a monthly or quarterly basis. Shareholders whose shares are held within a
CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bi-monthly, quarterly, semiannual or annual basis through the
Systematic Redemption Program, subject to certain conditions.
AUTOMATIC INVESTMENT PLANS
Regular additions of shares may be made in an investor's Investment Account
by prearranged charges of $50 or more to such investor's regular bank account.
Investors who maintain CMA(R) accounts may arrange to have periodic investments
made in the Funds in their CMA(R) account or in certain related accounts in
amounts of $100 or more through the CMA(R) Automated Investment Program.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Funds and in certain of the other mutual funds sponsored by Merrill Lynch as
well as in other securities. Merrill Lynch charges an initial establishment fee
and an annual custodial fee for each account. In addition, eligible shareholders
of a Fund may participate in a variety of qualified employee benefit plans which
are available from the Distributor. The minimum initial purchase to establish
any such plan is $100 and the minimum subsequent purchase is $1.
23
<PAGE> 26
PERFORMANCE DATA
From time to time a Fund may include its average annual total return and/or
yield for various specified time periods in advertisements or information
furnished to present or prospective shareholders. Average annual total return
and yield are computed in accordance with formulas specified by the Securities
and Exchange Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any 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
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses.
Each Fund also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return generally will be lower
than average annual total return data since the average annual rates of return
reflect compounding; 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. A Fund's total return may be expressed
either as a percentage or as a dollar amount in order to illustrate the effect
of such total return on a hypothetical $1,000 investment in the Fund at the
beginning of each specified period.
Total return figures are based on a Fund's historical performance and are
not intended to indicate future performance. A Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in a Fund
will fluctuate and an investor's shares, when redeemed, may be worth more or
less than their original cost.
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.
Each Fund will generally compare its performance to the index it attempts
to replicate. A Fund may also compare its performance to data contained in
publications such as Lipper Analytical Services, Inc., or performance data
published by Morningstar Publications, Inc., Money Magazine, U.S. News and World
Report, Business Week, CDA Investment Technology, Inc., Forbes Magazine and
Fortune Magazine. From time to time, a Fund may include the Fund's Morningstar
risk-adjusted performance ratings in advertisements or supplemental sales
literature. As with other performance data, performance comparisons should not
be considered representative of a Fund's relative performance for any future
period.
The Funds' annual report will contain additional performance information
and will be available upon request and without charge.
24
<PAGE> 27
TAXES
The Funds and Their Shareholders. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies ("RICs") under the
Code. If it so qualifies, in any taxable year in which it distributes (in cash
or additional shares of the Fund) at least 90% of its taxable net income, the
Fund will not be subject to Federal income tax to the extent that it distributes
its net investment income and realized capital gains to its shareholders. Each
Fund intends to distribute substantially all of such income.
Dividends paid by a Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from a Fund's net realized long-term capital gains (including
long-term gains from certain transactions in futures and options)("capital gains
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or less, however, will be
treated as long-term capital loss to the extent of any capital gains
distributions received by the shareholder with respect to such shares.
Distributions in excess of a Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of a Fund. Not later than 60 days after the close of its
taxable year, the Funds will provide shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gains
dividends. A portion of the ordinary income dividends paid by the S&P 500 Index
Fund and the Small Cap Index Fund may be eligible for the 70% dividends received
deduction allowed to corporations under the Code, if certain requirements are
met. Distributions paid by the Aggregate Bond Index Fund and the International
Index Fund will not be eligible for the dividends received deduction. If a Fund
pays a dividend in January which was declared in the previous October, November
or December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.
Ordinary income dividends paid by a Fund to shareholders who are
nonresident aliens or foreign entities generally will be subject to a 30% United
States withholding tax under existing provisions of the Code applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under the applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
Foreign source income received by the International Index Fund and the
Aggregate Bond Index Fund may give rise to withholding and other taxes imposed
by foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of the International
Index Fund may be able to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held by the Fund. The International Index Fund
expects to be eligible, and intends, to file an election with the IRS pursuant
to which shareholders of the Fund will be required to include their
proportionate share of such withholding taxes in their U.S. income tax returns
as gross income, treat such proportionate shares as taxes paid by them, and
deduct such proportionate shares in computing their taxable incomes or,
alternatively, subject to certain restrictions, use them as foreign tax credits
against their U.S.
25
<PAGE> 28
income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The International Index Fund will report annually to its shareholders the amount
per share of such withholding taxes.
Redemptions and exchanges of a Fund's shares are taxable events, and,
accordingly, shareholders may realize gains or losses on such events. A loss
realized on a sale or exchange of shares of a Fund will be disallowed if other
Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on reportable dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not on file with the Funds or who, to the Funds' knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and these Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gains dividends, as well as gains on the sale
or exchange of shares, may also be subject to state and local taxes.
This summary does not discuss the state or local income tax, or the estate
or inheritance tax, consequences of an investment in a Fund.
Shareholders are urged to consult their advisers as to specific questions
regarding Federal, foreign, state or local taxes.
The Series. The Trust and each Fund have received a private letter ruling
from the IRS, in which the IRS has ruled that each Series is classified as a
partnership for tax purposes and, based upon that ruling, that each Fund will be
entitled to look to the underlying assets of the Series in which it has invested
for purposes of satisfying the diversification and other requirements of the
Code applicable to RICs. If any of the facts upon which such ruling is premised
change in any material respect (e.g., if the Trust were required to register its
interests under the Securities Act) and the Trust is unable to obtain a revised
private letter ruling from the IRS indicating that each Series will continue to
be classified as a partnership, then the Board of Directors of the Corporation
will determine, in its discretion, the appropriate course of action for the
Funds. One possible course of action would be to withdraw the Funds' investments
from the Series and to retain an investment adviser to manage the Funds' assets
in accordance with the investment policies applicable to the respective Fund.
See "Investment Objectives and Policies."
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<PAGE> 29
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is each Fund'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 Fund, Small Cap Index Fund and
International Index Fund. Dividends with respect to the Aggregate Bond Fund will
be declared daily and paid monthly. All net realized long- or short-term capital
gains, if any, are distributed to Fund shareholders at least annually. Dividends
will be reduced by account maintenance and transfer agency fees payable by the
shareholders of a Fund. Dividends and distributions will be reinvested
automatically in shares of the Funds, at net asset value. Shareholders may elect
in writing to receive any such dividends or distributions, or both, in cash.
Dividends and distributions are taxable to shareholder whether they are
reinvested in shares of a Fund or received in cash. From time to time, a Fund
may declare a special distribution at or about the end of the calendar year in
order to comply with a Federal income tax requirement that certain percentages
of its ordinary income and capital gains be distributed during the calendar
year.
See "Shareholder Services--Automatic Reinvestment of Dividends and Capital
Gains Distributions" for information as to how to elect either dividend
reinvestment or cash payments.
DETERMINATION OF NET ASSET VALUE
Net asset value per share is determined once daily as of 15 minutes after
the close of business on the New York Stock Exchange (generally 4:00 P.M., New
York time) on days during which the New York Stock Exchange is open for trading
(a "Pricing Day"). The net asset value is computed by dividing the market value
of the securities held by a Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares outstanding at such
time. Expenses, including the fees payable to the Administrator and the
Distributor, and the advisory fees payable indirectly by the Series of the Trust
to the Manager, are accrued daily.
The principal assets of each Fund will normally be its interest of the
underlying Series, which will be valued at its net asset value. 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.
Each investor in the Trust may add to or reduce its investment in any
Series on each Pricing Day. The value of each investor's (including the
respective Funds') interest in a Series will be determined as of 15 minutes
after the close of business on 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 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 a
Series will then be re-computed as
27
<PAGE> 30
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 aggregate investments in the Series by all investors 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.
ORGANIZATION OF THE CORPORATION
The Corporation is a Maryland corporation incorporated on October 25, 1996.
It has an authorized capital of 1,000,000,000 shares of Common Stock, par value
$0.0001 per share, divided into 125,000,000 shares each of Class A and Class D
shares for each of the four Funds: Merrill Lynch S&P 500 Index Fund, Merrill
Lynch Small Cap Index Fund, Merrill Lynch Aggregate Bond Index Fund and Merrill
Lynch International Index Fund. Class A and Class D shares of a Fund represent
interests in the same assets of the Series and are identical in all respects
except that the Class D shares bear certain expenses related to the account
maintenance associated with such shares. Class D shares have exclusive voting
rights with respect to matters relating to the class' account maintenance
expenditures.
Shareholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Directors (to the
extent hereafter provided) and on other matters submitted to the vote of
shareholders. All shares of each Fund have equal voting rights, except that each
Fund has exclusive voting rights to matters affecting only such Fund, and except
that as noted above, Class D shares have exclusive voting rights with respect to
matters relating to the class' account maintenance expenditures. There normally
will be no meeting of shareholders for the purpose of electing Directors unless
and until such time as less than a majority of the Directors holding office have
been elected by the shareholders, at which time the Directors then in office
will call a shareholders' meeting for the election of Directors. Shareholders
may, in accordance with the terms of the Articles of Incorporation, cause a
meeting of shareholders to be held for the purpose of voting on the removal of
Directors. Also, the Corporation will be required to call a special meeting of
shareholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements, of a material
increase in account maintenance fees or of a change in fundamental policies,
objectives or restrictions. Except as set forth above, the Directors shall
continue to hold office and appoint successor Directors. Each issued and
outstanding share is entitled to participate equally in dividends and
distributions declared and in net assets upon liquidation or dissolution
remaining after satisfaction of outstanding liabilities, except that, as noted
above, Class D shares bear certain additional expenses. Shares issued are
fully-paid and non-assessable by the Fund. Voting rights for Directors are not
cumulative.
The Trust consists of four Series, and is organized as a Delaware business
trust. Whenever investors in a Series are requested to vote on a fundamental
policy of a Series, the Corporation will hold a meeting of its shareholders and
will cast its vote as instructed by such shareholders.
28
<PAGE> 31
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Funds at the address or
telephone number set forth on the cover page of this Prospectus.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida
32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this please call your Merrill Lynch
financial consultant or Merrill Lynch Financial Data Services, Inc. at
800-637-3863.
29
<PAGE> 32
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 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
A-1
<PAGE> 33
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.
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
A-2
<PAGE> 34
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.
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.
A-3
<PAGE> 35
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 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.
A-4
<PAGE> 36
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 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.
A-5
<PAGE> 37
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.
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.
A-6
<PAGE> 38
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.
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.
A-7
<PAGE> 39
[This page is intentionally left blank.]
A-8
<PAGE> 40
MERRILL LYNCH INDEX FUNDS, INC.--AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[ ] Class A shares Class D shares
of the following Funds of Merrill Lynch Index Funds, Inc.
<TABLE>
<S> <C>
[ ] Merrill Lynch S&P 500 Index Fund [ ] Merrill Lynch Aggregate Bond Index Fund
[ ] Merrill Lynch Small Cap Index Fund [ ] Merrill Lynch International Index Fund
</TABLE>
and establish an Investment Account as described in the Prospectus. In the event
that I am not eligible to purchase Class A shares, I understand that Class D
shares will be purchased.
I enclose a check for $.......... payable to Merrill Lynch Financial Data
Services, Inc., as an initial investment (minimum $1,000 per Fund). I understand
that this purchase will be executed at the applicable offering price next to be
determined after this Application is received by you.
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
................................................................................
(Zip Code)
Occupation......................................................................
................................................................................
Signature of Owner
Name and Address of Employer....................................................
................................................................................
................................................................................
Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTION
<TABLE>
<S> <C> <C> <C> <C> <C>
Ordinary Income Dividends Long-Term Capital Gains
--------------------------------- ---------------------------------
SELECT [ ] Reinvest SELECT [ ] Reinvest
ONE: [ ] Cash ONE: [ ] Cash
--------------------------------- ---------------------------------
</TABLE>
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [ ] Check
or [ ] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Index Funds, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE): [ ] checking [ ] savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number ................................................... Account
Number..........................................................................
Bank Address....................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor..........................................................
Signature of Depositor ......................................................
Date............................................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
A-9
<PAGE> 41
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3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Taxes") either because I have not been notified that I am subject thereto as a
result of a failure to report all interest or dividends, or the Internal Revenue
Service ("IRS") has notified me that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
- --- Branch Office, Address, Stamp
- ---
- -
- -
- -
- -
- ---
- ---
This form, when completed, should be mailed to:
ML Index Funds
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases or sales made under a Letter of Intention,
Automatic Investment Plan or Systematic Withdrawal Plan. We guarantee the
shareholder's signature.
...............................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------- ------------
..............................
- --------- ------------
Branch-Code F/C No. F/C Last Name
- --------- ---------------
- --------- ---------------
Dealer's Customer Account No.
</TABLE>
A-10
<PAGE> 42
- --------------------------------------------------------------------------------
MERRILL LYNCH INDEX FUNDS, INC.--AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------
Name of Owner..................................................
------------------------------------------------------
Social Security No.
or Taxpayer Identification No.
Name of Co-Owner (if any)......................................
Address........................................................ Account Number ............................................
(if existing account)
...............................................................
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [ ] Class A or [ ] Class D shares of the following Funds of
Merrill Lynch Index Funds, Inc.
<TABLE>
<S> <C>
[ ] Merrill Lynch S&P 500 Index Fund [ ] Merrill Lynch Aggregate Bond Index Fund
[ ] Merrill Lynch Small Cap Index Fund [ ] Merrill Lynch International Index Fund
</TABLE>
at cost or current offering price. Withdrawals to be made either (check one) [
] Monthly on the 24th day of each month, or [ ] Quarterly on the 24th day of
March, June, September and December. If the 24th falls on a weekend or holiday,
the next succeeding business day will be utilized. Begin systematic withdrawal
on ............. (month), or as soon as possible thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): [ ]
$............. or [ ] .............% of the current value of [ ] Class A or [
] Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: [ ] check or [ ] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(A) I HEREBY AUTHORIZE PAYMENT BY CHECK
[ ] as indicated in Item 1.
[ ] to the order of..........................................................
Mail to (check one)
[ ] the address indicated in Item 1.
[ ] Name (please print)......................................................
Address ...................................................................
......................................................................
Signature of Owner
..............................................................................
Date ....................................................................
Signature of Co-Owner (if any) .......................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of Account (check one): [ ] checking [ ] savings
Name on your account............................................................
Bank Name.......................................................................
Bank Number .............................................................
Account Number..................................................................
Bank Address....................................................................
................................................................................
Signature of Depositor
..............................................................................
Date............................................................................
Signature of Depositor..........................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
A-11
<PAGE> 43
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase (choose one):
[ ] Class A shares [ ] Class D shares
of the following "Funds" of Merrill Lynch Index Funds, Inc.
<TABLE>
<S> <C>
[ ] Merrill Lynch S&P 500 Index Fund [ ] Merrill Lynch Aggregate Bond Index Fund
[ ] Merrill Lynch Small Cap Index Fund [ ] Merrill Lynch International Index Fund
</TABLE>
subject to the terms set forth below. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Index Funds, Inc. as indicated below:
Amount of each ACH debit $...................................................
Account Number...............................................................
Please date and invest ACH debits on the 20th of each month beginning
.............................. or as soon thereafter as possible.
(month)
I agree that you are drawing these ACH debits voluntarily at my request and that
you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund and
crediting my bank account. I further agree that if a debit is not honored upon
presentation, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO
HONOR ACH DEBITS
DRAWN BY MERRILL LYNCH
FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .......... State .......... Zip Code.......................................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. . I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
.................... .......................................
