<PAGE>
As filed with the U.S. Securities and Exchange Commission
on May 12, 2000
Securities Act File No. 333-92935
Investment Company Act File No. 811-09729
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
[x] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[x] Post-Effective Amendment No. 2
and/or
[x] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] Amendment No. 2
(Check appropriate box or boxes) [_]
iShares Trust
------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
c/o Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
---------------------------------------- ---------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (415) 597-2000
The Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
----------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering
As Soon as Practicable Following the Effective Date of this Registration
Statement
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to [ ] On (date) pursuant to
paragraph (b) paragraph (b)
[x] 60 days after filing pursuant to [ ] On (date) pursuant to paragraph
paragraph (a)(1) (a)(1)
[ ] 75 days after filing pursuant to [ ] On (date) pursuant to paragraph
paragraph (a)(2) (a)(2) of Rule 485
If appropriate, check the following box:
[ ] The post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
CROSS-REFERENCE SHEET
FORM N-1A
PART A
Form N-1A Item Prospectus Captions
Number
Item 1 Front and Back Cover Pages
Item 2 Description of iShares Funds
Item 3 Descriptions of iShares Funds
Item 4 Overview; Description of iShares Funds
Item 5 Not Applicable
Item 6 Management
Item 7 Shareholder Information
Item 8 Description of iShares Funds
Item 9 Not Applicable
PART B
Form N-1A Item Statement of Additional Information
Number
Item 10. Cover Page; Table of Contents
Item 11. General Description of the Trust and
its Funds
Item 12. General Description of the Trust and
its Funds; Investment Strategies and
Risks; Investment Limitations
Item 13. Management
Item 14. Not Applicable
Item 15. Management
Item 16. Brokerage Transactions
Item 17. Additional Information Concerning the
Trust
Item 18. Creation and Redemption of Creation
Unit Aggregations; Determination of
NAV; Dividends and Distributions
Item 19. Taxes
Item 20. Not Applicable
Item 21. Performance and Other Information
Item 22. Financial Statements
PART C Information required to be included
in Part C is set forth under the
appropriate Item, so numbered in Part
C of this Registration Statement.
<PAGE>
iShares (SM)
iShares Trust
The iShares Trust consists of 35 separate investment portfolios
called "Funds". Each Fund seeks investment results that correspond generally to
the price and yield performance, before fees and expenses, of a particular
equity market index compiled by one of three "Index Providers": Standard &
Poor's (a division of The McGraw-Hill Companies, Inc.), Dow Jones & Company and
Frank Russell Company. Barclays Global Fund Advisors is the advisor to each
Fund.
Not all Funds are available as of the date of this Prospectus.
For a listing of the Funds and their anticipated offering dates, please
see the next page.
The shares of each Fund, called "iShares", are listed for trading on
the American Stock Exchange LLC (the "AMEX"), subject to notice of issuance.
iShares will trade on the AMEX at market prices throughout the trading day.
Market prices for iShares may be different from their net asset value ("NAV").
Each Fund issues and redeems iShares at NAV - only in large blocks of
50,000 iShares or multiples thereof. These "Creation Unit" transactions are
usually in exchange for a basket of stocks and an amount of cash. As a practical
matter, only institutions or large investors purchase or redeem Creation Units.
Except when aggregated in Creation Units, iShares are not redeemable
securities.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
Prospectus
May 12, 2000
<PAGE>
- ---------------------------------------------------------
Offering Date
May 15, 2000
- ---------------------------------------------------------
iShares S&P 500
Index Fund
iShares Russell 1000
Index Fund
iShares Dow Jones U.S. Technology
Sector Index Fund
iShares Dow Jones U.S. Internet
Index Fund
- ---------------------------------------------------------
Offering Date
May 22, 2000
- ---------------------------------------------------------
iShares S&P MidCap 400
Index Fund
iShares S&P SmallCap 600
Index Fund
iShares S&P 500/BARRA Growth
Index Fund
iShares S&P 500/BARRA Value
Index Fund
iShares Russell 3000
Index Fund
iShares Russell 2000
Index Fund
iShares Russell 1000 Growth
Index Fund
iShares Russell 1000 Value
Index Fund
iShares Dow Jones U.S. Financial
Sector Index Fund
iShares Dow Jones U.S. Telecommunications
Sector Index Fund
- ---------------------------------------------------------
iShares of the Funds are being offered
for sale as of the dates indicated.
- ---------------------------------------------------------
Offering Date
June 12, 2000
- ---------------------------------------------------------
iShares Dow Jones U.S. Total Market
Index Fund
iShares Dow Jones U.S. Basic Materials
Sector Index Fund
iShares Dow Jones U.S. Consumer Cyclical
Sector Index Fund
iShares Dow Jones U.S. Consumer Non-Cyclical Sector
Index Fund
iShares Dow Jones U.S. Energy
Sector Index Fund
iShares Dow Jones U.S. Healthcare
Sector Index Fund
iShares Dow Jones U.S. Industrial
Sector Index Fund
iShares Dow Jones U.S. Utilities
Sector Index Fund
iShares Dow Jones U.S. Chemicals
Index Fund
iShares Dow Jones U.S. Financial Services
Index Fund
iShares Dow Jones U.S. Real Estate
Index Fund
iShares S&P Europe 350
Index Fund
iShares S&P/TSE 60
Index Fund
- ---------------------------------------------------------
Offering Date
July 7, 2000
- ---------------------------------------------------------
iShares S&P MidCap400/BARRA Growth
Index Fund
iShares S&P MidCap400/BARRA Value
Index Fund
iShares S&P SmallCap 600/BARRA Growth
Index Fund
iShares S&P SmallCap 600/BARRA Value
Index Fund
iShares Russell 2000 Growth
Index Fund
iShares Russell 2000 Value
Index Fund
iShares Russell 3000 Growth
Index Fund
iShares Russell 3000 Value
Index Fund
- ---------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
<S> <C> <C>
Details on Investing in iShares Overview.................................................. 1
Introduction.............................................. 1
Investment Objective...................................... 1
Principal Investment Strategies........................... 1
Replication............................................... 2
Representative Sampling................................... 2
Correlation............................................... 2
Industry Concentration Policy............................. 2
Details on the Risks of Principal Risk Factors Common to All Funds................ 3
Investing in iShares Market Risk............................................... 3
Asset Class Risk.......................................... 3
Passive Investments....................................... 3
Tracking Error Risk....................................... 3
Lack of Governmental Insurance or Guarantee............... 3
Concentration............................................. 3
Derivatives............................................... 4
Market Trading Risks...................................... 4
Absence of Prior Active Market........................ 4
Lack of Market Liquidity.............................. 4
iShares May Trade at Prices Other than NAV............ 4
Details on Each iShares Fund Description of iShares S&P Index Funds.................... 5
iShares S&P 500 Index Fund................................ 6
iShares S&P 500/BARRA Growth Index Fund................... 8
iShares S&P 500/BARRA Value Index Fund.................... 11
iShares S&P MidCap 400 Index Fund......................... 13
iShares S&P MidCap 400/BARRA
Growth Index Fund....................................... 15
iShares S&P MidCap 400/BARRA
Value Index Fund........................................ 18
iShares S&P SmallCap 600 Index Fund....................... 21
iShares S&P SmallCap 600/BARRA
Growth Index Fund....................................... 23
iShares S&P SmallCap 600/BARRA
Value Index Fund........................................ 26
iShares S&P Europe 350 Index Fund......................... 29
iShares S&P/TSE 60 Index Fund............................. 32
Description of iShares Dow Jones U.S.
Index Funds............................................. 35
iShares Dow Jones U.S. Total Market
Index Fund.............................................. 36
iShares Dow Jones U.S. Basic Material
Sector Index Fund....................................... 38
iShares Dow Jones U.S. Consumer Cyclical
Sector Index Fund....................................... 41
iShares Dow Jones U.S. Consumer Non-Cyclical
Sector Index Fund....................................... 44
iShares Dow Jones U.S. Energy
Sector Index Fund....................................... 46
</TABLE>
i
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<TABLE>
<S> <C> <C>
iShares Dow Jones U.S. Financial
Sector Index Fund....................................... 48
iShares Dow Jones U.S. Healthcare
Sector Index Fund....................................... 51
iShares Dow Jones U.S. Industrial
Sector Index Fund....................................... 54
iShares Dow Jones U.S. Technology
Sector Index Fund....................................... 57
iShares Dow Jones U.S. Telecommunications
Sector Index Fund....................................... 60
iShares Dow Jones U.S. Utilities
Sector Index Fund....................................... 63
iShares Dow Jones U.S. Chemicals
Index Fund.............................................. 66
iShares Dow Jones U.S. Financial
Services Index Fund..................................... 69
iShares Dow Jones U.S. Internet
Index Fund.............................................. 72
iShares Dow Jones U.S. Real Estate
Index Fund.............................................. 75
Description of iShares Russell Index Funds................ 78
iShares Russell 3000 Index Fund........................... 79
iShares Russell 3000 Growth Index Fund.................... 81
iShares Russell 3000 Value Index Fund..................... 83
iShares Russell 2000 Index Fund........................... 85
iShares Russell 2000 Growth Index Fund.................... 87
iShares Russell 2000 Value Index Fund..................... 90
iShares Russell 1000 Index Fund........................... 93
iShares Russell 1000 Growth Index Fund.................... 95
iShares Russell 1000 Value Index Fund..................... 98
Details on Management and
Operations Management................................................ 100
Investment Advisor........................................ 100
Administrator, Custodian, Transfer Agent and Securities
Lending Agent........................................... 100
Details on Buying and Selling iShares Shareholder Information................................... 100
Buying and Selling iShares................................ 100
Book Entry................................................ 101
iShare Prices............................................. 101
Determining NAV........................................... 101
Dividends and Distributions............................... 101
Taxes..................................................... 101
Taxes on Distributions.................................... 102
Taxes when iShares are Sold on the AMEX................... 102
Creations and Redemptions................................. 103
iShares Index Funds Transaction Fees...................... 103
Distribution.............................................. 105
Index Providers........................................... 105
</TABLE>
ii
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Overview
Introduction
This Prospectus provides the information you need to make an informed
decision about investing in iShares. It contains important facts about the
iShares Trust as a whole and each Fund.
An index is a group of stocks that an Index Provider selects as
representative of a market, market segment or specific industry sector. The
Index Provider determines the relative weightings of the stocks in the index and
publishes information regarding the market value of the index.
Each Fund is an "index fund" which seeks investment results that
correspond generally to the price and yield performance, before fees and
expenses, of a particular index (its "Underlying Index"). Barclays Global
Fund Advisors ("BGFA"), the advisor to each Fund, is a subsidiary of Barclays
Global Investors, N.A. ("BGI"). BGFA and its affiliates are not affiliated with
any of the Index Providers:
Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
provides financial, economic and investment information and
analytical services to the financial community;
Dow Jones & Company publishes The Wall Street Journal and its
international and interactive editions, Barron's and SmartMoney
magazines and other periodicals, the Dow Jones Newswires,
dowjones.com, and the Ottaway group of community newspapers; and
Frank Russell Company is an investment services firm that offers a
variety of investment management products and services.
The Principal Investment Strategies and the Principal Risk Factors Common
to All Funds sections discuss the principal strategies and risks applicable to
the Funds, while the Description of iShares Funds sections provide important
information about each Fund, including a brief description of its Underlying
Index and principal risks specific to that Fund.
Investment Objective
Each Fund seeks investment results that correspond generally to the price
and yield performance, before fees and expenses, of its Underlying Index.
Principal Investment Strategies
BGFA uses a "passive" or indexing approach to try to achieve each Fund's
investment objective. Unlike many investment companies, the Funds do not try to
"beat" the markets they track and do not seek temporary defensive positions when
markets decline or appear overvalued. BGFA does not make any judgments about
the investment merit of a particular stock, nor does it attempt to apply any
economic, financial or market analysis.
Indexing may eliminate some of the risks of active management, such as poor
stock selection. Indexing may also help increase after-tax performance by
keeping portfolio turnover low in comparison to actively managed investment
companies.
Each Fund will invest at least 90% of its total assets in the stocks of its
Underlying Index. A Fund may hold up to 10% of its total assets in stocks not
included in its Underlying Index. For example, BGFA
1
<PAGE>
may invest in stocks not included in the relevant Underlying Index in order to
reflect various corporate actions (such as mergers) and other changes in the
relevant Underlying Index (such as reconstitutions, additions and deletions). As
long as a Fund invests at least 90% of its total assets in the stocks of its
Underlying Index, it may also invest its other assets in futures contracts,
options on futures contracts, options, and swaps related to its Underlying
Index, as well as cash and cash equivalents.
BGFA uses two basic indexing strategies - Replication and Representative
Sampling - as described below. The Description of iShares Funds sections
indicate the strategy of each Fund.
Replication
"Replication" is investing in substantially all of the stocks in the
relevant Underlying Index in approximately the same proportions as in the
Underlying Index.
Representative Sampling
"Representative Sampling" is investing in a representative sample of stocks
in the Underlying Index, which have a similar investment profile as the
Underlying Index. Stocks selected have aggregate investment characteristics
(based on market capitalization and industry weightings), fundamental
characteristics (such as return variability, earnings valuation and yield) and
liquidity measures similar to those of the relevant Underlying Index. Funds that
use Representative Sampling generally do not hold all of the stocks that are
included in the relevant Underlying Index.
Correlation
An index is a theoretical financial calculation while a Fund is an actual
investment portfolio. The performance of a Fund and its Underlying Index will
vary somewhat due to transaction costs, market impact, corporate actions (such
as mergers and spin-offs) and timing variances.
BGFA expects that, over time, the correlation between each Fund's
performance and that of its Underlying Index, before fees and expenses, will be
95% or better. A figure of 100% would indicate perfect correlation. Any
correlation of less than 100% is called "tracking error". A Fund using
Representative Sampling can be expected to have a greater tracking error than
a Fund using Replication.
Industry Concentration Policy
No Fund will concentrate its investments (i.e. hold 25% or more
of its total assets in the stocks of a particular industry or group of
industries), except that a Fund will concentrate to approximately the same
extent that its Underlying Index concentrates in the stocks of such particular
industry or group of industries. For purposes of this limitation, securities of
the U.S. Government (including its agencies and instrumentalities), repurchase
agreements collateralized by U.S. Government securities and securities of state
or municipal governments and their political subdivisions are not considered to
be issued by members of any industry.
2
<PAGE>
Principal Risk Factors Common to all Funds
Each Fund is subject to the principal risks described below. Additional
principal risks associated with a Fund are discussed under the description of
such Fund. Some or all of these risks may adversely affect a Fund's net asset
value ("NAV"), trading price, yield, total return and/or its ability to meet its
objectives.
Market Risk
Each Fund's NAV will react to securities markets movements. You could lose
money over short periods due to fluctuation in a Fund's NAV in response to
market movements, and over longer periods during market downturns.
Asset Class Risk
The returns from the types of securities in which a Fund invests may
underperform returns from the various general securities markets or different
asset classes. Different types of securities tend to go through cycles of out-
performance and underperformance in comparison to the general securities
markets.
Passive Investments
The Funds are not actively managed. Each Fund may be affected by a
general decline in the U.S. or foreign market segments relating to its
Underlying Index. Each Fund invests in the securities included in its
Underlying Index regardless of their investment merit. BGFA does not attempt to
individually select stocks or to take defensive positions in declining
markets.
Tracking Error Risk
Factors such as the fees and expenses of a Fund, imperfect correlation
between a Fund's stocks and those in its Underlying Index, rounding of share
prices, changes to the Underlying Indices and regulatory policies may affect
BGFA's ability to achieve close correlation with the Underlying Index of each
Fund. Each Fund's returns may therefore deviate from those of its Underlying
Index.
Lack of Governmental Insurance or Guarantee
An investment in the Funds is not a bank deposit nor is it insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Concentration
If the Underlying Index of a Fund concentrates in a particular industry or
a group of industries, that Fund may be adversely affected by the performance of
those stocks and be subject to price volatility. In addition, a Fund that
concentrates in a single industry or a group of industries may be more
susceptible to any single economic, market, political or regulatory occurrence.
3
<PAGE>
Derivatives
A derivative is a financial contract the value of which depends on, or is
derived from, the value of an underlying asset such as a security or an index.
Each Fund may invest in stock index future contracts and other derivatives.
Compared to conventional securities, derivatives can be more sensitive to
changes in interest rates or to sudden fluctuations in market prices and
thus a Fund's losses may be greater if it invests in derivatives than if it
invests only in conventional securities.
Market Trading Risks
Absence of Prior Active Market
Although the iShares described in this Prospectus are listed for trading
on the AMEX, there can be no assurance that an active trading market will
develop or be maintained.
Lack of Market Liquidity
Trading in iShares on the AMEX may be halted because of market conditions
or for reasons that, in the view of the AMEX, make trading in iShares
inadvisable. In addition, trading in iShares is subject to trading halts caused
by extraordinary market volatility pursuant to AMEX "circuit breaker" rules.
There can be no assurance that the requirements of the AMEX necessary to
maintain the listing of the iShares of any Fund will continue to be met or will
remain unchanged.
iShares May Trade at Prices Other than NAV
iShares may trade below, at, or above their NAV. The NAV of iShares will
fluctuate with changes in the market value of a Fund's holdings. The
trading prices of iShares will fluctuate in accordance with changes in their
NAVs as well as market supply and demand on the AMEX. However, given that
iShares can be created and redeemed only in Creation Units at NAV (unlike shares
of many closed-end funds, which frequently trade at appreciable discounts from,
and sometimes at premiums to, their NAVs), BGFA believes that large discounts
or premiums to the NAVs of iShares should not be sustained.
Additional principal risks associated with investing in iShares of a
particular Fund are discussed in the Description of iShares Funds sections.
4
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Description of iShares Funds
iShares S&P Index Funds
iShares S&P 500 Index Fund
iShares S&P 500/BARRA Growth Index Fund
iShares S&P 500/BARRA Value Index Fund
iShares S&P MidCap 400 Index Fund
iShares S&P MidCap 400/BARRA Growth Index Fund
iShares S&P MidCap 400/BARRA Value Index Fund
iShares S&P SmallCap 600 Index Fund
iShares S&P SmallCap 600/BARRA Growth Index Fund
iShares S&P SmallCap 600/BARRA Value Index Fund
iShares S&P Europe 350 Index Fund
iShares S&P/TSE 60 Index Fund
"Standard & Poor's(R)", "S&P(R)", "S&P500(R)", "Standard & Poor's 500",
"S&P 500 Index", "S&P MidCap 400 Index", "S&P SmallCap 600 Index", "S&P
500/BARRA Growth Index", "Standard & Poor's 500/BARRA Growth Index", "S&P
500/BARRA Value Index", "Standard & Poor's 500/BARRA Value Index", "S&P MidCap
400/BARRA Growth Index", "S&P MidCap 400/BARRA Value Index", "S&P SmallCap
600/BARRA Growth Index", "S&P SmallCap 600/BARRA Value Index", "S&P Europe 350
Index", and "S&P/TSE 60 Index" are trademarks of Standard & Poor's and have been
licensed for use for certain purposes by BGI. The Funds that are based on S&P
indices are not sponsored, endorsed, sold or promoted by Standard & Poor's, and
Standard & Poor's makes no representation regarding the advisability of
investing in iShares.
"TSE" is a trademark of the Toronto Stock Exchange.
5
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iShares S&P 500 Index Fund
Cusip: 464287200
AMEX Trading Symbol: IVV
Underlying Index: Standard & Poor's 500 Index
Investment Objective
The S&P 500 Index Fund seeks investment results that correspond generally
to the price and yield performance, before fees and expenses, of the S&P 500
Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the large-capitalization sector of
the U.S. equity market. The Fund uses a Replication strategy to try to track the
Index, which includes approximately 77% of the market capitalization of all
publicly traded U.S. equity securities. The stocks in the Index are selected
according to the total market value of their outstanding shares.
As of March 31, 2000, the Index consisted of 500 stocks. Its three
largest stocks were Microsoft Corporation, Cisco Systems Inc. and General
Electric Company (which comprised 4.36%, 4.17% and 4.01%, respectively, of its
market capitalization).
Principal Risks Specific to the Fund
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
6
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<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)................................... None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees............................................ 0.09%
Distribution and Service (12b-1) Fees...................... None
Other Expenses***.......................................... None
Total Annual Fund Operating Expenses....................... 0.09%
------
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expenses, any
future distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$10 $31
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $2,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $7,492,900. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $2,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $7,492,900 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $11,258 if the
Creation Unit is redeemed after one year, and $26,880 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
7
<PAGE>
iShares S&P 500/BARRA Growth Index Fund
Cusip: 464287309
AMEX Trading Symbol: IVW
Underlying Index: Standard & Poor's 500/BARRA Growth Index
Investment Objective
The S&P 500/BARRA Growth Index Fund seeks investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the S&P 500/BARRA Growth Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the large-capitalization growth
sector of the U.S. equity market. It is a subset of the S&P 500 Index and
consists of those companies with the highest price-to-book ratios in the S&P
500 Index, representing approximately 50% of the market capitalization of the
S&P 500 Index. The Fund uses a Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 110 stocks. Its three largest
stocks were Microsoft Corporation, Cisco Systems Inc. and General Electric
Company (which comprised 8.02%, 7.67% and 7.38%, respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. Growth stocks may lack the dividend yield that can cushion stock prices in
market downturns.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
. The Fund is classified as "non-diversified." A non-diversified fund
generally will hold fewer stocks than a diversified fund. As a result, the
Fund is more susceptible to the risks associated with these particular
companies, or to a single economic, political or regulatory occurrence.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
8
<PAGE>
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)........................... None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees.................................... 0.18%
Distribution and Service (12b-1) Fees.............. None
Other Expenses***.................................. None
Total Annual Fund Operating Expenses............... 0.18%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$18 $58
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $4,612,000. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $4,612,000 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $9,509 if the
Creation Unit is redeemed after one year, and $27,825 if the Creation Unit is
redeemed after three years.
_____________
9
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* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
10
<PAGE>
iShares S&P 500/BARRA Value Index Fund
Cusip: 464287408
AMEX Trading Symbol: IVE
Underlying Index: Standard & Poor's 500/BARRA Value Index
Investment Objective
The S&P 500/BARRA Value Index Fund seeks investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the S&P 500/BARRA Value Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the large capitalization value sector
of the U.S. equity market. It is a subset of the S&P 500 Index and consists of
those stocks with the lowest price-to-book ratios in the S&P 500 Index,
representing approximately 50% of the market capitalization of the S&P 500
Index. The Fund uses a Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 390 stocks. Its three largest
stocks were Exxon Mobil Corporation, Citigroup, Inc. and AT&T Corporation (which
comprised 4.64%, 3.46% and 3.11%, respectively, of its market capitalization).
Principal Risks Specific to the Fund
. Value stocks can continue to be inexpensive for long periods of time and may
not ever realize their full value.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
11
<PAGE>
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.18%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.18%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$18 $58
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,046,050. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $1,500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $3,046,050 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $8,620 if the
Creation Unit is redeemed after one year, and $20,717 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
12
<PAGE>
iShares S&P MidCap 400 Index Fund
Cusip: 464287507
AMEX Trading Symbol: IJH
Underlying Index: Standard & Poor's MidCap 400 Index
Investment Objective
The S&P MidCap 400 Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
S&P MidCap 400 Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the mid-capitalization sector of the
U.S. equity market. The Fund uses a Replication strategy to try to track the
Index, which includes approximately 6% of the market capitalization of all U.S.
equity securities. The stocks in the Index have a market capitalization between
$1 billion and $5 billion (which may fluctuate depending on the overall level of
the equity markets) and are selected for liquidity and industry group
representation.
As of March 31, 2000, the Index consisted of 400 stocks. Its three largest
stocks were Veritas Software Corporation, Siebel Systems, Inc. and Maxim
Integrated Products, Inc. (which comprised 4.93%, 2.23% and 1.91%, respectively,
of its market capitalization).
Principal Risks Specific to the Fund
. Mid-capitalization stocks are more vulnerable than large-capitalization
stocks to adverse business or economic developments.
. Mid-capitalization companies normally have less diverse product lines than
large-capitalization companies and thus are more susceptible to adverse
developments concerning their products.
. Mid-capitalization stocks may be thinly traded and thus may be difficult for
the Fund to buy and sell.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
13
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.20%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.20%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$21 $65
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $4,996,960. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $1,500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $4,996,960 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $13,244 if the Creation Unit
is redeemed after one year, and $35,293 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
14
<PAGE>
iShares S&P MidCap 400/BARRA Growth Index Fund
Cusip: 464287606
AMEX Trading Symbol: IJK
Underlying Index: Standard & Poor's MidCap 400/BARRA Growth Index
Investment Objective
The S&P MidCap 400/BARRA Growth Index Fund seeks investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the S&P MidCap 400/BARRA Growth Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the mid-capitalization growth sector
of the U.S. equity market. It is a subset of the S&P 400 Index and consists of
those companies with the highest price-to-book ratios within the S&P 400 Index,
representing approximately 50% of the market capitalization of the S&P 400
Index. The Index consists of stocks from a broad range of industries. The Fund
uses a Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 126 stocks. Its three largest
stocks were Veritas Software Corporation, Siebel Systems Inc. and Maxim
Integrated Products, Inc. (which comprised 8.76%, 3.96% and 3.39%, respectively,
of its market capitalization).
Principal Risks Specific to the Fund
. Mid-capitalization stocks are more vulnerable than large-capitalization
stocks to adverse business or economic developments.
. Mid-capitalization companies normally have less diverse product lines than
large- capitalization companies and thus are more susceptible to adverse
developments concerning their products.
. Mid-capitalization stocks may be thinly traded and thus may be difficult for
the Fund to buy and sell.
. Growth stocks may lack the dividend yield that can cushion stock prices in
market downturns.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
15
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.25%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.25%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$26 $81
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $6,800,000. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $6,800,000 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $18,425 if the
Creation Unit is redeemed after one year, and $55,932 if the Creation Unit is
redeemed after three years.
16
<PAGE>
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
17
<PAGE>
iShares S&P MidCap 400/BARRA Value Index Fund
Cusip: 464287705
AMEX Trading Symbol: IJJ
Underlying Index: Standard & Poor's MidCap 400/BARRA Value Index
Investment Objective
The S&P MidCap 400/BARRA Value Index Fund seeks investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the S&P MidCap 400/BARRA Value Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the mid-capitalization value sector
of the U.S. equity market. It is a subset of the S&P 400 Index and consists of
those companies with the lowest price-to-book ratios within the S&P 400 Index,
representing approximately 50% of the market capitalization of the S&P MidCap
400 Index. The Index consists of stocks from a broad range of industries. The
Fund uses a Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 274 stocks. Its three largest
stocks were Dynegy Inc., Montana Power Co. and Telephone and Data Systems, Inc.
(which comprised 1.94%, 1.56% and 1.52%, respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. Mid-capitalization stocks are more vulnerable than large-capitalization
stocks to adverse business or economic developments.
. Mid-capitalization companies normally have less diverse product lines than
large- capitalization companies and thus are more susceptible to adverse
developments concerning their products.
. Mid-capitalization stocks may be thinly traded and thus may be difficult
for the Fund to buy and sell.
. Value stocks can continue to be inexpensive for long periods of time and may
not ever realize their full value.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
18
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.25%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.25%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any
future distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$26 $81
Creation Transaction Fees and Redemption for Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,250 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,604,750. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $1,250 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $3,604,750 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $11,737 if the
Creation Unit is redeemed after one year, and $31,620 if the Creation Unit is
redeemed after three years.
19
<PAGE>
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
20
<PAGE>
iShares S&P SmallCap 600 Index Fund
Cusip: 464287804
AMEX Trading Symbol: IJR
Underlying Index: Standard & Poor's SmallCap 600 Index
Investment Objective
The S&P Small Cap 600 Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
S&P SmallCap 600 Index (the "Index").
Principal Investment Strategy
The Index measures the performance of publicly traded securities in the
small-capitalization sector of the U.S. equity market. The Fund uses a
Replication strategy to try to track the Index, which includes approximately
2.5% of the market capitalization of the U.S. equity market. The stocks in the
Index:
. Have been traded for at least six months;
. Have a price greater than $1 on any three or more business days during
a 12-month period;
. Have an annualized turnover exceeding 20% of shares outstanding with
not more than 50% of the shares owned by a single shareholder; and
. Have a bid-asked spread of 5% or less.
As of March 31, 2000, the Index consisted of 600 stocks. The Index's three
largest stocks were Mercury Interactive Corporation, MarchFirst Inc. and IDEC
Pharmaceuticals Corporation (which comprised 1.54%, 1.30% and 1.05%,
respectively, of its market capitalization).
Principal Risks Specific to the Fund
. Small-capitalization companies may be less financially secure than larger,
more established companies.
. Small-capitalization companies may depend on a small number of essential
personnel and thus more vulnerable to personnel loss.
. Small-capitalization companies normally have less diverse product lines
than larger capitalization companies and thus are more susceptible to
adverse developments concerning their products.
. Small-capitalization stocks may be thinly traded and thus may be difficult
for the Fund to buy and sell.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
21
<PAGE>
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.20%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.20%
------
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any
future distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$21 $65
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $2,500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $5,223,750. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $2,500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $5,223,750 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $15,709 if the
Creation Unit is redeemed after one year, and $38,759 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
22
<PAGE>
iShares S&P SmallCap 600/BARRA Growth Index Fund
Cusip: 464287887
AMEX Trading Symbol: IJT
Underlying Index: Standard & Poor's SmallCap 600/BARRA Growth Index
Investment Objective/Approach
The S&P SmallCap 600/BARRA Growth Index Fund seeks investment results
that correspond generally to the price and yield performance, before fees and
expenses, of the S&P SmallCap 600/BARRA Growth Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the small-capitalization growth
sector of the U.S. equity market. It is a subset of the S&P 600 Index and
consists of those companies with the highest price-to-book ratios within the S&P
600 Index, representing approximately 50% of the market capitalization of the
S&P SmallCap 600 Index. The Fund uses a Replication strategy to try to track the
Index.
As of March 31, 2000, the Index consisted of 197 stocks. Its largest stocks
were Mercury Interactive Corporation, MarchFirst Inc. and IDEC Pharmaceuticals
Corporation (which comprised 2.86%, 2.41% and 1.96%, respectively, of its
market capitalization).
Principal Risks Specific to the Fund
. Small-capitalization companies may be less financially secure than larger,
more established companies.