Date Signature of Depositor
.................... .......................................
Bank Account Number Signature of Depositor
(If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
A-12
<PAGE> 44
ADMINISTRATOR OF THE CORPORATION AND MANAGER OF THE TRUST
Merrill Lynch Asset Management, L.P.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
Merrill Lynch S&P 500 Index Fund
Merrill Lynch Small Cap Index Fund
Merrill Lynch Aggregate Bond Index Fund
Merrill Lynch Trust Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Merrill Lynch International Index Fund
State Street Bank Trust Company
P.O. Box 351
Boston Massachusetts 02101
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32246-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
<PAGE> 45
- ------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE STATEMENT
OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................... 2
Investment Objectives and Policies...... 4
Management of the Funds................. 17
Purchase of Shares...................... 20
Redemption of Shares.................... 21
Shareholder Services.................... 22
Performance Data........................ 24
Taxes................................... 25
Additional Information.................. 27
Appendix A.............................. A-1
Appendix B.............................. A-5
Authorization Form...................... A-9
Code #19003-0197
</TABLE>
YZa
MERRILL LYNCH
INDEX FUNDS, INC.
PROSPECTUS mlynch compass
January 31, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 46
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH INDEX FUNDS, INC.
Box 9011, Princeton, New Jersey 08543-9011 -- Phone No. (609) 282-2800
------------------------
Merrill Lynch Index Funds, Inc. (the "Corporation") currently consists of
four portfolios or series: Merrill Lynch S&P 500 Index Fund ("S&P 500 Index
Fund"), Merrill Lynch Small Cap Index Fund ("Small Cap Index Fund"), Merrill
Lynch Aggregate Bond Index Fund ("Aggregate Bond Index Fund") and Merrill Lynch
International Index Fund ("International Index Fund") (collectively, the
"Funds," and each, a "Fund"). Each Fund is a non-diversified mutual fund whose
investment objective is to provide investment results that, before expenses,
seek to replicate the total return (i.e., the combination of capital changes and
income) of a specified securities index. Each Fund will seek to achieve its
objective by investing all of its assets in the series (collectively, the
"Series," and each, a "Series") of Merrill Lynch Index Trust (the "Trust") that
has the same investment objective as the Fund. Each Fund's investment experience
will correspond directly to the investment experience of the respective Series
in which it invests. There can be no assurance that the investment objectives of
the Funds will be achieved.
Each Fund offers two classes of shares, Class A shares and Class D shares.
Class A shares of each Fund are offered at a price equal to the next determined
net asset value per share without the imposition of any front-end or deferred
sales charge, and are not subject to any ongoing account maintenance or
distribution fee. Distribution of Class A shares of each Fund is limited to
certain eligible investors. Class D shares of each Fund are offered at a price
equal to the next determined net asset value per share without the imposition of
any front-end or deferred sales charge and are not subject to any ongoing
distribution fee, but are subject to an ongoing account maintenance fee at an
annual rate of 0.25% of average daily net assets.
This Statement of Additional Information for the Funds is not a prospectus
and should be read in conjunction with the prospectus of the Funds, dated
January 31, 1997 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission and can be obtained, without charge, by calling or by
writing the Funds at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT, L.P. - ADMINISTRATOR
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. - DISTRIBUTOR
------------------------
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS JANUARY 31, 1997
<PAGE> 47
INVESTMENT OBJECTIVES AND POLICIES
Merrill Lynch Index Funds, Inc. currently consists of four series: Merrill
Lynch S&P 500 Index Fund, Merrill Lynch Small Cap Index Fund, Merrill Lynch
Aggregate Bond Index Fund and Merrill Lynch International Index Fund. Each Fund
is a non-diversified mutual fund whose investment objective is to provide
investment results that, before expenses, seek to replicate the total return
(i.e., the combination of capital changes and income) of a specified securities
index. Each Fund will seek to achieve its objective by investing all of its
assets in the Series of Merrill Lynch Index Trust that has the same investment
objective as the Fund. Each Fund's investment experience will correspond
directly to the investment experience of the respective Series in which it
invests. Reference is made to the discussion under "Investment Objectives and
Policies" in the Prospectus for information with respect to each Fund's and each
Series' investment objective and policies. There can be no assurance that the
investment objectives of the Funds will be achieved.
The Funds' and Series' investment objectives are not fundamental policies,
and may be changed by the Directors of the Corporation and the Trustees of the
Trust, respectively, without shareholder approval. THE TRUSTEES AND THE
DIRECTORS MAY ALSO CHANGE THE TARGET INDEX OF ANY RESPECTIVE SERIES AND FUND IF
THEY CONSIDER THAT A DIFFERENT INDEX WOULD FACILITATE THE MANAGEMENT OF THE
SERIES AND FUND IN A MANNER WHICH BETTER ENABLES THE FUND AND SERIES TO SEEK TO
REPLICATE THE TOTAL RETURN OF THE MARKET SEGMENT REPRESENTED BY THE CURRENT
INDEX.
INVESTMENT RESTRICTIONS
The Corporation has adopted the following restrictions and policies
relating to the investment of each Fund's assets and activities, which are
fundamental policies and may not be changed with respect to a Fund without the
approval of the holders of a majority of the Fund's outstanding voting
securities (which for this purpose and under the Investment Company Act of 1940,
as amended (the "Investment Company Act") means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares). Provided that
none of the following restrictions shall prevent a Fund from investing all of
its assets in shares of another registered investment company with the same
investment objective (in a master/feeder structure), each Fund may not:
1. Make any investment inconsistent with the Fund's 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 or Fund may
invest more that 25% of its total assets 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 Fund 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
2
<PAGE> 48
the making of a loan, and except further that a Fund may lend its portfolio
securities, provided that the lending of portfolio securities may be made only
in accordance with applicable law and the guidelines set forth in the Fund's
Prospectus and Statement of Additional Information, as they may be amended from
time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) a Fund may borrow from banks (as defined
in the Investment Company Act) in amounts up to 33 1/3% of its total assets
(including the amount borrowed), (ii) a Fund may borrow up to an additional 5%
of its total assets for temporary purposes, (iii) a Fund may obtain such short-
term credit as may be necessary for the clearance of purchases and sales of
portfolio securities and (iv) the Fund may purchase securities on margin to the
extent permitted by applicable law. A Fund may not pledge its assets other than
to secure such borrowings or, to the extent permitted by the Fund's investment
policies as set forth in the Fund's Prospectus and Statement of Additional
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
8. Underwrite securities of other issuers except insofar as a Fund
technically may be deemed an underwriter under the Securities Act in selling
portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to the
extent that a Fund may do so in accordance with applicable law and the Fund's
Prospectus and Statement of Additional Information, as they may be amended from
time to time, and without registering as a commodity pool operator under the
Commodity Exchange Act.
The Trust has adopted investment restrictions substantially identical to
the foregoing, which are fundamental policies of the Trust and may not be
changed with respect to any Series without the approval of the holders of a
majority of the interests of the Series.
In addition, the Trust and the Corporation have adopted as an operating
policy, which may be changed by the Trustees and the Directors without
shareholder approval, that no Series or Fund, respectively, 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 each Fund's underlying Series generally may not be
purchased from, sold or loaned to Merrill Lynch Asset Management, L.P. ("MLAM")
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 MLAM with the Corporation, the Series are
prohibited from engaging in certain transactions involving MLAM'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 Series are
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 in which such firms
or any of their affiliates participate as an underwriter or dealer.
3
<PAGE> 49
MANAGEMENT OF THE FUNDS
DIRECTORS AND OFFICERS
The Directors and executive officers of the Corporation and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is P.O. Box
9011, Princeton, New Jersey 08543-9011.
TERRY K. GLENN (56) -- President and Director(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 of Princeton Administrators, L.P. since
1988; and Director of Merrill Lynch Financial Data Services, Inc. since 1985.
JACK B. SUNDERLAND (68) -- Director(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) -- Director(2) -- 24 Federal Street, Suite 400,
Boston, Massachusetts 02110. Principal of Fernwood Associates (financial
consultants).
J. THOMAS TOUCHTON (58) -- Director(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. (47) -- Senior Vice President(1)(2) -- Senior Vice
President of MLAM since 1990; Vice President of MLAM from 1978 to 1990.
GREGORY MAUNZ (43) -- 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 (61) -- Vice President(1)(2) -- Vice President of MLAM and
FAM since 1986.
GERALD M. RICHARD (47) -- Treasurer(1)(2) -- Senior Vice President and
Treasurer of MLAM 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 (49) -- 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 Director or officer is a director, trustee or officer of other
investment companies for which MLAM or FAM acts as investment adviser.
4
<PAGE> 50
As of the date of this Statement of Additional Information, the officers
and Directors of the Corporation as a group (nine persons) owned an aggregate of
less than 1/4 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 Funds.
Pursuant to the terms of the Administration Agreement with the Corporation,
MLAM pays all compensation of officers of the Corporation as well as the fees of
all Directors who are affiliated persons of MLAM. The Corporation and the Trust
pay each individual who serves as a Director/Trustee not affiliated with MLAM 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/Trustee who are not interested
persons of the Funds and the Series, with a fee of $1,000 per year.
COMPENSATION OF DIRECTORS
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 aggregate 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
FROM FUNDS/SERIES AND
AGGREGATE PENSION OR RETIREMENT MLAM/FAM
COMPENSATION FROM BENEFITS ACCRUED AS ADVISED FUNDS PAID
NAME OF DIRECTOR FUNDS/SERIES PART OF FUND/SERIES EXPENSES TO DIRECTORS(1)
- ----------------------------- ----------------- ---------------------------- ---------------------
<S> <C> <C> <C>
Jack B. Sunderland........... $ 4,500 None $ 139,100
Stephen B. Swensrud.......... $ 4,500 None $ 171,500
J. Thomas Touchton........... $ 4,500 None $ 139,100
</TABLE>
- ---------------
(1) In addition to the Corporation, the Directors 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 registered investment companies consisting
of 29 portfolios).
ADMINISTRATION ARRANGEMENTS
MLAM is owned and controlled by Merrill Lynch & Co., Inc., a financial
services holding company and the parent of Merrill Lynch. Reference is made to
"Management of the Funds" in the Prospectus for certain information concerning
the administration arrangements of the Corporation and the management and
advisory arrangements of the Trust.
5
<PAGE> 51
The Corporation has entered into an administration agreement with MLAM as
Administrator (the "Administration Agreement"). As discussed in the Prospectus,
the Administrator receives for its services to the Funds monthly compensation at
the annual rates of the average daily net assets of each Fund as follows:
<TABLE>
<CAPTION>
NAME OF FUND ADMINISTRATION FEE
- ---------------------------------------- ------------------
<S> <C> <C>
Merrill Lynch S&P 500 Index Fund...................................... 0.20%
Merrill Lynch Small Cap Index Fund.................................... 0.22%
Merrill Lynch Aggregate Bond Index Fund............................... 0.14%
Merrill Lynch International Index Fund................................ 0.24%
</TABLE>
The Administration Agreement obligates the Administrator to provide certain
administrative services to the Corporation and the Funds and to pay all
compensation of and furnish office space for officers and employees of the
Corporation as well as the fees of all Directors who are affiliated persons of
the Administrator or any of their affiliates. Each Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, taxes,
expenses for legal and auditing services, costs of printing proxies, stock
certificates, shareholder reports and prospectuses and statements of additional
information (except to the extent paid by the Distributor), charges of the
Custodian, any Sub-custodian and Transfer Agent, expenses of redemption of
shares, Securities and Exchange Commission fees, expenses of registering the
shares under federal, state or foreign laws, fees and expenses of unaffiliated
Directors, accounting and pricing costs (including the daily calculation of net
asset value), insurance, interest, brokerage costs, litigation and other
extraordinary or non-recurring expenses, and other expenses properly payable by
the Corporation or the Fund. Merrill Lynch Funds Distributor, Inc. (the
"Distributor") will pay the promotional expenses of the Funds incurred in
connection with the offering of its shares.
Duration and Termination. Unless earlier terminated as described below,
the Administration Agreement will remain in effect for two years from the date
of its adoption. Thereafter, it will remain in effect from year to year with
respect to each Fund if approved annually (a) by the Board of Trustees and (b)
by a majority of the Trustees who are not parties to such contract or interested
persons (as defined in the Investment Company Act) of any such party. Such
contract is not assignable and may be terminated with respect to a Fund without
penalty on 60 days' written notice at the option of either party thereto or by
the vote of the shareholders of the Fund.
6
<PAGE> 52
MANAGEMENT AND ADVISORY ARRANGEMENTS
Each Fund invests all of its assets in shares of the corresponding Series
of the Trust. Accordingly, the Funds do not invest directly in portfolio
securities and do not require investment advisory services. All portfolio
management occurs at the level of the Trust. The Trust has entered into a
management agreement with MLAM as Manager (the "Management Agreement"). As
discussed in the Prospectus, the Manager receives for its services to the Series
monthly compensation at the annual rates of the average daily net assets of each
Series as follows:
<TABLE>
<CAPTION>
NAME OF SERIES MANAGEMENT FEE
- ------------------------------------------ --------------
<S> <C> <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>
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. Each Series pays all other expenses incurred in the operation of the
Series, including, among other things, taxes, expenses for legal and auditing
services, costs of printing proxies, stock certificates, shareholder reports and
prospectuses and statements of additional information (except to the extent paid
by the Distributor), charges of the Custodian, any Sub-custodian and Transfer
Agent, expenses of redemption of shares, Securities and Exchange Commission
fees, expenses of registering the shares under federal, state or foreign laws,
fees and expenses of unaffiliated Trustees, accounting and pricing costs
(including the daily calculation of net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Trust or the Series. The Distributor
will pay the promotional expenses of the Trust incurred in connection with the
offering of its shares.
Securities held by the Series of the Trust may also be held by, or be
appropriate investments for, other funds or investment advisory clients for
which the 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.
Duration and Termination. 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 with
respect to each Series if approved annually (a) by the Board of Trustees or 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 contract is not
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assignable and may be terminated with respect to a Series without penalty on 60
days' written notice at the option of either party thereto or by the vote of the
shareholders of the Series.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Corporation has entered into a distribution agreement with the
Distributor in connection with the offering of shares of the Funds (the
"Distribution Agreement"). The Distribution Agreement obligates the Distributor
to pay certain expenses in connection with the offering of the shares of the
Funds. After the prospectuses, statements of additional information and periodic
reports have been prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies thereof used in
connection with the offering to dealers and investors. The Distributor also pays
for other supplementary sales literature and advertising costs. The Distribution
Agreement is subject to the same renewal requirements and termination provisions
as the Management Agreement described above.
The Corporation reserves the right to suspend the offering of its shares at
any time.
Account Maintenance Plan. Reference is made to "Purchase of
Shares--Account Maintenance Plan" in the Prospectus for certain information with
respect to the Account Maintenance Plan (the "Plan") of the Class D shares of
the Funds.
The payment of the account maintenance fee is subject to the provisions of
Rule 12b-1 under the Investment Company Act. Among other things, the Plan
provides that the Distributor shall provide and the Directors shall review
quarterly reports of the disbursement of the account maintenance fees paid to
the Distributor. In their consideration of the Plan, the Directors must consider
all factors they deem relevant, including information as to the benefits of the
Plan to the Funds and their shareholders. The Plan further provides that, so
long as the Plan remains in effect, the selection and nomination of Directors
who are not "interested persons" of the Funds, as defined in the Investment
Company Act (the "Independent Directors"), shall be committed to the discretion
of the Independent Directors then in office. In approving the Plan in accordance
with Rule 12b-1, the Independent Directors concluded that there is reasonable
likelihood that the Plan will benefit the Fund and its shareholders. The Plan
can be terminated at any time, without penalty, by the vote of a majority of the
Independent Directors or with respect to any Fund by the vote of the holders of
a majority of the outstanding Class D shares of the Fund. The Plan cannot be
amended to increase materially the amount to be spent by the Class D shares of a
Fund without shareholder approval, and all material amendments are required to
be approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in the Plan, cast in
person at a meeting called for that purpose. Rule 12b-1 further requires that
the Fund preserve copies of the Plan and any report made pursuant to such plan
for a period of not less than six years from the date of the Plan or such
report, the first two years in an easily accessible place.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
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<PAGE> 54
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period during which trading on the New
York Stock Exchange is restricted as determined by the Securities and Exchange
Commission or such Exchange is closed (other than customary weekend and holiday
closings), for any period during which an emergency exists as defined by the
Securities and Exchange Commission as a result of which disposal of portfolio
securities or determination of the net asset value of a Fund is not reasonably
practicable, and for such other periods as the Securities and Exchange
Commission may by order permit for the protection of shareholders of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Fund and the Series at that time.
Shares are redeemable at the option of the Corporation if, in the opinion
of the Corporation, ownership of the shares has or may become concentrated to
the extent which would cause the Corporation or a Fund to be deemed a personal
holding company within the meaning of the Code.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Because the Funds will invest exclusively in shares of their corresponding
Series it is expected that all transactions in portfolio securities will be
entered into by the Series. The Manager is responsible for making the Series'
portfolio decisions, placing the Series' brokerage business, evaluating the
reasonableness of brokerage commissions and negotiating the amount of any
commissions paid subject to a policy established by the Trust's Trustees and
officers. The Trust has no obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. Orders for
transactions in portfolio securities are placed for the Trust with a number of
brokers and dealers, including Merrill Lynch. In placing orders, it is the
policy of the Trust to obtain the most favorable net results, taking into
account various factors, including price, commissions, if any, size of the
transaction and difficulty of execution. Where practicable, the Manager surveys
a number of brokers and dealers in connection with proposed portfolio
transactions and selects the broker or dealer which offers the Trust the best
price and execution or other services which are of benefit to the Trust.
Securities firms also may receive brokerage commissions on transactions
including covered call options written by the Trust and the sale of underlying
securities upon the exercise of such options. In addition, consistent with the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and policies established by the Trustees, the Manager may consider sales of
shares of the Funds as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Trust.
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, quantitative and modeling information, 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.
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The Trust anticipates that brokerage transactions involving securities of
companies domiciled in countries other than the United States will be conducted
primarily on the principal stock exchanges of such countries. Brokerage
commissions and other transaction costs on foreign stock exchange transactions
are generally higher than in the United States, although the Trust will endeavor
to achieve the best net results in effecting its portfolio transactions. There
is generally less government supervision and regulation of foreign stock
exchanges and brokers than in the United States.
The Trust invests in certain securities traded in the over-the-counter
market and, where possible, deals 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 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 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. A
high rate of portfolio turnover would result in correspondingly greater
brokerage commission expenses. Portfolio turnover rate is calculated by dividing
the lesser of the Series' annual sales or purchases of portfolio securities
(exclusive of purchases and sales of Government securities and of all other
securities, including options, whose maturity or expiration dates at the time of
acquisition were one year or less) by the monthly average value of the
securities in the Series during the fiscal year.
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information -- Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value.
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The net asset value of the shares of the Funds is determined once daily
Monday through Friday as of 15 minutes after the close of business on the New
York Stock Exchange (generally 4:00 P.M., New York time) on each day the New
York Stock Exchange is open for trading (a "Pricing Day"). The New York Stock
Exchange is not open for trading on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value is computed by dividing the value of the
securities held by a Fund plus any cash or other assets (including interest and
dividends accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time. Expenses,
including the fees payable to the Administrator and the Distributor, and the
advisory fees payable indirectly by the Series of the Trust to the Manager, are
accrued daily.
The principal assets of each Fund will normally be its interest of the
underlying Series, which will be valued at its net asset value. 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.
Each investor in the Trust may add to or reduce its investment in any
Series on each Pricing Day. The value of each investor's (including the
respective Funds') interest in a Series will be determined as of 15 minutes
after the close of business on 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 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 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 such time on the next Pricing Day of
the Series.
SHAREHOLDER SERVICES
The Funds offer a number of shareholder services described below which are
designed to facilitate investment in their shares. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Funds, the Distributor or Merrill Lynch. Certain of these services are
available only to United States investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction
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confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gains distributions. The
statement will also show any other activity in the account since the preceding
statements. Shareholders will receive separate transaction confirmations for
each purchase or sale transaction other than automatic investment purchase and
the reinvestment of ordinary income dividends and long-term capital gains
distribution. Shareholders may make additions to their Investment Account at any
time by mailing a check directly to the Transfer Agents. Shareholders may also
maintain their accounts through Merrill Lynch. Upon the transfer of shares out
of a Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name will be opened automatically, without charge, at the Transfer
Agent. Shareholders interested in transferring their shares from Merrill Lynch
and who do not wish to have an Investment Account maintained for such shares at
the Transfer Agent may request their new brokerage firm to maintain such shares
in an account registered in the name of the brokerage firm for the benefit of
the shareholder. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he be issued
certificates for his shares, and then must turn the certificates over to the new
firm for re-registration as described in the preceding sentence. Shareholders
considering transferring from Merrill Lynch to another brokerage firm or
financial institution should be aware that, if the firm to which the account is
to be transferred will not take delivery of shares of a Fund, a shareholder must
either redeem the shares so that the cash proceeds can be transferred to the
account at the new firm, or such shareholder must continue to maintain an
account at Merrill Lynch for those shares.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares of an Investment Account may be requested by a
shareholder directly from Merrill Lynch Financial Data Services, Inc. (the
"Transfer Agent").
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Funds. Such reinvestment
will be at the net asset value of shares of a Fund, without sales charge, as of
the close of business on the ex-dividend date of the dividend or distribution.
Shareholders may elect in writing or by telephoning (1-800-MER-FUND) to receive
either their income dividends or capital gains distributions, or both, in cash,
in which event payment will be mailed on or about the payment date. Shareholders
may, at any time, notify the Transfer Agent in writing that they no longer wish
to have their dividends and/or distributions reinvested in shares of the Fund or
vice versa and, commencing ten days after the receipt by the Transfer Agent of
such notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from such
shareholder's Investment Account in the form of payments by check or through
automatic payment by direct deposit to such shareholder's bank account on either
a monthly or quarterly basis. Shareholders whose shares are held within a
CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bi-monthly, quarterly, semiannual or annual basis through the
Systematic Redemption Program, subject to certain conditions.
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AUTOMATIC INVESTMENT PLANS.
Regular additions of shares may be made in an investor's Investment Account
by prearranged charges of $50 or more to such investor's regular bank account.
Investors who maintain CMA(R) accounts may arrange to have periodic investments
made in the Funds in their CMA(R) account or in certain related accounts in
amounts of $100 or more through the CMA(R) Automated Investment Program.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in a
Fund and certain of the other mutual funds sponsored by Merrill Lynch as well as
in other securities. Merrill Lynch charges an initial establishment fee and an
annual custodial fee for each account. Information with respect to these plans
is available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100 and the minimum subsequent purchase is $1.
Capital gains and income received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Corporation'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 Fund, Small Cap Index Fund
and International Index Fund. Dividends with respect to the Aggregate Bond Index
Fund will be declared daily and paid monthly. All net realized long- or
short-term capital gains, if any, are distributed to Fund shareholders at least
annually. From time to time, a Fund may declare a special distribution at or
about the end of the calendar year in order to comply with a Federal income tax
requirement that certain percentages of its ordinary income and capital gains be
distributed during the taxable year. See "Shareholder Services -- Reinvestment
of Dividends and Capital Gains Distributions" for information concerning the
manner in which dividends and distributions may be reinvested automatically in
shares of the Funds. Shareholders may elect in writing to receive any such
dividends or distributions, or both, in cash.
TAXES
The Funds intend to qualify for the special tax treatment afforded
regulated investment companies ("RICs") under the Internal Revenue Code of 1986,
as amended (the "Code"). As a RIC, a Fund will not be subject to Federal income
tax on the part of its net ordinary income and net realized capital gains which
it distributes to shareholders. In order to qualify, the Fund must among other
things, (i) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, gains from the sale of
securities, or other income (including but not limited to gains from options or
futures) derived with respect to its business of investing in such stock or
securities; (ii) derive less than 30% of its gross income from gains from the
sale or other disposition of stock, securities, options or futures held for less
than 3 months; (iii) distribute at least 90% of its dividend, interest and
certain other taxable income each year; (iv) at the end of each fiscal quarter
maintain at least 50% of the value of its total assets in cash, government
securities, securities of other RICs, and other securities of issuers which
represent, with respect to each issuer, no more
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than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer; and (v) at the end of each fiscal quarter have
no more than 25% of its assets invested in the securities (other than those of
the government or other RICs) of any one issuer or of two or more issuers which
the Fund controls and which are engaged in the same, similar or related trades
and businesses.
Dividends paid by a Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from a Fund's net realized long-term capital gains (including
long-term gains from certain transactions in futures and options) are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has owned Fund shares. Any loss upon the sale or exchange of Fund
shares held for six months or less, however, will be treated as long-term
capital loss to the extent of any capital gains distributions received by the
shareholder with respect to such shares. Distributions in excess of a Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming the shares are held as a capital asset).
Dividends and distributions are taxable to shareholders even though they
are reinvested in additional shares of a Fund. Not later than 60 days after the
close of its taxable year, the Funds will provide shareholders with a written
notice designating the amounts of any ordinary income dividends or capital gains
dividends. A portion of the ordinary income dividends paid by the S&P 500 Index
Fund and Small Cap Index Fund may be eligible for the 70% dividends received
deduction allowed to corporations under the Code, if certain requirements are
met. For this purpose, the Funds will allocate dividends eligible for the
dividends received deduction between the Class A and Class D shareholders
according to a method that is based upon the gross income that is allocable to
the Class A and Class D shareholders during the taxable year, or such other
method as the Internal Revenue Service may prescribe. Distributions paid by the
Aggregate Bond Index Fund and the International Index Fund will not be eligible
for the dividends received deduction. If a Fund pays a dividend in January which
was declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Redemptions and exchanges of a Fund's shares are taxable events, and,
accordingly, shareholders may realize gains or losses on such events. A loss
realized on a sale or exchange of shares of a Fund will be disallowed if other
Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
Ordinary income dividends paid by a Fund to shareholders who are
nonresident aliens or foreign entities generally will be subject to a 30% United
States withholding tax under existing provisions of the Code applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under the applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
Dividends and interest received by the International Index Fund and the
Aggregate Bond Index Fund may give rise to withholding and other taxes imposed
by foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of the International
Index Fund may be able to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and
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limitations contained in the Code. For example, certain retirement accounts
cannot claim foreign tax credits on investments in foreign securities held by
the Fund. The International Index Fund expects to be eligible, and intends, to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate share
of such withholding taxes in their U.S. income tax returns as gross income,
treat such proportionate share as taxes paid by them, and deduct such
proportionate share in computing their taxable incomes or, alternatively,
subject to certain restrictions, use them as foreign tax credits against their
U.S. income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporation shareholder who do not itemize deductions. A shareholder that is
a nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The International Equity Fund will report annually to its shareholders the
amount per share of such withholding taxes. For this purpose, the Fund will
allocate foreign taxes and foreign source income among the Class A and Class D
shareholders according to a method similar to that described above for the
allocation of dividends eligible for the dividends received deduction.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. For purposes of determining its distribution
requirements, each Fund will account for its share of items of income, gain,
loss and deductions of the Series as they are taken into account by the Series.
While each Fund intends to distribute its income and capital gains in the manner
necessary to avoid imposition of the 4% excise tax, there can be no assurance
that sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In such event, the Fund
will be liable for the tax only on the amount by which it does not meet the
foregoing distribution requirements.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on reportable dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not on file with the Corporation or who, to the Corporation's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
Each Fund may purchase or sell options and futures. Options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
Federal income tax purposes at the end of each taxable year, i.e., each such
option or futures contract will be treated as sold for its fair market value on
the last day of the taxable year. In general, unless the special election
referred to in the previous sentence is made, gain or loss from Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss. The
mark-to-market rules outlined above, however, will not apply to certain
transactions entered into by a Fund solely to reduce the risk of changes in
price or interest rates with respect to its investments.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of each Fund's transactions in options and futures contracts. Under
Section 1092, a Fund may be required to postpone recognition for tax purposes of
losses incurred in certain closing transactions in options and futures.
Similarly, Code Section 1091, which deals with "wash sales," may cause a Fund to
postpone recognition of certain losses
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for tax purposes; and Code Section 1258, which deals with "conversion
transactions," may apply to recharacterize certain capital gains as ordinary
income for tax purposes.
One of the requirements for qualification as a RIC is that less than 30% of
a Fund's gross income may be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Funds may be restricted in effecting closing transactions within three months
after entering into an options or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether a Series qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to a Series.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the United States
dollar). In general, foreign currency gains or losses from certain forward
contracts, from futures contracts that are not "regulated futures contracts" and
from unlisted options will be treated as ordinary income or loss under Code
Section 988. In certain circumstances, a Series may elect capital gain or loss
treatment for such transactions. In general, however, Code Section 988 gains or
losses will increase or decrease the amount of a Fund's investment company
taxable income available to be distributed to shareholders as ordinary income,
rather than increasing or decreasing the amount of the Fund's net capital gains.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each shareholder's Fund
shares.
THE SERIES
The Trust and each Fund have received a private letter ruling from the
Internal Revenue Service ("IRS"), in which the IRS has ruled that each Series is
classified as a partnership for tax purposes and, based upon that ruling, that
each Fund will be entitled to look to the underlying assets of the Series in
which it has invested for purposes of satisfying the diversification
requirements and other requirements of the Code applicable to RICs. If any of
the facts upon which such ruling is premised change in any material respect
(e.g., if the Trust were required to register its interests under the Securities
Act) and the Trust is unable to obtain a revised private letter ruling from the
IRS indicating that each Series will continue to be classified as a partnership,
then the Board of Directors of the Corporation will determine, in its
discretion, the appropriate course of action for the Funds. One possible course
of action would be to withdraw the Funds' investments from the Series and to
retain an investment adviser to manage the Funds' assets in accordance with the
investment policies applicable to the respective Fund. See "Investment
Objectives and Policies."
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and does
not address the state and local tax, or estate or inheritance
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tax, consequences of an investment is a Fund. For the complete provisions,
reference should be made to the pertinent Code sections and the Treasury
regulations promulgated thereunder. The Code and the Treasury regulations are
subject to change by legislative or administrative action either prospectively
or retroactively.
Dividends and capital gains distributions and gain on the sale or exchange
of shares in a Fund may also be subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, local or foreign taxes or estate or inheritance
tax. Foreign investors should consider applicable foreign taxes in their
evaluation of an investment in a Fund.
PERFORMANCE DATA
From time to time a Fund may include its Fund's average annual total
return, other total return data and/or yield in advertisements or information
furnished to present or prospective shareholders. Total return figures are based
on a Fund's historical performance and are not intended to indicate future
performance. Average annual total return and yield are 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.