. Small-capitalization companies may depend on a small number of key
personnel and thus are more vulnerable to personnel losses.
. Small-capitalization companies normally have less diverse product lines
than larger capitalization companies and thus are more susceptible to
adverse developments concerning their products.
. Small-capitalization stocks may be thinly traded and thus may be difficult
for the Fund to buy and sell.
. Growth stocks may lack the dividend yield that can cushion stock prices in
market downturns.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
23
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.25%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.25%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any
future distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$26 $81
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $750 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $4,259,250. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $750 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $4,259,250 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $12,414 if the
Creation Unit is redeemed after one year, and $35,907 if the Creation Unit is
redeemed after three years.
24
<PAGE>
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
25
<PAGE>
iShares S&P SmallCap 600/BARRA Value Index Fund
Cusip: 464287879
AMEX Trading Symbol: IJS
Underlying Index: Standard & Poor's SmallCap 600/BARRA Value Index
Investment Objective
The S&P SmallCap 600/BARRA Value Index Fund seeks investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the S&P SmallCap 600/BARRA Value Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the small-capitalization value sector
of the U.S. equity market. It is a subset of the S&P 600 Index and consists
of those companies with the lowest price-to-book ratios in the S&P SmallCap 600
Index, representing approximately 50% of the market capitalization of the S&P
SmallCap 600 Index. The Fund uses a Replication strategy to try to track the
Index.
As of March 31, 2000, the Index consisted of 403 stocks. Its three largest
stocks were International Rectifier Corporation, Centura Banks Inc. and Radian
Group, Inc. (formerly CMAC Investment Corporation), (which comprised 1.27%,
0.99% and 0.97%, respectively, of its market capitalization).
Principal Risks Specific to the Fund
. Small-capitalization companies may be less financially secure than larger,
more established companies.
. Small-capitalization companies may depend on a small number of essential
personnel and are thus more vulnerable to personnel losses.
. Small-capitalization companies normally have less diverse product lines
than larger capitalization companies and thus are more susceptible to
adverse developments concerning their products.
. Small-capitalization stocks may be thinly traded and thus may be
difficult for the Fund to buy and sell.
. Value stocks can continue to be inexpensive for long periods and may not
ever realize their full value.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
26
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.25%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.25%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any
future distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$26 $81
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,750 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,301,000. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $1,750 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $3,301,0000
27
<PAGE>
and a 5% return each year, and assuming that the Fund's operating expenses
remain the same, the total costs would be $11,959 if the Creation Unit is
redeemed after one year, and $30,166 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the
National Securities Clearing Corporation or for cash, a variable fee will
be charged of up to four times the Standard Creation or Redemption
Transaction Fee.
28
<PAGE>
iShares S&P Europe 350 Index Fund
Cusip: 464287861
AMEX Trading Symbol: IEV
Underlying Index: Standard & Poor's Europe 350 Index
Investment Objective
The S&P Europe 350 Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
S&P Europe 350 Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the stocks of leading companies in
the following countries: Austria, Belgium, Denmark, Finland, France, Germany,
Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland
and the United Kingdom. The market capitalization of constituent companies is
adjusted to reflect only those stocks that are available to foreign investors.
The stocks in the Index are chosen for market size, liquidity, industry group
representation and geographic diversity. The Fund uses a Representative
Sampling strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 350 stocks. Its three
largest stocks were Vodafone AirTouch, Nokia AB and BP Amoco (which comprised
5.99%, 4.10% and 3.10%, respectively, of its market capitalization).
Principal Risks Specific to the Fund
. Since foreign exchanges are open on days when the Fund does not price its
shares, the value of the securities in the Fund's portfolio may change on
days when shareholders will not be able to purchase or sell the Fund's
shares.
. An investment in the S&P Europe 350 Index Fund involves risks similar to
those of investing in a broad-based portfolio of equity securities traded
on exchanges in the securities markets of the component European countries.
These risks include:
. Less liquid and less efficient securities markets;
. Greater price volatility;
. Exchange rate fluctuations and exchange controls;
. Local currency changes in interest rates;
. Less publicly available information about issuers;
. The imposition of withholding or other taxes;
. The imposition of restrictions on the expatriation of funds or other
assets of the Fund;
. Higher transaction and custody costs and delays in attendant
settlement procedures;
. Difficulties in enforcing contractual obligations;
. Lesser levels of regulation of the securities markets;
. Different accounting, disclosure and reporting requirements;
. More substantial government involvement in the economy;
. Higher rates of inflation;
. Greater social, economic and political uncertainty.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
29
<PAGE>
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except any future distribution
fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$62 $194
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $12,000 per
30
<PAGE>
each Creation Unit. The approximate value of a Creation Unit as of March 31,
2000 was $3,377,425. An investor who holds Creation Units and wishes to redeem
at NAV would also pay a Standard Redemption Fee of $12,000 for each Creation
Unit.* Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $3,377,425 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $44,771 if the Creation Unit
is redeemed after one year, and $89,481 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
31
<PAGE>
iShares S&P/TSE 60 Index Fund
Cusip: 464287853
AMEX Trading Symbol: IKC
Underlying Index: Standard & Poor's/TSE 60 Index
Investment Objective
The S&P/TSE 60 Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
S&P/TSE 60 Index (the "Index"). "TSE" is a trademark of the Toronto Stock
Exchange.
Principal Investment Strategy
The Index measures the performance of the largest publicly traded stocks in
Canada. The Index is maintained by the S&P Canadian Policy Committee, which is
comprised of representatives of Standard & Poor's and the TSE. The market
capitalization of constituent companies is adjusted to reflect only those stocks
that are available for investment by the general public. The Fund uses a
Representative Sampling strategy to try to track the Index. The stocks in the
Index are chosen for market size, liquidity and industry group
representation.
As of March 31, 2000, the Index consisted of 60 stocks. Its three largest
stocks were Nortel Networks Corporation, BCE, Inc. and The Seagram Company
Limited (which comprised 26.38%, 18.55% and 4.46%, respectively, of its market
capitalization). The Fund will concentrate its investments in a particular
industry or group of industries to approximately the same extent the Index is so
concentrated. As of March 31, 2000, the Index was concentrated in information
technology, which comprised 31.04% of its market capitalization (based on
the composition of the Index).
Principal Risks Specific to the Fund
. Since the TSE is open on days when the Fund does not price its shares, the
value of the securities in the Fund's portfolio may change on days when
shareholders will not be able to purchase or sell the Fund's shares.
. An investment in the Fund involves risks similar to those of investing in a
broad-based portfolio of equity securities traded on the TSE. These risks
include:
. Less liquid and less efficient securities markets;
. Greater price volatility;
. Exchange rate fluctuations and exchange controls;
. Local currency changes in interest rates;
. Less publicly available information about issuers;
. The imposition of withholding or other taxes;
. The imposition of restrictions on the expatriation of funds or other
assets of the Fund;
. Higher transaction and custody costs and delays in attendant
settlement procedures;
. Different accounting, disclosure and reporting requirements;
32
<PAGE>
. More substantial government involvement in the economy;
. Higher rates of inflation.
. The Fund is classified as "non-diversified." A non-diversified fund may hold
fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.50%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.50%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5%
33
<PAGE>
return each year and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the assumptions,
your costs would be:
1 Year 3 Years
------ -------
$51 $162
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,250 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $2,844,450. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $1,250 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $2,844,450 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $17,078 if the Creation Unit
is redeemed after one year, and $48,457 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
34
<PAGE>
Description of iShares Funds
iShares Dow Jones U.S. Index Funds
iShares Dow Jones U.S. Total Market Index Fund
iShares Dow Jones U.S. Basic Materials Sector Index Fund
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund
iShares Dow Jones U.S. Energy Sector Index Fund
iShares Dow Jones U.S. Financial Sector Index Fund
iShares Dow Jones U.S. Healthcare Sector Index Fund
iShares Dow Jones U.S. Industrial Sector Index Fund
iShares Dow Jones U.S. Technology Sector Index Fund
iShares Dow Jones U.S. Telecommunications Sector Index Fund
iShares Dow Jones U.S. Utilities Sector Index Fund
iShares Dow Jones U.S. Chemicals Index Fund
iShares Dow Jones U.S. Financial Services Index Fund
iShares Dow Jones U.S. Internet Index Fund
iShares Dow Jones U.S. Real Estate Index Fund
Dow Jones, Dow Jones U.S. Basic Materials Sector Index, Dow Jones U.S.
Consumer Cyclical Sector Index, Dow Jones U.S. Consumer Non-Cyclical Sector
Index, Dow Jones U.S. Energy Sector Index, Dow Jones U.S. Financial Sector
Index, Dow Jones U.S. Healthcare Sector Index, Dow Jones U.S. Industrial Sector
Index, Dow Jones U.S. Technology Sector Index, Dow Jones U.S. Telecommunications
Sector Index, Dow Jones U.S. Utilities Sector Index, Dow Jones U.S. Total Market
Index, Dow Jones U.S. Chemicals Index, Dow Jones U.S. Financial Services
Composite Index, Dow Jones U.S. Internet Index and Dow Jones U.S. Real Estate
Index are servicemarks of Dow Jones & Company, Inc. and have been licensed for
use for certain purposes by BGI. The Funds that are based on Dow Jones indices
are not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes
no representations regarding the advisability of investing in iShares.
35
<PAGE>
iShares Dow Jones U.S. Total Market Index Fund
Cusip: 464287846
AMEX Trading Symbol: IYY
Underlying Index: Dow Jones U.S. Total Market Index
Investment Objective
The Dow Jones U.S. Total Market Index Fund seeks investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the Dow Jones U.S. Total Market Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the U.S. equity broad market. The
Fund uses a Replication strategy to try to track the Index. The Index is
comprised of all of the companies in the Dow Jones Large-Cap Index, Dow Jones
Mid-Cap Index and Dow Jones Small-Cap Index. The Index is structured to
represent approximately 95% of the market capitalization of all listed U.S.
equity securities.
As of March 31, 2000, the Index consisted of 2,024 stocks. Its three
largest stocks were Microsoft Corporation, Cisco Systems Inc. and General
Electric Company (which comprised 3.55%, 3.40% and 3.27%, respectively, of its
market capitalization).
Principal Risks Specific to the Fund
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
36
<PAGE>
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.20%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.20%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$21 $65
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $8,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,544,100. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $8,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $3,544,100 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $23,265 if the Creation Unit
is redeemed after one year, and $38,904 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
37
<PAGE>
iShares Dow Jones U.S. Basic Materials Sector Index Fund
Cusip: 464287838
AMEX Trading Symbol: IYM
Underlying Index: Dow Jones U.S. Basic Materials Sector Index
Investment Objective
The Dow Jones U.S. Basic Materials Sector Index Fund seeks investment
results that correspond generally to the price and yield performance, before
fees and expenses, of the Dow Jones U.S. Basic Materials Sector Index (the
"Index").
Principal Investment Strategy
The Index measures the performance of the basic materials economic sector
of the U.S. equity market. The Fund uses a Representative Sampling strategy to
try to track the Index. Component companies are involved in the production of
aluminum, chemicals, commodities, chemicals specialty products, forest products,
non-ferrous mining products, paper products, precious metals and steel.
As of March 31, 2000, the Index consisted of 87 stocks. Its three largest
stocks were E. I. DuPont de Nemours and Company, Alcoa, Inc. and The Dow
Chemical Company (which comprised 19.44%, 9.07% and 8.73%, respectively, of its
market capitalization). The Fund will concentrate its investments in a
particular industry or group of industries to approximately the same extent the
Index is so concentrated. As of March 31, 2000, the Index was concentrated in
chemicals, which comprised 57.63% of its market capitalization (based on the
composition of the Index).
Principal Risks Specific to the Fund
. Companies in this sector could be adversely affected by commodity price
volatility, exchange rates, import controls and increased competition.
. Production of industrial materials often exceeds demand as a result of over-
building or economic downturns, leading to poor investment returns.
. Companies in this sector are at risk for environmental damage and product
liability claims.
. Companies in this sector may be adversely affected by depletion of resources,
technical progress, labor relations, and government regulations.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
38
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$62 $194
39
<PAGE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $1,977,000. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $1,977,000 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $13,159 if the Creation Unit
is redeemed after one year, and $39,330 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
40
<PAGE>
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund
Cusip: 464287580
AMEX Trading Symbol: IYC
Underlying Index : Dow Jones U.S. Consumer Cyclical Sector Index
Investment Objective
The Dow Jones U.S. Consumer Cyclical Sector Index Fund seeks investment
results that correspond generally to the price and yield performance, before
fees and expenses, of the Dow Jones U.S. Consumer Cyclical Sector Index (the
"Index").
Principal Investment Strategy
The Index measures the performance of the consumer cyclical economic sector
of the U.S. equity market. The Fund uses a Representative Sampling strategy to
try to track the Index. Component companies include airlines, auto
manufacturers, tire and rubber manufacturers, auto parts suppliers, casinos, toy
manufacturers, restaurant chains, home construction companies, lodging chains,
broadline retailers, specialty retailers, footwear and clothing/fabric
manufacturers, and media companies, such as advertising companies, entertainment
and leisure companies, consumer electronics companies, broadcasters and
publishers.
As of March 31, 2000, the Index consisted of 343 stocks. Its three
largest stocks were Wal-Mart Stores, Inc., The Home Depot, Inc. and Time Warner,
Inc. (which comprised 12.65%, 7.60% and 6.00% respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. The success of consumer product manufacturers and retailers is tied closely
to the performance of the domestic and international economy, interest rates,
competition and consumer confidence.
. The success of companies in this sector depends heavily on disposable
household income and consumer spending.
. Companies in this sector are subject to severe competition.
. Changes in demographics and consumer tastes can affect the success of
consumer products.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
41
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any
future distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$62 $194
42
<PAGE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,300,900. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $1,500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $3,300,900 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $23,301 if the
Creation Unit is redeemed after one year, and $66,997 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
43
<PAGE>
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund
Cusip: 464287812
AMEX Trading Symbol: IYK
Underlying Index : Dow Jones U.S. Consumer Non-Cyclical Sector Index
Investment Objective
The Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund seeks investment
results that correspond generally to the price and yield performance, before
fees and expenses, of the Dow Jones U.S. Non-Cyclical Sector Index (the
"Index").
Principal Investment Strategy
The Index measures the performance of the consumer non-cyclical economic
sector of the U.S. equity market. The Fund uses a Representative Sampling
strategy to try to track the Index. Component companies include distillers and
brewers, producers of soft drinks, consumer service companies, durable and non-
durable household product manufacturers, cosmetics companies, food retailers,
other food companies, tobacco and agricultural companies.
As of March 31, 2000, the Index consisted of 148 stocks. Its three largest
stocks were America Online, Inc., The Coca-Cola Company and Yahoo Inc. (which
comprised 13.77%, 10.40% and 8.10%, respectively, of its market capitalization).
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the extent the Index is so concentrated. As of March
31, 2000, the Index was concentrated in food and beverage, and consumer
services, which comprised 34.44% and 31.29%, respectively, of its market
capitalization (based on the composition of the Index).
Principal Risks Specific to the Fund
. The products of software companies may face produce obsolescence due to rapid
technological developments and frequent new product introduction.
. Software companies are heavily dependent on patents and intellectual property
rights. The loss or impairment of such rights may adversely affect the
profitability of these companies.
. Governmental regulation affecting the permissibility of using various food
additives and production methods could affect the profitability of companies
in this sector.
. Tobacco companies may be adversely affected by new laws and/or by litigation.
. The success of food, soft drink and fashion related products might be
strongly affected by fads, marketing campaigns and other factors affecting
supply and demand.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
44
<PAGE>
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$62 $194
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $2,061,300. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $2,061,300 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $13,677 if the Creation Unit
is redeemed after one year, and $40,964 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
45
<PAGE>
iShares Dow Jones U.S. Energy Sector Index Fund
Cusip: 464287796
AMEX Trading Symbol: IYE
Underlying Index : Dow Jones U.S. Energy Sector Index
Investment Objective
The Dow Jones U.S. Energy Sector Index Fund seeks investment results
that correspond generally to the price and yield performance, before fees and
expenses, of the Dow Jones U.S. Energy Sector Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the energy sector of the U.S. equity
market. The Fund uses a Representative Sampling strategy to try to track the
Index. Component companies include oil equipment and services, oil-major, oil-
secondary and pipelines.
As of March 31, 2000, the Index consisted of 88 stocks. Its three
largest stocks were Exxon Mobil Corporation, Chevron Corporation and
Schlumberger Limited (which comprised 37.95%, 8.55% and 5.93%, respectively, of
its market capitalization). The Fund will concentrate its investments in a
particular industry or group of industries to approximately the same extent the
Index is so concentrated. As of March 31, 2000, the Index was concentrated in
oil and gas, which comprised 99.88% of its market capitalization (based on the
composition of the Index).
Principal Risks Specific to the Fund
. The profitability of companies in this sector is related to worldwide
energy prices and exploration, and production spending.
. Companies in this sector could be adversely affected by changes in exchange
rates.
. Companies in this sector are affected by government regulation, world
events and economic conditions.
. Companies in this sector are at risk for environmental damage claims.
. The Fund is classified as "non-diversified." A non-diversified fund
generally will hold fewer stocks than a diversified fund. As a result, the
Fund is more susceptible to the risks associated with these particular
companies, or to a single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
46
<PAGE>
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
---
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$62 $194
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $2,387,100. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $2,387,100 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $15,681 if the Creation Unit
is redeemed after one year, and $47,281 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
47
<PAGE>
iShares Dow Jones U.S. Financial Sector Index Fund
Cusip: 464287788
AMEX Trading Symbol: IYF
Underlying Index : Dow Jones U.S. Financial Sector Index
Investment Objective
The Dow Jones U.S. Financial Sector Index Fund seeks investment results
that correspond generally to the price and yield performance, before fees and
expenses, of the Dow Jones U.S. Financial Sector Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the financial economic sector of the
U.S. equity market. The Fund uses a Representative Sampling strategy to try to
track the Index. Component companies include major banks, regional banks,
diversified financial companies, insurance companies, real estate companies,
savings and loan associations, and securities brokers.
As of March 31, 2000, the Index consisted of 344 stocks. Its three largest
stocks were Citigroup, Inc., American International Group Inc. (AIG) and Morgan
Stanley Dean Witter Discover & Company (which comprised 10.10%, 8.56% and 4.68%,
respectively, of its market capitalization). The Fund will concentrate its
investments in a particular industry or group of industries to approximately the
same extent the Index is so concentrated. As of March 31, 2000, the Index was
concentrated in specialty finance and banks, which comprised 41.75% and 35.08%,
respectively, of its market capitalization (based on the composition of the
Index).
Principal Risks Specific to the Fund
. Companies in this sector are subject to extensive governmental regulation
that affects the scope of their activities, the prices they can charge and
the amount of capital they must maintain.
. The profitability of companies in this sector is adversely affected by
increases in interest rates.
. The profitability of companies in this sector is adversely affected by
loans losses, which usually increase in economic downturns.
. Insurance companies may be subject to severe price competition.
. Newly enacted laws are expected to result in increased inter-industry
consolidation and competition in this sector.
. The Fund is classified as "non-diversified." A non-diversified fund
generally will hold fewer stocks than a diversified fund. As a result, the
Fund is more susceptible to the risks associated with these particular
companies, or to a single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
48
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
--------
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$62 $194
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees for Institutional
Investors
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,595,400. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $1,500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $3,595,400 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $25,112 if the Creation Unit
is redeemed after one year, and $72,707 if the Creation Unit is redeemed after
three years.
49
<PAGE>
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
50
<PAGE>
iShares Dow Jones U.S. Healthcare Sector Index Fund
Cusip: 464287762
AMEX Trading Symbol: IYH
Underlying Index: Dow Jones U.S. Healthcare Sector Index
Investment Objective
The Dow Jones U.S. Healthcare Sector Index Fund seeks investment results
that correspond generally to the price and yield performance, before fees and
expenses, of the Dow Jones U.S. Healthcare Sector Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the healthcare sector of the U.S.
equity market. The Fund uses a Representative Sampling strategy to try to track
the Index. Component companies include health care providers, biotechnology
companies and manufacturers of medical supplies, advanced medical devices and
pharmaceuticals.
As of March 31, 2000, the Index consisted of 171 stocks. Its three
largest stocks were Merck & Co., Inc., Pfizer Inc. and Bristol-Myers Squibb
Company (which comprised 10.42%, 10.15% and 8.22%, respectively, of its market
capitalization). The Fund will concentrate its investments in a particular
industry or group of industries to approximately the same extent the Index is so
concentrated. As of March 31, 2000, the Index was concentrated in
pharmaceuticals and biotechnology, which comprised 78.29% of its market
capitalization (based on the composition of the Index).
Principal Risks Specific to the Fund
. Many companies in this sector are heavily dependent on patent protection.
The expiration of patents may adversely affect the profitability of these
companies.
. Companies in this sector are subject to extensive litigation based on
product liability and similar claims.
. Companies in this sector are subject to competitive forces that may make it
difficult to raise prices and, in fact, may result in price discounting.
. Many new products in this sector are subject to the approval of the Food
and Drug Administration. The process of obtaining such approval is long and
costly.
. Companies in this sector may be thinly capitalized.
. Companies in this sector may be susceptible to product obsolescence.
. The Fund is classified as "non-diversified." A non-diversified fund
generally will hold fewer stocks than a diversified fund. As a result, the
Fund is more susceptible to the risks associated with these particular
companies, or to a single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
51
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$62 $194
</TABLE>
52
<PAGE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $750 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $2,737,000. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $750 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $2,737,000 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $18,333 if the Creation Unit
is redeemed after one year, and $54,565 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
53
<PAGE>
iShares Dow Jones U.S. Industrial Sector Index Fund
Cusip: 464287754
AMEX Trading Symbol: IYJ
Underlying Index : Dow Jones U.S. Industrial Sector Index
Investment Objective
The Dow Jones U.S. Industrial Sector Index Fund seeks investment results
that correspond generally to the price and yield performance, before fees and
expenses, of the Dow Jones U.S. Industrial Sector Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the industrial sector of the U.S.
equity market. The Fund uses a Representative Sampling strategy to try to track
the Index. Component companies include aerospace and defense companies,
advanced industrial companies, equipment manufacturers, air freight companies,
building materials manufacturers, packaging companies, manufacturers of
electrical components and equipment, heavy construction companies, manufacturers
of heavy machinery, industrial services companies, industrial companies, marine
transportation companies, railroads, shipbuilders, and trucking companies.
As of March 31, 2000, the Index consisted of 382 stocks. Its three largest
stocks were General Electric Company, Tyco International Ltd. and JDS Uniphase
Corporation (which comprised 27.57%, 4.66% and 4.10%, respectively, of its
market capitalization). The Fund will concentrate its investments in a
particular industry or group of industries to approximately the same extent the
Index is so concentrated. As of March 31, 2000, the Index was concentrated in
industrial diversified, which comprised 46.74% of its market capitalization
(based on the composition of the Index).
Principal Risks Specific to the Fund
. The stock prices of companies in this sector are affected by supply and
demand both for their specific product or service and for industrial sector
products in general.
. The products of manufacturing companies may face product obsolescence due
to rapid technological developments and frequent new product introduction.
. Government regulation, world events and economic conditions affect the
performance of companies in this sector.
. Companies in this sector are at risk for environmental damage and product
liability claims.
. The Fund is classified as "non-diversified." A non-diversified fund
generally will hold fewer stocks than a diversified fund. As a result, the
Fund is more susceptible to the risks associated with these particular
companies, or to a single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
54
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below) ............................................................ None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses............................................... 0.60%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$62 $194
</TABLE>
55
<PAGE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,080,100. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $1,500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $3,080,100 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $21,943 if the Creation Unit
is redeemed after one year, and $62,717 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
56
<PAGE>
iShares Dow Jones U.S. Technology Sector Index Fund
Cusip: 464287721
AMEX Trading Symbol: IYW
Underlying Index : Dow Jones U.S. Technology Sector Index
Investment Objective
The Dow Jones U.S. Technology Sector Index Fund seeks investment results
that correspond generally to the price and yield performance, before fees and
expenses, the Dow Jones U.S. Technology Sector Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the technology sector of the U.S.
equity market. The Fund uses a Representative Sampling strategy to try to track
the Index. Component companies include those involved in the development and
production of technology products, including computer hardware and software,
telecommunications equipment, microcomputer components, integrated computer
circuits and office equipment utilizing technology.
As of March 31, 2000, the Index consisted of 319 stocks. Its three largest
stocks were Microsoft Corporation, Cisco Systems Inc. and Intel Corporation
(which comprised 11.56%, 11.05% and 9.21%, respectively, of its market
capitalization). The Fund will concentrate its investments in a particular
industry or group of industries to approximately the same extent the Index is so
concentrated. As of March 31, 2000, the Index was concentrated in hardware and
equipment, and software, which comprised 69.54% and 30.46%, respectively, of its
market capitalization (based on the composition of the Index).
Principal Risks Specific to the Fund
. Technology companies face intense competition, both domestically and
internationally.
. Technology companies may have limited product lines, markets, financial
resources or personnel.
. The products of technology companies may face product obsolescence due to
rapid technological developments and frequent new product introduction.
. Technology companies may face dramatic and often unpredictable changes in
growth rates and competition for the services of qualified personnel.
. Companies in this sector are heavily dependent on patent and intellectual
property rights. The loss or impairment of these rights may adversely
affect the profitability of these companies.
. The Fund is classified as "non-diversified." A non-diversified fund
generally will hold fewer stocks than a diversified fund. As a result, the
Fund is more susceptible to the risks associated with these particular
companies, or to a single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
57
<PAGE>
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below) ............................................................ None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5%
58
<PAGE>
return each year and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the assumptions,
your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$62 $194
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,250 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $7,072,650. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $1,250 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $7,072,650 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $45,997 if the
Creation Unit is redeemed after one year, and $139,624 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
59
<PAGE>
iShares Dow Jones U.S. Telecommunications Sector Index Fund
Cusip: 464287713
AMEX Trading Symbol: IYZ
Underlying Index : Dow Jones U.S. Telecommunications Sector Index
Investment Objective
The Dow Jones U.S. Telecommunications Sector Index Fund seeks investment
results that correspond generally to the price and yield performance, before
fees and expenses, of the Dow Jones U.S. Telecommunications Sector Index (the
"Index").
Principal Investment Strategy
The Index measures the performance of the telecommunications sector of the
U.S. equity market. The Fund uses a Representative Sampling strategy to try to
track the Index. Component companies include fixed line communications and
wireless communications companies.
As of March 31, 2000, the Index consisted of 54 stocks. Its three largest
stocks were AT&T Corp., SBC Communications Inc. and MCI Worldcom, Inc. (which
comprised 15.83%, 12.62% and 11.33%, respectively, of its market
capitalization). The Fund will concentrate its investments in a particular
industry or group of industries to approximately the same extent the Index is so
concentrated. As of March 31, 2000, the Index was concentrated in fixed line
communications, which comprised 86.07% of its market capitalization (based on
the composition of the Index).
Principal Risks Specific to the Fund
. The domestic telecommunications market is characterized by increasing
competition and regulation by the Federal Communications Commission and
various state regulatory authorities.
. Companies in this sector need to commit substantial capital to meet increasing
competition, particularly in formulating new products and services using new
technology.
. Technological innovations may make the products and services of
telecommunications companies obsolete.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
60
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$62 $194
61
<PAGE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $250 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,524,200. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $250 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $3,524,200 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $22,174 if the
Creation Unit is redeemed after one year, and $68,827 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
62
<PAGE>
iShares Dow Jones U.S. Utilities Sector Index Fund
Cusip: 464287697
AMEX Trading Symbol: IDU
Underlying Index: Dow Jones U.S. Utilities Sector Index
Investment Objective
The Dow Jones U.S. Utilities Sector Index Fund seeks investment results
that correspond generally to the price and yield performance, before fees and
expenses, of the Dow Jones U.S. Utilities Sector Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the utilities sector of the U.S.
equity market. The Fund uses a Representative Sampling strategy to try to track
the Index. Component companies include electric utilities, gas utilities and
water utilities.
As of March 31, 2000, the Index consisted of 88 stocks. Its three largest
stocks were Enron Corporation, Duke Energy Corporation and AES Corporation
(which comprised 15.07%, 5.40% and 4.57%, respectively, of its market
capitalization). The Fund will concentrate its investments in a particular
industry or group of industries to approximately the same extent the Index is so
concentrated. As of March 31, 2000, the Index was concentrated in electric,
which comprised 92.18% of its market capitalization (based on the composition of
the Index).
Principal Risks Specific to the Fund
. The rates of regulated utility companies are subject to review and limitation
by governmental regulatory commissions.
. The value of regulated utility debt securities (and, to a lesser extent,
equity securities) tends to have an inverse relationship to the movement of
interest rates.
. As deregulation allows utilities to diversify outside of their original
geographic regions and their traditional lines of business, utilities may
engage in riskier ventures where they have no experience.
. Deregulation is subjecting utility companies to greater competition and may
adversely affect profitability.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
63
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$62 $194
64
<PAGE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,247,500. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $3,247,500 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $20,972 if the
Creation Unit is redeemed after one year, and $63,962 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
65
<PAGE>
iShares Dow Jones U.S. Chemicals Index Fund
Cusip: 464287820
AMEX Trading Symbol: IYD
Underlying Index: Dow Jones U.S. Chemical Index
Investment Objective
The Dow Jones U.S. Chemicals Index Fund seeks investment returns that
correspond generally to the price and yield performance, before fees and
expenses, of the Dow Jones U.S. Chemicals Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the chemicals industry portion of the
U.S. equity market. The Fund uses a Representative Sampling strategy to try to
track the Index. Component companies include chemicals, household
products/wares, commercial services, miscellaneous manufacture, environmental
control, pharmaceuticals and metals-diversified.
As of March 31, 2000, the Index consisted of 43 stocks. Its three largest
stocks were E. I. DuPont de Nemours and Company, The Dow Chemical Company, and
Rohm & Haas Company (which comprised 35.12%, 15.78% and 6.16%, respectively, of
its market capitalization). The Fund will concentrate its investments in a
particular industry or group of industries to approximately the same extent the
Index is so concentrated. As of March 31, 2000, the Index was concentrated in
chemicals, which comprised 100% of its market capitalization (based on the
composition of the Index).
Principal Risks Specific to the Fund
. The chemical industry can be significantly affected by intense competition,
product obsolescence and government regulation.
. The chemical industry is subject to risks associated with the production,
handling and disposal of hazardous components.
. Companies in the chemical industry are at risk for environmental damage and
product liability claims.
. Many companies in this sector are heavily dependent on patent protection.
The expiration of patents may adversely affect the profitability of these
companies.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
66
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$62 $194
67
<PAGE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $250 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $2,120,500. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $250 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $2,120,500 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $13,541 if the
Creation Unit is redeemed after one year, and $41,612 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
68
<PAGE>
iShares Dow Jones U.S. Financial Services Index Fund
Cusip: 464287770
AMEX Trading Symbol: IYG
Underlying Index: Dow Jones U.S. Financial Services Index
Investment Objective
The Dow Jones U.S. Financial Services Index Fund seeks investment
results that correspond generally to the price and yield performance, before
fees and expenses, of the Dow Jones U.S. Financial Services Index (the
"Index"). Principal Investment Strategy
The Index measures the performance of the financial services industry
segment of the U.S. equity market. It is a subset of the Dow Jones U.S.
Financial Index. The Fund uses a Representative Sampling strategy to try to
track the Index. Component companies include banks, savings and loan
associations, specialty financial firms, and other financial services
firms.
As of March 31, 2000, the Index consisted of 204 stocks. Its three largest
stocks were Citigroup, Inc., Morgan Stanley Dean Witter Discover & Company and
BankAmerica Corporation (which comprised 13.20%, 6.12% and 5.91%, respectively,
of its market capitalization). The Fund will concentrate its investments in a
particular industry or group of industries to approximately the same extent the
Index is so concentrated. As of March 31, 2000, the Index was concentrated in
specialty finance and banks, which comprised 53.28% and 46.72%, respectively, of
its market capitalization (based on the composition of the Index).
Principal Risks Specific to the Fund
. Companies in this sector are subject to extensive government regulation that
affects the scope of their activities, the prices they can charge and the
amount of capital they must maintain.
. The profitability of companies in this sector is adversely affected by
increases in interest rates.
. The profitability of companies in this sector is adversely affected by loans
losses, which usually increase in economic downturns.
. Newly enacted laws are expected to result in increased inter-industry
consolidation and competition in the financial sector.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
69
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.60%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.60%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$62 $194
70
<PAGE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $1,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $4,180,200. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $1,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $4,180,200 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $27,708 if the Creation Unit
is redeemed after one year, and $83,045 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
71
<PAGE>
iShares Dow Jones U.S. Internet Index Fund
Cusip: 464287747
AMEX Trading Symbol: IYV
Underlying Index: Dow Jones U.S. Internet Index
Investment Objective
The Dow Jones U.S. Internet Index Fund seeks investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the Dow Jones U.S. Internet Index (the "Index").
Principal Investment Strategy
The Index measures the performance of stocks in the U.S. equity markets
that generate the majority of their revenues from the Internet. The Fund uses a
Representative Sampling strategy to try to track the Index, which is comprised
of two sub-groups:
. Internet Commerce: companies that derive the majority of their
revenues from providing goods and/or services through an open network,
such as a web site.
. Internet Services: companies that derive the majority of their
revenues from providing access to the Internet or providing enabling
services to people using the Internet.
As of March 31, 2000, the Index consisted of 40 stocks. Its three largest
stocks were America Online, Inc., CMGI, Inc. and Exodus Communications Inc.
(which comprised 10.59%, 7.29% and 5.92% respectively, of its market
capitalization). The Fund will concentrate its investments in a particular
industry or group of industries to approximately the same extent the Index is so
concentrated. As of March 31, 2000, the Index was concentrated in general
industrial services and consumer services, which comprised 32.06% and 29.65% of
its market capitalization (based on the composition of the Index).
Principal Risks Specific to the Fund
. Companies in this sector spend heavily on research and development and their
products or services may not prove commercially successful or may become
obsolete quickly.
. The computer/Internet sector may be subject to greater governmental
regulation than other sectors and changes in governmental policies and the
need for regulatory approvals may have a material adverse effect on this
sector.
. Companies in this sector are subject to risks of new technologies and
competitive pressures.
. Companies in this sector are heavily dependent on patents and intellectual
property rights. The loss or impairment of these rights may adversely affect
the profitability of these companies.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
72
<PAGE>
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)..................................... None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees.............................................. 0.60%
Distribution and Service (12b-1) Fees........................ None
Other Expenses***............................................ None
Total Annual Fund Operating Expenses......................... 0.60%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$62 $194
</TABLE>
73
<PAGE>
Creation Transation Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $250 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000 was
$4,806,375. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $250 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $4,806,375 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $30,059 if the Creation Unit
is redeemed after one year, and $93,685 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
74
<PAGE>
iShares Dow Jones U.S. Real Estate Index Fund
Cusip: 464287739
AMEX Trading Symbol: IYR
Underlying Index: Dow Jones U.S. Real Estate Index
Investment Objective
The Dow Jones U.S. Real Estate Index Fund seeks investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the Dow Jones U.S. Real Estate Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the real estate industry sector of
the U.S. equity market. The Fund uses a Representative Sampling strategy to try
to track the Index. Component companies include hotel and resort companies and
real estate investment trusts ("REITs") that invest in apartments, office and
retail properties. The Fund will concentrate its investments in these industry
groups.
As of March 31, 2000, the Index consisted of 78 stocks. Its three
largest stocks were Equity Office Properties Trust, Equity Residential
Properties Trust and Starwood Hotels & Resorts Worldwide, Inc. (which comprised
6.08%, 4.87% and 4.76%, respectively, of its market capitalization). The Fund
will concentrate its investments in a particular industry or group of industries
to approximately the same extent the Index is so concentrated. As of March 31,
2000, the Index was concentrated in real estate, which comprised 100% of its
market capitalization (based on the composition of the Index).
Principal Risks Specific to the Fund
. Investment in this sector is subject to many of the same risks associated
with the direct ownership of real estate such as:
. Adverse changes in national, state or local real estate conditions (such
as oversupply of or reduced demand for space and changes in market
rental rates);
. Obsolescence of properties;
. Changes in the availability, cost and terms of mortgage funds; and
. The impact of environmental laws.
. A REIT that fails to comply with federal tax requirements affecting REITs
would be subject to federal income taxation.
. The federal tax requirement that a REIT distribute substantially all of its
net income to its shareholders could result in a REIT having insufficient
capital for future expenditures.
. Transactions between REITs and their affiliates may be subject to conflicts
of interest, which may adversely affect shareholders.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
75
<PAGE>
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)...................................... None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees............................................... 0.60%
Distribution and Service (12b-1) Fees......................... None
Other Expenses***............................................. None
Total Annual Fund Operating Expenses.......................... 0.60%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$62 $194
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units.
76
<PAGE>
Purchasers of Creation Units at NAV must pay the Fund a Standard Creation
Transaction Fee of $500 per each Creation Unit. The approximate value of a
Creation Unit as of March 31, 2000 was $3,218,750. An investor who holds
Creation Units and wishes to redeem at NAV would also pay a Standard Redemption
Fee of $500 for each Creation Unit.* Investors who hold Creation Units will also
pay the Annual Fund Operating Expenses described in the table above. Assuming an
investment in a Creation Unit of $3,218,750 and a 5% return each year, and
assuming that the Fund's operating expenses remain the same, the total costs
would be $20,795 if the Creation Unit is redeemed after one year, and $63,405 if
the Creation Unit is redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
77
<PAGE>
Description of iShares Funds
iShares Russell Index Funds
iShares Russell 3000 Index Fund
iShares Russell 3000 Growth Index Fund
iShares Russell 3000 Value Index Fund
iShares Russell 2000 Index Fund
iShares Russell 2000 Growth Index Fund
iShares Russell 2000 Value Index Fund
iShares Russell 1000 Index Fund
iShares Russell 1000 Growth Index Fund
iShares Russell 1000 Value Index Fund
Frank Russell Company, Russell 1000(R) Index, Russell 2000(R) Index,
Russell 3000(R) Index, Russell 1000(R) Value Index, Russell 1000(R) Growth
Index, Russell 2000(R) Value Index, Russell 2000(R) Growth Index, Russell
3000(R) Value Index and Russell 3000(R) Growth Index are trademarks of Frank
Russell Company and have been licensed for use for certain purposes by BGI. The
Funds that are based on the Russell indices are not sponsored, endorsed, sold or
promoted by Frank Russell Company, and Frank Russell Company makes no
representation regarding the advisability of investing in iShares.
78
<PAGE>
iShares Russell 3000 Index Fund
Cusip: 464287689
AMEX Trading Symbol: IWV
Underlying Index: Russell 3000 Index
Investment Objective
The Russell 3000 Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
Russell 3000 Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the broad U.S. equity market. The
Fund uses a Replication strategy to try to track the Index, which includes
approximately 86% of the market capitalization of all U.S. equity securities.
The Index is a capitalization-weighted index of the largest public companies
domiciled in the U.S. and its territories.
As of March 31, 2000, the Index consisted of 2,769 stocks. Its three
largest stocks were Cisco Systems Inc., General Electric Company and Intel
Corporation (which comprised 3.77%, 3.62% and 3.14%, respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
79
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................ None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees..................................................................... 0.20%
Distribution and Service (12b-1) Fees............................................... None
Other Expenses***................................................................... None
Total Annual Fund Operating Expenses.............................................. 0.20%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$21 $65
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $11,500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $4,130,150. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $11,500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $4,130,150 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $31,467 if the
Creation Unit is redeemed after one year, and $49,692 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
80
<PAGE>
iShares Russell 3000 Growth Index Fund
Cusip: 464287671
AMEX Trading Symbol: IWZ
Underlying Index : Russell 3000 Growth Index
Investment Objective
The Russell 3000 Growth Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
Russell 3000 Growth Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the growth sector of the U.S. equity
broad market. It is a subset of the Russell 3000 Index, representing
approximately 50% of the total market capitalization of the Russell 3000 Index.
The Index measures the performance of those Russell 3000 Index companies with
higher price-to-book ratios and higher forecasted growth. The Fund uses a
Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 1,728 stocks. Its three
largest stocks were Cisco Systems Inc., General Electric Company and Intel
Corporation (which comprised 6.25%, 6.01% and 5.21%, respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. Growth stocks may lack the dividend yield that can cushion stock prices in
market downturns.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
81
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.25%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.25%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$26 $81
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $7,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000 was
$3,547,050. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $7,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $3,547,050 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $23,089 if the Creation Unit
is redeemed after one year, and $42,654 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
82
<PAGE>
iShares Russell 3000 Value Index Fund
Cusip: 464287663
AMEX Trading Symbol: IWW
Underlying Index: Russell 3000 Value Index
Investment Objective
The Russell 3000 Value Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
Russell 3000 Value Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the value sector of the broad U.S.
equity market. It is a subset of the Russell 3000 Index, representing
approximately 50% of the total market capitalization of the Russell 3000 Index.
The Index measures the performance of those Russell 3000 Index companies with
lower price-to-book ratios and lower forecasted growth. The Fund uses a
Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 1,899 stocks. Its three
largest stocks were Exxon Mobil Corporation, Citigroup, Inc. and AT&T Corp.
(which comprised 4.83%, 3.59% and 3.22%, respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. Value stocks can continue to be inexpensive for long periods of time and may
not ever realize their full value.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
83
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.25%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.25%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$26 $81
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $8,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,598,300. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $8,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $3,598,300 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $25,221 if the
Creation Unit is redeemed after one year, and $45,068 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
84
<PAGE>
iShares Russell 2000 Index Fund
Cusip: 464287655
AMEX Trading Symbol: IWM
Underlying Index : Russell 2000 Index
Investment Objective
The Russell 2000 Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
Russell 2000 Index (the "Index").
Principal Investment Strategy
The Index measures the performances of the small-capitalization sector of
the U.S. equity market. The Fund uses a Replication strategy to try to track the
Index, which includes approximately 6% of the market capitalization of all U.S.
equity securities. The Index is a capitalization-weighted index of the
approximately 2000 smallest companies in the Russell 3000 Index, which
represents approximately 11% of the total market capitalization of the Russell
3000 Index.
As of March 31, 2000, the Index consisted of 1,803 stocks. Its three
largest stocks were BroadVision Inc., Microstrategy Incorporated and Mercury
Interactive Corporation (which comprised 0.76%, 0.68% and 0.62%, respectively,
of its market capitalization).
Principal Risks Specific to the Fund
. Small-capitalization companies may be less financially secure than larger,
more established companies.
. Small-capitalization companies may depend on a small number of essential
personnel and thus are more vulnerable to personnel losses.
. Small-capitalization companies normally have less diverse product lines than
larger capitalization companies and thus are more susceptible to adverse
developments concerning their products.
. Small-capitalization stocks may be thinly traded and thus may be difficult
for the Fund to buy and sell.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
85
<PAGE>
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.20%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.20%
------
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$21 $65
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $7,500 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $5,390,900. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $7,500 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $5,390,900 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $26,051 if the
Creation Unit is redeemed after one year, and $49,839 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
86
<PAGE>
iShares Russell 2000 Growth Index Fund
Cusip: 464287648
AMEX Trading Symbol: IWO
Underlying Index: Russell 2000 Growth Index
Investment Objective
The Russell 2000 Growth Index Fund seeks investment returns that correspond
generally to the price and yield performance, before fees and expenses, of the
Russell 2000 Growth Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the small-capitalization growth
sector of the U.S. equity market. It is a subset of the Russell 2000 Index,
representing approximately 50% of the total market capitalization of the Russell
2000 Index. The Index measures the performance of those Russell 2000 Index
companies with higher price-to-book ratios and higher forecasted growth. The
Fund uses a Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 1,209 stocks. Its three
largest stocks were BroadVision, Inc., Microstrategy Incorporated and Mercury
Interactive Corporation (which comprised 1.24%, 1.11% and 1.00%, respectively,
of its market capitalization).
Principal Risks Specific to the Fund
. Growth stocks may lack the dividend yield that can cushion stock prices in
market downturns.
. Small-capitalization companies may be less financially secure than larger,
more established companies.
. Small-capitalization companies may depend on a small number of essential
personnel and thus are more vulnerable to personnel losses.
. Small-capitalization companies normally have less diverse product lines than
larger capitalization companies and thus are more susceptible to adverse
developments concerning their products.
. Small-capitalization stocks may be thinly traded and thus may be difficult
for the Fund to buy and sell.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
87
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.25%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.25%
------
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$26 $81
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $5,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $4,536,400. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $5,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $4,536,400
88
<PAGE>
and a 5% return each year, and assuming that the Fund's operating expenses
remain the same, the total costs would be $21,625 if the Creation Unit is
redeemed after one year, and $46,646 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
89
<PAGE>
iShares Russell 2000 Value Index Fund
Cusip: 464287630
AMEX Trading Symbol: IWN
Underlying Index: Russell 2000 Value Index
Investment Objective
The Russell 2000 Value Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
Russell 2000 Value Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the small-capitalization growth
sector of the U.S. equity market. It is a subset of the Russell 2000 Index,
representing approximately 50% of the total market capitalization of the Russell
2000 Index. The Index measures the performance of those Russell 2000 companies
with lower price-to-book ratios and lower forecasted growth. The Fund uses a
Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 1,182 stocks. Its three
largest stocks were PE Corporation-Celera Genomics Group, Integrated Device
Technology, Inc., and Tektronix, Inc. (which comprised 1.26%, 0.89% and 0.65%,
respectively, of its market capitalization).
Principal Risks Specific to the Fund
. Value stocks can continue to be inexpensive for long periods of time and may
not ever realize their full value.
. Small-capitalization companies may be less financially secure than larger,
more established companies.
. Small-capitalization companies may depend on a small number of essential
personnel and thus are more vulnerable to personnel losses.
. Small-capitalization companies normally have less diverse product lines than
larger capitalization companies and thus are more susceptible to adverse
developments concerning their products.
. Small-capitalization stocks may be thinly traded and thus may be difficult
for the Fund to buy and sell.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
90
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)............................................................. None
Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.25%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.25%
-----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$26 $81
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $5,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $4,970,300. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $5,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $4,970,300 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $22,736 if the
Creation Unit is redeemed after one year, and $50,151 if the Creation Unit is
redeemed after three years.
91
<PAGE>
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
92
<PAGE>
iShares Russell 1000 Index Fund
Cusip: 464287622
AMEX Trading Symbol: IWB
Underlying Index: Russell 1000 Index
Investment Objective
The Russell 1000 Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
Russell 1000 Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the large-capitalization sector of
the U.S. equity market. The Fund uses a Replication strategy to try to track the
Index, which includes approximately 80% of the market capitalization of all
publicly traded U.S. equity securities. The Index is a capitalization-weighted
index of the approximately 1,000 largest companies in the Russell 3000 Index,
and represents approximately 89% of the total market capitalization of the
Russell 3000 Index.
As of March 31, 2000, the Index consisted of 962 stocks. Its three largest
stocks were Cisco Systems Inc., General Electric Company and Intel Corporation
(which comprised 4.05%, 3.90% and 3.38%, respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)................................................... None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees...................................................................... 0.15%
Distribution and Service (12b-1) Fees................................................ None
Other Expenses***.................................................................... None
Total Annual Fund Operating Expenses................................................. 0.15%
------
</TABLE>
________
93
<PAGE>
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on the assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$15 $48
</TABLE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $4,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $3,989,950. An investor who holds Creation Units and wishes to redeem at
NAV would also pay a Standard Redemption Fee of $4,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation
Unit of $3,989,950 and a 5% return each year, and assuming that the Fund's
operating expenses remain the same, the total costs would be $14,135 if the
Creation Unit is redeemed after one year, and $27,339 if the Creation Unit is
redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
94
<PAGE>
iShares Russell 1000 Growth Index Fund
Cusip: 464287614
AMEX Trading Symbol: IWF
Underlying Index: Russell 1000 Growth Index
Investment Objective
The Russell 1000 Growth Index Fund seeks investment returns that correspond
generally to the price and yield performance, before fees and expenses, of the
Russell 1000 Growth Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the large-capitalization growth
sector of the U.S. equity market. It is a subset of the Russell 1000 Index,
representing approximately 50% of the total market capitalization of the Russell
1000 Index. The Index measures the performance of those Russell 1000 Index
companies with higher price-to-book ratios and higher forecasted growth. The
Fund uses a Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 519 stocks. Its three largest
stocks were Cisco Systems Inc., General Electric Company and Intel Corporation
(which comprised 6.73%, 6.47% and 5.61%, respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. Growth stocks may lack the dividend yield that can cushion stock prices in
market downturns.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
. The Fund is classified as "non-diversified." A non-diversified fund generally
will hold fewer stocks than a diversified fund. As a result, the Fund is more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
95
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below).................................... None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees............................................. 0.20%
Distribution and Service (12b-1) Fees....................... None
Other Expenses***........................................... None
Total Annual Fund Operating Expenses...................... 0.20%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
iShares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
----- -------
$21 $65
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $2,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $4,471,800. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $2,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $4,471,800 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs
96
<PAGE>
would be $13,167 if the Creation Unit is redeemed after one year, and $32,900 if
the Creation Unit is redeemed after three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
97
<PAGE>
iShares Russell 1000 Value Index Fund
Cusip: 464287598
AMEX Trading Symbol: IWD
Underlying Index: Russell 1000 Value Index
Investment Objective
The Russell 1000 Value Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
Russell 1000 Value Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the large-capitalization value sector
of the U.S. equity market. It is a subset of the Russell 1000 Index,
representing approximately 50% of the total market capitalization of the Russell
1000 Index. The Index measures the performance of those Russell 1000 Index
companies with lower price-to-book ratios and lower forecasted growth. The Fund
uses a Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 717 stocks. Its three
largest stocks were Exxon Mobil Corporation, Citigroup, Inc. and AT&T Corp.
(which comprised 5.18%, 3.85% and 3.46%, respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. Value stocks can continue to be inexpensive for long periods of time and may
not ever realize their full value.
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less
than one full calendar year and therefore does not report its annual total
returns in a bar chart and average annual total returns in a table.
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers.
iShares are traded on the AMEX.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.*
98
<PAGE>
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment,
but see the Creation Transaction Fees and Redemption
Transaction Fees discussion below)....................................... None
Annual Fund Operating Expenses (expenses that are deducted
from the Fund's assets)**
Management Fees................................................ 0.20%
Distribution and Service (12b-1) Fees.......................... None
Other Expenses***.............................................. None
Total Annual Fund Operating Expenses........................... 0.20%
----
</TABLE>
________
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense, any future
distribution fees or expenses and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in
shares with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your iShares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
------ -------
$21 $65
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000
shares or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. Purchasers of Creation Units
at NAV must pay the Fund a Standard Creation Transaction Fee of $3,000 per each
Creation Unit. The approximate value of a Creation Unit as of March 31, 2000
was $2,840,200. An investor who holds Creation Units and wishes to redeem at NAV
would also pay a Standard Redemption Fee of $3,000 for each Creation Unit.*
Investors who hold Creation Units will also pay the Annual Fund Operating
Expenses described in the table above. Assuming an investment in a Creation Unit
of $2,840,200 and a 5% return each year, and assuming that the Fund's operating
expenses remain the same, the total costs would be $11,822 if the Creation Unit
is redeemed after one year, and $24,355 if the Creation Unit is redeemed after
three years.
___________________
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged
of up to four times the Standard Creation or Redemption Transaction Fee.
99
<PAGE>
Management
Investment Advisor
As investment advisor, BGFA has overall responsibility for the general
management and administration of the Trust. BGFA provides an investment program
for each Fund and manages the investment of its assets. BGFA uses teams of
portfolio managers, investment strategists and other investment specialists.
This team-approach brings together many disciplines and leverages BGFA's
extensive resources. BGFA also arranges for transfer agency, custody, fund
administration and all other non-distribution-related services necessary for the
Funds to operate.
Under the Investment Advisory Agreement, BGFA is responsible for all
expenses of the Trust, including the cost of transfer agency, custody, fund
administration, legal, audit and other services, except interest, taxes,
brokerage commissions and other expenses connected with executions of portfolio
transactions (which are included in NAV), any distribution fees or expenses and
extraordinary expenses.
BGFA will receive fees from each Fund based on rates of
each Fund's average daily net assets, as shown in the following table.
iShares Index Fund Management Fee
- --------------------------- -------------------------
iShares S&P 500
Index Fund 0.09%
iShares S&P 500/BARRA Growth
Index Fund 0.18%
iShares S&P 500/BARRA Value
Index Fund 0.18%
iShares S&P MidCap 400
Index Fund 0.20%
iShares S&P MidCap 400/BARRA Growth
Index Fund 0.25%
iShares S&P MidCap 400/BARRA Value
Index Fund 0.25%
iShares S&P SmallCap 600
Index Fund 0.20%
iShares S&P SmallCap 600/BARRA Growth
Index Fund 0.25%
iShares S&P SmallCap 600/BARRA Value
Index Fund 0.25%
iShares S&P Europe 350
Index Fund 0.60%
iShares S&P/TSE 60
Index Fund 0.50%
iShares Dow Jones U.S. Total Market
Index Fund 0.20%
iShares Dow Jones U.S. Basic Materials
Sector Index Fund 0.60%
iShares Dow Jones U.S. Consumer Cyclical
Sector Index Fund 0.60%
iShares Dow Jones U.S. Consumer Non-Cyclical
Sector Index Fund 0.60%
iShares Dow Jones U.S. Energy
Sector Index Fund 0.60%
iShares Dow Jones U.S. Financial
Sector Index Fund 0.60%
iShares Dow Jones U.S. Healthcare
Sector Index Fund 0.60%
iShares Dow Jones U.S. Industrial
Sector Index Fund 0.60%
iShares Dow Jones U.S. Technology
Sector Index Fund 0.60%
iShares Dow Jones U.S. Telecommunications
Sector Index Fund 0.60%
iShares Dow Jones U.S. Utilities
Sector Index Fund 0.60%
iShares Dow Jones U.S. Chemicals
Index Fund 0.60%
iShares Dow Jones U.S. Finanical Services
Index Fund 0.60%
iShares Dow Jones U.S. Internet
Index Fund 0.60%
iShares Dow Jones U.S. Real Estate
Index Fund 0.60%
iShares Russell 3000
Index Fund 0.20%
iShares Russell 3000 Growth
Index Fund 0.25%
iShares Russell 3000 Value
Index Fund 0.25%
iShares Russell 2000
Index Fund 0.20%
iShares Russell 2000 Growth
Index Fund 0.25%
iShares Russell 2000 Value
Index Fund 0.25%
iShares Russell 1000
Index Fund 0.15%
iShares Russell 1000 Growth
Index Fund 0.20%
iShares Russell 1000 Value
Index Fund 0.20%
BGFA is located at 45 Fremont Street, San Francisco, CA 94105. It is a
wholly-owned subsidiary of BGI, which in turn is an indirect subsidiary of
Barclays Bank PLC. BGI, together with its affiliates, is the world's largest
investment advisor of institutional investment assets. As of December 31, 1999,
BGI and its affiliates, including BGFA, provided investment advisory services
for assets in excess of $791.9 billion. BGI, BGFA, Barclays Global Investor
Services, Barclays Bank and their affiliates deal, trade and invest for their
own accounts in the types of securities in which the Funds portfolios may also
invest.
Administrator, Custodian, Transfer Agent and Securities Lending Agent
Investors Bank & Trust Company ("IBT") is the administrator, custodian,
transfer agent and securities lending agent for each Fund.
Shareholder Information
Additional shareholder information, including how to buy and sell iShares
of any Fund, is available free of charge by calling toll-free: 1-800-iShares.
Buying and Selling iShares
iShares trade on an auction market on the AMEX during the trading day and
can be bought and sold throughout the trading day like other shares of publicly
traded stocks. There is no minimum investment, although generally iShares are
purchased in "round lots" of 100 iShares. When buying or selling iShares through
a broker, you will incur customary brokerage commissions and charges.
Owners of iShares may acquire such iShares directly from any Fund or tender
such iShares for redemption directly to any Fund only in Creation Units, as
discussed in the Creations and Redemptions section.
iShares trade under the ticker symbols listed in this Prospectus. iShares
prices are reported in dollars and fractions per iShare. Fractions are quoted
in 1/64s.
100
<PAGE>
The AMEX is generally open Monday through Friday and is closed on weekends
and the following holidays: New Year's Day, Martin Luther King, Jr.'s Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Section 12(d)(1) of the Investment Company Act of 1940 restricts
investments by registered investment companies in the securities of other
investment companies, including iShares.
Book Entry
iShares are held in book-entry form, which means that no stock certificates
are issued. Depository Trust Company ("DTC") or its nominee, is the record owner
of all outstanding iShares of each Fund and is recognized as the owner of all
iShares for all purposes.
Investors owning iShares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all
iShares. Participants include DTC, securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
iShares, you are not entitled to receive physical delivery of stock certificates
or to have iShares registered in your name, and you are not considered a
registered owner of iShares. Therefore, to exercise any right as an owner of
iShares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other stocks that you hold in
book entry or "street name" form.
iShare Prices
The trading prices of iShares on the AMEX may differ in varying degrees
from their daily NAVs and can be affected by market forces such as supply and
demand, economic conditions and other factors.
The AMEX intends to disseminate the approximate value of iShares of each
Fund (except the iShares S&P Europe 350 Index Fund and iShares S&P/TSE 60 Index
Fund) every fifteen seconds. The approximate values of iShares of the iShares
S&P Europe 350 Index Fund and the iShares S&P/TSE 60 Index Fund will be provided
on a similar basis by Bloomberg. This approximate value should not be viewed
as a "real-time" update of the NAV per iShare of any Fund, because the
approximate value may not be calculated in the same manner as the NAV, which is
computed once a day. The Funds are not involved in, or responsible for, the
calculation or dissemination of such amount and make no warranty as to its
accuracy.
Determining NAV
IBT calculates each Fund's NAV in accordance with the standard formula for
valuing mutual fund shares at the close of regular trading (normally 4 p.m.
Eastern time) every day the New York Stock Exchange is open. The formula calls
for deducting all of a Fund's liabilities from the total value of its assets and
dividing the result by the number of shares outstanding. IBT values the
securities at their current market prices. If such prices are not readily
available, IBT uses estimates of the securities' fair value in accordance with
guidelines approved by the Trust's Board of Trustees.
Dividends and Distributions
Each Fund pays out dividends to investors at least annually and may pay
them on a more frequent basis. All the Funds distribute their net capital
gains, if any, to investors annually.
Taxes
As with any investment, you should consider how your investment in iShares
will be taxed. The tax information in this prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in iShares.
101
<PAGE>
Unless your investment in iShares is made through a tax-exempt entity or
tax-deferred retirement account, such as an IRA plan, you need to be aware of
the possible tax consequences when:
. Each Fund makes distributions, and
. You sell iShares on the AMEX.
Taxes on Distributions
Dividends from net investment income, if any, are declared and paid at
least annually by each Fund. In general, your distributions are subject to
federal income tax for the year when they are paid. Certain dividends paid in
January, however, may be treated as paid in the prior year. A distribution may
be taxable to you as ordinary income or as capital gain.
Dividends paid out of a Fund's net investment income and net short-term
capital gains, if any, are taxable as ordinary income. Distributions of net
long-term capital gains, if any, in excess of net short-term capital losses are
taxable as long-term capital gains, regardless of how long you have held the
iShares.
Dividends and interest received by each Fund with respect to foreign
securities 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. Since more than 50% of the total assets of the
S&P Europe 350 Index Fund and the S&P/TSE 60 Index Fund will almost certainly
consist of foreign stocks or securities, those Funds intend to "pass through" to
you certain foreign income taxes (including withholding taxes) paid by those
Funds. This means that you will be considered to have received as an additional
dividend your share of such foreign taxes, but you may be entitled to either a
corresponding tax deduction in calculating your taxable income, or, subject to
certain limitations, a credit in calculating your federal income tax.
If you are neither a lawful permanent resident nor a citizen of the United
States or if you are a foreign entity, each Fund's ordinary income dividends
(which include distributions of net short-term capital gains) will generally be
subject to a 30% U.S. withholding tax, unless a lower treaty rate applies.
Each Fund must withhold 31% of a shareholder's distributions and proceeds
if the shareholder has not provided a correct taxpayer identification number or
social security number in the manner required by law.