Each Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment. Such data will be
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.
From time to time, a Fund may include its Fund's Morningstar risk-adjusted
performance ratings in advertisements or supplemental sales literature.
17
<PAGE> 63
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Corporation is a Maryland corporation incorporated on October 25, 1996.
It has an authorized capital of 1,000,000,000 shares of Common Stock, par value
$0.0001 per share, divided into 125,000,000 shares each of Class A and Class D
shares for each of the four Funds: Merrill Lynch S&P 500 Index Fund, Merrill
Lynch Small Cap Index Fund, Merrill Lynch Aggregate Bond Index Fund and Merrill
Lynch International Index Fund. Class A and Class D shares of a Fund represent
interests in the same assets of the Series and are identical in all respects
except that the Class D shares bear certain expenses related to the account
maintenance associated with such shares. Class D shares have exclusive voting
rights with respect to matters relating to the class' account maintenance
expenditures.
Shareholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Directors (to the
extent hereafter provided) and on other matters submitted to the vote of
shareholders. All shares of each Fund have equal voting rights, except that each
Fund has exclusive voting rights to matters affecting only such Fund, and except
that as noted above, Class D shares have exclusive voting rights with respect to
matters relating to the class' account maintenance expenditures. There normally
will be no meeting of shareholders for the purpose of electing Directors unless
and until such time as less than a majority of the Directors holding office have
been elected by the shareholders, at which time the Directors then in office
will call a shareholders' meeting for the election of Directors. Shareholders
may, in accordance with the terms of the Articles of Incorporation, cause a
meeting of shareholders to be held for the purpose of voting on the removal of
Directors. Also, the Corporation will be required to call a special meeting of
shareholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements, of a material
increase in account maintenance fees or of a change in fundamental policies,
objectives or restrictions. Except as set forth above, the Directors shall
continue to hold office and appoint successor Directors. Each issued and
outstanding share is entitled to participate equally in dividends and
distributions declared and in net assets upon liquidation or dissolution
remaining after satisfaction of outstanding liabilities, except that, as noted
above, Class D shares bear certain additional expenses. Shares issued are
fully-paid and non-assessable by the Fund. Voting rights for Directors are not
cumulative.
Stock certificates are issued by the Transfer Agent only on specific
request. Certificates for fractional shares are not issued in any case.
The Trust consists of four Series, and is organized as a Delaware business
trust. Whenever a Fund is requested to vote on a fundamental policy of a Series,
the Corporation will hold a meeting of the investing Fund's shareholders and
will cast its vote as instructed by such Fund's shareholders.
MLAM provided the initial capital for each Fund by purchasing 2,500 Class A
shares of each Fund (10,000 total) and 2,500 Class D shares of each Fund (10,000
total), for an aggregate of $50,000 per Fund. Such shares were acquired for
investment and can only be disposed of by redemption. The organizational
expenses of the Corporation will be paid by the Corporation and amortized over a
period not exceeding five years. The proceeds realized by MLAM upon redemption
of any of such shares will be reduced by the proportionate amount of the
unamortized organizational expenses which the number of shares redeemed bears to
the number of shares initially purchased.
18
<PAGE> 64
COMPUTATION OF OFFERING PRICE PER SHARE
Based upon the projected value of each Fund's estimated assets and
projected number of shares of each class outstanding on the date its shares are
first offered to the public, the initial offering price of the shares of each
class of each Fund is expected to be $10.00 ($25,000 net assets divided by 2,500
shares outstanding).
INDEPENDENT AUDITORS
Deloitte & Touche, LLP, has been selected as the independent auditors of
the Corporation and the Trust. The selection of the Corporation's independent
auditors is subject to ratification by 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 Corporation at a meeting called for the purpose of terminating such
employment. The independent auditors are responsible for auditing the annual
financial statements of the Funds.
CUSTODIAN
Merrill Lynch Trust Company, 800 Scudders Mill Road, Plainsboro, New
Jersey, acts of 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. The Custodian is responsible for safeguarding and controlling cash
and securities, handling the receipt and delivery of securities and collecting
interest and dividends on investments. Each Custodian is responsible for
safeguarding and controlling cash and securities, handling the receipt and
delivery of the securities and collecting interest and dividends on investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Transfer Agent of the Corporation
and the Trust. The Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening, maintenance and servicing of shareholder
accounts. See "Management of the Funds -- Transfer Agency Services" in the
Prospectus.
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New
York 10022, is counsel for the Corporation and the Trust.
REPORTS TO SHAREHOLDERS
The Corporation sends to its shareholders at least quarterly reports
showing the Funds' portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year shareholders will receive Federal income
tax information regarding dividends and capital gains distributions.
19
<PAGE> 65
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Corporation has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act and the
Investment Company Act, to which reference is hereby made.
Under separate agreements Merrill Lynch has granted the Corporation and the
Trust the right to use the "Merrill Lynch" name and has reserved the right to
withdraw its consent to the use of such name by the Corporation and the Trust at
any time or to grant the use of such name to any other company, and the
Corporation and the Trust have granted Merrill Lynch, under certain conditions,
the use of any other name it might assume in the future, with respect to any
corporation organized by Merrill Lynch.
20
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Merrill Lynch Index Funds, Inc.:
We have audited the accompanying statements of assets and liabilities of the
Merrill Lynch S&P 500 Index Fund, Merrill Lynch SmallCap Index Fund, Merrill
Lynch Aggregate Bond Index Fund and Merrill Lynch International Index Fund of
Merrill Lynch Index Funds, Inc. as of January 17, 1997. These financial
statements are the responsibility of the Fund'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 presents fairly, in
all material respects, the financial position of the Merrill Lynch S&P 500 Index
Fund, Merrill Lynch SmallCap Index Fund, Merrill Lynch Aggregate Bond Index Fund
and Merrill Lynch International Index Fund of Merrill Lynch Index Funds, Inc. as
of January 17, 1997, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
January 22, 1997
21
<PAGE> 67
MERRILL LYNCH INDEX FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 17, 1997
<TABLE>
<CAPTION>
MERRILL
MERRILL MERRILL LYNCH MERRILL
LYNCH LYNCH AGGREGATE LYNCH
S&P 500 SMALL CAP BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Cash in Bank................................... $ 25,000 $ 25,000 $ 25,000 $ 25,000
Prepaid registration fees (Note 3)............. 173,685 43,421 28,947 28,947
Deferred organization expenses (Note 4)........ 84,211 21,053 14,035 14,035
------------ ------------ ------------ ------------
Total Assets................................. 282,896 89,474 67,982 67,982
Liabilities:
Liabilities and accrued expenses............... 257,896 64,474 42,982 42,982
------------ ------------ ------------ ------------
Net Assets (equivalent to $0.0001 per share on
1,250 Class A shares of Common Stock (par value
$0.0001), 1,250 Class D shares of Common Stock
(par value $0.0001) outstanding with
1,000,000,000 shares authorized) (Note 1)...... $ 25,000 $ 25,000 $ 25,000 $ 25,000
============= ============= ============= =============
Net Assets Consist of:
Class A Shares of Common Stock, $0.0001 par
value, 125,000,000 shares authorized......... $ 1 $ 1 $ 1 $ 1
Class D Shares of Common Stock, $0.0001 par
value, 125,000,000 shares authorized......... 1 1 1 1
Paid-in Capital in excess of par............... 24,998 24,998 24,998 24,998
------------ ------------ ------------ ------------
Net Assets....................................... $ 25,000 $ 25,000 $ 25,000 $ 25,000
============= ============= ============= =============
Net Asset Value:
Class A -- Based on net assets of $12,500 and
1,250 shares outstanding....................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
============= ============= ============= =============
Class D -- Based on net assets of $12,500 and
1,250 shares outstanding....................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
============= ============= ============= =============
</TABLE>
- ---------------
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Index Funds, Inc. (the "Corporation") was organized as a
Maryland corporation on October 25, 1996 and consists of four portfolios or
series; Merrill Lynch S&P 500 Index Fund, Merrill Lynch Small Cap Index
Fund, Merrill Lynch Aggregate Bond Index Fund and Merrill Lynch
International Index Fund. The Corporation is registered under the investment
Company Act of 1940 as a non-diversified mutual fund. To date, the
Corporation has not had any transactions other than those relating to
organizational matters and the sale of 5,000 Class A shares and 5,000 Class
D shares of Common Stock to Merrill Lynch Asset Management, L.P. (the
"Administrator").
(2) The Corporation has entered into an administration agreement (the
"Administration Agreement") with the Administrator, and a distribution
agreement (the "Distribution Agreement") with Merrill Lynch Funds
Distributor, Inc. (the "Distributor"). (See "Management of the
Funds -- Administration Arrangements" in the Statement of Additional
Information.) Certain officers and/or directors of the Corporation are
officers and/or directors of the Administrator and the Distributor.
(3) Prepaid registration fees are charged to income as the related shares are
issued.
(4) Deferred organization expenses will be amortized over a period from the date
the Corporation commences operations not exceeding five years. In the event
that the Administrator (or any subsequent holder) redeems any of its
original shares prior to the end of the five-year period, the proceeds of
the redemption payable in respect of such shares shall be reduced by the pro
rata share (based on the proportionate share of the original shares redeemed
to the total number of original shares outstanding at the time of
redemption) of the unamortized deferred organization expenses as of the date
of such redemption. In the event that the Corporation is liquidated prior to
the end of the five-year period, the Administrator (or any subsequent
holder) shall bear the unamortized deferred organization expenses.
22
<PAGE> 68
- ------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
IN THIS
STATEMENT
---------
<S> <C>
Investment Objectives and
Policies....................... 2
Investment Restrictions........ 2
Management of the Funds.......... 4
Directors and Officers......... 4
Compensation of Directors...... 5
Administration Arrangements.... 5
Management and Advisory
Arrangements................ 7
Purchase of Shares............... 8
Redemption of Shares............. 8
Portfolio Transactions and
Brokerage...................... 9
Determination of Net Asset
Value.......................... 10
Shareholder Services............. 11
Investment Account............. 11
Automatic Reinvestment of
Dividends and Capital Gains
Distributions............... 12
Systematic Withdrawal
Plans..................... 12
Automatic Investment
Plans..................... 13
Retirement Plans............ 13
Dividends, Distributions and
Taxes....................... 13
Dividends and
Distributions............. 13
Taxes....................... 13
Tax Treatment of Options and
Future Transactions......... 15
Special Rules for Certain
Foreign Currency
Transactions................ 16
The Series..................... 16
Performance Data................. 17
General Information.............. 18
Description of Shares....... 18
Computation of Offering
Price per Share........... 19
Independent Auditors........ 19
Custodian................... 19
Transfer Agent.............. 19
Legal Counsel............... 19
Reports to Shareholders..... 19
Additional Information...... 20
Report of Independent Auditors... 21
Financial Statements............. 22
Code 19004-0197
</TABLE>
MERRILL LYNCH
INDEX FUNDS, INC.
STATEMENT OF mlynch compass
ADDITIONAL
INFORMATION
January 31, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 69
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Contained in Part A, the Prospectus:
None
Contained in Part B, the Statement of Additional Information:
Statement of Assets and Liabilities
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<C> <C> <S>
1(a) -- Articles of Incorporation of Registrant.*
1(b) -- Articles of Amendment.
2 -- By-Laws of Registrant.*
3 -- None.
4 -- Instrument Defining Rights of Shareholders. Incorporated by reference to
Exhibits 1 and 2 above.
5 -- Not Applicable.
6 -- Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.
7 -- None.
8(a) -- Form of Custody Agreement between Registrant and Merrill Lynch Trust Company.
8(b) -- Form of Custody Agreement between Registrant and State Street Bank and Trust
Company.
9(a) -- Form of Administration Agreement between Registrant and Merrill Lynch Asset
Management, L.P.
(b) -- Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and Merrill Lynch Financial Data
Services, Inc.
(c) -- License Agreement relating to Use of Name between Merrill Lynch & Co., Inc.
and Registrant.
10 -- Opinion and consent of Shereff, Friedman, Hoffman & Goodman, LLP, counsel for
Registrant.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management.
14 -- Not Applicable.
15 -- Account Maintenance Plan of the Registrant and Plan Sub-Agreement.
16 -- Not Applicable.
17(a) -- Financial Data Schedules -- Not Applicable.
17(b) -- Powers of Attorney.
18 -- Rule 18f-3 Plan.
</TABLE>
- ------------------
* Previously filed.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Prior to the effective date of this Registration Statement, the Registrant
sold shares of each Class of each Series of Registrant to Merrill Lynch Asset
Management, L.P. (the "Administrator" or "MLAM"), which, as sole shareholder,
may be deemed to control Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
One.
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<PAGE> 70
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws and Section 2-418 of the Maryland General
Corporation Law.
Article VI of the By-Laws provides that each current and former officer and
Director of the Registrant shall be indemnified by the Registrant to the full
extent permitted under the General Laws of the State of Maryland, except that
such indemnity shall not protect any such person against any liability to the
Registrant or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office. Absent a
court determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Registrant to indemnify such person must be based
upon the reasonable determination of independent counsel or non-party
independent directors, after review of the facts, that such officer or director
is not guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Each officer and Director of the Registrant claiming indemnification with
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at the
time the advance is proposed to be made, that there is reason to believe that
the person seeking indemnification will ultimately be found to be entitled to
indemnification.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or Director of the Registrant.
The Registrant has purchased an insurance policy insuring its officers and
Directors against liabilities, and certain costs of defending claims against
such officers and Directors, to the extent such officers and Directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties.
Article IV of the Administration Agreement between Registrant and MLAM
(Exhibit 9(a) hereof) limits the liability of MLAM to liabilities arising from
willful misfeasance, bad faith or gross negligence in the performance of their
respective duties or from reckless disregard of their respective duties and
obligations.
In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus and
Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling
C-2
<PAGE> 71
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Merrill Lynch Asset Management, L.P. (the "Manager" or "MLAM"), the
investment adviser of Merrill Lynch Index Trust, 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 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.
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<PAGE> 72
("Princeton Administrators") is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML&Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. The address of Merrill Lynch Financial Data Services
("FDS") is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
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,
PROFESSION, VOCATION OR
NAME POSITIONS WITH MANAGER 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
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, General Senior Vice President, General
Counsel, Secretary and Counsel and Secretary of FAM;
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
</TABLE>
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<PAGE> 73
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
PROFESSION, VOCATION OR
NAME POSITIONS WITH MANAGER EMPLOYMENT
- ---------------------------- ------------------------------ ---------------------------------
<S> <C> <C>
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
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>
OTHER SUBSTANTIAL BUSINESS,
PROFESSION, VOCATION OR
NAME POSITIONS WITH MLAM U.K. 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.
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
</TABLE>
C-5
<PAGE> 74
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
PROFESSION, VOCATION OR
NAME POSITIONS WITH MLAM U.K. EMPLOYMENT
- ---------------------------- ------------------------------ ---------------------------------
<S> <C> <C>
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>
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>
(2) (3)
(1) 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
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,
C-6
<PAGE> 75
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 Funds" in the
Prospectus constituting Part A of the Registration Statement and under
"Management of the Funds" in the Statement of Additional Information
constituting Part B of the Registration Statement, the Registrant is not party
to any Management-related service contract.
ITEM 32. UNDERTAKINGS.
To file a post-effective amendment, using financial statements which may
not be certified, within four to six months of the effective date of this
Registration Statement.
The Registrant will furnish each person to whom a Prospectus is delivered
with a copy of Registrant's latest annual request to shareholders, upon request
and without charge.