Taxes when iShares are Sold on the AMEX
Currently, any capital gain or loss realized upon a sale of iShares is
generally treated as long-term capital gain or loss if iShares have been held
for more than one year and as short-term capital gain or loss if iShares have
been held for one year or less.
The foregoing discussion summarizes some of the consequences under current
federal tax law of an investment in a Fund. It is not a substitute for personal
tax advice. You may also be subject to state and local taxation on Fund
distributions, and sales of iShares. Consult your personal tax adviser about the
potential tax consequences of an investment in iShares under all applicable tax
laws.
102
<PAGE>
Creations and Redemptions
The iShares that trade on the AMEX are "created" at their NAV by market
makers, large investors and institutions only in block-size "Creation Units". A
"creator" deposits into the applicable Fund a portfolio of stocks closely
approximating the holdings of the Fund and a specified amount of cash in
exchange for 50,000 iShares.
Similarly, iShares can only be redeemed in Creation Units of 50,000
iShares, principally in-kind for a portfolio of stocks held by the Fund and a
specified amount of cash. Except when aggregated in Creation Units, iShares are
not redeemable. The prices at which creations and redemptions occur are based on
the next calculation of NAV after an order is placed.
Creations and redemptions must be made through a firm that is either a
member of the Continuous Net Settlement System of the National Securities
Clearing Corporation or a DTC Participant. Information about the procedures
regarding creation and redemption of Creation Units is included in the Statement
of Additional Information.
iShares Index Funds Transaction Fees
Each Fund will impose a purchase transaction fee and a redemption
transaction fee to offset transfer and other transaction costs associated with
the issuance and redemption of Creation Units of iShares. Purchasers and
redeemers of Creation Units of iShares for cash are required to pay an
additional variable charge to compensate for brokerage and market impact
expenses. The creation and redemption transaction fees for creations and
redemptions in kind for each Fund are listed below. The creation and redemption
transaction fees for creations and redemptions (i) for domestic Funds made
through DTC and (ii) for all Funds made for cash (when cash creations and
redemptions are available or specified) will also be subject to an additional
variable charge of up to a maximum of four times the amount shown below for each
Fund. In addition, purchasers of iShares in Creation Units are responsible for
payment of the costs of transferring the Deposit Securities to the Trust.
Redeemers of iShares in Creation Units are responsible for the costs of
transferring the Fund Securities from the Trust to their accounts or on their
order. Investors who use the services of a broker or other such intermediary
may pay fees for such services. The following table also shows, as of March
31, 2000, the approximate cost of one Creation Unit per Fund, including the
Creation Transaction Fee.
<TABLE>
<CAPTION>
Approximate Value of a Standard Creation/ Maximum Creation/
Creation Unit Redemption Transaction Redemption Transaction
Name of Fund as of March 31, 2000 Fee Fee
- --------------------------------- ----------------------- --------------------- -----------------------
<S> <C> <C> <C>
iShares S&P 500
Index Fund $7,492,900 $ 2,000 $ 8,000
iShares S&P 500/BARRA Growth
Index Fund $4,612,000 $ 500 $ 2,000
iShares S&P 500/BARRA Value
Index Fund $3,046,050 $ 1,500 $ 6,000
iShares S&P MidCap 400
Index Fund $4,996,900 $ 1,500 $ 6,000
iShares S&P MidCap 400/BARRA Growth
Index Fund $6,800,000 $ 500 $ 2,000
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
Approximate Value of a Standard Creation/ Maximum Creation/
Creation Unit Redemption Transaction Redemption Transaction
Name of Fund as of March 31, 2000 Fee Fee
- ---------------------------------- ----------------------- ----------------------- --------------------
<S> <C> <C> <C>
iShares S&P MidCap 400/BARRA Value
Index Fund $3,604,750 $ 1,250 $ 5,000
iShares S&P SmallCap 600
Index Fund $5,223,750 $ 2,500 $10,000
iShares S&P SmallCap 600/BARRA Growth
Index Fund $4,259,250 $ 750 $ 3,000
iShares S&P SmallCap 600/BARRA Value
Index Fund $3,301,000 $ 1,750 $ 7,000
iShares S&P Europe 350
Index Fund $3,377,425 $12,000 $48,000
iShares S&P/TSE 60
Index Fund $2,844,450 $ 1,250 $ 5,000
iShares Dow Jones U.S. Total Market
Index Fund $3,544,100 $ 8,000 $32,000
iShares Dow Jones U.S. Basic Materials
Sector Index Fund $1,977,000 $ 500 $ 2,000
iShares Dow Jones U.S. Consumer Cyclical
Sector Index Fund $3,300,900 $ 1,500 $ 6,000
iShares Dow Jones U.S. Consumer Non-Cyclical
Sector Index Fund $2,061,300 $ 500 $ 2,000
iShares Dow Jones U.S. Energy
Sector Index Fund $2,387,100 $ 500 $ 2,000
iShares Dow Jones U.S. Financial
Sector Index Fund $3,595,400 $ 1,500 $ 6,000
iShares Dow Jones U.S. Healthcare
Sector Index Fund $2,737,000 $ 750 $ 3,000
iShares Dow Jones U.S. Industrial
Sector Index Fund $3,080,100 $ 1,500 $ 6,000
iShares Dow Jones U.S. Technology
Sector Index Fund $7,072,650 $ 1,250 $ 5,000
iShares Dow Jones U.S. Telecommunications
Sector Index Fund $3,524,200 $ 250 $ 1,000
iShares Dow Jones U.S. Utilities
Sector Index Fund $3,247,500 $ 500 $ 2,000
iShares Dow Jones U.S. Chemicals
Index Fund $2,120,500 $ 250 $ 1,000
iShares Dow Jones U.S. Financial Services
Index Fund $4,180,200 $ 1,000 $ 4,000
iShares Dow Jones U.S. Internet
Index Fund $4,806,375 $ 250 $ 1,000
iShares Dow Jones U.S. Real Estate
Index Fund $3,218,750 $ 500 $ 2,000
iShares Russell 3000
Index Fund $4,130,150 $11,500 $46,000
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
Approximate Value of a Standard Creation/ Maximum Creation/
Creation Unit Redemption Transaction Redemption Transaction
Name of Fund as of March 31, 2000 Fee Fee
- ---------------------------------- ----------------------- ---------------------- ---------------------
<S> <C> <C> <C>
iShares Russell 3000 Growth
Index Fund $3,547,050 $ 7,000 $28,000
iShares Russell 3000 Value
Index Fund $3,598,300 $ 8,000 $32,000
iShares Russell 2000
Index Fund $5,390,900 $ 7,500 $30,000
iShares Russell 2000 Growth
Index Fund $4,536,400 $ 5,000 $20,000
iShares Russell 2000 Value
Index Fund $4,970,300 $ 5,000 $20,000
iShares Russell 1000
Index Fund $3,989,950 $ 4,000 $16,000
iShares Russell 1000 Growth
Index Fund $4,471,800 $ 2,000 $ 8,000
iShares Russell 1000 Value
Index Fund $2,840,200 $ 3,000 $12,000
</TABLE>
- ------------------
Distribution
SEI Investments Distribution Company serves as the underwriter
and distributor of Creation Units for each Fund on an agency basis. The
Distributor does not maintain a secondary market in iShares. The Distributor's
principal address is 1 Freedom Valley Drive, Oaks, PA 19456.
The Distributor has no role in determining the policies of any Fund or the
securities that are purchased or sold by any Fund.
Index Providers
Standard & Poor's (a division of The McGraw-Hill Companies, Inc.), Dow
Jones & Company and the Frank Russell Company are the Index Providers for their
respective Underlying Indices. None of the Index Providers is affiliated with
the iShares Trust, BGI, BGFA, IBT, the Distributor or the AMEX.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., provides
financial, economic and investment information and analytical services to the
financial community. S&P calculates and maintains the S&P Global 1200 Index,
which includes the S&P Europe 350 for Continental Europe and the U.K., the
S&P/TSE 60 for Canada, the S&P 500 for the U.S., the S&P/TOPIX 150 for Japan,
the S&P Asia Pacific 100 and the S&P Latin America 40. S&P also publishes the
S&P MidCap 400, S&P SmallCap 600, S&P SuperComposite 1500 and S&P REIT Composite
for the U.S. and the S&P/TSE Canadian MidCap and S&P/TSE Canadian SmallCap
Indices. Company additions to and deletions from an S&P equity index do not in
any way reflect an opinion on the investment merits of the company.
105
<PAGE>
Dow Jones Indices are a part of Dow Jones & Company, which publishes The
Wall Street Journal and its international and interactive editions, Barron's and
SmartMoney magazines and other periodicals, the Dow Jones Newswires,
dowjones.com, and the Ottaway group of community newspapers. Dow Jones is co-
owner with Reuters group of Factiva, and with NBC of the CNBC television
operations in Europe and Asia. Dow Jones also provides news content to CNBC in
the U.S. The Dow Jones Indices include the Dow Jones Industrial, Transportation
and Utility Averages, as well as the Dow Jones Global Indices, the Dow Jones
STOXX Indices, the Dow Jones REIT Indices, the Dow Jones-AIG Commodity Index,
the Dow Jones Islamic Market Indices, the Dow Jones Internet Indices, the Dow
Jones Global Titans Index, the Dow Jones Extra Liquid Index and the Dow Jones
Sustainability Group Indices.
Frank Russell Company is an investment services firm offering a variety of
investment management products and services. The family of indices created by
the Frank Russell Company includes the Russell 1000(R), Russell 2000(R), Russell
3000(R), as well as mid-capitalization, value, and growth style indices. Frank
Russell Company and Mellon Bank Corporation, parent holding company of
Pittsburgh and Boston-based Mellon Trust, operate a joint venture known as
Russell/Mellon Analytical Services LLC. Russell/Mellon Analytical Services
provides the financial community with financial information and analytical
services and calculates the underlying data in the Russell indices.
BGI has entered into a license agreement with each of the Index Providers
to use the Underlying Indices. BGI is sub-licensing rights in the Underlying
Indices to the iShares Trust at no charge.
Disclaimers
The iShares Trust is not sponsored, endorsed, sold or promoted by Standard
& Poor's ("S&P"). S&P makes no representation or warranty, express or implied,
to the owners of iShares or any member of the public regarding the advisability
of investing in securities generally or in iShares particularly or the ability
of the S&P Indices to track general stock market performance. S&P's only
relationship to BGI or BGFA is the licensing of certain trademarks and trade
names of S&P and of the S&P Indices that are determined, composed and calculated
by S&P without regard to BGI, BGFA or the Trust. S&P has no obligation to take
the needs of BGI, BGFA or the owners of iShares into consideration in
determining, composing or calculating the S&P Indices. S&P is not responsible
for and has not participated in the determination of the prices and amount of
iShares or the timing of the issuance or sale of iShares or in the determination
of any financial calculations relating thereto. S&P has no obligation or
liability in connection with the administration of the Trust, marketing, or
trading of the iShares. S&P does not guarantee the accuracy and/or the
completeness of the S&P Indices or any data included therein and S&P shall have
no liability for any errors, omissions, or interruptions therein. S&P makes no
warranty, express or implied, as to results to be obtained by BGI, BGFA or
owners of iShares, or any other person or entity from the use of the S&P Indices
or any data included therein. S&P 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 Indices or any data included
therein. Without limiting any of the foregoing, in no event shall S&P have any
liability for any special, punitive, indirect, or consequential damages
(including lost profits) resulting from the use of the S&P Indices or any data
included therein, even if notified of the possibility of such damages.
The iShares Trust is not sponsored, endorsed, sold, or promoted by Dow
Jones. Dow Jones makes no representation or warranty, express or implied, to
the owners of iShares or to any member of the public regarding the advisability
of owning or trading in iShares. Dow Jones' only relationship to the Trust, BGI
and BGFA is the licensing of certain trademarks, trade names, and service marks
of Dow Jones and of the Dow Jones Indices, which are determined, composed, and
calculated by Dow Jones without regard to the Trust, BGI or BGFA. Dow Jones has
no obligation to take the needs of BGFA, BGI or the owners of iShares into
consideration in determining, composing, or calculating the Dow Jones Indices.
Dow Jones is not responsible for and has not participated in the determination
or the timing of, prices, or quantities of iShares
106
<PAGE>
to be listed. Dow Jones has no obligation or liability in connection with the
administration of the Trust or the marketing or trading of iShares. Dow Jones
does not guarantee the accuracy and/or the completeness of the Dow Jones Indices
or any data included therein and Dow Jones shall have no liability for any
errors, omissions, or interruptions therein. Dow Jones makes no warranty,
express or implied, as to the results to be obtained by BGI and BGFA, owners of
iShares, or any other person or entity from the use of the Dow Jones Indices or
any data included therein. Dow Jones 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 Dow Jones Indices or any data
included therein. Without limiting any of the foregoing, in no event shall Dow
Jones have any liability for any lost profits or indirect, punitive, special, or
consequential damages, even if notified of the possibility thereof. There are no
third party beneficiaries of any agreements or arrangements between Dow Jones
and BGI and BGFA.
The iShares Trust is not sponsored, endorsed, sold or promoted by Frank
Russell Company ("FRC"). FRC makes no representation or warranty, express or
implied, to the owners of the iShares or any member of the public regarding the
advisability of investing in securities generally or in iShares, particularly or
the ability of the Russell Indices to track general stock market performance.
Frank Russell Company is the licensor of certain trademarks, service marks, and
trade names. The Russell Indices on which the Funds are based are determined,
composed and calculated by FRC without regard to BGI, BGFA or the Funds. FRC
has no obligation to take the needs of BGI, BGFA or the owners of iShares into
consideration in determining, composing or calculating the Russell Indices. FRC
is not responsible for and has not participated in the determination of the
prices and amount of iShares or the timing of the issuance or sale of iShares.
FRC has no obligation or liability in connection with the administration of the
Trust or the marketing or trading of iShares. Although FRC obtains information
for inclusion or use in the calculation of the Russell Indices from sources that
FRC considers reliable, FRC does not guarantee the accuracy and/or the
completeness of the Russell Indices or any data included therein. FRC shall
have no liability for any errors, omissions, or interruptions therein. FRC
makes no warranty, express or implied, as to results to be obtained by BGI, BGFA
or owners of iShares, or any other person or entity from the use of the Russell
Indices or any data included therein. FRC 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 Russell Indices or any data
included therein. Without limiting any of the foregoing, in no event shall FRC
have any liability for any special, punitive, direct, indirect, or consequential
damages (including lost profits) resulting from the use of the Russell Indices
or any data included therein, even if notified of the possibility of such
damages.
iShares are not sponsored, endorsed or promoted by the AMEX. The AMEX
makes no representation or warranty, express or implied, to the owners of the
iShares of any Fund or any member of the public regarding the ability of a fund
to track the total return performance of the various Underlying Indices or the
ability of the Underlying Indices identified herein to track stock market
performance. The Underlying Indices identified herein are determined, composed
and calculated by Standard & Poor's, Dow Jones & Company and the Frank Russell
Company without regard to the iShares of any Fund. The AMEX is not responsible
for, nor has it participated in, the determination of the compilation or the
calculation of any index, nor in the determination of the timing of, prices of,
or quantities of the iShares of any Fund to be issued, nor in the determination
or calculation of the equation by which the iShares are redeemable. The AMEX
has no obligation or liability to owners of the iShares of any Fund in
connection with the administration, marketing or trading of the iShares of any
Fund.
The AMEX does not guarantee the accuracy and/or the completeness of any
indices or any data included therein. The AMEX makes no warranty, express or
implied, as to results to be obtained by the iShares Trust on behalf of its
Funds as licensee, licensee's customers and counterparties, owners of the
iShares, or any other person or entity from the use of the subject indices or
any data included therein in connection with the rights licensed as described
herein or for any other use. The AMEX makes no express or implied warranties,
and hereby expressly disclaims all warranties of merchantability or fitness for
a particular purpose with respect to the indices or any data included therein.
Without limiting any of the foregoing, in no event shall the AMEX 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.
BGFA does not guarantee the accuracy and/or the completeness of the
Underlying Indices or any data included therein and BGFA shall have no liability
for any errors, omissions, or interruptions therein.
107
<PAGE>
BGFA makes no warranty, express or implied, as to results to be obtained by the
Funds, owners of the iShares of any Fund, or any other person or entity from the
use of the Underlying Indices or any data included therein. BGFA 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
Underlying Indices or any data included therein. Without limiting any of the
foregoing, in no event shall BGFA have any liability for any special, punitive,
direct, indirect, or consequential damages (including lost profits), even if
notified of the possibility of such damages.
108
<PAGE>
For more detailed information on the iShares Trust and iShares, you may
request a copy of the Statement of Additional Information ("SAI").
The SAI provides detailed information about the Funds, and is incorporated
by reference into this Prospectus. This means that the SAI, for legal purposes,
is a part of this Prospectus.
If you have questions about the Funds or iShares or you wish to obtain the
SAI free of charge, please:
Call: 1-800-iShares
Monday through Friday
8:00 a.m. to 8:00 p.m. (EST)
Write: iShares Trust
c/o SEI Investments Distribution Company
1 Freedom Valley Drive
Oaks, PA 19456
Visit: www.iShares.com
Information about the Fund (including the SAI) can be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C., and information on the operation of the Public Reference Room may be
obtained by calling the Commission at 1-202-942-8090. Reports and other
information about the Fund are available on the EDGAR Database on the
Commission's Internet site at www.sec.gov, and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the following
E-mail address:
[email protected], or by writing the Commission's Public Reference
Section, Washington, D.C. 20549-0102. The iShares Trust's registration number
under the Investment Company Act of 1940 is 811-09729.
No person is authorized to give any information or to make any
representations about any Fund and its iShares not contained in this Prospectus
and you should not rely on any other information. Read and keep the Prospectus
for future reference.
Investment Company Act File No. 811-09729
<PAGE>
iShares Trust
Statement of Additional Information
Dated May 12, 2000
This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the Prospectus dated May 12, 2000 (the "Prospectus")
for the iShares Trust (the "Trust"), as it may be revised from time to time.
Capitalized terms used herein that are not defined have the same meaning as in
the Prospectus, unless otherwise noted. A copy of the Prospectus may be obtained
without charge by writing to the Trust's Distributor, SEI Investments
Distribution Company, at 1 Freedom Valley Drive, Oaks, PA 19456.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
General Description of the Trust and its Funds................................. 1
Exchange Listing and Trading................................................... 2
Investment Strategies and Risks................................................ 4
Lack of Diversification of Certain Funds....................................... 5
Loans of Portfolio Securities.................................................. 7
Repurchase Agreements.......................................................... 7
Reverse Repurchase Agreements.................................................. 7
Currency Transactions.......................................................... 8
Money Market Instruments....................................................... 8
Foreign Securities............................................................. 8
Investment Companies, REITs.................................................... 8
Illiquid Securities............................................................ 9
Futures and Options............................................................ 9
Options on Futures Contracts................................................... 9
Restrictions on the Use of Futures Contracts and Options on Futures Contracts.. 9
Swap Agreements................................................................ 10
Future Developments............................................................ 10
General Considerations and Risks............................................... 10
Risks of Futures and Options Transactions...................................... 11
Risks of Swap Agreements....................................................... 11
Construction and Maintenance Standards for the Underlying Indices.............. 12
Index Dissemination............................................................ 12
The S&P Indices Generally...................................................... 12
S&P 500 Index.................................................................. 12
S&P 500/BARRA Growth Index..................................................... 13
S&P 500/BARRA Value Index...................................................... 13
S&P MidCap 400 Index........................................................... 13
S&P MidCap 400/BARRA Growth Index.............................................. 13
S&P MidCap 400/BARRA Value Index............................................... 14
S&P SmallCap 600 Index......................................................... 14
S&P SmallCap 600/BARRA Growth Index............................................ 14
S&P SmallCap 600/BARRA Value Index............................................. 15
S&P Europe 350 Index........................................................... 15
S&P/TSE 60 Index............................................................... 15
The Dow Jones Indices Generally................................................ 16
Dow Jones U.S. Total Market Index.............................................. 16
Dow Jones U.S. Basic Materials Sector Index.................................... 16
Dow Jones U.S. Consumer Cyclical Sector Index.................................. 17
Dow Jones U.S. Consumer Non-Cyclical Sector Index.............................. 17
Dow Jones U.S. Energy Sector Index............................................. 18
Dow Jones U.S. Financial Sector Index.......................................... 18
Dow Jones U.S. Healthcare Sector Index......................................... 18
Dow Jones U.S. Industrial Sector Index......................................... 18
Dow Jones U.S. Technology Sector Index......................................... 19
Dow Jones U.S. Telecommunications Sector Index................................. 19
Dow Jones U.S. Utilities Sector Index.......................................... 19
Dow Jones U.S. Chemicals Index................................................. 20
Dow Jones U.S. Financial Services Index........................................ 20
Dow Jones U.S. Internet Index.................................................. 20
Dow Jones U.S. Real Estate Index............................................... 21
The Russell Indices Generally.................................................. 21
Russell 3000 Index............................................................. 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Russell 3000 Growth Index...................................................... 22
Russell 3000 Value Index....................................................... 22
Russell 2000 Index............................................................. 22
Russell 2000 Growth Index...................................................... 23
Russell 2000 Value Index....................................................... 23
Russell 1000 Index............................................................. 23
Russell 1000 Growth Index...................................................... 24
Russell 1000 Value Index....................................................... 24
Investment Limitations......................................................... 24
Continuous Offering............................................................ 26
Management..................................................................... 26
Trustees and Officers.......................................................... 26
Remuneration of Trustees and Officers.......................................... 28
Investment Advisor............................................................. 28
Administrator, Custodian, Transfer Agent and Securities Lending Agent.......... 30
Distributor.................................................................... 31
Index Providers................................................................ 31
Brokerage Transactions......................................................... 31
Additional Information Concerning the Trust.................................... 32
Capital Stock.................................................................. 32
Book Entry Only System......................................................... 33
DTC Acts as Securities Depository for the iShares.............................. 33
Creation and Redemption of Creation Unit Aggregations.......................... 34
Creation....................................................................... 34
Fund Deposit................................................................... 34
Procedures for Creation of Creation Unit Aggregations.......................... 35
Placement of Creation Orders for Domestic Funds Using Clearing Process......... 36
Placement of Creation Orders for Domestic Funds Outside Clearing Process....... 36
Placement of Creation Orders for Foreign Funds................................. 37
Acceptance of Orders for Creation Unit Aggregations............................ 38
Creation Transaction Fee....................................................... 38
Redemption of iShares in Creation Unit Aggregations............................ 40
Redemption Transaction Fee..................................................... 40
Placement of Redemption Orders for Domestic Funds Using Clearing Process....... 42
Placement of Redemption Orders for Domestic Funds Outside Clearing Process..... 42
Placement of Redemption Orders for Foreign Funds............................... 42
Foreign Market Hours........................................................... 44
Regular Holidays............................................................... 46
Settlement Periods Greater than Seven Days in 2000............................. 50
Taxes.......................................................................... 50
Federal Tax Treatment of Futures and Options Contracts......................... 51
Determination of NAV........................................................... 52
Dividends and Distributions.................................................... 52
General Policies............................................................... 52
Dividend Reinvestment Service.................................................. 52
Performance and Other Information.............................................. 53
Miscellaneous Information...................................................... 54
Counsel........................................................................ 54
Independent Auditors........................................................... 54
Financial Statements........................................................... 54
Report of Independent Accountants.............................................. 54
</TABLE>
ii
<PAGE>
General Description of the Trust and its Funds
The Trust currently consists of 35 investment portfolios (each a "Fund" and
collectively the "Funds"). The Trust was organized as a Delaware business trust
on December 16, 1999 and is authorized to have multiple series, or portfolios.
Each Fund in the Trust is an open-end management investment company, registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
shares of each Fund are referred to herein as "iShares". The Funds offered by
the Trust are:
<TABLE>
<S> <C> <C>
iShares S&P 500 iShares Dow Jones U.S. Total Market iShares Russell 3000
Index Fund Index Fund Index Fund
iShares S&P 500/BARRA Growth iShares Dow Jones U.S. Basic Materials iShares Russell 3000 Growth
Index Fund Sector Index Fund Index Fund
iShares S&P 500/BARRA Value iShares Dow Jones U.S. Consumer Cyclical iShares Russell 3000 Value
Index Fund Sector Index Fund Index Fund
iShares S&P MidCap 400 iShares Dow Jones U.S. Consumer Non- iShares Russell 2000
Index Fund Cyclical Sector Index Fund Index Fund
iShares S&P MidCap400/BARRA Growth iShares Dow Jones U.S. Energy iShares Russell 2000 Growth
Index Fund Sector Index Fund Index Fund
iShares S&P MidCap400/BARRA Value iShares Dow Jones U.S. Financial iShares Russell 2000 Value
Index Fund Sector Index Fund Index Fund
iShares S&P SmallCap 600 iShares Dow Jones U.S. Healthcare iShares Russell 1000
Index Fund Sector Index Fund Index Fund
iShares S&P SmallCap 600/BARRA Growth iShares Dow Jones U.S. Industrial iShares Russell 1000 Growth
Index Fund Sector Index Fund Index Fund
iShares S&P SmallCap 600/BARRA Value iShares Dow Jones U.S. Technology iShares Russell 1000 Value
Index Fund Sector Index Fund Index Fund
iShares S&P Europe 350 iShares Dow Jones U.S.
Index Fund Telecommunications
Sector Index Fund
iShares S&P/TSE 60 iShares Dow Jones U.S. Utilities
Index Fund Sector Index Fund
iShares Dow Jones U.S. Chemicals
Index Fund
iShares Dow Jones U.S. Financial Services
Index Fund
iShares Dow Jones U.S. Internet
Index Fund
iShares Dow Jones U.S. Real Estate
Index Fund
</TABLE>
The investment objective of each Fund is to provide investment results that
correspond generally to the price and yield performance, before fees and
expenses, of a specified benchmark index (each an "Underlying Index")
representing publicly traded equity securities of companies in a particular
broad market, market segment, market sector or group of industries. Each Fund
is managed by Barclays Global Fund Advisors ("BGFA").
Each Fund offers and issues iShares at their net asset value ("NAV") only
in aggregations of a specified number of iShares (each a "Creation Unit"),
generally in exchange for a basket of equity securities included in its
Underlying Index (the "Deposit Securities"), together with the deposit of a
specified cash payment (the "Cash Component"). The iShares described in this
Prospectus have been approved for listing and secondary trading on the American
Stock Exchange LLC (the "AMEX"), subject to notice of issuance. iShares will
trade on the AMEX at market prices that may be below, at, or above NAV. iShares
are redeemable only in Creation Unit aggregations, and, generally, in exchange
for portfolio securities and a specified cash payment. Creation Units are
aggregations of 50,000 iShares.
1
<PAGE>
The Trust reserves the right to offer a "cash" option for creations and
redemptions of iShares although it has no current intention of doing so.
iShares may be issued in advance of receipt of Deposit Securities subject to
various conditions including a requirement to maintain on deposit with the Trust
cash at least equal to 125% of the market value of the missing Deposit
Securities. See the Creation and Redemption of Creation Unit Aggregations
section. In each instance of such cash creations or redemptions, transaction
fees may be imposed that will be higher than the transaction fees associated
with in-kind creations or redemptions. In all cases, such fees will be limited
in accordance with the requirements of the Securities and Exchange Commission
(the "SEC") applicable to management investment companies offering redeemable
securities.
Exchange Listing and Trading
A discussion of exchange listing and trading matters associated with an
investment in each Fund is contained in the Prospectus in the Overview and the
Shareholder Information sections. The discussion below supplements, and should
be read in conjunction with, such sections of the Prospectus.
There can be no assurance that the requirements of the AMEX necessary to
maintain the listing of iShares of any Fund will continue to be met. The AMEX
may, but is not required to, remove the iShares of a Fund from listing if (i)
following the initial 12-month period beginning upon the commencement of trading
of a Fund, there are fewer than 50 beneficial owners of the iShares of a Fund
for 30 or more consecutive trading days; (ii) the value of the Underlying Index
on which such Fund is based is no longer calculated or available; or (iii) such
other event shall occur or condition exist that, in the opinion of the AMEX,
makes further dealings on the AMEX inadvisable. The AMEX will remove the
iShares of a Fund from listing and trading upon termination of such Fund.
As in the case of other stocks traded on the AMEX, broker's commissions on
transactions will be based on negotiated commission rates at customary levels.
The following table sets forth the ratio of NAV to the Underlying Index's
value by Fund as of the date of this Statement of Additional Information.
<TABLE>
<CAPTION>
Ratio of NAV/Index
iShares Index Fund Value by Fund
- ------------------------------------------------- ------------------------
<S> <C>
iShares S&P 500
Index Fund 1/10
iShares S&P 500/BARRA Growth
Index Fund 1/10
iShares S&P 500/BARRA Value
Index Fund 1/10
iShares S&P MidCap 400
Index Fund 1/5
iShares S&P MidCap 400/BARRA Growth
Index Fund 1/2
iShares S&P MidCap 400/BARRA Value
Index Fund 1/2
iShares S&P SmallCap 600
Index Fund 1/2
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Ratio of NAV/Index
iShares Index Fund Value by Fund
- ------------------------------------------------- ------------------------
<S> <C>
iShares S&P SmallCap 600/BARRA Growth
Index Fund 1/2
iShares S&P SmallCap 600/BARRA Value
Index Fund 1/2
iShares S&P Europe 350
Index Fund 1/20
iShares S&P/TSE 60
Index Fund 1/10
iShares Dow Jones U.S. Total Market
Index Fund 1/5
iShares Dow Jones U.S. Basic Materials
Sector Index Fund 1/4
iShares Dow Jones U.S. Consumer Cyclical
Sector Index Fund 1/5
iShares Dow Jones U.S. Consumer Non-Cyclical
Sector Index Fund 1/5
iShares Dow Jones U.S. Energy
Sector Index Fund 1/5
iShares Dow Jones U.S. Financial
Sector Index Fund 1/5
iShares Dow Jones U.S. Healthcare
Sector Index Fund 1/5
iShares Dow Jones U.S. Industrial
Sector Index Fund 1/5
iShares Dow Jones U.S. Technology
Sector Index Fund 1/10
iShares Dow Jones U.S. Telecommunications
Sector Index Fund 1/5
iShares Dow Jones U.S. Utilities
Sector Index Fund 1/2
iShares Dow Jones U.S. Chemicals
Index Fund 1/4
iShares Dow Jones U.S. Financial Services
Index Fund 1/5
iShares Dow Jones U.S. Internet
Index Fund 1/4
iShares Dow Jones U.S. Real Estate
Index Fund 1/2
iShares Russell 3000
Index Fund 1/10
iShares Russell 3000 Growth
Index Fund 1/10
iShares Russell 3000 Value
Index Fund 1/10
iShares Russell 2000
Index Fund 1/5
iShares Russell 2000 Growth
Index Fund 1/5
iShares Russell 2000 Value
Index Fund 1/5
iShares Russell 1000
Index Fund 1/10
iShares Russell 1000 Growth
Index Fund 1/10
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Ratio of NAV/Index
iShares Index Fund Value by Fund
- ------------------------------------------------- ------------------------
<S> <C>
iShares Russell 1000 Value
Index Fund 1/10
</TABLE>
The Trust reserves the right to adjust the stock prices of iShares in the
future to maintain convenient trading ranges for investors. Any adjustments
would be accomplished through stock splits or reverse stock splits, which would
have no effect on the net assets of the applicable Fund. However, the ratio of
a Fund's NAV to its Underlying Index would change in such instance.
Investment Strategies and Risks
Each Fund seeks to achieve its objective by investing in common stocks
included in the relevant Underlying Index. Each Fund operates as an index fund
and will not be actively managed. Adverse performance of a security in a Fund's
portfolio will ordinarily not result in the elimination of the security from a
Fund's portfolio.
Some Funds will engage in Replication, by which they hold substantially all
of the securities of the Underlying Index in approximately the same proportions
as reflected in the Underlying Index. Other Funds will engage in Representative
Sampling, which is investing in a representative sample of stocks in the
Underlying Index, selected by BGFA to have a similar investment profile as the
Underlying Index. Stocks selected have aggregate investment characteristics
(based on market capitalization and industry weightings), fundamental
characteristics (such as return variability, earnings valuation and yield) and
liquidity measures similar to those of the relevant Underlying Index. Funds that
use Representative Sampling generally do not hold all of the stocks that are
included in the relevant Underlying Index.
<TABLE>
<CAPTION>
Funds that Use Funds that Use
Replication Representative Sampling
- --------------------------------------------------- -----------------------------------------------
<S> <C>
iShares S&P 500 iShares S&P Europe 350
Index Fund Index Fund
iShares S&P 500/BARRA Growth iShares S&P/TSE 60
Index Fund Index Fund
iShares S&P 500/BARRA Value iShares Dow Jones U.S. Basic Materials
Index Fund Sector Index Fund
iShares S&P MidCap 400 iShares Dow Jones U.S. Consumer Cyclical
Index Fund Sector Index Fund
iShares S&P MidCap 400/BARRA Growth iShares Dow Jones U.S. Consumer Non-Cyclical
Index Fund Sector Index Fund
iShares S&P MidCap 400/BARRA Value iShares Dow Jones U.S. Energy
Index Fund Sector Index Fund
iShares S&P SmallCap 600 iShares Dow Jones U.S. Financial
Index Fund Sector Index Fund
iShares S&P SmallCap 600/BARRA Growth iShares Dow Jones U.S. Healthcare
Index Fund Sector Index Fund
iShares S&P SmallCap 600/BARRA Value iShares Dow Jones U.S. Industrial
Index Fund Sector Index Fund
iShares Dow Jones U.S. Total Market iShares Dow Jones U.S. Technology
Index Fund Sector Index Fund
iShares Russell 3000 iShares Dow Jones U.S. Telecommunications
Index Fund Sector Index Fund
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Funds that Use Funds that Use
Replication Representative Sampling
- --------------------------------------------------- -----------------------------------------------
<S> <C>
iShares Russell 3000 Growth iShares Dow Jones U.S. Utilities
Index Fund Sector Index Fund
iShares Russell 3000 Value iShares Dow Jones U.S. Chemicals
Index Fund Index Fund
iShares Russell 2000 iShares Dow Jones U.S. Financial Services
Index Fund Index Fund
iShares Russell 2000 Growth iShares Dow Jones U.S. Internet
Index Fund Index Fund
iShares Russell 2000 Value iShares Dow Jones U.S. Real Estate
Index Fund Index Fund
iShares Russell 1000
Index Fund
iShares Russell 1000 Growth
Index Fund
iShares Russell 1000 Value
Index Fund
</TABLE>
At least 90% of each Fund's total assets will be invested in stocks in its
Underlying Index. A Fund may also invest up to 10% of its total assets in
futures, options and swap contracts (in each case related to the Underlying
Index and its component stocks), cash and cash equivalents, as well as in stocks
not included in its Underlying Index if BGFA determines this to be appropriate
in light of the Fund's investment objective and relevant investment constraints.
The following examples illustrate the circumstances in which a Fund would hold
stocks not included in its Underlying Index. First, in order to reflect various
corporate actions (such as mergers) and other changes in the Fund's Underlying
Index (reconstitutions), a Fund may hold stocks that are announced as additions
to the Underlying Index prior to their actual date of inclusion in such index.
Second, a Fund may hold stocks that have been recently deleted from its
Underlying Index due to various corporate action and reconstitutions. Third, a
Fund may invest in stocks outside the Underlying Index when necessary to meet
the diversification requirements of a regulated investment company under the
Internal Revenue Code (the "Code"). In such cases, the stocks outside the
Underlying Index will be stocks in the relevant market, market segment, market
sector or group of industries tracked by such Index.
Representative Sampling is used for those Funds where BGFA believes that
Replication is not the most effective means to track the Underlying Index. The
number of securities, liquidity of underlying securities, restrictions on the
ownership of securities, high transaction expenses and other trading costs, and
tax and other regulatory restrictions are among the factors which BGFA
considers. Although Representative Sampling has been an effective means of
approximating index performance in the past, it will not usually enable a Fund
to track the Underlying Index's performance with the accuracy achieved by
Replication. Each Fund will be reviewed regularly and adjusted, when necessary,
to correlate with the relevant Underlying Index.
Lack of Diversification of Certain Funds. The following table sets forth the
diversification status of each Fund.
<TABLE>
<CAPTION>
Diversified Funds Non-Diversified Funds
- ---------------------------------------------------- -------------------------------------------------
<S> <C>
iShares S&P 500 iShares S&P 500/BARRA Growth
Index Fund Index Fund
iShares S&P/TSE 60
Index Fund
iShares S&P 500/BARRA Value iShares Dow Jones U.S. Basic Materials
Index Fund Sector Index Fund
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Diversified Funds Non-Diversified Funds
- ---------------------------------------------------- -------------------------------------------------
<S> <C>
iShares S&P MidCap 400 iShares Dow Jones U.S. Consumer Cyclical
Index Fund Sector Index Fund
iShares S&P MidCap 400/BARRA Growth iShares Dow Jones U.S. Consumer Non-Cyclical
Index Fund Sector Index Fund
iShares S&P MidCap 400/BARRA Value iShares Dow Jones U.S. Energy
Index Fund Sector Index Fund
iShares S&P SmallCap 600 iShares Dow Jones U.S. Financial
Index Fund Sector Index Fund
iShares S&P SmallCap 600/BARRA Growth iShares Dow Jones U.S. Healthcare
Index Fund Sector Index Fund
iShares S&P SmallCap 600/BARRA Value iShares Dow Jones U.S. Industrial
Index Fund Sector Index Fund
iShares S&P Europe 350 iShares Dow Jones U.S. Technology
Index Fund Sector Index Fund
iShares Dow Jones U.S. Total Market iShares Dow Jones U.S. Telecommunications
Index Fund Sector Index Fund
iShares Russell 3000 iShares Dow Jones U.S. Utilities
Index Fund Sector Index Fund
iShares Russell 3000 Growth iShares Dow Jones U.S. Chemicals
Index Fund Index Fund
iShares Russell 3000 Value iShares Dow Jones U.S. Financial Services
Index Fund Index Fund
iShares Russell 2000 iShares Dow Jones U.S. Internet
Index Fund Index Fund
iShares Russell 2000 Growth iShares Dow Jones U.S. Real Estate
Index Fund Index Fund
iShares Russell 2000 Value iShares Russell 1000 Growth
Index Fund Index Fund
iShares Russell 1000
Index Fund
iShares Russell 1000 Value
Index Fund
</TABLE>
A "non-diversified" classification means that the Funds are not limited by
the 1940 Act with regard to the percentage of their assets that may be invested
in the securities of a single issuer. A nondiversified Fund may also concentrate
its investments in a particular industry or group of industries, as noted in
the descriptions of each such Fund. The stocks of a particular issuer, or of
issuers in particular industries, may dominate the Underlying Index of such
Funds and, consequently, their investment portfolio. This may adversely affect
their performance or subject their iShares to greater price volatility than that
experienced by more diversified investment companies.
Each Fund, however (whether diversified or non-diversified), intends to
maintain the required level of diversification and otherwise conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Code, and to relieve the Fund of any liability for federal income tax to the
extent that its earnings are distributed to shareholders. Compliance with the
diversification requirements of the Code severely limits the investment
flexibility of certain Funds and makes it less likely that such Funds will meet
their investment objectives.
6
<PAGE>
Loans of Portfolio Securities. Each Fund may lend its investment securities to
approved borrowers. Investors Bank and Trust serves as the lending agent for
the Funds and as such, shares in any net income earned by a Fund. Any gain or
loss on the market price of the securities loaned that might occur during the
term of the loan would be for the account of the relevant Fund. These loans
cannot exceed 30% of a Fund's total assets.
Approved borrowers are brokers, dealers, domestic and foreign banks, or
other financial institutions that meet credit or other requirements as
established by, and subject to, the review of the Trust's Board of Trustees (the
"Board" or the "Trustees"), so long as the terms, the structure and the
aggregate amount of such loans are not inconsistent with the 1940 Act and the
rules and regulations thereunder or interpretations of the SEC, which require
that (i) the borrowers pledge and maintain with the Fund collateral consisting
of cash, an irrevocable letter of credit issued by a bank, or securities issued
or guaranteed by the U.S. Government having a value at all times of not less
than 100% of the value of the securities loaned (on a "mark-to-market" basis);
(ii) the loan be made subject to termination by a Fund at any time; and (iii) a
Fund receives reasonable interest on the loan. Securities lending procedures
approved by the Board will meet or exceed the requirements stated above and
promulgated under the 1940 Act. From time to time, each Fund may return a part
of the interest earned from the investment of collateral received from
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a finder.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
banks and securities dealers. Such transactions entail the purchase of
securities with a simultaneous commitment to resell the securities to the bank
or the dealer at an agreed-upon date and price, reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
Should a Fund enter into a repurchase agreement, each such Fund would maintain
custody of the underlying securities prior to their repurchase. Thus, the
obligation of the bank or the dealer to pay the repurchase price on the date
agreed would be, in effect, secured by such securities. If the value of such
securities were less than the repurchase price plus interest, the other party to
the agreement would be required to provide additional collateral so that at all
times the collateral is at least 100% of the repurchase price plus accrued
interest. Default by or bankruptcy of a seller would expose each Fund to
possible loss because of adverse market action, expenses or delays in connection
with the disposition of the underlying obligations. The financial institutions
with which each Fund may enter into repurchase agreements will be banks and non-
bank dealers of U.S. Government Securities on the Federal Reserve Bank of New
York's list of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by BGFA. BGFA will continue to monitor creditworthiness of the
seller under a repurchase agreement, and will require the seller to maintain the
value of the securities subject to the agreement to equal at least 100% of the
repurchase price (including accrued interest). In addition, BGFA will require
that the value of this collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default, be equal to or
greater than 100% of the repurchase price (including accrued premium) provided
in the repurchase agreement or the daily amortization of the difference between
the purchase price and the repurchase price specified in the repurchase
agreement. BGFA will mark-to-market daily the value of the securities. Under
the 1940 Act, repurchase agreements are considered loans.
Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
agreements, which involve the sale of securities with an agreement to repurchase
the securities at an agreed-upon price, date and interest payment and have the
characteristics of borrowing. The securities purchased with the funds obtained
from the agreement and securities collateralizing the agreement will have
maturity dates no later than the repayment date. Generally the effect of such
transactions is that the Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while in many cases the Fund is able to keep some of the interest
income associated with those securities. Such transactions are only
advantageous if the Fund has an opportunity to earn a greater rate of interest
on the cash derived from these transactions than the interest cost of obtaining
the same amount of cash. Opportunities to realize earnings from the use of the
proceeds equal to or greater than the interest required to be paid may not
always be available and each Fund intends to use the reverse repurchase
technique only when BGFA believes it will be advantageous to the Fund. The use
of reverse repurchase agreements may exaggerate any interim increase or decrease
in the value of each Fund's assets. The custodian bank will maintain a separate
amount for each Fund with securities having a value equal to or greater than
such commitments. Under the 1940 Act, reverse repurchase agreements are
considered loans.
7
<PAGE>
Currency Transactions. No Fund expects to engage in currency transactions for
the purpose of hedging against declines in the value of the Fund's currency. A
Fund may enter into foreign currency forward and foreign currency futures
contracts to facilitate local securities settlements or to protect against
currency exposure in connection with its distributions to shareholders, but may
not enter into such contracts for speculative purposes.
A forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency futures contract is a contract involving an obligation to
deliver or acquire the specified amount of a specific currency, at a specified
price and at a specified future time. Futures contracts may be settled on a net
cash payment basis rather than by the sale and delivery of the underlying
currency.
Foreign exchange transactions involve a significant degree of risk and the
markets in which foreign exchange transactions are effected are highly volatile,
highly specialized and highly technical. Significant changes, including changes
in liquidity prices, can occur in such markets within very short periods of
time, often within minutes. Foreign exchange trading risks include, but are not
limited to, exchange rate risk, maturity gap, interest rate risk, and potential
interference by foreign governments through regulation of local exchange
markets, foreign investment or particular transactions in foreign currency. If
BGFA utilizes foreign exchange transactions at an inappropriate time or judges
market conditions, trends or correlations incorrectly, foreign exchange
transactions may not serve their intended purpose of improving the correlation
of a Fund's return with the performance of the Underlying Index and may lower
the Fund's return. The Fund could experience losses if the value of its
currency forwards, options and futures positions were poorly correlated with its
other investments or if it could not close out its positions because of an
illiquid market. In addition, each Fund could incur transaction costs,
including trading commissions, in connection with certain foreign currency
transactions.
Money Market Instruments. Each Fund may invest a portion of its assets in high-
quality money market instruments on an ongoing basis to provide liquidity. The
instruments in which the Fund may invest include: (i) short-term obligations
issued by the U.S. Government; (ii) negotiable certificates of deposit ("CDs"),
fixed time deposits and bankers' acceptances of U.S. and foreign banks and
similar institutions; (iii) commercial paper rated at the date of purchase
"Prime-1" by Moody's or "A-1+" or "A-1" by S&P or, if unrated, of comparable
quality is determined by BGFA; and (iv) repurchase agreements. CDs are short-
term negotiable obligations of commercial banks. Time deposits are non-
negotiable deposits maintained in banking institutions for specified periods of
time at stated interest rates. Banker's acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with international
transactions.
Foreign Securities. Each Fund may purchase publicly traded common stocks of
foreign corporations represented in the Underlying Indices. Each Fund's
investment in common stock of foreign corporations represented in the Underlying
Indices may also be in the form of American Depositary Receipts ("ADRs") and
Global Depositary Receipts ("GDRs"). ADRs and GDRs are receipts, typically
issued by a bank or trust company, which evidence ownership of underlying
securities issued by a foreign corporation.
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards,
the possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries, and potential restrictions of the
flow of international capital. Foreign companies may be subject to less
governmental regulation than U.S. companies. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment positions.
Investment Companies, REITs. Each Fund may invest in the securities of other
investment companies (including money market funds) and real estate investment
trusts to the extent allowed by law. Under the 1940 Act, Fund's investment in
investment companies is limited to, subject to certain exceptions, (i) 3% of the
total outstanding voting stock of any one investment company, (ii) 5% of the
Fund's total assets with respect
8
<PAGE>
to any one investment company and (iii) 10% of the Fund's total assets of
investment companies in the aggregate.
Illiquid Securities. Each Fund may invest up to an aggregate amount of 15% of
its net assets in illiquid securities. Illiquid securities include securities
subject to contractual or other restrictions on resale and other instruments
that lack readily available markets.
Futures and Options. Each Fund may enter into U.S. or foreign futures
contracts, options and options on futures contracts. These futures contracts
and options will be used to simulate full investment in the respective
Underlying Index, to facilitate trading or to reduce transaction costs. Each
Fund will only enter into futures contracts and options on futures contracts
that are traded on an U.S. or foreign exchange. No Fund will use futures or
options for speculative purposes.
A call option gives a holder the right to purchase a specific security at a
specified price ("exercise price") within a specified period of time. A put
option gives a holder the right to sell a specific security at a specified price
within a specified period of time. The initial purchaser of a call option pays
the "writer" a premium, which is paid at the time of purchase and is retained by
the writer whether or not such option is exercised. Each Fund may purchase put
options to hedge its portfolio against the risk of a decline in the market value
of securities held and may purchase call options to hedge against an increase in
the price of securities it is committed to purchase. Each Fund may write put
and call options along with a long position in options to increase its ability
to hedge against a change in the market value of the securities it holds or is
committed to purchase.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific instrument or index at a
specified future time and at a specified price. Stock index contracts are based
on indices that reflect the market value of common stock of the firms included
in the indices. Each Fund may enter into futures contracts to purchase security
indices when BGFA anticipates purchasing the underlying securities and believes
prices will rise before the purchase will be made. Assets committed to futures
contracts will be segregated by the custodian to the extent required by law.
Options on Futures Contracts. An option on a futures contract, as contrasted
with the direct investment in such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in the underlying futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Upon exercise of an option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account that
represents the amount by which the market price of the futures contract exceeds
(in the case of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. The potential for loss related to
the purchase of an option on a futures contract is limited to the premium paid
for the option plus transaction costs. Because the value of the option is fixed
at the point of sale, there are no daily cash payments by the purchaser to
reflect changes in the value of the underlying contract; however, the value of
the option changes daily and that change would be reflected in the NAV of each
Fund. The potential for loss related to writing options is unlimited.
Each Fund may purchase and write put and call options on futures contracts
that are traded on a U.S. or foreign exchange as a hedge against changes in
value of its portfolio securities, or in anticipation of the purchase of
securities, and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected.
Restrictions on the Use of Futures Contracts and Options on Futures Contracts.
In view of the above considerations, each Fund will comply with the following
restriction when purchasing or selling futures. Aggregate initial margin and
premiums that are required to establish positions other than those considered to
be "bona fide hedging" by the Commodity Futures Trading Commission (the "CFTC")
will not exceed 5% of each Fund's total market value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. In addition, each Fund will not purchase options to the extent that more
than 5% of the value of such Fund's total assets would be invested in premiums
on open put option positions.
9
<PAGE>
Upon entering into a futures contract, a Fund will be required to deposit
with the broker an amount of cash or cash equivalents in the range of
approximately 5% to 7% of the contract amount (this amount is subject to change
by the exchange on which the contract is traded). This amount, known as
"initial margin", is in the nature of a performance bond or good faith deposit
on the contract and is returned to each Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent
payments, known as "variation margin", to and from the broker will be made daily
as the price of the index underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to expiration of a
futures contract, each Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Fund's existing position
in the contract.
Swap Agreements. Swap agreements are contracts between parties in which one
party agrees to make periodic payments to the other party based on the change in
market value or level of a specified rate, index or asset. In return, the other
party agrees to make periodic payments to the first party based on the return of
a different specified rate, index or asset. Swap agreements will usually be
done on a net basis, the Fund receiving or paying, only the net amount of the
two payments. The net amount of the excess, if any, of a Fund's obligations
over its entitlements with respect to each swap is accrued on a daily basis and
an amount of cash or high liquid securities having an aggregate value at least
equal to the accrued excess is maintained in an account at the Trust's custodian
bank.
The use of interest-rate and index swaps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. These transactions generally do
not involve the delivery of securities or other underlying assets or principal.
Future Developments. The Board may, in the future, authorize each Fund to
invest in securities contracts and investments other than those listed in this
Statement of Additional Information and in the Prospectus, provided they are
consistent with each Fund's investment objective and do not violate any
investment restrictions or policies.
General Considerations and Risks. A discussion of the risks associated with an
investment in a Fund is contained in the Prospectus in the Principal Risk
Factors Common to All Funds and the Shareholder Information sections. The
discussion below supplements, and should be read in conjunction with, these
sections of the Prospectus.
An investment in a Fund should be made with an understanding that the value
of a Fund's portfolio securities may fluctuate in accordance with changes in the
financial condition of the issuers of the portfolio securities, the value of
common stocks in general and other factors that affect the market.
An investment in a Fund should also be made with an understanding of the
risks inherent in an investment in equity securities, including the risk that
the financial condition of issuers may become impaired or that the general
condition of the stock market may deteriorate (either of which may cause a
decrease in the value of the portfolio securities and thus in the value of
iShares). Common stocks are susceptible to general stock market fluctuations
and to volatile increases and decreases in value as market confidence and
perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors, including expectations regarding government,
economic, monetary and fiscal policies, inflation and interest rates, economic
expansion or contraction, and global or regional political, economic or banking
crises.
Holders of common stocks incur more risk than holders of preferred stocks
and debt obligations because common stockholders, as owners of the issuer, have
generally inferior rights to receive payments from the issuer in comparison with
the rights of creditors, or holders of debt obligations or preferred stocks.
Further, unlike debt securities which typically have a stated principal amount
payable at maturity (whose value, however, is subject to market fluctuations
prior thereto), or preferred stocks, which typically have a liquidation
preference and which may have stated optional or mandatory redemption
provisions, common stocks have neither a fixed principal amount nor a maturity.
Common stock values are subject to market fluctuations as long as the common
stock remains outstanding.
10
<PAGE>
Although most of the securities in the Underlying Indices are listed on a
national securities exchange, the principal trading market for some may be in
the over-the-counter market. The existence of a liquid trading market for
certain securities may depend on whether dealers will make a market in such
securities. There can be no assurance that a market will be made or maintained
or that any such market will be or remain liquid. The price at which securities
may be sold and the value of a Fund's iShares will be adversely affected if
trading markets for a Fund's portfolio securities are limited or absent, or if
bid/ask spreads are wide.
Risks of Futures and Options Transactions. There are several risks accompanying
the utilization of futures contracts and options on futures contracts. First, a
position in futures contracts and options on futures contracts may be closed
only on the exchange on which the contract was made (or a linked exchange).
While each Fund plans to utilize futures contracts only if an active market
exists for such contracts, there is no guarantee that a liquid market will exist
for the contract at a specified time. Furthermore, because, by definition,
futures contracts project price levels in the future and not current levels of
valuation, market circumstances may result in a discrepancy between the price of
the stock index future and the movement in the underlying Index. In the event
of adverse price movements, a Fund would continue to be required to make daily
cash payments to maintain its required margin. In such situations, if a Fund
has insufficient cash, it may have to sell portfolio securities to meet daily
margin requirements at a time when it may be disadvantageous to do so. In
addition, a Fund may be required to deliver the instruments underlying future
contracts it has sold.
The risk of loss in trading futures contracts or uncovered call options in
some strategies (e.g., selling uncovered stock index futures contracts) is
potentially unlimited. The Funds do not plan to use futures and options
contracts in this way. The risk of a futures position may still be large as
traditionally measured due to the low margin deposits required. In many cases,
a relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor relative to the size of a required
margin deposit. The Funds, however, intend to utilize futures and options
contracts in a manner designed to limit their risk exposure to levels comparable
to direct investment in stocks.
Utilization of futures and options on futures by a Fund involves the risk
of imperfect or even negative correlation to the Underlying Index if the index
underlying the futures contract differs from the Underlying Index. There is
also the risk of loss by a Fund of margin deposits in the event of bankruptcy of
a broker with whom a Fund has an open position in the futures contract or
option. The purchase of put or call options will be based upon predictions by
BGFA as to anticipated trends, which predictions could prove to be incorrect.
Because the futures market imposes less burdensome margin requirements than
the securities market, an increased amount of participation by speculators in
the futures market could result in price fluctuations. Certain financial
futures exchanges limit the amount of fluctuation permitted in futures contract
prices during a single trading day. The daily limit establishes the maximum
amount by which the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading session. Once the
daily limit has been reached in a particular type of contract, no trades may be
made on that day at a price beyond that limit. It is possible that futures
contract prices could move to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting each Fund to substantial losses. In the event of
adverse price movements, each Fund would be required to make daily cash payments
of variation margin.
Although each Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time.
Risks of Swap Agreements. The risk of loss with respect to swaps generally is
limited to the net amount of payments that a Fund is contractually obligated to
make. Swap agreements are subject to the risk that the swap counterparty will
default on its obligations. If such a default occurs, a Fund will have
contractual remedies pursuant to the agreements related to the transaction.
However, such remedies may be subject to bankruptcy and insolvency laws which
could affect such Fund's rights as a creditor - e.g. a Fund may not receive the
net amount of payments that it contractually is entitled to receive.
11
<PAGE>
Construction and Maintenance Standards for the Underlying Indices
Index Dissemination. The AMEX intends to disseminate every fifteen seconds the
approximate value of the iShares of every Fund except of the iShares S&P Europe
350 Index Fund and the iShares S&P/TSE 60 Index Fund. Bloomberg will provide
approximate values for those Funds on a similar basis. This approximate value
should not be viewed as a "real-time" update of the NAV per iShare of any Fund,
because it may not be calculated in the same manner as the NAV, which is
computed once a day. The Funds are not involved in, or responsible for, the
calculation or dissemination of such amount and make no warranty as to its
accuracy.
Brief descriptions of the Underlying Indices on which the Funds are based and
the equity markets in which the Funds are invested are provided below.
The S&P Indices Generally.
Component Selection Criteria. The Standard & Poor's Index Committee is
responsible for the overall management of the S&P Indices. Companies selected
for the indices represent a broad range of industry segments within the U.S.
economy. The starting universe, all U.S. publicly traded companies, is screened
to eliminate ADRs, mutual funds, limited partnerships, royalty trusts, and
REITs. The following criteria are then analyzed to determine a company's
eligibility for inclusion in the indices. Ownership of a company's outstanding
common shares is carefully analyzed in order to screen out closely held
companies. The trading volume of a company's stock is analyzed to ensure ample
liquidity and efficient share pricing. Both the financial and operating
condition of a company are rigorously analyzed.
Issue Changes. A Company will be removed from the S&P Indices as a result of
mergers/acquisitions, bankruptcy, restructuring, or if it is no longer
representative of its industry group. A company is removed from the relevant
index as close as possible to the actual date on which the event occurred. A
company can be removed from an index because it no longer meets current criteria
for inclusion and/or is no longer representative of its industry group. All
replacement companies are selected based on the above component section
criteria.
Index Maintenance. Maintaining the S&P Indices includes monitoring and
completing the adjustments for company additions and deletions, share changes,
stock splits, stock dividends, and stock price adjustments due to restructuring
and spin-offs. Share changes of less than 5% are only updated on a quarterly
basis on the Friday near the end of the calendar quarter. The divisor is
adjusted for changes in company structure to leave the value of the S&P Indices
unaffected. All divisor adjustments are made after the close of trading and
after the calculation of the closing value of the S&P Indices.
Index Availability. The S&P Indices are calculated continuously and widely
disseminated to major data vendors.
S&P 500 Index
Number of Components: 500
Index Description. The Standard & Poor's 500 Index measures the performance of
the large- capitalization sector of the U.S. equity market. It serves as the
underlying index for the S&P 500/BARRA Growth and Value Index series. It is a
capitalization-weighted index from a broad range of industries chosen for market
size, liquidity, and industry group representation. The component stocks are
weighted according to the total market value of their outstanding shares. The
impact of a component's price change is proportional to the issue's total market
value, which is the share price multiplied by the number of shares outstanding.
These are summed for all 500 stocks and divided by a predetermined base value.
The base value for the Index is adjusted to reflect changes in capitalization
resulting from mergers, acquisitions, stock rights, substitutions and other
capital events. The S&P 500 Index represents approximately 77% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Microsoft Corporation, Cisco Systems Inc., General
Electric Company, Intel Corporation, Exxon Mobil Corporation, Wal-Mart Stores,
Inc., Oracle Corporation, International Business Machines Corporation,
Citigroup, Inc., and Lucent Technologies Inc.
12
<PAGE>
S&P 500/BARRA Growth Index
Number of Components: approximately 110
Index Description. The S&P 500/BARRA Growth Index measures the performance of
the large- capitalization growth sector of the U.S. equity market. It is a
subset of the S&P 500 Index and consists of those companies with the highest
price-to-book ratios within the S&P 500 Index representing approximately 50% of
the market capitalization of that index. It is a capitalization-weighted index
representing stocks from a broad range of industries. The component stocks are
weighted according to the total market value of their outstanding shares. The
impact of a component's price change is proportional to the issue's total market
value, which is the share price multiplied by the number of shares outstanding.
The base value for the S&P 500/BARRA Growth Index is adjusted to reflect changes
in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The S&P 500/BARRA Growth Index
represents approximately 38% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Microsoft Corporation, Cisco Systems Inc., General Electric Company, Intel
Corporation, Wal-Mart Stores, Inc., Oracle Corporation, International Business
Machines Corporation, Lucent Technologies Inc., Nortel Networks Corporation and
America Online, Inc.,
S&P 500/BARRA Value Index
Number of Components: approximately 390
Index Description. The S&P 500/BARRA Value Index measures the large-
capitalization value sector of the U.S. equity market. It is a subset of the S&P
500 Index and consists of those companies with the lowest price-to-book ratios
within the S&P 500 Index representing approximately 50% of the market
capitalization of that index. It is a capitalization-weighted index representing
stocks from a broad range of industries. The component stocks are weighted
according to the total market value of their outstanding shares. The impact of a
component's price change is proportional to the issue's total market value,
which is the share price multiplied by the number of shares outstanding. The
base value for the S&P 500/BARRA Value Index is adjusted to reflect changes in
capitalization resulting from mergers, acquisitions, stock rights, substitutions
and other capital events. The S&P 500/BARRA Value Index represents approximately
38% of the market capitalization of listed U.S. equities. As of March 31, 2000,
the ten largest companies in the Index were Exxon Mobil Corporation, Citigroup,
Inc., AT&T Corp., American International Group, Inc., Hewlett Packard Co., MCI
Worldcom, Inc., Royal Dutch Petroleum Co., Motorola Inc., Bell Atlantic
Corporation and Morgan Stanley Dean Witter Discover & Company.