C-7
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and 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 FUNDS, INC.
Registrant
/s/ TERRY K. GLENN
By:
(Terry K. Glenn, President)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- -------------------------------------- -----------------
<C> <S> <C>
/s/ TERRY K. GLENN President and Director January 30, 1997
- ------------------------------------- (Principal Executive Officer)
(Terry K. Glenn)
/s/ GERALD M. RICHARD Treasurer (Principal Financial January 30, 1997
- ------------------------------------- Accounting Officer) and Director
(Gerald M. Richard)
* Director January 30, 1997
- -------------------------------------
(Jack B. Sunderland)
* Director January 30, 1997
- -------------------------------------
(Stephen B. Swensrud)
* Director January 30, 1997
- -------------------------------------
(J. Thomas Touchton)
By: /s/ TERRY K. GLENN
- -------------------------------------
(Terry K. Glenn, Attorney-in-fact)
</TABLE>
C-8
<PAGE> 77
SIGNATURES
Merrill Lynch Index Trust has duly caused this Amendment to the
Registration Statement of Merrill Lynch Index Funds, Inc. to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Township of
Plainsboro, and State of New Jersey, on the 30th day of January, 1997.
MERRILL LYNCH INDEX TRUST
/S/ TERRY K. GLENN
By:
(Terry K. Glenn, President)
This Amendment to the Registration Statement of Merrill Lynch Index Funds,
Inc. has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- -------------------------------------- -----------------
<C> <S> <C>
/S/ TERRY K. GLENN President and Trustee January 30, 1997
- ------------------------------------- (Principal Executive Officer)
(Terry K. Glenn)
/S/ GERALD M. RICHARD Treasurer (Principal Financial January 30, 1997
- ------------------------------------- Accounting Officer) and Trustee
(Gerald M. Richard)
* Trustee January 30, 1997
- -------------------------------------
(Jack B. Sunderland)
* Trustee January 30, 1997
- -------------------------------------
(Stephen B. Swensrud)
* Trustee January 30, 1997
- -------------------------------------
(J. Thomas Touchton)
By: /s/ TERRY K. GLENN
- -------------------------------------
(Terry K. Glenn, Attorney-in-fact)
</TABLE>
C-9
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
------ ---------------------------------------------------------------
<C> <C> <S> <C>
1(a) -- Articles of Incorporation of Registrant*.......................
1(b) -- Articles of Amendment..........................................
2 -- By-Laws of Registrant*.........................................
3 -- None...........................................................
4 -- Instrument Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above............................
5 -- Not Applicable.................................................
6 -- Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.........................................
7 -- None...........................................................
8(a) -- Form of Custody Agreement between Registrant and Merrill Lynch
Trust Company..................................................
8(b) -- Form of Custody Agreement between Registrant and State Street
Bank and Trust Company.........................................
9(a) -- Form of Administration Agreement between Registrant and Merrill
Lynch Asset Management, L.P....................................
(b) -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between Registrant and
Merrill Lynch Financial Data Services, Inc.....................
(c) -- Form of License Agreement relating to Use of Name between
Merrill Lynch & Co., Inc. and Registrant.......................
10 -- Opinion and consent of Shereff, Friedman, Hoffman & Goodman,
LLP, counsel for Registrant....................................
11 -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.....................................................
12 -- None...........................................................
13 -- Certificate of Merrill Lynch Asset Management..................
14 -- Not Applicable.................................................
15 -- Account Maintenance Plan of the Registrant and Plan
Sub-Agreement..................................................
16 -- Not Applicable.................................................
17(a) -- Financial Data Schedules -- Not Applicable.....................
17(b) -- Powers of Attorney.............................................
18 -- Rule 18f-3 Plan................................................
</TABLE>
- ------------------
* Previously filed.
C-10
<PAGE> 1
EXHIBIT 1(b)
MERRILL LYNCH INDEX FUNDS, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
Merrill Lynch Index Funds, Inc., a Maryland corporation
(hereinafter called the "Corporation") having its principal Maryland office c/o
The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland,
21202, hereby certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The total number of shares of capital stock which the
Corporation currently has authority to issue is One Hundred Million
(100,000,000) shares, of the par value of One Hundredth of One Cent ($.0001)
per share, and of the aggregate par value of Ten Thousand Dollars ($10,000).
Such capital stock consists of four series, known as Merrill Lynch Large Cap
Index Fund, Merrill Lynch Small Cap Index Fund, Merrill Lynch Aggregate Bond
Index Fund and Merrill Lynch International Equity Index Fund (collectively, the
"Series," and each, a "Series"). Each Series consists of Twenty Five Million
(25,000,000) shares. The shares of each Series consist of two classes of
shares designated Class A shares and Class D shares (the "Classes"). Each
Class of each Series consists of Twelve Million Five Hundred Thousand
(12,500,000) shares.
SECOND: Article IV, Section (1) of the Articles of
Incorporation is hereby amended to increase the shares of capital stock of the
Corporation as follows:
The total number of shares of capital stock which the
Corporation shall have authority to issue is One Billion (1,000,000,000)
shares, of the par value of One Hundredth of One Cent ($.0001) per share, and
of the aggregate par value of One Hundred Thousand Dollars ($100,000). Each
Series shall consist, until further changed, of Two Hundred Fifty Million
(250,000,000) shares. Each Class of each Series shall consist, until further
changed, of One Hundred Twenty Five Thousand (125,000,000) shares.
THIRD: Article IV, Section (1) of the charter of the
Corporation is hereby further amended to change the names of two of the Series
as follows:
<TABLE>
<CAPTION>
Old Name of Series New Name of Series
- ------------------ -------------------
<S> <C>
Merrill Lynch Large Cap Index Fund Merrill Lynch S&P 500
Index Fund
Merrill Lynch International Equity Index Fund Merrill Lynch
International Index Fund
</TABLE>
FOURTH: The foregoing amendments do not change the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms and conditions of
redemption of shares of capital stock of the Corporation or of any Class of any
<PAGE> 2
Series thereof as the same are currently set forth in Article IV of the
Corporation's Articles of Incorporation.
FIFTH: The foregoing amendments have been effected in the
manner and by the vote required by the Corporation's charter and the laws of
the State of Maryland. The amendments were approved by a majority of the
entire Board of Directors of the Corporation; and at the time of approval by
the Board of Directors there were no shares of stock of the Corporation
entitled to vote on the matter either outstanding or subscribed for.
SIXTH: Except as amended hereby, the Corporation's charter
shall remain in full force and effect.
The President acknowledges these Articles of Amendment to the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief, the matters set forth in these Articles of Amendment
with respect to the authorization and approval of the amendments of the
Corporation's charter are true in all material respects, and that this
statement is made under the penalties for perjury.
IN WITNESS WHEREOF, MERRILL LYNCH INDEX FUNDS, INC. has caused
these Articles of Amendment to be signed in its name and on its behalf by its
President, a duly authorized officer of the Corporation, and attested by its
Secretary effective the 20th day of December, 1996.
MERRILL LYNCH INDEX FUNDS, INC.
By: /s/ Terry K. Glenn
-----------------------------------------
Terry K. Glenn
President
ATTEST:
/s/ Mark B. Goldfus
- ------------------------
Mark B. Goldfus
Secretary
2
<PAGE> 1
EXHIBIT 6
DISTRIBUTION AGREEMENT
AGREEMENT made as of January 1, 1997, between MERRILL LYNCH INDEX
FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of its
series listed on Appendix A hereto (the "Funds"), and MERRILL LYNCH FUNDS
DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Corporation is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as an open-end
investment company, and it is affirmatively in the interest of the Corporation
to offer its shares for sale continuously; and
WHEREAS, the Directors of the Corporation (the "Directors") are
authorized to establish separate series relating to separate portfolios of
securities, each of which may offer separate classes of shares of common stock,
par value $0.0001 per share (the "Shares"); and
WHEREAS, the Directors have established and designated the Funds as
series of the Corporation; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Corporation and the Distributor wish to enter into an
agreement with each other with respect to the subscription offering and the
continuous offering of the Funds' Shares in order to promote the growth of the
Funds and facilitate the distribution of the Shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Corporation hereby
appoints the Distributor as the principal underwriter and distributor of the
Funds to sell the Shares to the public and hereby
<PAGE> 2
agrees during the term of this Agreement to sell the Shares to the
Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Funds to act as principal underwriter and
distributor of the Shares, except that:
(a) The Corporation may, with respect to any Fund, upon written
notice to the Distributor, from time to time designate other principal
underwriters and distributors of the Shares with respect to areas other than
the United States as to which the Distributor may have expressly waived in
writing its right to act as such. If such designation is deemed exclusive, the
right of the Distributor under this Agreement to sell the Shares in the 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 Distributor to purchase Shares
from each Fund shall not apply to Shares issued in connection with the merger
or consolidation of any other investment company or personal holding company
with a Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
a Fund.
(c) Such exclusive right also shall not apply to Shares issued by a
Fund pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive right also shall not apply to Shares issued by a
Fund pursuant to any conversion, exchange or reinstatement privilege afforded
redeeming shareholders or to any other Shares as shall be agreed between the
Corporation and the Distributor from time to time.
Section 3. Purchase of Shares from the Corporation.
(a) Prior to the continuous offering of the Shares of a Fund,
commencing on a date agreed upon by the Corporation and the Distributor, the
Distributor may solicit subscriptions for Shares
2
<PAGE> 3
during a subscription period which shall last for such period as may be agreed
upon by the parties hereto. If so, the subscriptions will be due and payable
on the fifth business day after the conclusion of the subscription offering, at
which time the Shares will be issued against payment and the Funds will
commence operations.
(b) After the subscription offering, if any such offering is made, or
at such other time agreed to by the Distributor and the Corporation, each Fund
will commence an offering of Shares and thereafter the Distributor shall have
the right to buy from the Corporation the Shares needed, but not more than the
Shares needed (except for clerical errors in transmission) to fill
unconditional orders for Shares of a Fund placed with the Distributor by
eligible investors or securities dealers. The price which the Distributor
shall pay for the Shares so purchased from a Fund shall be the net asset value,
determined as set forth in Section 3(d) hereof.
(c) The Shares are to be resold by the Distributor to investors at
net asset value, as set forth in Section 3(d) hereof, or to securities dealers
having agreements with the Distributor upon the terms and conditions set forth
in Section 7 hereof.
(d) The net asset value of the Shares shall be determined by the
Corporation or any agent of the Corporation in accordance with the method set
forth in the prospectus and statement of additional information and guidelines
established by the Board of Directors of the Corporation (the "Directors").
(e) The Corporation shall have the right to suspend the sale of
Shares of any Fund at any time. In addition, the Corporation shall have the
right to suspend the sale of Shares at times when redemption is suspended
pursuant to the conditions set forth in Section 4(b) hereof. The Corporation
shall also have the right to suspend the sale of Shares if trading on the New
York Stock Exchange shall have been suspended, if a banking moratorium shall
have been declared by Federal or New York
3
<PAGE> 4
authorities, or if there shall have been some other event, which, in the
judgment of the Corporation, makes it impracticable or inadvisable to sell the
Shares.
(f) The Corporation, or any agent of the Corporation designated in
writing by the Corporation, shall be promptly advised of all purchase orders
for Shares received by the Distributor. Any order may be rejected by the
Corporation; provided, however, that the Corporation will not arbitrarily or
without reasonable cause refuse to accept or confirm orders for the purchase of
Shares. The Corporation (or its agent) will confirm orders upon their receipt,
will make appropriate book entries and, upon receipt by the Corporation (or its
agent) of payment therefor, will deliver deposit receipts or certificates for
such Shares pursuant to the instructions of the Distributor. Payment shall be
made to the Corporation in New York Clearing House Funds. The Distributor
agrees to cause such payment and such instructions to be delivered promptly to
the Corporation (or its agent).
Section 4. Repurchase or Redemption of Shares by the Corporation.
(a) Any of the outstanding Shares may be tendered for redemption at
any time, and the Corporation agrees to repurchase or redeem the Shares so
tendered in accordance with its obligations as set forth in Article VI of its
Articles of Incorporation, as amended from time to time, and in accordance with
the applicable provisions set forth in the prospectus and statement of
additional information relating to the Funds. The price to be paid to redeem
or repurchase the Shares shall be equal to the net asset value calculated in
accordance with the provisions of Section 3(d) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set
forth in the prospectus and statement of additional information relating to the
Fund. All payments by the Corporation hereunder shall be made in the manner
set forth below.
4
<PAGE> 5
The Corporation shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh business day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of shares
shall be paid by the Corporation as follows: (i) any applicable CDSC shall be
paid to the Distributor, and (ii) the balance shall be paid to or for the
account of the shareholder, in each case in accordance with the applicable
provisions of the prospectus and statement of additional information.
(b) Redemption of Shares or payment may be suspended at any time and,
in addition, may be suspended at times when the New York Stock Exchange is
closed, when trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of which disposal
of securities owned by a Fund is not reasonably practicable or it is not
reasonably practicable for the Corporation to fairly determine the value of the
net assets of the Fund, or during any other period when the Securities and
Exchange Commission, by order, so permits.
Section 5. Duties of the Corporation.
(a) The Corporation shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Shares of any
Fund, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Corporation by independent
public accountants. The Corporation shall make available to the Distributor
such number of copies of its prospectus and statement of additional information
relating to the Fund as the Distributor shall reasonably request.
5
<PAGE> 6
(b) The Corporation shall take, from time to time, but subject to any
necessary approval of Fund shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act of 1933, as amended (the "Securities Act"), to the end
that there will be available for sale such number of Shares as the Distributor
reasonably may be expected to sell.
(c) The Corporation shall use its best efforts to make such filings
as may be required in connection with the sale of Shares in such states as the
Distributor and the Corporation may approve. As provided in Section 8(c)
hereof, the expense of such filings shall be borne by the Corporation.
(d) The Corporation will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports of the Funds.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Shares of the Funds but shall not be obligated to sell any specific
number of Shares. The services of the Distributor to the Corporation hereunder
are not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other investment
companies so long as the performance of its obligations hereunder is not
impaired thereby.
(b) In selling the Shares of the Funds, the Distributor shall use its
best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Corporation to give any information or to
make any representations, other than those contained in the registration
statement or related prospectus and statement of additional information and any
sales literature specifically approved by the Corporation.
6
<PAGE> 7
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Corporation, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may
be necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into selected
dealer agreements with securities dealers of its choice ("selected dealers")
for the sale of Shares; provided, that the Corporation shall approve the forms
of agreements with dealers. Shares sold to selected dealers shall be for
resale by such dealers only at net asset value determined as set forth in
Section 3(d) hereof. The form of agreement with selected dealers to be used
during any subscription period as described in Section 3(a) is attached hereto
as Exhibit A and the form of agreement with selected dealers to be used in the
continuous offering of the shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
Shares only to such selected dealers that are members in good standing of the
NASD.
Section 8. Payment of Expenses.
(a) The Corporation shall bear all costs and expenses of the Funds,
including fees and disbursements of the Corporation's counsel and auditors, in
connection with the preparation and filing of any required registration
statements and/or prospectuses and statements of additional information under
the Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to shareholders (including
7
<PAGE> 8
but not limited to the expense of setting in type any such registration
statements, prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are to
be used in connection with the offering of Shares to selected dealers or
investors pursuant to this Agreement. The Distributor shall bear the costs and
expenses of preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in connection
with the offering of the Shares for sale to the public and any expenses of
advertising incurred by the Distributor in connection with such offering. It
is understood and agreed that if the Corporation adopts, pursuant to Rule 12b-1
under the Investment Company Act, a Distribution Plan providing for the payment
by one or more of the Funds of expenses of related to distribution of Shares,
any expenses incurred by the Distributor hereunder may be paid from amounts
recovered by it from the Fund under such Plan.