S&P MidCap 400 Index
Number of Components: 400
Index Description. The S&P 400 MidCap Index measures the performance of the mid-
capitalization sector of the U.S. equity market. It serves as the underlying
index for the S&P 400/BARRA Growth and Value Index series. The component stocks
are weighted according to the total market value of their outstanding shares.
The impact of a component's price change is proportional to the issue's total
market value, which is the share price multiplied by the number of shares
outstanding. These are summed for all stocks and divided by a predetermined base
value. The base value for the Index is adjusted to reflect changes in
capitalization resulting from mergers, acquisitions, stock rights, substitutions
and other capital events. The Index is a benchmark for performance measurement
of the mid-capitalization segment of the U.S. equity market. The S&P MidCap 400
Index represents approximately 6% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Veritas Software Corporation, Siebel Systems, Inc., Maxim Integrated Products,
Inc., Altera Corporation, Linear Technology Corporation, Vitesse Semiconductor
Corporation, Medimmune Inc., Univision Communications, Inc., Atmel Corporation
and Intuit.
S&P MidCap 400/BARRA Growth Index
Number of Components: approximately 126
Index Description. The S&P MidCap 400/BARRA Growth Index measures the
performance of the mid-capitalization growth sector of the U.S. equity market.
It is a subset of the S&P 400 Index and consists of
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those companies with the highest price-to-book ratios within the S&P 400 Index
representing approximately 50% of the market capitalization of that index. It is
a capitalization-weighted index representing stocks from a broad range of
industries. The component stocks are weighted according to the total market
value of their outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share price
multiplied by the number of shares outstanding. The base value for the S&P
MidCap 400/BARRA Growth Index is adjusted to reflect changes in capitalization
resulting from mergers, acquisitions, stock rights, substitutions and other
capital events. The S&P MidCap 400/BARRA Growth Index represents approximately
3.25% of the market capitalization of listed U.S. equities. As of March 31,
2000, the ten largest companies in the Index were Veritas Software Corporation,
Siebel Systems Inc., Maxim Integrated Products, Inc., Altera Corporation, Linear
Technology Corporation, Vitesse Semiconductor Corporation, Medimmune Inc.,
Univision Communications, Inc., Atmel Corporation and Intuit.
S&P MidCap 400/BARRA Value Index
Number of Components: approximately 274
Index Description. The S&P MidCap 400/BARRA Value Index measures the performance
of the mid-capitalization value sector of the U.S. equity market. It is a subset
of the S&P 400 Index and consists of those companies with the lowest price-to-
book ratios within the S&P 400 Index representing approximately 50% of the
market capitalization of that index. It is a capitalization-weighted index
representing stocks from a broad range of industries. The component stocks are
weighted according to the total market value of their outstanding shares. The
impact of a component's price change is proportional to the issue's total market
value, which is the share price multiplied by the number of shares outstanding.
The base value for the S&P MidCap 400/BARRA Value Index is adjusted to reflect
changes in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The S&P MidCap 400/BARRA Value Index
represents approximately 3.25% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Dynegy Inc., Montana Power Co., Telephone and Data Systems Inc., Weatherford
International Inc., Marshall & Ilsley Corporation, BJ Services Co., Noble
Drilling Corporation, Washington Post Company, Ensco International Inc. and
Sungard Data Systems Inc.
S&P SmallCap 600 Index
Number of Components: 600
Index Description. The S&P SmallCap 600 Index measures the performance of the
small-capitalization sector of the U.S. equity market. It serves as the
underlying index for the S&P 600/BARRA Growth and Value Index series. It is a
capitalization-weighted index from a broad range of industries chosen for market
size, liquidity, and industry group representation. The component stocks are
weighted according to the total market value of their outstanding shares. The
impact of a component's price change is proportional to the issue's total market
value, which is the share price multiplied by the number of shares outstanding.
These are summed for all stocks and divided by a predetermined base value. The
base value for the Index is adjusted to reflect changes in capitalization
resulting from mergers, acquisitions, stock rights, substitutions and other
capital events. The S&P 600 Index represents approximately 2.5% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Mercury Interactive Corporation, MarchFirst Inc.,
IDEC Pharmaceuticals Corporation, Micrel Inc., U.S. TR Corporation, Lattice
Semiconductor Corporation, Burr Brown Corporation, C-Cube Microsystems, Inc.,
Kemet Corporation and Gentex Corporation.
S&P SmallCap 600/BARRA Growth Index
Number of Components: approximately 197
Index Description. The S&P SmallCap 600/BARRA Growth Index measures the
performance of the small-capitalization growth sector of the U.S. equity market.
It is a subset of the S&P 600 Index and consists of those companies with the
highest price-to-book ratios within the S&P 600 Index representing approximately
50% of the market capitalization of that index. It is a capitalization-weighted
index representing stocks from a broad range of industries. The component
stocks are weighted according to the total market value of their
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outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. The base value for the S&P SmallCap 600/BARRA
Growth Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
S&P SmallCap 600/BARRA Growth Index represents approximately 1.5% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Mercury Interactive Corporation, MarchFirst
Corporation IDEC Pharmaceuticals Corporation, Micrel Inc., U.S. TR
Corporation, Lattice Semiconductor Corporation, Burr Brown Corporation.,
C-Cube Microsystems, Inc., Kemet Corporation and Gentex Corporation.
S&P SmallCap 600/BARRA Value Index
Number of Components: approximately 403
Index Description. The S&P SmallCap 600/BARRA Value Index measures the
performance of the small-capitalization value sector of the U.S. equity market.
It is a subset of the S&P 600 Index and consists of those companies with the
lowest price-to-book ratios within the S&P 600 Index representing approximately
50% of the market capitalization of that index. It is a capitalization-weighted
index representing stocks from a broad range of industries. The component
stocks are weighted according to the total market value of their outstanding
shares. The impact of a component's price change is proportional to the issue's
total market value, which is the share price multiplied by the number of shares
outstanding. The base value for the S&P MidCap 600/BARRA Value Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The S&P MidCap 600/BARRA Value
Index represents approximately 1.5% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
International Rectifier Corporation, Centura Banks Inc., Radian Group, Inc.
(formerly CMAC Investment Corporation), Zale Corporation, Snyder Communications,
Inc., Silicon VY Bancshares, S3 Inc., Stillwater Management Co., Universal
Health Services Inc. and Newfield Expl. Co.
S&P Europe 350 Index
Number of Components: 350
Index Description. The Standard & Poor's Europe 350 Index measures the
performance of equities in the continental European region, made up of fifteen
markets: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,
the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United
Kingdom. The index is a capitalization-weighted index of 350 stocks providing
geographic and economic diversity over S&P's ten market sectors, each chosen for
market size, liquidity, and industry group representation. The market
capitalization of index constituent companies is adjusted to reflect only those
shares, which are available to foreign investors. The base value for the Index
is adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. As of
March 31, 2000, the ten largest companies in the Index were Vodafone AirTouch,
Nokia AB Oyj, BP Amoco, Ericsson B, British Telecommunications,
Royal Dutch Petroleum Co., Total Fina S.A., Glaxo Wellcome, HSBC Holdings and
Novartis.
S&P/TSE 60 Index
Number of Components: 60
Index Description. The S&P/TSE 60 Index measures the performance of equities in
the Canadian marketplace. It is a capitalization-weighted index from a broad
range of industries chosen for market size, liquidity, and industry group
representation. The market capitalization of index's constituent companies is
adjusted to reflect only those shares available for investment by the general
public. The impact of a component's price change is proportional to the issue's
total market value, which is the share price multiplied by the number of shares
outstanding. These are summed for all stocks and divided by a predetermined
base value. The base value for the index is adjusted to reflect changes in
capitalization resulting from mergers, acquisitions, stock rights, substitutions
and other capital events. As of March 31, 2000, the ten largest companies in
the Index were Nortel Networks Corporation, BCE, Inc., The Seagram Company Ltd.,
Toronto-Dominion Bank, Royal Bank of Canada, Bombardier Inc., Canadian Imperial
Bank of Commerce, Bank of Nova Scotia, Bank of Montreal and Celestica.
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The Dow Jones Indices Generally.
Component Selection Criteria. The Dow Jones Indices are reconstituted quarterly
to reflect changes in the marketplace. All companies listed on an U.S. exchange
or the NASDAQ are considered for inclusion in the indices with the following
rules and exceptions. Stocks must have a minimum trade history of 6 months on
the re-balancing date to be eligible for inclusion. All foreign issues
including ADRs and GDRs are eliminated from the universe, as well as all non-
common equity issues such as preferred stocks, convertible notes, warrants,
rights, closed-end funds, trust receipts, limited liabilities companies, royalty
trusts, units, limited partnerships, over-the-counter bulletin boards, and pink
sheet stocks. Also deleted from the universe are all companies that are at
least 75% owned by another company and stocks with more than 10 non-trading days
in a quarter. After component selection, stocks are weighted by their available
market capitalization, which is calculated by multiplying the primary market
closing price by the adjusted shares. The remaining universe is ranked by
decreasing total market capitalization with cumulative percentages and broken
into three groups. The Large Cap Index represents the top 70% of the cumulative
market value of the U.S. equity universe, the Mid Cap Index represents the next
20% of the universe, and the Small Cap Index represents half of the remaining
10% of the equity universe. Combined, the Total Market Index represents 95% of
the U.S. equity universe.
Issue Changes. Changes to the indices are reflective of changes made to each of
the sub-indices that it represents. Each index is reviewed and rebalanced
quarterly to maintain accurate representation of each segment. Securities that
leave the index between reconstitution dates are not replaced. Thus, the number
of securities in the indices over the quarter will fluctuate according to
corporate activity. When a stock is acquired, delisted, or moves to the pink
sheets or OTC bulletin boards, the stock is deleted from the index. The only
additions between quarterly re-balancing are as a result of spin-offs.
Index Maintenance. Maintaining the Dow Jones Indices includes monitoring and
completing the adjustments for the company additions and deletions, share
changes, stock splits, stock dividends, and stock price adjustments due to
restructuring and spin-offs. The divisor is adjusted for all changes in company
market value to leave the value of the relevant index unaffected. All divisor
adjustments are made after the close of trading and after the calculation of the
closing value of the applicable index. Each component is limited to a maximum
market capitalization of 25% of the index weight, and sum of the weights of all
issues greater than 5% of the index is limited to 50% of the index total. If
components fail either rule, their market capitalization will be reduced to meet
the set guidelines.
Index Availability. The Dow Jones Indices are calculated continuously and are
available from major data vendors.
Dow Jones U.S. Total Market Index
Number of Components: approximately 2,024
Index Description. The Dow Jones Total Market Index measures the performance of
the U.S. equity broad markets. It serves as the underlying index in the Dow
Jones U.S. Large Cap Index, Dow Jones U.S. Mid-Cap Index, Dow Jones U.S. Small-
Cap Index and the Dow Jones U.S. sector indices. The Dow Jones U.S. Total
Market Index is a capitalization-weighted index, so the impact of a component's
price change is proportional to the issue's total market value, which is the
share price times the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events.
The Dow Jones U.S. Total Market Index represents 95% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were Microsoft Corporation,
Cisco Systems Inc., General Electric Company, Intel Corporation, Exxon Mobil
Corporation, Wal-Mart Stores, Inc., Oracle Corporation, International Business
Machines Corporation, Citigroup, Inc. and Lucent Technologies Inc.
Dow Jones U.S. Basic Materials Sector Index
Number of Components: approximately 87
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Index Description. The Dow Jones U.S. Basic Materials Sector Index measures the
performance of the basic materials economic sector of the U.S. equity market.
The index is a subset of the Dow Jones U.S. Total Market Index. The Dow Jones
U.S. Basic Materials Sector Index is capitalization-weighted and includes only
companies in the Basic Materials sector of the Dow Jones U.S. Total Market
Index. The component stocks are weighted according to the total market value of
their outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share price
multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events.
The Dow Jones U.S. Basic Materials Sector Index represents approximately 2.5% of
the market capitalization of listed U.S. equities. As of March 31, 2000, the
ten largest companies in the Index were E. I. DuPont de Nemours and Company,
Alcoa, Inc., The Dow Chemical Company, International Paper Co., Weyerhaeuser
Company, Rohm & Haas Company, Union Carbide Corporation, Avery Dennison
Corporation, Georgia Pacific Corporation and Praxair Inc.
Dow Jones U.S. Consumer Cyclical Sector Index
Number of Components: approximately 343
Index Description. The Dow Jones U.S. Consumer Cyclical Sector Index measures
the performance of the consumer cyclical economic sector of the U.S. equity
market. The index is a subset of the Dow Jones U.S. Total Market Index. The
Dow Jones U.S. Consumer Cyclical Sector Index is capitalization-weighted and
includes only companies in the Consumer Cyclical sector of the Dow Jones U.S.
Total Market Index. The component stocks are weighted according to the total
market value of their outstanding shares. The impact of a component's price
change is proportional to the issue's total market value, which is the share
price multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events.
The Dow Jones U.S. Consumer Cyclical Sector Index represents approximately 13%
of the market capitalization of listed U.S. equities. As of March 31, 2000,
the ten largest companies in the Index were Wal-Mart Stores, Inc., The Home
Depot, Inc., Time Warner, Inc., The Walt Disney Company, General Motors
Corporation, Ford Motor Company, McDonald's Corporation, MediaOne Group, Inc.,
CBS Corporation and Gap Inc.
Dow Jones U.S. Consumer Non-Cyclical Sector Index
Number of Components: approximately 148
Index Description. The Dow Jones U.S. Non-Cyclical Sector Index measures the
performance of the non-cyclical economic sector of the U.S. equity market. The
index is a subset of the Dow Jones U.S. Total Market Index. The Dow Jones U.S.
Non-Cyclical Sector Index is capitalization-weighted and includes only companies
in the Non-Cyclical sector of the Dow Jones U.S. Total Market Index. The
component stocks are weighted according to the total market value of their
outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Dow Jones U.S. Non-Cyclical
Sector Index represents approximately 9% of the market capitalization of listed
U.S. equities. As of March 31, 2000, the ten largest companies in the Index were
America Online, Inc., The Coca-Cola Company, Yahoo! Inc., The Procter & Gamble
Company, Pepsico Inc., Philip Morris Companies, Inc., The Gillette Company,
Colgate-Palmolive Company, Kimberly-Clark Corporation and Anheuser-Busch
Companies, Inc.
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Dow Jones U.S. Energy Sector Index
Number of Components: approximately 88
Index Description. The Dow Jones U.S. Energy Sector Index measures the
performance of the energy economic sector of the U.S. equity market. The Dow
Jones U.S. Energy Sector Index is a subset of the Dow Jones U.S. Total Market
Index. The component stocks are weighted according to the total market value of
their outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share price
multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events.
The Dow Jones U.S. Energy Sector Index represents approximately 5% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Exxon Mobil Corporation, Chevron Corporation,
Schlumberger Limited, Texaco, Inc., Atlantic Richfield Co., Williams Companies
Inc., Halliburton Company, Phillips Petroleum Co., Conoco Inc. and Transocean
Sedco Forex Inc.
Dow Jones U.S. Financial Sector Index
Number of Components: approximately 344
Index Description. The Dow Jones U.S. Financial Sector Index measures the
performance of the financial economic sector of the U.S. equity market. The
index is a subset of the Dow Jones U.S. Total Market Index. The Dow Jones U.S.
Financial Sector Index is capitalization-weighted and includes only companies in
the financial sector of the Dow Jones U.S. Total Market Index. The impact of a
component's price change is proportional to the issue's total market value,
which is the share price multiplied by the number of shares outstanding. These
are summed for all component stocks and divided by a predetermined base value.
The base value for the Index is adjusted to reflect changes in capitalization
resulting from mergers, acquisitions, stock rights, substitutions and other
capital events. The Dow Jones U.S. Financial Sector Index represents
approximately 16% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were Citigroup, Inc.,
American International Group (AIG), Morgan Stanley Dean Witter Discover & Co.,
Bank of America Corporation, The Chase Manhattan Corporation, Wells Fargo & Co.,
American Express Co., Federal National Mtg. Association, Schwab Charles
Corporation and Bank One Corporation,
Dow Jones U.S. Healthcare Sector Index
Number of Components: approximately 171
Index Description. The Dow Jones U.S. Healthcare Sector Index measures the
performance of the Healthcare economic sector of the U.S. equity market. This
Dow Jones U.S. Healthcare Sector Index is a subset of the Dow Jones U.S. Total
Market Index. The Dow Jones U.S. Healthcare Sector Index is capitalization-
weighted and includes only companies in the Healthcare Sector of the Dow Jones
U.S. Total Market Index. The component stocks are weighted according to the
total market value of their outstanding shares. The impact of a component's
price change is proportional to the issue's total market value, which is the
share price multiplied by the number of shares outstanding. These are summed
for all component stocks and divided by a predetermined base value. The base
value for the Index is adjusted to reflect changes in capitalization resulting
from mergers, acquisitions, stock rights, substitutions and other capital
events. The Dow Jones U.S. Healthcare Sector Index represents approximately 10%
of the market capitalization of listed U.S. equities. As of March 31, 2000, the
ten largest companies in the Index were Merck & Co., Inc., Pfizer Inc., Bristol-
Myers Squibb Co., Johnson & Johnson, Warner-Lambert Company, American Home
Products Corporation, Lilly Eli & Co., Amgen, Inc., Medtronic Inc. and Abbott
Labs.
Dow Jones U.S. Industrial Sector Index
Number of Components: approximately 382
Index Description. The Dow Jones U.S. Industrial Sector Index measures the
performance of the Industrial economic sector of the U.S. equity market. The
Dow Jones U.S. Industrial Index is a subset of the Dow Jones U.S. Total Market
Index. The Dow Jones U.S. Industrial Sector Index is capitalization-weighted
and includes only companies in the Industrial sector of the Dow Jones U.S. Total
Market Index. The component stocks are weighted according to the total value of
their outstanding shares. The impact of a component's price change
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is proportional to the issue's total market value, which is the share price
multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Dow Jones U.S. Industrial Sector Index represents approximately 11% of the
market capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were General Electric Company, Tyco International
Ltd., JDS Uniphase Corporation, Corning Inc., Honeywell International Inc.,
Boeing Co., Minnesota Mining & Manufacturing Company, Automatic Data
Processing, Electronic Data Systems and United Technologies Corporation.
Dow Jones U.S. Technology Sector Index
Number of Components: approximately 319
Index Description. The Dow Jones U.S. Technology Sector Index measures the
performance of the Technology economic sector of the U.S. equity market. The
Dow Jones U.S. Technology Sector Index is a subset of the Dow Jones U.S. Total
Market Index. The Dow Jones U.S. Technology Index is capitalization-weighted
and includes only companies in the Technology sector of the Dow Jones U.S. Total
Market Index. The component stocks are weighted according to the total market
value of their outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share price
multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Dow Jones U.S. Technology Sector Index represents approximately 19% of the
market capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were Microsoft Corporation, Cisco Systems Inc.,
Intel Corporation, Oracle Corporation, International Business Machines
Corporation, Lucent Technologies Inc., Sun Microsystems, Inc., Dell Computer
Corporation, Hewlett-Packard Company and Texas Instruments Inc.
Dow Jones U.S. Telecommunications Sector Index
Number of Components: approximately 54
Index Description. The Dow Jones U.S. Telecommunications Sector Index measures
the performance of the Telecommunications economic sector of the U.S. equity
market. The Dow Jones U.S. Telecommunications Sector Index is a subset of the
Dow Jones U.S. Total Market Index. The Dow Jones U.S. Telecommunications Sector
Index is capitalization-weighted and includes only companies in the
Telecommunications sector of the Dow Jones U.S. Total Market Index. The
component stocks are weighted according to the total market value of their
outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Dow Jones U.S.
Telecommunications Sector Index represents approximately 7% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were AT&T Corporation, SBC Communications, MCI Worldcom,
Inc., Bell Atlantic Corporation, BellSouth Corporation, GTE Corporation, Sprint
Corporation , Sprint Corporation (PCSA), Nextel Communications Inc., Sprint
Corporation (UT) and U.S. West Inc.
Dow Jones U.S. Utilities Sector Index
Number of Components: approximately 88
Index Description. The Dow Jones U.S. Utilities Sector Index measures the
performance of the utilities economic sector of the U.S. equity market. The Dow
Jones U.S. Utilities Sector Index is a subset of the Dow Jones U.S. Total Market
Index. The Dow Jones U.S. Utilities Sector Index is capitalization-weighted and
includes only companies in the Utilities sector of the Dow Jones U.S. Total
Market Index. The component stocks are weighted according to the total market
value of their outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share price
multiplied
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by the number of shares outstanding. These are summed for all component stocks
and divided by a predetermined base value. The base value for the Index is
adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. The Dow
Jones U.S. Utilities Sector Index represents approximately 2.5% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Enron Corporation, Duke Energy Corporation, AES
Corporation, Southern Company, Dominion Res. Inc., Dynegy Inc., FPL Group Inc.,
Texas Utilities Company, PG&E Corporation and Unicom Corporation.
Dow Jones U.S. Chemicals Index
Number of Components: approximately 43
Index Description. The Dow Jones U.S. Chemicals Index measures the performance
of the chemicals industry of the U.S. equity market. The index is a subset of
the Dow Jones U.S. Basic Materials Sector Index. The Dow Jones U.S. Chemical
Index is capitalization-weighted and includes only companies in the chemicals
sector of the Dow Jones U.S. Total Market Index. The component stocks are
weighted according to the total market value of their outstanding shares. The
impact of a component's price change is proportional to the issue's total market
value, which is the share price multiplied by the number of shares outstanding.
These are summed for all component stocks and divided by a predetermined base
value. The base value for the Index is adjusted to reflect changes in
capitalization resulting from mergers, acquisitions, stock rights, substitutions
and other capital events. The Dow Jones U.S. Chemicals Index represents
approximately 1.5% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were E. I. DuPont de
Nemours and Company, The Dow Chemical Company, Rohm & Haas Company, Union
Carbide Corporation, Avery Dennison Corporation, Praxair Inc., Air Products and
Chemicals, Inc., Ecolab, Inc., Eastman Chemical Company and Sigma-Aldrich
Corporation.
Dow Jones U.S. Financial Services Index
Number of Components: approximately 204
Index Description. The Dow Jones U.S. Financial Services Index measures the
performance of the financial services industry segment of the U.S. equity
market. The index is a subset of the Dow Jones U.S. Financial Index. The Dow
Jones U.S. Financial Services Composite Index is capitalization-weighted and
includes only companies in the Banks, Savings & Loans, Securities Brokerage and
Financial Services sectors of the Dow Jones U.S. Financial Index. The component
stocks are weighted according to the total market value of their outstanding
shares. The impact of a component's price change is proportional to the issue's
total market value, which is the share price multiplied by the number of shares
outstanding. These are summed for all component stocks and divided by a
predetermined base value. The base value for the Index is adjusted to reflect
changes in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The Dow Jones U.S. Financial Services
Composite Index represents approximately 12% of the market capitalization of
listed U.S. equities. As of March 31, 2000, the ten largest companies in the
Index were Citigroup, Inc., Morgan Stanley Dean Witter Discover & Co., Bank of
America Corporation, Chase Manhattan Corporation, Wells Fargo & Co., American
Express Company, Federal National Mtg. Assn., Schwab Charles Corporation, Bank
One Corporation and Merrill Lynch & Co. Inc.
Dow Jones U.S. Internet Index
Number of Components: approximately 40
Index Description. The Dow Jones U.S. Internet Index measures the performance
of the Internet industry sector of the U.S. equity market. It includes only
companies that generate the majority of their revenues from the Internet and it
is comprised of two sub-groups, Internet Commerce and Internet Services. The
Index is modified capitalization-weighted, restricting a stock's weighting to
10% of its respective sub-group. The impact of a component's price change is
proportional to the issue's total market value in the index, which is the share
price times the number of shares. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Index represents
approximately 1% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were America Online,
Inc.,
20
<PAGE>
CMGI Inc., Exodus Communications, Inc., Internet Capital Group Inc., Inktomi
Corporation, Ariba Inc., 12 Technologies Inc., Verisign Inc., Akamai
Technologies Inc. and InfospaceCom Inc.
Dow Jones U.S. Real Estate Index
Number of Components: approximately 78
Index Description. The Dow Jones U.S. Real Estate Index measures the performance
of the Real Estate industry sector of the U.S. equity market. The Dow Jones U.S.
Real Estate Index is a subset of the Dow Jones U.S. Financial Index. The Dow
Jones U.S. Real Estate Index is capitalization-weighted and includes only
companies in the Real Estate industry of the Dow Jones U.S. Financial Index. The
component stocks are weighted according to the total market value of their
outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Dow Jones U.S. Real Estate
Index represents approximately 1% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Equity Office Properties Trust, Equity Residential Properties Trust, Starwood
Hotels & Resorts Worldwide, Inc., Simon Property Group Inc., Homestore Com Inc.,
Prologis Trust, Spieker Properties, Inc., Vornado Realty Trust, Archstone
Communications Trust and Public Storage, Inc.
The Russell Indices Generally.
Component Selection Criteria. The Russell Indices are reconstituted annually on
June 30, to reflect changes in the marketplace. The starting universe for the
Russell 3000 Index, all U.S. exchange and OTC listed companies, is ranked by
decreasing total market capitalization. The Russell 2000 Index and the Russell
1000 Index are subsets of the Russell 3000 Index. All companies listed on an
U.S. exchange or the OTC are considered for inclusion in the indices with the
following rules and exceptions. Stocks must trade at or above $1.00 on May 31
to be eligible for inclusion. Only one class of security is allowed into the
indices, however, special cases may exist if it is determined that each class
acts independent of the other. Stocks domiciled in other countries are
excluded. Also excluded are preferred and convertible preferred stock,
participating preferred stock, redeemable shares, warrants and rights, trust
receipts, royalty trusts, limited liability companies, OTC bulletin boards and
pink sheet stocks, mutual funds, limited partnerships, and foreign stocks.
After component selection, stocks are weighted by their available market
capitalization, which is calculated by multiplying the composite closing price
by the adjusted shares. The purpose of this adjustment is to exclude the
capitalization that is not available for purchase and is not part of the
investing opportunity set.
Issue Changes. Securities that leave the Russell Indices between reconstitution
dates are not replaced. Thus, the number of securities in the indices over the
year will fluctuate according to corporate activity. When a stock is acquired,
delisted, or moves to the pink sheets or OTC bulletin boards, the stock is
deleted from the relevant indices. When acquisitions or mergers take place, the
stock's capitalization moves to the acquiring stock, hence, mergers have no
effect on index total capitalization if the acquiring stock is part of the
index. The only additions between reconstitution dates are as a result of spin-
offs.
Index Maintenance. Maintaining the Russell Indices includes monitoring and
completing the adjustments for company additions and deletions, share changes,
stock splits, stock dividends, and stock price adjustments due to restructuring
and spin-offs. In addition, significant float adjustments due to corporate
actions are made month-end. The divisor is adjusted for all changes in company
market value to leave the value of the indices unaffected. All divisor
adjustments are made after the close of trading and after the calculation of the
closing value of the Russell Indices.
Russell 3000 Index
21
<PAGE>
Number of Components: approximately 2,769
Index Description. The Russell 3000 Index measures the performance of the U.S.
equity broad market. It serves as the underlying index for Russell 3000 Growth
and Value series and the Russell 1000 and Russell 2000 Indices, as well as each
respective Growth and Value series. It is a capitalization-weighted index of
the 3000 largest companies domiciled in the U.S. and its territories. Component
companies are adjusted for available float - weighted according to the market
value of their available outstanding shares. The impact of a component's price
change is proportional to the issue's total market value, which is the share
price multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Russell 3000 Index represents approximately 86% of the market capitalization of
listed U.S. equities. As of March 31, 2000, the ten largest companies in the
Index were Cisco Systems Inc., General Electric Company, Intel Corporation,
Microsoft Corporation, Exxon Mobil Corporation, International Business Machines
Corporation, Citigroup, Inc., Lucent Technologies Inc., AT&T Corporation and
Oracle Corporation.
Russell 3000 Growth Index
Number of Components: approximately 1,728
Index Description. The Russell 3000 Growth Index measures the growth sector of
the U.S. equity broad market. It is a subset of the Russell 3000 Index. It is
capitalization-weighted index and consisting of those Russell 3000 companies
with higher price-to-book ratios and higher forecasted growth and represents
approximately 50% of the total market capitalization of the Russell 3000 Index.
Component companies are adjusted for available float - weighted according to the
market value of their available outstanding shares. The impact of a component's
price change is proportional to the issue's total market value, which is the
share price multiplied by the number of shares outstanding. These are summed for
all component stocks and divided by a predetermined base value. The base value
for the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Russell 3000 Growth Index represents approximately 43% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Cisco Systems Inc., General Electric Company, Intel
Corporation, Microsoft Corporation, Lucent Technologies Inc., International
Business Machines Corporation, Oracle Corporation, Wal-Mart Stores, Inc.,
America Online, Inc., and The Home Depot, Inc.
Russell 3000 Value Index
Number of Components: approximately 1,899
Index Description. The Russell 3000 Value Index measures the value sector of
the broad U.S. equity market. It is a subset of the Russell 3000 Index. It is
a capitalization-weighted index consisting of those Russell 3000 companies with
lower price-to-book ratios and lower forecasted growth and represents
approximately 50% of the total market capitalization of the Russell 3000 Index.
Component companies are adjusted for available float - weighted according to the
market value of their available outstanding shares. The impact of a component's
price change is proportional to the issue's total market value, which is the
share price multiplied by the number of shares outstanding. These are summed for
all component stocks and divided by a predetermined base value. The base value
for the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Russell 3000 Value Index represents approximately 43% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Exxon Mobil Corporation, Citigroup, Inc., AT&T
Corp., American International Group, Inc., SBC Communications, Bell Atlantic
Corporation, Morgan Stanley Dean Witter Discover & Co., Bank of America
Corporation, Bell South Corporation and Walt Disney Co.
Russell 2000 Index
Number of Components: approximately 1,803
22
<PAGE>
Index Description. The Russell 2000 Index measures the small-capitalization
sector of the U.S. equity market. It is a subset of the Russell 3000 Index and
serves as the underlying index for the Russell 2000 Growth and Value index
series. It is a capitalization-weighted index consisting of the 2000 smallest
companies in the Russell 3000 Index. Component companies are adjusted for
available float - weighted according to the market value of their available
outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Russell 2000 Index
represents approximately 6% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
BroadVision, Inc., Microstrategy Incorporated, Mercury Interactive Corporation,
Sandisk Corporation, Lam Research Corporation, Cypress Semiconductor
Corporation, VerticalNet Inc., Millenium Pharmaceuticals Inc., Amkor
Technology Inc. and PE Corporation - Celera Genomics Group.
Russell 2000 Growth Index
Number of Components: approximately 1,209
Index Description. The Russell 2000 Growth Index measures the small-
capitalization growth sector of the U.S. equity market. It is a subset of the
Russell 2000 Index. It is a capitalization-weighted index consisting of those
Russell 2000 companies with higher price-to-book ratios and higher forecasted
growth and represents approximately 50% of the total market capitalization of
the Russell 2000 Index. Component companies are adjusted for available float -
weighted according to the market value of their available outstanding shares.
The impact of a component's price change is proportional to the issue's total
market value, which is the share price multiplied by the number of shares
outstanding. These are summed for all component stocks and divided by a
predetermined base value. The base value for the Index is adjusted to reflect
changes in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The Russell 2000 Growth Index represents
approximately 3% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were BroadVision, Inc.,
Microstrategy Incorporated, Mercury Interactive Corporation, Sandisk
Corporation, VerticalNet Inc., Millennium Pharmaceuticals Inc., Informix
Corporation, Advanced Fibre Communication, Amkor Technology Inc. and DII Group.
Russell 2000 Value Index
Number of Components: approximately 1,182
Index Description. The Russell 2000 Value Index measures the small-
capitalization value sector of the U.S. equity market. It is a subset of the
Russell 2000 Index. It is a capitalization-weighted index consisting of those
Russell 2000 companies with lower price-to-book rations and lower forecasted
growth and represents approximately 50% of the total market capitalization of
the Russell 2000 Index. Component companies are adjusted for available float -
weighted according to the market value of their available outstanding shares.
The impact of a component's price change is proportional to the issue's total
market value, which is the share price multiplied by the number of shares
outstanding. These are summed for all component stocks and divided by a
predetermined base value. The base value for the Index is adjusted to reflect
changes in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The Russell 2000 Value Index represents
approximately 3% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were PE Corporation-
Celera Genomics Group, Integrated Device Technology, Inc., Tektronix, Inc., MRV
Communications Inc., Cypress Semiconductor Corporation, Kemet Corporation,
Perkinelmer Inc., Quest Diagnostics Inc., Radian Group Inc. and Marine Drilling
Cos. Inc.
Russell 1000 Index
Number of Components: approximately 962
Index Description. The Russell 1000 Index measures the performance of the
large-capitalization sector of the U.S. equity market. It is a subset of the
Russell 3000 Index and serves as the underlying index for the Russell 1000
Growth and Value Indices, and the Russell Top 200 and MidCap series. It is a
capitalization-weighted index consisting of the 1000 largest 1000 companies in
the Russell 3000. Component companies are adjusted
23
<PAGE>
for available float -weighted according to the market value of their available
outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Russell 1000 Index
represents approximately 80% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Cisco Systems Inc., General Electric Company, Intel Corporation, Microsoft
Corporation, Exxon Mobil Corporation, International Business Machines
Corporation, Citigroup, Inc., Lucent Technologies Inc., AT&T Corporation and
Oracle Corporation.
Russell 1000 Growth Index
Number of Components: approximately 519
Index Description. The Russell 1000 Growth Index measures the large-
capitalization growth sector of the U.S. equity market. It is a subset of the
Russell 1000 Index. It is a capitalization-weighted index consisting of those
Russell 1000 companies with higher price-to-book ratios and higher forecasted
growth and represents approximately 50% of the total market capitalization of
the Russell 1000 Index. Component companies are adjusted for available float -
weighted according to the market value of their available outstanding shares.
The impact of a component's price change is proportional to the issue's total
market value, which is the share price multiplied by the number of shares
outstanding. These are summed for all component stocks and divided by a
predetermined base value. The base value for the Index is adjusted to reflect
changes in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The Russell 1000 Growth Index represents
approximately 40% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were Cisco Systems Inc.,
General Electric Company, Intel Corporation, Microsoft Corporation, Lucent
Technologies Inc., International Business Machines Corporation, Oracle
Corporation, Wal-Mart Stores, Inc., America Online, Inc. and The Home Depot,
Inc.
Russell 1000 Value Index
Number of Components: approximately 717
Index Description. The Russell 1000 Value Index measures the large-
capitalization value sector of the U.S. equity market. It is a subset of the
Russell 1000 Index. It is a capitalization-weighted index consisting of those
Russell 1000 companies with lower price-to-book ratios and lower forecasted
growth and represents approximately 50% of the total market capitalization of
the Russell 1000 Index. Component companies are adjusted for available float -
weighted according to the market value of their available outstanding shares.
The impact of a component's price change is proportional to the issue's total
market value, which is the share price multiplied by the number of shares
outstanding. These are summed for all component stocks and divided by a
predetermined base value. The base value for the Index is adjusted to reflect
changes in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The Russell 1000 Value Index represents
approximately 40% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were Exxon Mobil
Corporation, Citigroup, Inc., AT&T Corporation, American International Group,
Inc. (AIG), SBC Communications Inc., Bell Atlantic Corporation, Morgan Stanley
Dean Witter Discover & Co., Bank of America Corporation, Bell South Corporation
and The Walt Disney Co.
Investment Limitations
The Board has adopted as fundamental policies each Fund's investment
objectives and investment restrictions, numbered one through six below. These
restrictions cannot be changed with respect to a Fund without the approval of
the holders of a majority of such Fund's outstanding voting securities. A vote
of a majority of the outstanding voting securities is defined in the 1940 Act as
the lesser of (a) 67% or more of the voting securities present at a fund
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy, or (b) more than 50% of outstanding voting
securities.
24
<PAGE>
No Fund will:
1. Concentrate its investments (i.e. hold 25% or more of its total assets in
the stocks of a particular industry or group of industries), except that a Fund
will concentrate to approximately the same extent that its Underlying Index
concentrates in the stocks of such particular industry or group of industries.
For purposes of this limitation, securities of the U.S. Government (including
its agencies and instrumentalities), repurchase agreements collateralized by
government securities and securities of state or municipal governments and their
political subdivisions are not considered to be issued by members of any
industry.
2. Borrow money, except that (i) each Fund may borrow from banks for temporary
or emergency (not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities,
and (ii) each Fund may, to the extent consistent with its investment policies,
enter into repurchase agreements, reverse repurchase agreements, forward roll
transactions and similar investment strategies and techniques. To the extent
that it engages in transactions described in (i) and (ii), each Fund will be
limited so that no more than 30% of the value of its total assets (including the
amount borrowed) valued at the time the borrowing is made, is derived from such
transactions.
3. Issue "senior securities" as defined in the 1940 Act and the rules,
regulations and orders thereunder, except as permitted under the 1940 Act and
the rules, regulations and orders thereunder.
4. Make loans. This restriction does not apply to: (i) the purchase of debt
obligations in which each Fund may invest consistent with its investment
objectives and policies; (ii) repurchase agreements and reverse repurchase
agreements; and (iii) loans of its portfolio securities, to the fullest extent
permitted under the 1940 Act.
5. Purchase or sell real estate, real estate mortgages, commodities or
commodity contracts, but this restriction shall not prevent each Fund from
trading in futures contracts and options on futures contracts (including options
on currencies to the extent consistent with each Fund's investment objective and
policies).
6. Engage in the business of underwriting securities issued by other persons,
except to the extent that each Fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as amended (the "Securities Act"),
in disposing of portfolio securities.
In addition to the investment restrictions adopted as fundamental policies,
set forth above, each Fund will not invest in the securities of a company for
the purpose of exercising management or control or purchase or otherwise acquire
any illiquid security, except as permitted under the 1940 Act, which currently
permits up to 15% of each Fund's net assets to be invested in illiquid
securities.
For purposes of the percentage limitation on each Fund's investments in
illiquid securities, foreign equity securities, though not registered under the
Securities Act of 1933, are not deemed illiquid with respect to each Fund if
they are otherwise readily marketable. Such securities ordinarily are
considered to be "readily marketable" if they are traded on an exchange or
another organized market and are not legally restricted from sale by the Fund.
BGFA monitors the liquidity of restricted securities in each Fund's portfolio.
In reaching liquidity decisions, BGFA considers the following factors:
. The frequency of trades and quotes for the security;
. The number of dealers wishing to purchase or sell the security and the
number of other potential purchasers;
. Dealer undertakings to make a market in the security; and
. The nature of the security and the nature of the marketplace in which
it trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer).
If any percentage restriction described above is complied with at the time
of an investment, a later increase or decrease in percentage resulting from a
change in values of assets will not constitute a violation of such restriction.
25
<PAGE>
Continuous Offering
The method by which Creation Unit Aggregations of iShares are created and
traded may raise certain issues under applicable securities laws. Because new
Creation Unit Aggregations of iShares are issued and sold by the Funds on an
ongoing basis, at any point a "distribution", as such term is used in the
Securities Act, may occur. Broker-dealers and other persons are cautioned that
some activities on their part may, depending on the circumstances, result in
their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus-delivery
requirement and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with
the Distributor, breaks them down into constituent iShares, and sells such
iShares directly to customers, or if it chooses to couple the creation of a
supply of new iShares with an active selling effort involving solicitation of
secondary market demand for iShares. A determination of whether one is an
underwriter for purposes of the Securities Act must take into account all the
facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be
considered a complete description of all the activities that could lead to a
categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not
"underwriters" but are effecting transactions in iShares, whether or not
participating in the distribution of iShares, are generally required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(3)
of the Securities Act is not available in respect of such transactions as a
result of Section 24(d) of the 1940 Act. Firms that incur a prospectus-delivery
obligation with respect to iShares are reminded that, under the Securities Act
Rule 153, a prospectus-delivery obligation under Section 5(b)(2) of the
Securities Act owed to an exchange member in connection with a sale on the AMEX
is satisfied by the fact that the prospectus is available at the AMEX upon
request. The prospectus delivery mechanism provided in Rule 153 is only
available with respect to transactions on an exchange.
Management
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled Management.
Trustees and Officers. The Board has responsibility for the overall management
and operations of the Fund, including general supervision of the duties
performed by BGFA and other service providers. The Board currently consists of
four (4) Trustees. The Trustee denoted with an asterik (*) is deemed to be an
"interested person" (as defined in the 1940 Act) of the Trust and the Funds.
<TABLE>
<CAPTION>
Name (age) Position Principal occupations and affiliations during the
Address past five years
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
* Nathan Most (86) Trustee, President & Chairman of the Board, WEBS Index
PO Box 193 President, Fund, Inc. (Since 1996)
Burlingame, CA 94011-0193 Treasurer, Consultant to Barclays Global Investors, American
Principal Stock Exchange and the Hong Kong Stock Exchange
Financial Officer Formerly Senior Vice President American Stock
Exchange (New Product Development) (1976-1996)
Formerly President and Chairman of the Board,
Pacific Commodities Exchange (1973-1976)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Name (age) Principal occupations and affiliations during the
Address Position past five years
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas E. Flanigan (51) Trustee President, Thomas E. Flanigan, Inc., a pension
2155 Promontory Point Lane and investment consulting firm (since 1997)
Gold River, CA 95670 Formerly, Chief Investment Officer, California
State Teachers' Retirement System (1985 - 1997)
Formerly held various positions with New York
State Common Retirement Fund (1964-1985)
Richard K. Lyons (39) Trustee Professor, University of California, Berkeley -
350 Barrows Hall Haas School of Business (Since 1993)
Haas School of Business Professor, Columbia University - School of
UC Berkeley Business & School of International Affairs (1987
Berkeley, CA 94720 - 1993)
Member, Council on Foreign Relations
Consultant: IMF World Bank, Federal Reserve Bank,
European Commission and United Nations
Board of Directors: Matthews International Funds
George G.C. Parker (60) Trustee Associate Dean for Academic Affairs, Director of
Graduate School of Business, MBA Program, Professor, Stanford University -
Stanford University Graduate School of Business (Since 1988)
521 Memorial Way, Room K301 Formerly, Director Executive Education, Stanford
Stanford, CA 94305 Business School (1979 - 1988)
Board of Directors: Affinity Group, Bailard,
Biehl and Kaiser, Inc., California Casualty Group
of Insurance Companies, Continental Airlines,
Inc., Community First Financial Group,
Dresdner/RCM Mutual Funds, H. Warshow & Sons, Inc.
Donna M. McCarthy (33) Assistant Director, (formerly Manager) Mutual Fund
Investors Bank and Trust Company Treasurer Administration, Investors Bank and Trust Company
200 Clarendon Street Formerly, Manager, Business Assurance Group,
Boston, MA 02116 Coopers & Lybrand (1988-1994)
Jeffrey J. Gaboury (31) Assistant Manager, Mutual Fund Administration, Reporting
Investors Bank and Trust Company Treasurer and Compliance, Investors Bank and Trust Company
200 Clarendon Street (since 1996)
Boston, MA 02116 Formerly, Assistant Manager, Fund Compliance,
Scudder, Stevens & Clark (1992-1996)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Name (age) Principal occupations and affiliations during the
Address Position past five years
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Susan C. Mosher (45) Secretary Director & Senior Counsel, Mutual Fund
Investors Bank and Trust Company Administration, Investors Bank and Trust Company
200 Clarendon Street (since 1995)
Boston, MA 02116 Formerly, Associate Counsel, 440 Financial Group
(1992-1995)
Sandra I. Madden (33) Assistant Associate Counsel, Mutual Fund Administration,
Investors Bank and Trust Company Secretary Investors Bank and Trust Company (since 1999)
200 Clarendon Street Formerly, Associate, Scudder Kemper Investments,
Boston, MA 02116 Inc. (1996-1999)
</TABLE>
Remuneration of Trustees and Officers. The Trust pays each Trustee an annual
fee of $50,000 plus a per meeting fee of $500 for meetings of the Board attended
by the Trustee. The Trust also reimburses each Trustee for travel and other
out-of-pocket expenses incurred by him/her in connection with attending such
meetings.
Assuming that four (4) meetings of the Board are held annually, it is
estimated that the compensation paid to each Trustee during the calendar year
ending December 31, 2000 will be:
<TABLE>
<CAPTION>
Pension or Retirement Estimated
Aggregate Estimated Benefits Accrued As Annual Benefits
Name of Trustee Compensation from the Trust Part of Trust Expenses Upon Retirement
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nathan Most $52,000 Not Applicable. Not Applicable.
Thomas E. Flanigan $52,000
Richard K. Lyons $52,000
George G. C. Parker $52,000
</TABLE>
As of the date of this Prospectus, the Trust has been organized for less
than one full calendar year and therefore does not report the total remuneration
for the preceding fiscal year.
No Trustee or Officer is entitled to any pension or retirement benefits
from the Trust.
Investment Advisor. BGFA serves as investment advisor to each Fund pursuant to
an Investment Advisory Agreement between the Trust and BGFA. BGFA is a
California corporation indirectly owned by Barclays Bank PLC and is registered
as an investment advisor under the Investment Advisers Act of 1940 (the
"Advisers Act"). Under the Investment Advisory Agreement, BGFA, subject to the
supervision of the Board and in conformity with the stated investment policies
of each Fund, manages and administers the Trust and the investment of each
Fund's assets. BGFA is responsible for placing purchase and sale orders and
providing continuous supervision of the investment portfolio of each Fund.
Under the Investment Advisory Agreement, BGFA is responsible for all
expenses of the Trust, including the cost of transfer agency, custody, fund
administration, legal, audit and other services, except interest, taxes,
brokerage commissions and other expenses connected with the execution of
portfolio transactions (which are included in NAV), distribution fees and
extraordinary expenses. For its investment management services to each Fund,
BGFA
28
<PAGE>
will be paid a management fee equal to each Fund's allocable portion of the
percentage listed below of such Fund's aggregate net assets.
iShares Index Fund Management Fee
- ---------------------------------------------------- --------------------------
iShares S&P 500
Index Fund 0.09%
iShares S&P 500/BARRA Growth
Index Fund 0.18%
iShares S&P 500/BARRA Value
Index Fund 0.18%
iShares S&P MidCap 400
Index Fund 0.20%
iShares S&P MidCap 400/BARRA Growth
Index Fund 0.25%
iShares S&P MidCap 400/BARRA Value
Index Fund 0.25%
iShares S&P SmallCap 600
Index Fund 0.20%
iShares S&P SmallCap 600/BARRA Growth
Index Fund 0.25%
iShares S&P SmallCap 600/BARRA Value
Index Fund 0.25%
iShares S&P Europe 350
Index Fund 0.60%
iShares S&P/TSE 60
Index Fund 0.50%
iShares Dow Jones U.S. Total Market
Index Fund 0.20%
iShares Dow Jones U.S. Basic Materials
Sector Index Fund 0.60%
iShares Dow Jones U.S. Consumer Cyclical
Sector Index Fund 0.60%
iShares Dow Jones U.S. Consumer Non-Cyclical
Sector Index Fund 0.60%
iShares Dow Jones U.S. Energy
Sector Index Fund 0.60%
iShares Dow Jones U.S. Financial
Sector Index Fund 0.60%
iShares Dow Jones U.S. Healthcare
Sector Index Fund 0.60%
iShares Dow Jones U.S. Industrial
Sector Index Fund 0.60%
iShares Dow Jones U.S. Technology
Sector Index Fund 0.60%
iShares Dow Jones U.S. Telecommunications
Sector Index Fund 0.60%
iShares Dow Jones U.S. Utilities
Sector Index Fund 0.60%
iShares Dow Jones U.S. Chemicals
Index Fund 0.60%
iShares Dow Jones U.S. Financial Services
Composite Index Fund 0.60%
iShares Dow Jones U.S. Internet
Index Fund 0.60%
iShares Dow Jones U.S. Real Estate
Index Fund 0.60%
29
<PAGE>
iShares Index Fund Management Fee
- ---------------------------------------------------- --------------------------
iShares Russell 3000
Index Fund 0.20%
iShares Russell 3000 Growth
Index Fund 0.25%
iShares Russell 3000 Value
Index Fund 0.25%
iShares Russell 2000
Index Fund 0.20%
iShares Russell 2000 Growth
Index Fund 0.25%
iShares Russell 2000 Value
Index Fund 0.25%
iShares Russell 1000
Index Fund 0.15%
iShares Russell 1000 Growth
Index Fund 0.20%
iShares Russell 1000 Value
Index Fund 0.20%
The Investment Advisory Agreement with respect to each Fund continues in
effect for two years from its effective date, and thereafter is subject to
annual approval by (i) the Board or (ii) vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund, provided that in
either event such continuance also is approved by a majority of the Board who
are not interested persons (as defined in the 1940 Act) of the Fund, by a vote
cast in person at a meeting called for the purpose of voting on such approval.
The Investment Advisory Agreement with respect to each Fund is terminable
without penalty, on 60-days notice, by the Board or by a vote of the holders of
a majority (as defined in the 1940 Act) of the applicable Fund's outstanding
voting securities. The Investment Advisory Agreement is also terminable upon 60
days notice by BGFA and will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
Current interpretations of federal banking laws and regulations (i) may
prohibit Barclays Bank PLC, Barclays Global Investors, N.A. ("BGI"), and BGFA
from controlling, or underwriting the iShares, but (ii) would not prohibit
Barclays Bank PLC or BGFA generally from acting as an investment adviser,
administrator, transfer agent, or custodian to the Funds or from purchasing
iShares as agent for and upon the order of a customer.
BGFA believes that it may perform advisory and related services for the
Trust without violating applicable banking laws or regulations. However, the
legal requirements and interpretations about the permissible activities of banks
and their affiliates may change in the future. These changes could prevent BGFA
from continuing to perform services for the Trust. If this happens, the Board
would consider selecting other qualified firms. Any new investment advisory
agreement would be subject to shareholder approval.
If current restrictions on bank activities with mutual funds were relaxed,
BGFA, or its affiliates, would consider performing additional services for the
Trust. BGFA cannot predict whether these changes will be enacted, or the terms
under which BGFA, or its affiliates, might offer to provide additional services.
The Trust and BGFA have adopted Codes of Ethics under Rule 17j-1 of the
1940 Act. The Codes permit personnel subject to the Codes to invest in
securities, subject to certain limitations, including securities that may be
purchased or held by the Funds.
Administrator, Custodian, Transfer Agent and Securities Lending Agent.
Investors Bank & Trust Co. ("IBT") serves as Administrator, Custodian, Transfer
Agent and Securities Lending Agent for the Funds. Its
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principal address is 200 Clarendon Street, Boston, MA 02111. Under the
Administration Agreement with the Trust, IBT provides necessary administrative
and accounting services for the maintenance and operations of the Trust and each
Fund. In addition, IBT makes available the office space, equipment, personnel
and facilities required to provide such services. Under the Custodian Agreement
with the Trust, IBT maintains in separate accounts cash, securities and other
assets of the Trust and each Fund, keeps all necessary accounts and records,
and provides other services. IBT is required, upon the order of the Trust, to
deliver securities held by IBT and to make payments for securities purchased by
the Trust for each Fund. Also, under a Delegation Agreement, IBT is authorized
to appoint certain foreign custodians or foreign custody managers for Fund
investments outside the United States. Pursuant to a Transfer Agency and Service
Agreement with the Trust, IBT acts as a transfer agent for each Fund's
authorized and issued shares of beneficial interest, and as dividend disbursing
agent of the Trust. Under a Securities Lending Agency Agreement with the Trust,
IBT acts as the Trust's agent for the purpose of lending Trust securities to
third parties. As compensation for the foregoing services, IBT receives certain
out-of-pocket costs, transaction fees, and asset-based fees which are accrued
daily and paid monthly.
Distributor. SEI Investments Distribution Company is the Distributor of
iShares. Its principal address is 1 Freedom Valley Drive, Oaks, PA 19456. The
Distributor has entered into a Distribution Agreement with the Trust pursuant to
which it distributes iShares of each Fund. The Distribution Agreement will
continue for two years from its effective date and is renewable annually
thereafter. iShares are continuously offered for sale by the Funds through the
Distributor only in Creation Unit Aggregations, as described in the Prospectus
and below under the heading Creation and Redemption of Creation Units
Aggregations. iShares in less than Creation Unit Aggregations are not
distributed by the Distributor. The Distributor will deliver the Prospectus
and, upon request, the Statement of Additional Information to persons purchasing
Creation Unit Aggregations and will maintain records of both orders placed with
it and confirmations of acceptance furnished by it. The Distributor is 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").
The Distribution Agreement for each Fund will provide that it may be
terminated at any time, without the payment of any penalty, on at least 60-days'
written notice to the other party (i) by vote of a majority of the Independent
Trustees or (ii) by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the relevant Fund. The Distribution Agreement will
terminate automatically in the event of its assignment (as defined in the 1940
Act).
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation Unit Aggregations
of iShares. Such Soliciting Dealers may also be Participating Parties (as
defined below), DTC Participants (as defined below) and/or Investor Services
Organizations.
BGFA or BGI may, from time to time and from its own resources, pay, defray
or absorb costs relating to distribution, including payments out of its own
resources to the Distributor or to otherwise promote the sale of iShares.
Index Providers. Each Fund will be based upon a particular equity market
index compiled by one of three index providers: Standard & Poor's (a division of
the McGraw-Hill Companies), Frank Russell Company and Dow Jones & Company, Inc.,
none of which is affiliated with a Fund or with BGI or its affiliates. Each
Fund will be entitled to use the Underlying Index pursuant to a sub-licensing
agreement with BGI, which in turn has a licensing agreement with the relevant
index provider. BGI will provide the sub-licenses without charge to any Fund.
Brokerage Transactions
The policy of the Trust regarding purchases and sales of securities is that
primary consideration will be given to obtaining the most favorable prices and
efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the Trust's policy is
to pay commissions
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that are considered fair and reasonable without necessarily determining that the
lowest possible commissions are paid in all circumstances. In seeking to
determine the reasonableness of brokerage commissions paid in any transaction,
BGFA relies upon its experience and knowledge regarding commissions generally
charged by various brokers.
In seeking to implement the Trust's policies, BGFA effects transactions
with those brokers and dealers that BGFA believes provide the most favorable
prices and are capable of providing efficient executions. BGFA and its
affiliates do not participate in soft dollar transactions.
It is expected that the Trust may execute brokerage or other agency
transactions through affiliates that are registered broker-dealers, for
commissions, in conformity with the 1940 Act, the Exchange Act and rules
promulgated by the SEC. Under these provisions, affiliates of BGFA are
permitted to receive and retain compensation for effecting portfolio
transactions for the Trust on an exchange if a written contract is in effect
between the affiliate and the Trust expressly permitting the affiliate of BGFA
to receive and retain such compensation. These rules further require that the
commissions paid by the Trust for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees, including those who are not "interested persons" of the
Trust, have adopted procedures for evaluating the reasonableness of commissions
paid and will review these procedures periodically.
The Trust will not deal with affiliates in principal transactions unless
permitted by the applicable rule or regulation or by exemptive order.
BGFA assumes general supervision over placing orders on behalf of the Funds
for the purchase or sale of portfolio securities. If purchases or sales of
portfolio securities of the Funds and one or more other investment companies or
clients supervised by BGFA are considered at or about the same time,
transactions in such securities are allocated among the several investment
companies and clients in a manner deemed equitable to all by BGFA. In some
cases, this procedure could have a detrimental effect on the price or volume of
the security as far as the Funds are concerned. However, in other cases, it is
possible that the ability to participate in volume transactions and to negotiate
lower brokerage commissions will be beneficial to the Funds. The primary
consideration is prompt execution of orders at the most favorable net price.
Portfolio turnover may vary from year to year, as well as within a year.
High turnover rates are likely to result in comparatively greater brokerage
expenses. The portfolio turnover rate for each Fund is expected to be under
50%. The overall reasonableness of brokerage commissions is evaluated by BGFA
based upon its knowledge of available information as to the general level of
commissions paid by the other institutional investors for comparable services.
Additional Information Concerning the Trust
Capital Stock. The Trust was established as a Delaware business trust on
December 16, 1999. The Trust currently is comprised of 35 Funds. Each Fund
issues shares of beneficial interest, with no par value. The Board may
designate additional Funds.
Each iShare issued by a Fund has a pro rata interest in the assets of the
corresponding Fund. iShares have no preemptive, exchange, subscription or
conversion rights and are freely transferable. Each iShare is entitled to
participate equally in dividends and distributions declared by the Board with
respect to the relevant Fund, and in the net distributable assets of such Fund
on liquidation.
Each iShare has one vote with respect to matters upon which a shareholder
vote is required consistent with the requirements of the 1940 Act and the rules
promulgated thereunder. iShares of all Funds vote together as a single class
except that, if the matter being voted on affects only a particular Fund, and,
if a matter affects a particular Fund differently from other Funds, that Fund
will vote separately on such matter.
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Under Delaware law, the Trust is not required to hold an annual meeting of
shareholders unless required to do so under the 1940 Act. The policy of the
Trust is not to hold an annual meeting of shareholders unless required to do so
under the 1940 Act. All iShares (regardless of the Fund) have noncumulative
voting rights for the Board. Under Delaware law, Trustees of the Trust may be
removed by vote of the shareholders.
Following the creation of the initial Creation Unit Aggregation(s) of
iShares of a Fund and immediately prior to the commencement of trading in such
Fund's iShares, a holder of iShares may be a "control person" of the Fund. A
Fund cannot predict the length of time for which one or more shareholders may
remain a control person of the Fund.
The Trust does not have information concerning the beneficial ownership of
iShares held by any Depository Trust Company ("DTC") Participants (as defined
below).
Shareholders may make inquiries by writing to the Trust, c/o the
Distributor, SEI Investments Distribution Company, at 1 Freedom Valley Drive,
Oaks, PA 19456.
Absent an applicable exemption or other relief from the SEC or its staff,
officers and Trustees of the Fund and beneficial owners of 10% of the iShares of
a Fund ("Insiders") may be subject to the insider reporting, short-swing profit
and short sale provisions of Section 16 of the Exchange Act and the SEC's rules
promulgated thereunder. Insiders should consult with their own legal counsel
concerning their obligations under Section 16 of the Exchange Act.
Book Entry Only System. The following information supplements and should be
read in conjunction with the section in the Prospectus entitled Shareholder
Information.
DTC Acts as Securities Depository for the iShares. iShares of each Fund are
represented by securities registered in the name of DTC or its nominee and
deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of its
participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities'
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the New York Stock Exchange ("NYSE"),
the AMEX and the NASD. Access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a DTC Participant, either directly or
indirectly (the "Indirect Participants").
Beneficial ownership of iShares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in iShares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase of iShares.
Conveyance of all notices, statements and other communications to
Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement
between the Trust and DTC, DTC is required to make available to the Trust upon
request and for a fee to be charged to the Trust a listing of the iShares of
each Fund held by each DTC Participant. The Trust shall inquire of each such
DTC Participant as to the number of Beneficial Owners holding iShares, directly
or indirectly, through such DTC Participant. The Trust shall provide each such
DTC Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participants a fair
and reasonable
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<PAGE>
amount as reimbursement for the expenses attendant to such transmittal, all
subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the
registered holder of all iShares. DTC or its nominee, upon receipt of any such
distributions, shall credit immediately DTC Participants' accounts with payments
in amounts proportionate to their respective beneficial interests in iShares of
each Fund as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial Owners of iShares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name", and will be the
responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspect of the records
relating to or notices to Beneficial Owners, or payments made on account of
beneficial ownership interests in such iShares, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests, or for
any other aspect of the relationship between DTC and the DTC Participants or the
relationship between such DTC Participants and the Indirect Participants and
Beneficial Owners owning through such DTC Participants.
DTC may decide to discontinue providing its service with respect to iShares
at any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
Creation and Redemption of Creation Unit Aggregations
Creation. The Trust issues and sells iShares of each Fund only in Creation Unit
Aggregations on a continuous basis through the Distributor, without a sales
load, at their NAVs next determined after receipt, on any Business Day (as
defined below), of an order in proper form.