(c) The Corporation shall bear the 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 Corporation as a broker or
dealer in such states of the United States or other jurisdictions as shall be
selected by the Corporation and the Distributor pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
(a) The Corporation shall indemnify and hold harmless the Distributor
and each person, if any, who controls the Distributor against any loss,
liability, claim, damage or expense (including the
8
<PAGE> 9
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 Shares,
which may be based upon the Securities Act, or on any other statute or at
common law, on the ground that the registration statement or related prospectus
and statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to shareholders of the Funds,
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 Corporation in
connection therewith by or on behalf of the Distributor; provided, however,
that in no case (i) is the indemnity of the Corporation in favor of the
Distributor and any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any liability to
the Corporation or its security holders to which the Distributor 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 Corporation to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against
the Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Corporation 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
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Corporation of any such claim
shall not relieve it from any liability which it may have to the person against
whom such action
9
<PAGE> 10
is brought otherwise than on account of its indemnity agreement contained in
this paragraph. The Corporation 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 Corporation elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Corporation elects to
assume the defense of any such suit and retain such counsel, the Distributor 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 Corporation does not elect to assume the defense of any
such suit, it will reimburse the Distributor 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 Corporation shall
promptly notify the Distributor 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 Shares.
(b) The Distributor shall indemnify and hold harmless the Corporation
and each of its Directors and officers and each person, if any, who controls
the Corporation 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 with, information furnished to the Corporation in
writing by or on behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of additional
information, as from time to time amended, or the annual or interim reports to
shareholders. In case any action shall be brought against the Corporation or
any person so indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties given
10
<PAGE> 11
to the Corporation, and the Corporation and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized
to offer and sell shares of the Corporation, as agent for the Corporation, to
participants in such program as described in the prospectus and statement of
additional information of the Funds. The terms of this Agreement shall apply
to such sales, including terms as to the offering price of shares, the proceeds
to be paid to the Funds, the duties of the Distributor, the payment of expenses
and indemnification obligations of the Corporation and the Distributor.
Section 11. 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
Directors or by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors 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 Directors or by vote of a majority of the outstanding
voting securities of the Corporation, or by the Distributor, on sixty days'
written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment.
11
<PAGE> 12
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 12. Amendments of this Agreement. This Agreement may be
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities of
the Corporation and (ii) by the vote of a majority of those Directors 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 13. 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 FUNDS, INC.
By: /s/ Terry K. Glenn
------------------------------
Title: President
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: /s/ Gerald M. Richard
---------------------------------------
Title: Vice President and Treasurer
12
<PAGE> 13
Appendix A
SERIES OF MERRILL LYNCH INDEX FUNDS, INC.
Merrill Lynch S&P 500 Index Fund
Merrill Lynch Small Cap Index Fund
Merrill Lynch Aggregate Bond Index Fund
Merrill Lynch International Index Fund
As of January 1, 1997
<PAGE> 14
EXHIBIT 6
EXHIBIT A
MERRILL LYNCH INDEX FUNDS, INC.
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Index Funds, Inc., a Maryland corporation (the
"Corporation") on behalf of its series listed on Appendix A hereto (the
"Funds"), pursuant to which it acts as the distributor for the sale of shares
of common stock, par value $0.0001 per share (the "shares"), of the Funds, and
as such has the right to distribute shares of the Funds for resale. The
Corporation is an open-end investment company registered under the Investment
Company Act of 1940, as amended, and the Funds' shares being offered to the
public are registered under the Securities Act of 1933, as amended (the
"Securities Act"). Such shares and certain of the terms on which they are
being offered are more fully described in the enclosed Prospectus and Statement
of Additional Information of the Funds (the "Prospectus" and "Statement of
Additional Information," respectively). You have received a copy of the
Distribution Agreement (the "Distribution Agreement") between the Distributor
and the Corporation and reference is made herein to certain provisions of such
Distribution Agreement. This Agreement relates solely to the subscription
period described in Section 3(a) of such Distribution Agreement. Subject to
the foregoing, as principal, we offer to sell to you, as a member of the
Selected Dealers Group, shares of the Funds upon the following terms and
conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through ________________ ___, 1996. The
subscription period may be extended upon agreement between the Corporation and
the Distributor. Subject to the provisions of such Section and the conditions
contained herein, we will sell you on the fifth business day following the
termination of the subscription period, or such other date as we may advise
(the "Closing Date"), such number of shares as to which you have placed orders
with us not later than 5:00 P.M. on the second full business day preceding the
Closing Date.
2. In all sales of shares to the public you shall act as dealer
for your own account, and in no transaction shall you have any authority to act
as agent for the Corporation or the Funds, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch Mutual
Fund Adviser program and such other special programs as we from time to time
agree, in which case you shall have authority to offer and sell shares, as
agent for the Funds, as described in the Prospectus and Statement of Additional
Information, to participants in such programs.
3. You shall not place orders for any of the shares unless you
have already received
<PAGE> 15
purchase orders for such shares at the applicable public offering prices and
subject to the terms hereof and of the Distribution Agreement. All orders are
subject to acceptance by the Distributor or the Corporation in the sole
discretion of either. The minimum initial and subsequent purchase requirements
are as set forth in the Prospectus, as amended from time to time. You agree
that you will not offer or sell any of the shares except under circumstances
that will result in compliance with the applicable Federal and state securities
laws and that in connection with sales and offers to sell shares you will
furnish to each person to whom any such sale or offer is made a copy of the
Prospectus and, if requested, the Statement of Additional Information (as then
amended or supplemented) relating to the Funds and will not furnish to any
person any information relating to the shares of the Funds which is
inconsistent in any respect with the information contained in the Prospectus
and Statement of Additional Information (as then amended or supplemented) or
cause any advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Corporation.
4. Payment for shares purchased by you is to be made by certified
mail or official bank check at the office of Merrill Lynch Funds Distributor,
Inc., Box 9081, Princeton, New Jersey 08543-9081, on such date as we may
advise, in New York Clearing House funds payable to the order of Merrill Lynch
Funds Distributor, Inc. against delivery by us of non-negotiable share deposit
receipts ("Receipts") issued by Merrill Lynch Financial Data Services, Inc., as
shareholder servicing agent, acknowledging the deposit with it of the shares so
purchased by you. You agree that as promptly as practicable after the delivery
of such shares you will issue appropriate written transfer instructions to the
Corporation or to the shareholder servicing agent as to the purchasers to whom
you sold the shares.
5. No person is authorized to make any representations concerning
shares of the Funds except those contained in the current Prospectus and
Statement of Additional Information relating to the Funds and in such printed
information subsequently issued by us or the Corporation as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing shares through us you shall rely solely on the representations
contained in the Prospectus and Statement of Additional Information and
supplemental information above mentioned. Any printed information which we
furnish you other than the Prospectus and Statement of Additional Information,
periodic reports and proxy solicitation material are our sole responsibility
and not the responsibility of the Corporation, and you agree that the
Corporation shall have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
6. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if requested, the
Statement of Additional Information at or prior to the time of offering or sale
and you agree thereafter to deliver to such purchasers copies of the annual and
interim reports and proxy solicitation materials relating to the Funds. You
further agree to endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional Information, annual or
interim reports and proxy solicitation materials of the Corporation will be
supplied to you in reasonable quantities upon request.
2
<PAGE> 16
7. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of shares of any Fund entirely. Each
party hereto has the right to cancel this Agreement upon notice to the other
party.
8. We shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the subscription period.
We shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operates as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of compliance with
any provision of the Securities Act or of the miles and regulations of the
Securities and Exchange Commission issued thereunder.
9. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales in the
United States, we both hereby agree to abide by the Rules of Fair Practice of
such Association.
10. Upon application to us, we will, inform you as to the states
in which we believe the shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell shares
in any Jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the shares, if necessary.
11. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
12. You agree that you will not sell any shares of the Funds to
any account over which you exercise discretionary authority.
3
<PAGE> 17
13. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement
shall continue after termination for the purpose of settlement of accounts
hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By:
----------------------------------
(Authorized Signature)
Please return one signed copy of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Incorporated
By:
----------------------------------
Address: 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Date: ________________________, 199_
4
<PAGE> 18
EXHIBIT 6
EXHIBIT B
MERRILL LYNCH INDEX FUNDS, INC.
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Index Funds, Inc., a Maryland corporation (the
"Corporation") on behalf of its series listed on Appendix A hereto (the
"Funds"), pursuant to which it acts as the distributor for the sale of shares
of common stock, par value $0.0001 per share (the "shares"), of the Funds and
as such has the right to distribute shares for resale. The Corporation is an
open-end investment company registered under the Investment Company Act of
1940, as amended, and its shares being offered to the public are registered
under the Securities Act of 1933, as amended. You have received a copy of the
Distribution Agreement (the "Distribution Agreement") between ourself and the
Corporation on behalf of the Funds and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospectus" and
"Statement of Additional Information" as used herein refer to the prospectus
and statement of additional information, respectively, relating to the Funds on
file with the Securities and Exchange Commission which is part of the most
recent effective registration statement pursuant to the Securities Act of 1933,
as amended. We offer to sell to you, as a member of the Selected Dealers
Group, shares of the Funds upon the following terms and conditions:
1. In all sales of shares to the public, you shall act as dealer for
your own account and in no transaction shall you have any authority to act as
agent for the Corporation or the Funds, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time to time agree,
in which case you shall have authority to offer and sell shares, as agent for
the Funds, as described in the Prospectus and Statement of Additional
Information, to participants in such programs.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information. The procedure relating to
the handling of orders shall be subject to Section 4 hereof and instructions
which we or the Corporation shall forward from time to time to you. All orders
are subject to acceptance or rejection by the Distributor or the Corporation in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information.
3. You shall not place orders for any of the shares unless you have
already received purchase orders for such shares at the applicable public
offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the
<PAGE> 19
shares except under circumstances that will result in compliance with the
applicable Federal and state securities laws and that in connection with sales
and offers to sell shares you will furnish to each person to whom any such sale
or offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish
to any person any information relating to the shares of the Funds which is
inconsistent in any respect with the information contained in the Prospectus
and Statement of Additional Information (as then amended or supplemented) or
cause any advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Corporation.
4. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Corporation for shares of the Funds to be resold by us
to you subject to the applicable terms and conditions governing the placement
of orders by us set forth in Section 3 of the Distribution Agreement and (ii)
to tender shares directly to the Corporation or its agent for redemption
subject to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning
shares of the Funds except those contained in the current Prospectus and
Statement of Additional Information and in such printed information
subsequently issued by us or the Corporation as information supplemental to
such Prospectus and Statement of Additional Information. In purchasing shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Corporation and you agree that the Corporation shall have no liability or
responsibility to you in these respects unless expressly assumed in connection
therewith.
7. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the Statement
of Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials relating to the Funds. You further
agree to endeavor to obtain proxies from such purchasers. Additional copies of
the Prospectus and Statement of Additional Information, annual or interim
reports and proxy solicitation materials of the Funds will be supplied to you
in reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of shares entirely or to certain persons or
entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
2
<PAGE> 20
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.
10. You represent that you are a member of the National Association
of Securities Dealers, Inc. and, with respect to any sales in the United
States, we both hereby agree to abide by the Rules of Fair Practice of such
Association.
11. Upon application to us, we will inform you as to the states in
which we believe the shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell shares in any
jurisdiction. We will file with the Department of State in New York a Further
State Notice with respect to the shares, if necessary.
12. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
13. Your first order placed pursuant to this Agreement for the
purchase of shares of the Funds will represent your acceptance of this
Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By:
------------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc.
------------------------------------------
By:
--------------------------------------------------
Address: 800 Scudders Mill Road
---------------------------------------------
3
<PAGE> 21
Plainsboro, New Jersey 08536
--------------------------------------------------------------------
Date:
---------------------------------------------------------------
4
<PAGE> 1
EXHIBIT 8(A)
CUSTODIAN CONTRACT
Between
MERRILL LYNCH INDEX FUNDS, INC.
and
STATE STREET BANK AND TRUST COMPANY
GlobalSeriesCorp
21N
<PAGE> 2
TABLE OF CONTENTS
Page
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
<PAGE> 3
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. Massachusetts Law to Apply......................................... 20
18. Prior Contracts.................................................... 20
19. Shareholder Communications......................................... 20
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between Merrill Lynch Index Funds, Inc., a corporation
organized and existing under the laws of Maryland, 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 Index Fund (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
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 "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 2.10A.
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
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<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 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.
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<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 reasonable 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 2.10A 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;
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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. 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 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
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<PAGE> 17
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 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.
14
<PAGE> 18
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 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 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
Directors of the Fund.
15
<PAGE> 19
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.
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.
16
<PAGE> 20
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.
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
17
<PAGE> 21
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 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.
18
<PAGE> 22
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.
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 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 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.
19
<PAGE> 23
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.
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
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 FUNDS, INC.
_______________________________ By__________________________________
ATTEST STATE STREET BANK AND 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 Directors of Merrill Lynch Index
Funds, Inc. 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(G)
FORM OF
CUSTODIAN CONTRACT
Between
MERRILL LYNCH INDEX FUNDS, INC.
and
MERRILL LYNCH TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <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>
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 Funds, Inc., a corporation
organized and existing under the laws of Maryland, 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.
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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.
15
<PAGE> 19
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 FUNDS, INC.
____________________ 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 Directors of Merrill Lynch Index
Funds, Inc. 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 9(a)
ADMINISTRATION AGREEMENT
AGREEMENT made as of January 1, 1997, by and between MERRILL LYNCH
INDEX FUNDS, INC., a Maryland corporation (hereinafter referred to as the
"Corporation") on behalf of its series listed on Appendix A hereto (hereinafter
referred to as the "Funds"), and MERRILL LYNCH ASSET MANAGEMENT, L.P., a
Delaware limited partnership, doing business as MERRILL LYNCH ASSET MANAGEMENT
(hereinafter referred to as the "Administrator").
W I T N E S S E T H:
WHEREAS, the Corporation 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 Directors of the Corporation (the "Directors") are
authorized to establish separate series relating to separate portfolios of
securities, each of which may offer separate classes of shares; and
WHEREAS, the Directors have established and designated the Funds as
series of the Corporation; and
WHEREAS, the Corporation desires to retain the Administrator to
provide management and administrative services to the Funds in the manner and
on the terms hereinafter set forth; and
WHEREAS, the Administrator is willing to provide management and
administrative services to the Funds on the terms and conditions hereafter set
forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Corporation and the Administrator hereby agree as
follows:
ARTICLE I
DUTIES OF THE ADMINISTRATOR
The Corporation hereby employs the Administrator to act as a manager
and administrator of the Funds, and to furnish, or arrange for affiliates to
furnish, the management and administrative services described below, subject to
review by and the overall control of the Board of Directors of the Corporation
(hereinafter referred to as the "Directors"), for the period and on the terms
and conditions set forth in this Agreement. The Administrator 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 Administrator
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
<PAGE> 2
the Corporation or the Funds in any way or otherwise be deemed agents of the
Corporation or the Funds.
Management Services. The Administrator shall perform (or
arrange for the performance by affiliates of) the management and administrative
services necessary for the operation of the Corporation and the Funds including
administering shareholder accounts and handling shareholder relations. The
Administrator shall provide the Corporation and the Funds with office space,
facilities, equipment and necessary personnel and such other services as the
Administrator, subject to review by the Directors, shall from time to time
determine to be necessary or useful to perform its obligations under this
Agreement. The Administrator shall also, on behalf of the Corporation and the
Funds, 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 Administrator shall make reports to the Directors of its
performance of obligations hereunder and furnish advice and recommendations
with respect to such other aspects of the business and affairs of the Funds as
it shall determine to be desirable.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Administrator. The Administrator 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 provided under
Article I hereof, and shall pay compensation of all Officers of the Corporation
and all Directors of the Corporation who are affiliated persons of the
Administrator.
(b) The Corporation. The Corporation assumes and shall pay or cause
to be paid all other expenses of the Corporation and the Funds (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, prospectuses and statements of additional
information, 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 Directors who are not affiliated persons of the Administrator, 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 Funds. It
is also understood that the Corporation shall reimburse the Administrator for
its costs in providing accounting services to the Corporation and the Funds.
The Distributor will pay certain of the expenses of the Funds incurred in
connection with the continuous offering of shares of common stock in the Funds.
2
<PAGE> 3
ARTICLE III
COMPENSATION OF THE ADMINISTRATOR
Administrative Fees. For the services rendered, the facilities
furnished and expenses assumed by the Administrator, each Fund shall pay to the
Administrator at the end of each calendar month a fee based upon the average
daily value of the net assets of the Fund, as determined and computed in
accordance with the description of the determination of net asset value
contained in the prospectus and statement of additional information, at the
annual rate set forth for such Fund in Appendix A hereto, as the same shall
from time to time be amended pursuant hereto, 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 Administrator'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 Directors, 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 ADMINISTRATOR
The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in the
management and administration of the Corporation and any Fund, 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 "Administrator" shall include
any affiliates of the Administrator performing services for the Corporation or
a Fund contemplated hereby and partners, shareholders, directors, officers and
employees of the Administrator and such affiliates.
ARTICLE V
ACTIVITIES OF THE ADMINISTRATOR
The services of the Administrator to the Corporation and the Fund are
not to be deemed to be exclusive, and the Administrator and each affiliate is
free to render services to others. It is understood that Directors, officers,
employees and shareholders of the Corporation and the Funds are or may become
interested in the Administrator and its affiliates, as directors, officers,
employees, partners and shareholders or otherwise, and that the Administrator
and directors, officers, employees, partners and shareholders of the
Administrator and its affiliates are or may become similarly interested in the
Corporation or the Funds as shareholders or otherwise.
3
<PAGE> 4
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first above
written and shall remain in force until April 30, 1998, and thereafter, but
only so long as such continuance is specifically approved at least annually by
(i) the Directors, and (ii) a majority of those Directors 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 Directors or by the vote of a majority of the outstanding
voting securities of the Corporation, or by the Administrator, 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 a majority of those Directors 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.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH INDEX FUNDS, INC.
By: /s/ Terry K. Glenn
-------------------------------
Title: President
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By: /s/ Arthur Zeikel
--------------------------------
Title: President
5
<PAGE> 6
APPENDIX A
<TABLE>
<CAPTION>
Name of Fund Administrative Fee
------------ ------------------
<S> <C>
Merrill Lynch S&P 500 Index Fund 0.20%
Merrill Lynch Small Cap Index Fund 0.22%
Merrill Lynch Aggregate Bond Index Fund 0.14%
Merrill Lynch International Index Fund 0.24%
As of January 1, 1997
</TABLE>
6
<PAGE> 1
EXHIBIT 9(b)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY AND
SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT, made as of January 1, 1997 by and between MERRILL
LYNCH INDEX FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf
of itself and each of its series listed on Exhibit A (each, a "Fund"), and
Merrill Lynch Financial Data Services, Inc., a New Jersey corporation
("MLFDS").
WITNESSETH:
WHEREAS, the Corporation wishes to appoint MLFDS to be the Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund
upon, and subject to, the terms and provisions of this Agreement, and MLFDS is
desirous of accepting such appointment upon, and subject to, such terms and
provisions;
NOW, THEREFORE, in consideration of mutual covenants contained in this
Agreement, the Corporation and MLFDS agree as follows:
1. APPOINTMENT OF MLFDS AS TRANSFER AGENT, DIVIDEND DISBURSING
AGENT AND SHAREHOLDER SERVICING AGENT.
(a) The Corporation hereby appoints MLFDS to act as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds
upon, and subject to, the terms and provisions of this Agreement.
(b) MLFDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds, and
agrees to act as such upon, and subject to, the terms and provisions of this
Agreement.
2. DEFINITIONS.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act of
1940 as amended from time to time and any rule or regulation thereunder;
(II) The term "Account" means any account of a
Shareholder, or, if the shares are held in an account in the name MLPF&S for
benefit of an identified customer, such account, including a Plan Account, any
account under a plan (by whatever name referred to in the Prospectus) pursuant
to the Self-Employed Individuals Retirement Act of 1962 ("Keogh Act Plan")
-1-
<PAGE> 2
and any plan (by whatever name referred to in the Prospectus) in conjunction
with Section 401 of the Internal Revenue Code ("Corporation Master Plan");
(III) The term "application" means an application made
by a shareholder or prospective shareholder respecting the opening of an
Account;
(IV) The term "MLFD" means Merrill Lynch Funds
Distributor, Inc., a Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a Delaware corporation;
(VI) The term "Officer's Instruction" means an
instruction in writing given on behalf of the Funds to MLFDS, and signed on
behalf of the Funds by the President, any Vice President, the Secretary or the
Treasurer of the Corporation;
(VII) The term "Plan Account" means an account opened
by a Shareholder or prospective Shareholder in respect to an open account,
monthly payment or withdrawal plan (in each case by whatever name referred to
in the Prospectus), and may also include an account relating to any other plan
if and when provision is made for such plan in the Prospectus;
(VIII) The term "Prospectus" means the Prospectus and
the Statement of Additional Information of the relevant Fund as from time to
time in effect;
(IX) The term "Shareholder" means a holder of record
of shares;
(X) The term "Shares" means shares of stock of the
Corporation irrespective of class or series.
3. DUTIES OF MLFDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.
(a) Subject to the succeeding provisions of the Agreement,
MLFDS hereby agrees to perform the following functions as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds;
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing
Accounts;
(III) Acting as agent for the Funds' Shareholders
and/or customers of MLPF&S in connection with Plan Accounts, upon the terms and
subject to the conditions contained in the Prospectus and application relating
to the specific Plan Account;
-2-
<PAGE> 3
(IV) Acting as agent of the Funds and/or MLPF&S,
maintaining such records as may permit the imposition of such contingent
deferred sales charges as may be described in the Prospectus, including such
reports as may be reasonably requested by the Corporation with respect to such
Shares as may be subject to a contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a
contingent deferred sales charge, calculating and deducting from the redemption
proceeds thereof the amount of such charge in the manner set forth in the
Prospectus. MLFDS shall pay, on behalf of MLFD, to MLPF&S such deducted
contingent deferred sales charges imposed upon all Shares maintained in the
name of MLPF&S, or maintained in the name of an account identified as a
customer account of MLPF&S. Sales charges imposed upon any other Shares shall
be paid by MLFDS to MLFD;
(VI) Exchanging the investment of an investor into, or
from, the shares of other open-end investment companies or other series
portfolios of the Corporation, if any, if and to the extent permitted by the
Prospectus at the direction of such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to, procedures and
conditions adopted by the Funds;
(X) Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;
(XI) Acting as agent for the Corporation and/or
MLPF&S, furnishing such appropriate periodic statements relating to Accounts,
together with additional enclosures, including appropriate income tax
information and income tax forms duly completed, as required by applicable law;
(XII) Acting as agent for the Corporation and/or
MLPF&S, mailing annual, semi-annual and quarterly reports prepared by or on
behalf of the Funds, and mailing new Prospectuses upon their issue to
Shareholders as required by applicable law;
(XIII) Furnishing such periodic statements of
transactions effected by MLFDS, reconciliations, balances and summaries as the
Funds may reasonably request;
(XIV) Maintaining such books and records relating to
transactions effected by MLFDS as are required by the Act, or by any other
applicable provision of law, rule or regulation, to be maintained by the
Corporation or its transfer agent with respect to such transactions, and
preserving, or causing to be preserved, any such books and records for such
periods as may be required by any such law, rule or regulation and as may be
agreed upon from time to time between
-3-
<PAGE> 4
MLFDS and the Corporation. In addition, MLFDS agrees to maintain and preserve
master files and historical computer tapes on a daily basis in multiple
separate locations a sufficient distance apart to insure preservation of at
least one copy of such information;
(XV) Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and other appropriate
forms as required by applicable law with respect to dividends and
distributions; and
(XVI) Reinvesting dividends for full and fractional
Shares and disbursing cash dividends, as applicable.
(b) MLFDS agrees to act as proxy agent in connection with the
holding of annual, if any, and special meetings of Shareholders, mailing such
notices, proxies and proxy statements in connection with the holding of such
meetings as may be required by applicable law, receiving and tabulating votes
cast by proxy and communicating to the Corporation the results of such
tabulation accompanied by appropriate certificates, and preparing and
furnishing to the Corporation certified lists of Shareholders as of such date,
in such form and containing such information as may be required by the
Corporation.
(c) MLFDS agrees to deal with, and answer in a timely manner,
all correspondence and inquiries relating to the functions of MLFDS under this
Agreement with respect to Accounts.
(d) MLFDS agrees to furnish to the Corporation such
information and at such intervals as is necessary for the Funds to comply with
the registration and/or the reporting requirements (including applicable
escheat laws) of the Securities and Exchange Commission, Blue Sky authorities
or other governmental authorities.
(e) MLFDS agrees to provide to the Corporation such
information as may reasonably be required to enable the Funds to reconcile the
number of outstanding Shares between MLFDS's records and the account books of
the Corporation.
(f) Notwithstanding anything in the foregoing provisions of
this paragraph, MLFDS agrees to perform its functions thereunder subject to
such modification (whether in respect of particular cases or in any particular
class of cases) as may from time to time be contained in an Officer's
Instruction.
4. COMPENSATION.
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
-4-
<PAGE> 5
5. RIGHT OF INSPECTION.
MLFDS agrees that it will, in a timely manner, make available to, and
permit, any officer, accountant, attorney or authorized agent of the
Corporation to examine and make transcripts and copies (including photocopies
and computer or other electronical information storage media and print-outs) of
any and all of its books and records which relate to any transaction or
function performed by MLFDS under or pursuant to this Agreement.
6. CONFIDENTIAL RELATIONSHIP.
MLFDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Corporation, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Corporation by
way of an Officer's Instruction.
7. INDEMNIFICATION.
The Corporation shall indemnify and hold MLFDS harmless from any loss,
costs, damage and reasonable expenses, including reasonable attorney's fees
(provided that such attorney is appointed with the Corporation's consent, which
consent shall not be unreasonably withheld) incurred by it resulting from any
claim, demand, action or suit in connection with the performance of its duties
hereunder, provided that this indemnification shall not apply to actions or
omissions of MLFDS in cases of willful misconduct, failure to act in good faith
or negligence by MLFDS, its officers, employees or agents, and further provided
that prior to confessing any claim against it which may be subject to this
indemnification, MLFDS shall give the Corporation reasonable opportunity to
defend against said claim in its own name or in the name of MLFDS. An action
taken by MLFDS upon any Officer's Instruction reasonably believed by it to have
been properly executed shall not constitute willful misconduct, failure to act
in good faith or negligence under this Agreement.
8. REGARDING MLFDS.
(a) MLFDS hereby agrees to hire, purchase, develop and
maintain such dedicated personnel, facilities, equipment, software, resources
and capabilities as may be reasonably determined by the Corporation to be
necessary for the satisfactory performance of the duties and responsibilities
of MLFDS. MLFDS warrants and represents that its officers and supervisory
personnel charged with carrying out its functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Corporation possess
the special skill and technical knowledge appropriate for that purpose. MLFDS
shall at all times exercise due care and diligence in the performance of its
functions as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Corporation. MLFDS agrees that, in determining whether
it has exercised due care and diligence, its conduct shall be measured by the
standard applicable to persons possessing such special skill and technical
knowledge.
-5-
<PAGE> 6
MLFDS warrants and represents that it is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent under all applicable laws and that it will immediately notify
the Corporation of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.
9. TERMINATION.
(a) This Agreement shall become effective as of the date first
above written and shall thereafter continue from year to year. This Agreement
may be terminated by the Corporation or MLFDS (without penalty to the
Corporation or MLFDS) provided that the terminating party gives the other party
written notice of such termination at least sixty (60) days in advance, except
that the Corporation may terminate this Agreement immediately upon written
notice to MLFDS if the authority or permission of MLFDS to act as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent has been
revoked or if any proceeding or other action which the Corporation reasonably
believes will lead to such revocation has been commenced.
(b) Upon termination of this Agreement, MLFDS shall deliver all
unissued and canceled stock certificates representing Shares remaining in its
possession, and all Shareholder records, books, stock ledgers, instruments and
other documents (including computerized or other electronically stored
information) made or accumulated in the performance of its duties as Transfer
Agent, Disbursing Agent and Shareholder Servicing Agent for the Corporation
along with a certified locator document clearly indicating the complete
contents therein, to such successor as may be specified in a notice of
termination or Officer's Instruction; and the Corporation assumes all
responsibility for failure thereafter to produce any paper, record or document
so delivered and identified in the locator document, if and when required to be
produced.
10. AMENDMENT.
Except to the extent that the performance by MLFDS or its functions
under this Agreement may from time to time be modified by an Officer's
Instruction, this Agreement may be amended or modified only by further written
agreement between the parties.
11. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year
above written.
MERRILL LYNCH INDEX FUNDS, INC.
By: /s/ Terry K. Glenn
--------------------------------
Title: President
MERRILL LYNCH FINANCIAL DATA
SERVICES, INC.
By:
--------------------------------
-7-
<PAGE> 8
Schedule of Fees
The Fund will pay to MLFDS a fee of [ ] in addition
to reimbursement for out-of-pocket expenses incurred by MLFDS pursuant
to this Agreement.
-8-
<PAGE> 9
Exhibit A
INDIVIDUAL SERIES OF MERRILL LYNCH INDEX FUNDS, INC.
Merrill Lynch S&P 500 Index Fund
Merrill Lynch Small Cap Index Fund
Merrill Lynch Aggregate Bond Index Fund
Merrill Lynch International Index Fund
Date: as of January 1, 1997
-9-
<PAGE> 1
EXHIBIT 9(C)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of December 15, 1996 by and between MERRILL LYNCH &
CO., INC. ("ML&Co."), a Delaware corporation, and MERRILL LYNCH INDEX FUNDS,
INC., a Maryland corporation (the "Corporation"), on its own behalf and on
behalf of its currently existing series, and on behalf of each series of the
Corporation that may be formed in the future (the "Funds").
W I T N E S S E T H :
WHEREAS, 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 Corporation was incorporated under the laws of the State
of Maryland on October 25, 1996; and
WHEREAS, the Corporation desires to qualify as a foreign corporation
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 Fund;
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, ML&Co. and the Corporation hereby agree as follows:
1. ML&Co. hereby grants the Corporation a non-exclusive license to
use the words "Merrill Lynch" in its corporate name and in the name of the
Funds.
2. ML&Co. hereby consents to the qualification of the Corporation
as a foreign corporation under the laws of the State New York with the words
"Merrill Lynch" in its corporate
<PAGE> 2
name and in the name of the Funds and agrees to execute such formal consents
as may be necessary in connection with such filing.
3. The non-exclusive license hereinabove referred to has been given
and is given by 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 of the Corporation and of the Funds; and, as soon
as practicable after receipt by the Corporation of written notice of the
withdrawal of such non-exclusive license, and in no event later than ninety
days thereafter, the Corporation will change its name and the name of the Funds
so that such names will not thereafter include the 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 Corporation shall be necessary; but, if required
by an applicable law of any state, the Corporation will forthwith grant all
requisite consents.
5. The Corporation will not grant to any other company the right to
use a name similar to that of the Corporation or the Funds or ML&Co. without
the written consent of ML&Co.
6. Regardless of whether the Corporation and/or the Funds should
hereafter change their names and eliminate the words "Merrill Lynch" or any
variation thereof from such names, the Corporation 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 Corporation
and/or the Funds or to that to which the Corporation and/or the Funds may
change their names and own all or any portion of the shares of such other
corporations or associations and to enter into contractual relationships with
such other corporations or associations, subject to any requisite
2
<PAGE> 3
approval of a majority of each Funds' shareholders and the Securities and
Exchange Commission and subject to the payment of a reasonable amount to be
determined at the time of use, and the Corporation agrees to give and execute
such formal consents or agreements as may be necessary in connection therewith.
7. This Agreement may be amended at any time by a writing signed by
the parties hereto. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and understandings, whether written or oral, with
respect thereto.
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 FUNDS, INC.
By: /s/ Terry K. Glenn
----------------------------
President
3
<PAGE> 1
EXHIBIT 10
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, N.Y. 10022-9998
January 29, 1997
VIA TELECOPIER AND FIRST CLASS MAIL
Merrill Lynch Index Funds, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
Dear Sirs:
Merrill Lynch Index Funds, Inc. (the "Corporation"), on behalf
of each of its series: Merrill Lynch S&P 500 Index Fund, Merrill Lynch Small
Cap Index Fund, Merrill Lynch Aggregate Bond Index Fund, and Merrill Lynch
International Index Fund, proposes to issue and sell an indefinite number of
shares of common stock (the "Shares"), par value $0.0001 per share, in the
manner and on the terms set forth in its Registration Statement on Form N-1A
filed with the Securities and Exchange Commission (File No. 811-7899;
333-15265) (the "Registration Statement").
We have, as counsel, participated in various proceedings
relating to the Corporation and to the Shares. We have examined copies, either
certified or otherwise proved to our satisfaction to be genuine, of its
Articles of Incorporation, as amended to date, and By-Laws, as currently in
effect, and other documents relating to its organization and operation. In
addition, we have received a certificate dated January 28, 1997 of the Maryland
State Department of Assessments and Taxation that the Corporation is in good
standing under the laws of the State of Maryland. We have also reviewed the
Registration Statement and all amendments filed as of the date of this opinion
and the documents filed as exhibits thereto. We are generally familiar with
the business affairs of the Corporation.
Based upon the foregoing, it is our opinion that:
1. The Corporation has been duly incorporated and is
validly existing under the laws of the State of
Maryland.
2. The Corporation is authorized to issue up to one
billion (1,000,000,000) Shares. Under Maryland law,
(a) the number of Shares may be increased or
decreased by action of the Board of Directors, and
(b) Shares which are
<PAGE> 2
Merrill Lynch Index Funds, Inc.
January 29, 1997
Page 2
issued and subsequently redeemed by the
Corporation are, by virtue of such redemption,
restored to the status of authorized and unissued
Shares.
3. Subject to the effectiveness of the
Registration Statement and in compliance with
applicable state securities laws, upon the issuance
of the Shares for a consideration not less than the
par value thereof as required by Maryland law, and
for the net asset value thereof as required by the
Investment Company Act of 1940, as amended, and in
accordance with the terms of the Registration
Statement, such Shares will be legally issued and
outstanding and fully paid and non-assessable.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as a part of the Registration Statement and
with any state securities commission where such filing is required. We also
consent to the reference to our firm as counsel in the prospectus and statement
of additional information filed as a part thereof. In giving this consent we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
We are members of the Bar of the State of New York and do not
hold ourselves out as being conversant with the laws of any jurisdiction other
than those of the United States of America and the State of New York. We note
that we are not licensed to practice law in the State of Maryland, and to the
extent that any opinion expressed herein involves the law of Maryland, such
opinion should be understood to be based solely upon our review of the
published statutes of that State and, where applicable, published cases, rules
or regulations of regulatory bodies of that State.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman, LLP
SFH&G:JHG:JLS:KLJ:JHY
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Index Funds, Inc.
We consent to the use in Pre-Effective Amendment No. 1 to Registration
Statement No. 333-15265 of our report dated January 22, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
January 24, 1997
<PAGE> 1
EXHIBIT 13
CERTIFICATE OF SOLE SHAREHOLDER
Merrill Lynch Asset Management, L.P., the holder of the shares of
common stock indicated below, par value $0.0001 per share, of Merrill Lynch
Index Funds, Inc., a Maryland Corporation (the "Corporation"), does hereby
confirm to the Corporation its representation that it purchased such shares for
investment purposes, with no present intention of redeeming or reselling any
portion thereof, and does further agree that if it redeems any portion of such
shares prior to the amortization of the Corporation's organization expenses,
the proceeds thereof will be reduced by the proportionate amount of the
unamortized organizational expenses which the number of shares being redeemed
bears to the number of shares initially purchased.
Merrill Lynch Asset Management, L.P.
By: /s/ Gerald M. Richard
------------------------------------------
Gerald M. Richard
Senior Vice President and Treasurer
Dated: January 30, 1997
<TABLE>
<CAPTION>
Name of Fund Number of Class A Number of Class D
------------ ----------------- -----------------
Shares Shares
------ ------
<S> <C> <C>
Merrill Lynch S&P 500 Index Fund 2500 2500
Merrill Lynch Small Cap Index Fund 2500 2500
Merrill Lynch Aggregate Bond Index Fund 2500 2500
Merrill Lynch International Index Fund 2500 2500
</TABLE>
<PAGE> 1
EXHIBIT 15
ACCOUNT MAINTENANCE PLAN
OF
MERRILL LYNCH INDEX FUNDS, INC.
PURSUANT TO RULE 12B-1
ACCOUNT MAINTENANCE PLAN made as of January 1, 1997, by and between
Merrill Lynch Index Funds, Inc., a Maryland corporation (the "Corporation"), on
behalf of it series listed on Appendix A hereto (the "Funds"), and Merrill
Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H:
WHEREAS, the Corporation is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Corporation proposes to enter into a Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Corporation in the offer and sale of
shares of common stock, par value $0.0001 per share (the "shares"), of the
Funds to the public; and
WHEREAS, the Corporation on behalf of the Funds desires to adopt this
Account Maintenance Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act pursuant to which each separate Fund will pay an account
maintenance fee to MLFD with respect to the Fund's Class D shares; and
WHEREAS, the Directors of the Corporation have determined that there
is a reasonable likelihood that adoption of the Plan will benefit the Funds and
their respective Class D shareholders.
NOW, THEREFORE, the Corporation on behalf of each Fund hereby adopts,
and MLFD hereby agrees to the terms of, the Plan in accordance with Rule 12b-1
under the Investment Company Act on the following terms and conditions:
1. The Corporation shall pay MLFD with respect to the Class D shares
of each Fund an account maintenance fee under the Plan at the end of each month
at the annual rate of 0.25% of average daily net assets attributable to the
Class D shares of the Fund to compensate MLFD and securities firms with which
MLFD enters into related agreements pursuant to Paragraph 2 hereof
("Sub-Agreements") for providing account maintenance activities with respect to
Class D
<PAGE> 2
shareholders of the Fund. Expenditures under the Plan may consist of payments
to financial consultants for maintaining accounts in connection with Class D
shares of the Fund and payment of expenses incurred in connection with such
account maintenance activities including the costs of making services
available to Class D shareholders (including assistance in connection with
inquiries related to shareholder accounts).
2. The Corporation hereby authorizes MLFD to enter into
Sub-Agreements with certain securities firms ("Securities Firms"), including
Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to
such Securities Firms for activities and services of the type referred to in
Paragraph 1 hereof. MLFD may reallocate all or a portion of its account
maintenance fee to such Securities Firms as compensation for the
above-mentioned activities and services. Such compensation will be in an
amount as set forth in the individual Sub-Agreements. Such Sub-Agreements
shall provide that the Securities Firms shall provide MLFD with such
information as is reasonably necessary to permit MLFD to comply with the
reporting requirements set forth in Paragraph 3 hereof.
3. MLFD shall provide the Corporation for review by the Board of
Directors, and the Directors shall review, at least quarterly, a written report
complying with the requirements of Rule 12b-1 regarding the disbursement of the
account maintenance fee during such period.
4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a) the
Directors of the Corporation and (b) those Directors of the Corporation who are
not "interested persons" of the Corporation, as defined in the Investment
Company Act, and have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast
in person at a meeting or meetings called for the purpose of voting on the Plan
and such related agreements.
5. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 4.
6. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Directors, or with respect to any Fund by vote of a majority of
the outstanding Class D shares of that Fund.
7. The Plan may not be amended to increase materially the rate of
payments provided for herein with respect to any Fund unless such amendment is
approved by at least a majority, as defined in the Investment Company Act, of
the outstanding Class D shares of the Fund, and by the Directors of the
Corporation in the manner provided for in Paragraph 4 hereof, and no material
amendment to the Plan shall be made unless approved in the manner provided for
approval and annual renewal in Paragraph 4 hereof.
2
<PAGE> 3
8. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Corporation shall be committed to the discretion of the Directors
who are not interested persons.
9. The Corporation shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this Account
Maintenance Plan as of the date first above written.
MERRILL LYNCH INDEX FUNDS, INC.
By: /s/ Terry K. Glenn
----------------------------------------
Title: President
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: /s/ Gerald M. Richard
----------------------------------------
Title: Vice President and Treasurer
3
<PAGE> 4
Appendix A
SERIES OF MERRILL LYNCH INDEX FUNDS, INC.
Merrill Lynch S&P 500 Index Fund
Merrill Lynch Small Cap Index Fund
Merrill Lynch Aggregate Bond Index Fund
Merrill Lynch International Index Fund
As of January 1, 1997
4
<PAGE> 5
EXHIBIT 15
ACCOUNT MAINTENANCE PLAN SUB-AGREEMENT
AGREEMENT made as of January 1, 1997, by and between Merrill Lynch
Funds Distributor, Inc. ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Index
Funds, Inc., a Maryland corporation (the "Corporation"), pursuant to which it
acts as the exclusive distributor for the sale of shares of common stock, par
value $0.0001 per share (the "shares"), of the several series of the
Corporation (the "Funds"); and
WHEREAS, MLFD and the Corporation have entered into an Account
Maintenance Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Act") pursuant to which MLFD receives an account
maintenance fee from each Fund at the annual rate of 0.25% of the average daily
net assets attributable to the Class D shares of the Fund for account
maintenance activities related to Class D shares of the Fund; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities for the Funds' Class D shareholders and the Securities
Firm is willing to perform such activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance
activities with respect to the Class D shares of each Fund of the types
referred to in Paragraph 1 of the Plan.
2. As compensation for its activities and services performed
under this Sub-Agreement, MLFD shall pay the Securities Firm an account
maintenance fee at the end of each calendar month in an amount agreed upon by
the parties hereto.
3. The Securities Firm shall provide MLFD, at least quarterly,
such information as reasonably requested by MLFD to enable MLFD to comply with
the reporting requirements of Rule 12b-1 regarding the disbursement of the
account maintenance fee during such period referred to in Paragraph 3 of the
Plan.
4. This Sub-Agreement shall not take effect until it has been
approved by votes of a majority of both (a) the Directors of the Corporation
and (b) those Directors of the Corporation who are not "interested persons" of
the Corporation, as defined in the Act, and have no direct or indirect
financial interest in the operation of the Plan, this Agreement or any
agreements related to the Plan or this Agreement (the "Rule 12b-1 Directors"),
cast in person at a meeting or meetings called for the purpose of voting on
this Agreement.
<PAGE> 6
5. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.
6. This Agreement shall automatically terminate in the event of
its assignment or in the event of the termination of the Plan or any amendment
to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: /s/ Gerald M. Richard
-------------------------------------
Title: Vice President and Treasurer
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ David Conine
-------------------------------------
<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 make, execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH
INDEX FUNDS, INC. (the "Corporation"), and to file the same with the Securities
and Exchange Commission, and any other regulatory authority having jurisdiction
over the offer and sale of shares of common stock, par value $0.0001 per share,
of the Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary
to be done in and about the premises as fully to all intents and purposes as
the undersigned himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 10 day of December, 1996.
/s/ Jack B. Sunderland
----------------------------
Jack B. Sunderland
Director
<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 make, execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH
INDEX FUNDS, INC. (the "Corporation"), and to file the same with the Securities
and Exchange Commission, and any other regulatory authority having jurisdiction
over the offer and sale of shares of common stock, par value $0.0001 per share,
of the Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary
to be done in and about the premises as fully to all intents and purposes as
the undersigned himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10
day of December, 1996.
/s/ Stephen B. Swensrud
----------------------------
Stephen B. Swensrud
Director
<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, 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> 5
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 make, execute and sign all
amendments and supplements to the Registration Statement on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH
INDEX FUNDS, INC. (the "Corporation"), and to file the same with the Securities
and Exchange Commission, and any other regulatory authority having jurisdiction
over the offer and sale of shares of common stock, par value $0.0001 per share,
of the Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary
to be done in and about the premises as fully to all intents and purposes as
the undersigned himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10
day of December, 1996.
/s/ J. Thomas Touchton
-----------------------------
J. Thomas Touchton
Director
<PAGE> 6
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> 7
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 his behalf and in his place and stead
in any and all capacities, to make, execute and sign all amendments and
supplements to the Registration Statement on Form N-1A under the Securities Act
of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH INDEX FUNDS,
INC. (the "Corporation"), and to file the same with the Securities and Exchange
Commission, and any other regulatory authority having jurisdiction over the
offer and sale of shares of common stock, par value $0.0001 per share, of the
Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary
to be done in and about the premises as fully to all intents and purposes as
the undersigned himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12.
day of December, 1996.
/s/ Gerald M. Richard
----------------------------
Gerald M. Richard
Treasurer
<PAGE> 8
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> 9
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 make, execute and sign all amendments and
supplements to the Registration Statement on Form N-1A under the Securities Act
of 1933 and the Investment Company Act of 1940 of MERRILL LYNCH INDEX FUNDS,
INC. (the "Corporation"), and to file the same with the Securities and Exchange
Commission, and any other regulatory authority having jurisdiction over the
offer and sale of shares of common stock, par value $0.0001 per share, of the
Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary
to be done in and about the premises as fully to all intents and purposes as
the undersigned himself might or could do.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12
day of December, 1996.
/s/ Terry K. Glenn
---------------------------
Terry K. Glenn
President and Director
<PAGE> 10
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
<PAGE> 1
Exchange Privileges
Holders of Class A Shares, Class B Shares, Class C Shares and Class D
Shares shall have such exchange privileges as set forth in each Fund's
current prospectus. Exchange privileges may vary among Classes and among
holders of a Class.
Other Rights and Obligations
Except as otherwise described above, in all respects, each Class shall
have the same rights and obligations as each other Class.