A "Business Day" with respect to each Fund is any day on which the NYSE is
open for business. As of the date of the Prospectus, the NYSE observes the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Washington's
Birthday, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Fund Deposit. The consideration for purchase of Creation Unit Aggregation of a
Fund generally consists of the in-kind deposit of a designated portfolio of
equity securities-- the "Deposit Securities" -- per each Creation Unit
Aggregation constituting a substantial replication, or a portfolio sampling
representation, of the stocks involved in the relevant Fund's Underlying Index
("Fund Securities") and an amount of cash -- the "Cash Component" -- computed as
described below. Together, the Deposit Securities and the Cash Component
constitute the "Fund Deposit", which represents the minimum initial and
subsequent investment amount for a Creation Unit Aggregation of any Fund.
The Cash Component is sometimes also referred to as the Balancing Amount.
The Cash Component serves the function of compensating for any differences
between the NAV per Creation Unit Aggregation and the Deposit Amount (as defined
below). The Cash Component is an amount equal to the difference between the NAV
of the iShares (per Creation Unit Aggregation) and the "Deposit Amount" -- an
amount equal to the market value of the Deposit Securities. If the Cash
Component is a positive number (i.e., the NAV per Creation Unit Aggregation
exceeds the Deposit Amount), the creator will deliver the Cash Component. If
the Cash Component is a negative number (i.e., the NAV per Creation Unit
Aggregation is less than the Deposit Amount), the creator will receive the Cash
Component.
BGFA, through the National Securities Clearing Corporation ("NSCC")
(discussed below), makes available on each Business Day, prior to the opening of
business on the AMEX (currently 9:30 a.m., Eastern time), the list of the names
and the required number of shares of each Deposit Security to be included in the
current Fund Deposit (based on information at the end of the previous Business
Day) for each such Fund.
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Such Fund Deposit is applicable, subject to any adjustments as described below,
in order to effect creations of Creation Unit Aggregations of a given Fund until
such time as the next-announced composition of the Deposit Securities is made
available.
The identity and number of shares of the Deposit Securities required for a
Fund Deposit for each Fund changes as rebalancing adjustments and corporate
action events are reflected from time to time by BGFA with a view to the
investment objective of the relevant Fund. The composition of the Deposit
Securities may also change in response to adjustments to the weighting or
composition of the Component Stocks of the relevant Underlying Index. In
addition, the Trust reserves the right to permit or require the substitution of
an amount of cash - i.e., a "cash in lieu" amount -- to be added to the Cash
Component to replace any Deposit Security that may not be available in
sufficient quantity for delivery or that may not be eligible for transfer
through the systems of DTC or the Clearing Process (discussed below). The
adjustments described above will reflect changes known to BGFA on the date of
announcement to be in effect by the time of delivery of the Fund Deposit, in the
composition of the Underlying Index being tracked by the relevant Fund or
resulting from certain corporate actions.
Procedures for Creation of Creation Unit Aggregations. To be eligible to place
orders with the Distributor and to create a Creation Unit Aggregation of a Fund,
an entity must be (i) a "Participating Party", i.e., a broker-dealer or other
participant in the clearing process through the Continuous Net Settlement System
of the NSCC (the "Clearing Process"), a clearing agency that is registered with
the SEC; or (ii) a DTC Participant (see the Book Entry Only System section),
and, in each case, must have executed an agreement with the Distributor, with
respect to creations and redemptions of Creation Unit Aggregations ("Participant
Agreement") (discussed below). A Participating Party and DTC Participant are
collectively referred to as an "Authorized Participant". Investors should
contact the Distributor for the names of Authorized Participants that have
signed a Participant Agreement. All iShares of a Fund, however created, will be
entered on the records of DTC in the name of Cede & Co. for the account of a DTC
Participant.
All orders to create iShares must be placed for one or more Creation Unit
Aggregations. Each Fund, except the iShares S&P 350 Europe Index Fund and
iShares S&P/TSE 60 Index Fund, is hereinafter referred to as a "Domestic Fund"
and each of the iShares S&P Europe 350 Index Fund and iShares S&P/TSE 60 Index
Fund is hereinafter referred to as a "Foreign Fund". Orders to create Creation
Unit Aggregations of the Foreign Funds cannot be placed through the Clearing
Process. All orders to create Creation Unit Aggregations, whether through the
Clearing Process (through a Participating Party) or outside the Clearing Process
(through a DTC Participant), must be received by the Distributor no later than
the closing time of the regular trading session on the NYSE ("Closing Time")
(ordinarily 4:00 p.m., Eastern time) in each case on the date such order is
placed in order for creation of Creation Unit Aggregations to be effected based
on the NAV of iShares of each Fund as next determined on such date after receipt
of the order in proper form. The date on which an order to create Creation Unit
Aggregations (or an order to redeem Creation Unit Aggregations, as discussed
below) is placed is referred to as the "Transmittal Date". Orders must be
transmitted by an Authorized Participant by telephone or other transmission
method acceptable to the Distributor pursuant to procedures set forth in the
Participant Agreement, as described below (see the Placement of Creation Orders
for Domestic Funds Using Clearing Process, the Placement of Creation Orders for
Domestic Funds Outside Clearing Process and the Placement of Creation Orders for
Foreign Funds sections). Severe economic or market disruptions or changes, or
telephone or other communication failure may impede the ability to reach the
Distributor or an Authorized Participant.
All orders to create Creation Unit Aggregations shall be placed with an
Authorized Participant, as applicable, in the form required by such Authorized
Participant. In addition, the Authorized Participant may request the investor
to make certain representations or enter into agreements with respect to the
order, e.g., to provide for payments of cash, when required. Investors should
be aware that their particular broker may not have executed a Participant
Agreement and that, therefore, orders to create Creation Unit Aggregations of a
Fund have to be placed by the investor's broker through an Authorized
Participant that has executed a Participant Agreement. In such cases there may
be additional charges to such investor. At any given time, there may be only a
limited number of broker-dealers that have executed a Participant Agreement and
only a small number of such Authorized Participants may have international
capabilities.
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Those placing orders for Creation Unit Aggregations of Domestic Funds
through the Clearing Process should afford sufficient time to permit proper
submission of the order to the Distributor prior to the Closing Time on the
Transmittal Date. Orders for Creation Unit Aggregations of Domestic Funds that
are effected outside the Clearing Process are likely to require transmittal by
the DTC Participant earlier on the Transmittal Date than orders effected using
the Clearing Process. Those persons placing orders outside the Clearing Process
should ascertain the deadlines applicable to DTC and the Federal Reserve Bank
wire system by contacting the operations department of the broker or depository
institution effectuating such transfer of Deposit Securities and Cash Component.
Those placing orders for Creation Unit Aggregations of Foreign Funds should
ascertain the applicable deadline for cash transfers by contacting the
operations department of the broker or depositary institution making the
transfer of the Cash Component. This deadline is likely to be significantly
earlier than the closing time of the regular trading session on the AMEX.
Investors should be aware that the Authorized Participant may require orders for
Creation Units placed with it to be in the form required by the individual
Authorized Participant, which form may not be the same as the form of purchase
order specified by the Trust that the Authorized Participant must deliver to the
Distributor.
Placement of Creation Orders for Domestic Funds Using Clearing Process. The
Clearing Process is the process of creating or redeeming Creation Unit
Aggregations through the Clearing Process. Fund Deposits made through the
Clearing Process must be delivered through a Participating Party that has
executed a Participant Agreement. The Participant Agreement authorizes the
Distributor to transmit through IBT to NSCC, on behalf of the Participating
Party, such trade instructions as are necessary to effect the Participating
Party's creation order. Pursuant to such trade instructions to NSCC, the
Participating Party agrees to deliver the requisite Deposit Securities and the
Cash Component to the Trust, together with such additional information as may be
required by the Distributor. An order to create Creation Unit Aggregations
through the Clearing Process is deemed received by the Distributor on the
Transmittal Date if (i) such order is received by the Distributor not later than
the Closing Time on such Transmittal Date, and (ii) all other procedures set
forth in the Participant Agreement are properly followed.
Placement of Creation Orders for Domestic Funds Outside Clearing Process. Fund
Deposits made outside the Clearing Process must be delivered through a DTC
Participant that has executed a Participant Agreement preapproved by BGFA and
the Distributor. A DTC Participant who wishes to place an order creating
Creation Unit Aggregations to be effected outside the Clearing Process does not
need to be a Participating Party, but such orders must state that the DTC
Participant is not using the Clearing Process and that the creation of Creation
Unit Aggregations will instead be effected through a transfer of securities and
cash directly through DTC. The Fund Deposit transfer must be ordered by the DTC
Participant on the Transmittal Date in a timely fashion so as to ensure the
delivery of the requisite number of Deposit Securities through DTC to the
account of the Fund by no later than 11:00 a.m., Eastern time, of the second
Business Day immediately following the Transmittal Date.
All questions as to the number of Deposit Securities to be delivered, and
the validity, form and eligibility (including time of receipt) for the deposit
of any tendered securities, will be determined by the Trust, whose determination
shall be final and binding. The amount of cash equal to the Cash Component must
be transferred directly to IBT through the Federal Reserve Bank wire transfer
system in a timely manner so as to be received by IBT no later than 11:00 a.m.,
Eastern time, on the second Business Day immediately following such Transmittal
Date. An order to create Creation Unit Aggregations outside the Clearing
Process is deemed received by the Distributor on the Transmittal Date if (i)
such order is received by the Distributor not later than the Closing Time on
such Transmittal Date; and (ii) all other procedures set forth in the
Participant Agreement are properly followed. However, if IBT does not receive
both the required Deposit Securities and the Cash Component by 11:00 a.m. on the
second Business Day immediately following the Transmittal Date, such order will
be canceled. Upon written notice to the Distributor, such canceled order may be
resubmitted the following Business Day using a Fund Deposit as newly constituted
to reflect the then current NAV of the Fund. The delivery of Creation Unit
Aggregations so created will occur no later than the third (3rd) Business Day
following the day on which the purchase order is deemed received by the
Distributor.
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An additional charge of up to three (3) times the normal transaction fee
(for a total charge of up to four (4) times the normal transaction fee) may be
imposed with respect to transactions effected outside the Clearing Process
(through a DTC participant) and in the limited circumstances in which any cash
can be used in lieu of Deposit Securities to create Creation Units. This charge
is subject to a limit not to exceed 10/100 of 1% (10 basis points) of the value
of one Creation Unit as the time of creation.
Creation Unit Aggregations of Domestic Funds may be created in advance of
receipt by the Trust of all or a portion of the applicable Deposit Securities as
described below. In these circumstances, the initial deposit will have a value
greater than the NAV of the iShares on the date the order is placed in proper
form since, in addition to available Deposit Securities, cash must be deposited
in an amount equal to the sum of (i) the Cash Component, plus (ii) 125% of the
market value of the undelivered Deposit Securities (the "Additional Cash
Deposit"). The order shall be deemed to be received on the Business Day on
which the order is placed provided that the order is placed in proper form prior
to 4:00 p.m., Eastern time, on such date and federal funds in the appropriate
amount are deposited with IBT by 11:00 a.m., Eastern time, the following
Business Day. If the order is not placed in proper form by 4:00 p.m. or federal
funds in the appropriate amount are not received by 11:00 a.m. the next Business
Day, then the order may be deemed to be rejected and the Authorized Participant
shall be liable to the Fund for losses, if any, resulting therefrom. An
additional amount of cash shall be required to be deposited with the Trust,
pending delivery of the missing Deposit Securities to the extent necessary to
maintain the Additional Cash Deposit with the Trust in an amount at least equal
to 125% of the daily marked to market value of the missing Deposit Securities.
To the extent that missing Deposit Securities are not received by 11:00 a.m.,
Eastern time, on the third Business Day following the day on which the purchase
order is deemed received by the Distributor or in the event a marked-to-market
payment is not made within one Business Day following notification by the
Distributor that such a payment is required, the Trust may use the cash on
deposit to purchase the missing Deposit Securities. Authorized Participants
will be liable to the Trust for the costs incurred by the Trust in connection
with any such purchases. These costs will be deemed to include the amount by
which the actual purchase price of the Deposit Securities exceeds the market
value of such Deposit Securities on the day the purchase order was deemed
received by the Distributor plus the brokerage and related transaction costs
associated with such purchases. The Trust will return any unused portion of the
Additional Cash Deposit once all of the missing Deposit Securities have been
properly received by IBT or purchased by the Trust and deposited into the Trust.
In addition, a transaction fee, as listed below, will be charged in all cases.
The delivery of Creation Unit Aggregations so created will occur no later than
the third Business Day following the day on which the purchase order is deemed
received by the Distributor.
Placement of Creation Orders for Foreign Funds. Fund Deposits in connection
with the Foreign Funds will not be made either through the Clearing Process or
through DTC. Instead, to initiate an order for a Creation Unit Aggregation of a
particular Fund, the Authorized Participant must give notice to the Distributor
of its intent to submit such an order to purchase not later than 4:00 p.m.,
Eastern time on the relevant Business Day. The Distributor shall cause BGFA and
IBT to be informed of such advice. IBT will then provide such information to
the appropriate sub-custodian(s). For each Fund, IBT shall cause the sub-
custodian of the Funds to maintain an account into which the Authorized
Participant shall deliver, on behalf of itself or the party on whose behalf it
is acting, the securities included in the designated Fund Deposit (or the cash
value of all or part of such securities, in the case of a permitted or required
cash purchase or "cash in lieu" amount), with any appropriate adjustments as
advised by the Trust. Deposit Securities must be delivered to an account
maintained at the applicable local sub-custodian(s). Following the notice of
intention, an irrevocable order to purchase Creation Unit Aggregations, in the
form required by the Trust, must be received by the Distributor from an
Authorized Participant on its own or another investor's behalf by the closing
time of the regular trading session on the AMEX (currently 4:00 p.m., Eastern
time) on the relevant Business Day. However when a relevant local market is
closed due to local market holidays, the local market settlement process will
not commence until the end of the local holiday period. Settlement must occur
by 2:00 p.m., Eastern time, on the contractual settlement date.
The Authorized Participant must also make available no later than 2:00
p.m., Eastern time, on the contractual settlement date, by means satisfactory to
the Trust, immediately-available or same-day funds estimated by the Trust to be
sufficient to pay the Cash Component next determined after acceptance of the
purchase order, together with the applicable purchase Transaction Fee. Any
excess funds will be returned following settlement of the issue of the Creation
Unit Aggregation.
37
<PAGE>
To the extent contemplated by the applicable Participant Agreement,
Creation Unit Aggregations of Foreign Funds will be issued to such Authorized
Participant notwithstanding the fact that the corresponding Fund Deposits have
not been received in part or in whole, in reliance on the undertaking of the
Authorized Participant to deliver the missing Deposit Securities as soon as
possible, which undertaking shall be secured by such Authorized Participant's
delivery and maintenance of collateral consisting of cash in the form of U.S.
dollars in immediately available funds having a value (marked to market daily)
at least equal to 125% of the value of the missing Deposit Securities. Such
cash collateral must be delivered no later than 2:00 p.m., Eastern time, on the
contractual settlement date. The Participant Agreement will permit the Fund to
buy the missing Deposit Securities at any time and will subject the Authorized
Participant to liability for any shortfall between the cost to the Trust of
purchasing such securities and the value of the collateral.
Acceptance of Orders for Creation Unit Aggregations. The Trust reserves the
absolute right to reject a creation order transmitted to it by the Distributor
in respect of any Fund if: (i) the order is not in proper form; (ii) the
investor(s), upon obtaining the iShares ordered, would own 80% or more of the
currently outstanding shares of any Fund; (iii) the Deposit Securities delivered
are not as disseminated through the facilities of the AMEX for that date by IBT,
as described above; (iv) acceptance of the Deposit Securities would have certain
adverse tax consequences to the Fund; (v) acceptance of the Fund Deposit would,
in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit
would otherwise, in the discretion of the Trust or BGFA, have an adverse effect
on the Trust or the rights of beneficial owners; or (vii) in the event that
circumstances outside the control of the Trust, IBT, the Distributor and BGFA
make it for all practical purposes impossible to process creation orders.
Examples of such circumstances include acts of God; public service or utility
problems such as fires, floods, extreme weather conditions and power outages
resulting in telephone, telecopy and computer failures; market conditions or
activities causing trading halts; systems failures involving computer or other
information systems affecting the Trust, BGFA, the Distributor, DTC, NSCC, IBT
or sub-custodian or any other participant in the creation process, and similar
extraordinary events. The Distributor shall notify a prospective creator of a
Creation Unit and/or the Authorized Participant acting on behalf of the creator
of a Creation Unit Aggregation of its rejection of the order of such person.
The Trust, IBT, a sub-custodian and the Distributor are under no duty, however,
to give notification of any defects or irregularities in the delivery of Fund
Deposits nor shall any of them incur any liability for the failure to give any
such notification.
All questions as to the number of shares of each security in the Deposit
Securities and the validity, form, eligibility, and acceptance for deposit of
any securities to be delivered shall be determined by the Trust, and the Trust's
determination shall be final and binding.
Creation Transaction Fee. A purchase transaction fee is imposed for the
transfer and other transaction costs of a Fund associated with the issuance of
Creation Units of iShares. Purchasers of Creation Units of iShares for cash are
required to pay an additional variable charge to compensate for brokerage and
market impact expenses. Where the Trust permits an in-kind purchaser to
substitute cash in lieu of depositing a portion of the Deposit Securities, the
purchaser will be assessed the additional variable charge for cash purchases on
the "cash in lieu" portion of its investment. Purchasers of iShares in Creation
Units are responsible for the costs of transferring the securities constituting
the Deposit Securities to the account of the Trust. Investors are also
responsible for payment of the costs of transferring the Deposit Securities to
the Trust. Investors who use the services of a broker or other such intermediary
may be charged a fee for such services.
The following table sets forth the creation transaction fee for
each of the Funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Fund Amount Maximum Creation Transaction Fee
- -------------------------------------------------- --------------- --------------------------------
iShares S&P 500 $ 2,000 $ 8,000
Index Fund
iShares S&P 500/BARRA Growth $ 500 $ 2,000
Index Fund
iShares S&P 500/BARRA Value $ 1,500 $ 6,000
Index Fund
iShares S&P MidCap 400 $ 1,500 $ 6,000
Index Fund
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Fund Amount Maximum Creation Transaction Fee
- -------------------------------------------------- --------------- --------------------------------
iShares S&P MidCap 400/BARRA Growth $ 500 $ 2,000
Index Fund
iShares S&P MidCap 400/BARRA Value $ 1,250 $ 5,000
Index Fund
iShares S&P SmallCap 600 $ 2,500 $ 10,000
Index Fund
iShares S&P SmallCap 600/BARRA Growth $ 750 $ 3,000
Index Fund
iShares S&P SmallCap 600/BARRA Value $ 1,750 $ 7,000
Index Fund
iShares S&P Europe 350 $12,000 $ 48,000
Index Fund
iShares S&P/TSE 60 $ 1,250 $ 5,000
Index Fund
iShares Dow Jones U.S. Total Market $ 8,000 $ 32,000
Index Fund
iShares Dow Jones U.S. Basic Materials $ 500 $ 2,000
Sector Index Fund
iShares Dow Jones U.S. Consumer Cyclical $ 1,500 $ 6,000
Sector Index Fund
iShares Dow Jones U.S. Consumer Non-Cyclical $ 500 $ 2,000
Sector Index Fund
iShares Dow Jones U.S. Energy $ 500 $ 2,000
Sector Index Fund
iShares Dow Jones U.S. Financial $ 1,500 $ 6,000
Sector Index Fund
iShares Dow Jones U.S. Healthcare $ 750 $ 3,000
Sector Index Fund
iShares Dow Jones U.S. Industrial $ 1,500 $ 6,000
Sector Index Fund
iShares Dow Jones U.S. Technology $ 1,250 $ 5,000
Sector Index Fund
iShares Dow Jones U.S. Telecommunications $ 250 $ 1,000
Sector Index Fund
iShares Dow Jones U.S. Utilities $ 500 $ 2,000
Sector Index Fund
iShares Dow Jones U.S. Chemicals $ 250 $ 1,000
Index Fund
iShares Dow Jones U.S. Financial Services $ 1,000 $ 4,000
Index Fund
iShares Dow Jones U.S. Internet $ 250 $ 1,000
Index Fund
iShares Dow Jones U.S. Real Estate $ 500 $ 2,000
Index Fund
iShares Russell 3000 $11,500 $ 46,000
Index Fund
iShares Russell 3000 Growth $ 7,000 $ 28,000
Index Fund
iShares Russell 3000 Value $ 8,000 $ 32,000
Index Fund
iShares Russell 2000 $ 7,500 $ 30,000
Index Fund
iShares Russell 2000 Growth $ 5,000 $ 20,000
Index Fund
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Fund Amount Maximum Creation Transaction Fee
- -------------------------------------------------- --------------- --------------------------------
iShares Russell 2000 Value $ 5,000 $ 20,000
Index Fund
iShares Russell 1000 $ 4,000 $ 16,000
Index Fund
iShares Russell 1000 Growth $ 2,000 $ 8,000
Index Fund
iShares Russell 1000 Value $ 3,000 $ 12,000
Index Fund
</TABLE>
Redemption of iShares in Creation Units Aggregations. Shares may be redeemed
only in Creation Unit Aggregations at their NAV next determined after receipt of
a redemption request in proper form by the Fund through IBT and only on a
Business Day. A Fund will not redeem iShares in amounts less than Creation Unit
Aggregations. Beneficial Owners must accumulate enough iShares in the secondary
market to constitute a Creation Unit Aggregation in order to have such iShares
redeemed by the Trust. There can be no assurance, however, that there will be
sufficient liquidity in the public trading market at any time to permit assembly
of a Creation Unit Aggregation. Investors should expect to incur brokerage and
other costs in connection with assembling a sufficient number of shares to
constitute a redeemable Creation Unit Aggregation.
With respect to each Fund, BGFA, (i) through the NSCC for Domestic Funds,
and (ii) through the Distributor, makes available immediately prior to the
opening of business on the AMEX (currently 9:30 a.m., Eastern time) on each
Business Day, the identity of the Fund Securities that will be applicable
(subject to possible amendment or correction) to redemption requests received in
proper form (as described below) on that day. Fund Securities received on
redemption may not be identical to Deposit Securities that are applicable to
creations of Creation Unit Aggregations.
Unless cash redemptions are available or specified for a Fund, the
redemption proceeds for a Creation Unit Aggregation generally consist of Fund
Securities -- as announced on the Business Day of the request for redemption
received in proper form -- plus cash in an amount equal to the difference
between the NAV of the iShares being redeemed, as next determined after a
receipt of a request in proper form, and the value of the Fund Securities (the
"Cash Redemption Amount"), less a redemption transaction fee as listed below. In
the event that the Fund Securities have a value greater then the NAV of the
iShares, a compensating cash payment equal to the difference is required to be
made by or through an Authorized Participant by the redeeming shareholder.
The right of redemption may be suspended or the date of payment postponed
with respect to any Fund (i) for any period during which the NYSE is closed
(other than customary weekend and holiday closings); (ii) for any period during
which trading on the NYSE is suspended or restricted; (iii) for any period
during which an emergency exists as a result of which disposal of the iShares of
a Fund or determination of such Fund's NAV is not reasonably practicable; or
(iv) in such other circumstances as is permitted by the SEC.
Redemption Transaction Fee. A redemption transaction fee is imposed to offset
transfer and other transaction costs that may be incurred by the relevant Fund.
The redemption transaction fees for redemptions in kind and for cash and the
additional variable charge for cash redemptions (when cash redemptions are
available or specified) are listed below. Investors will also bear the costs of
transferring the Fund Securities from the Trust to their account or on their
order. Investors who use the services of a broker or other such intermediary
may be charged a fee for such services.
The following table sets forth the redemption transaction fee for each
of the Funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Fund Amount Maximum Redemption Transaction Fee
- -------------------------------------------------- --------------- ----------------------------------
iShares S&P 500 $ 2,000 $ 8,000
Index Fund
iShares S&P 500/BARRA Growth $ 500 $ 2,000
Index Fund
iShares S&P 500/BARRA Value $ 1,500 $ 6,000
Index Fund
iShares S&P MidCap 400 $ 1,500 $ 6,000
Index Fund
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Fund Amount Maximum Redemption Transaction Fee
- -------------------------------------------------- --------------- ----------------------------------
iShares S&P MidCap 400/BARRA Growth $ 500 $ 2,000
Index Fund
iShares S&P MidCap 400/BARRA Value $ 1,250 $ 5,000
Index Fund
iShares S&P SmallCap 600 $ 2,500 $ 10,000
Index Fund
iShares S&P SmallCap 600/BARRA Growth $ 750 $ 3,000
Index Fund
iShares S&P SmallCap 600/BARRA Value $ 1,750 $ 7,000
Index Fund
iShares S&P Europe 350 $12,000 $ 48,000
Index Fund
iShares S&P/TSE 60 $ 1,250 $ 5,000
Index Fund
iShares Dow Jones U.S. Total Market $ 8,000 $ 32,000
Index Fund
iShares Dow Jones U.S. Basic Materials $ 500 $ 2,000
Sector Index Fund
iShares Dow Jones U.S. Consumer Cyclical $ 1,500 $ 6,000
Sector Index Fund
iShares Dow Jones U.S. Consumer Non-Cyclical $ 500 $ 2,000
Sector Index Fund
iShares Dow Jones U.S. Energy $ 500 $ 2,000
Sector Index Fund
iShares Dow Jones U.S. Financial $ 1,500 $ 6,000
Sector Index Fund
iShares Dow Jones U.S. Healthcare $ 750 $ 3,000
Sector Index Fund
iShares Dow Jones U.S. Industrial $ 1,500 $ 6,000
Sector Index Fund
iShares Dow Jones U.S. Technology $ 1,250 $ 5,000
Sector Index Fund
iShares Dow Jones U.S. Telecommunications $ 250 $ 1,000
Sector Index Fund
iShares Dow Jones U.S. Utilities $ 500 $ 2,000
Sector Index Fund
iShares Dow Jones U.S. Chemicals $ 250 $ 1,000
Index Fund
iShares Dow Jones U.S. Financial Services $ 1,000 $ 4,000
Index Fund
iShares Dow Jones U.S. Internet $ 250 $ 1,000
Index Fund
iShares Dow Jones U.S. Real Estate $ 500 $ 2,000
Index Fund
iShares Russell 3000 $11,500 $ 46,000
Index Fund
iShares Russell 3000 Growth $ 7,000 $ 28,000
Index Fund
iShares Russell 3000 Value $ 8,000 $ 32,000
Index Fund
iShares Russell 2000 $ 7,500 $ 30,000
Index Fund
iShares Russell 2000 Growth $ 5,000 $ 20,000
Index Fund
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Fund Amount Maximum Creation Transaction Fee
- -------------------------------------------------- --------------- --------------------------------
iShares Russell 2000 Value $ 5,000 $ 20,000
Index Fund
iShares Russell 1000 $ 4,000 $ 16,000
Index Fund
iShares Russell 1000 Growth $ 2,000 $ 8,000
Index Fund
iShares Russell 1000 Value $ 3,000 $ 12,000
Index Fund
</TABLE>
Placement of Redemption Orders for Domestic Funds Using Clearing Process.
Orders to redeem Creation Unit Aggregations of Domestic Funds through the
Clearing Process must be delivered through a Participating Party that has
executed the Participant Agreement. An order to redeem Creation Unit
Aggregations using the Clearing Process is deemed received by the Trust on the
Transmittal Date if (i) such order is received by IBT not later than 4:00 p.m.,
Eastern time, on such Transmittal Date, and (ii) all other procedures set forth
in the Participant Agreement are properly followed; such order will be effected
based on the NAV of the Fund as next determined. An order to redeem Creation
Unit Aggregations using the Clearing Process made in proper form but received by
the Trust after 4:00 p.m., Eastern time, will be deemed received on the next
Business Day immediately following the Transmittal Date and will be effected at
the NAV next determined on such Business Day. The requisite Fund Securities and
the Cash Redemption Amount will be transferred by the third NSCC Business Day
following the date on which such request for redemption is deemed received.
Placement of Redemption Orders for Domestic Funds Outside Clearing Process.
Orders to redeem Creation Unit Aggregations of Domestic Funds outside the
Clearing Process must be delivered through a DTC Participant that has executed
the Participant Agreement. A DTC Participant who wishes to place an order for
redemption of Creation Unit Aggregations to be effected outside the Clearing
Process does not need to be a Participating Party, but such orders must state
that the DTC Participant is not using the Clearing Process and that redemption
of Creation Unit Aggregations will instead be effected through transfer of
iShares directly through DTC. An order to redeem Creation Unit Aggregations
outside the Clearing Process is deemed received by the Trust on the Transmittal
Date if (i) such order is received by IBT not later than 4:00 p.m., Eastern
time, on such Transmittal Date; (ii) such order is accompanied or followed by
the requisite number of iShares of the Fund specified in such order, which
delivery must be made through DTC to IBT no later than 11:00 a.m., Eastern time,
on the next Business Day immediately following such Transmittal Date (the "DTC
Cut-Off-Time"); and (iii) all other procedures set forth in the Participant
Agreement are properly followed. After the Trust has deemed an order for
redemption outside the Clearing Process received, the Trust will initiate
procedures to transfer the requisite Fund Securities which are expected to be
delivered within three Business Days and the Cash Redemption Amount to the
Authorized Participant on behalf of the redeeming Beneficial Owner by the third
Business Day following the Transmittal Date on which such redemption order is
deemed received by the Trust.
Placement of Redemption Orders for Foreign Funds. Orders to redeem Creation
Unit Aggregations of Foreign Funds must be delivered through an Authorized
Participant that has executed a Participant Agreement. Investors other than
Authorized Participants are responsible for making arrangements for a redemption
request to be made through an Authorized Participant. An order to redeem
Creation Unit Aggregations of Foreign Funds is deemed received by the Trust on
the Transmittal Date if (i) such order is received by IBT not later than 4:00
p.m., Eastern time, on such Transmittal Date; (ii) such order is accompanied or
followed by the requisite number of iShares of the Fund specified in such order,
which delivery must be made through DTC to IBT no later than the DTC Cut-Off
time; and (iii) all other procedures set forth in the Participant Agreement are
properly followed. Deliveries of Fund Securities to redeeming investors
generally will be made within three Business Days. Due to the schedule of
holidays in certain countries, however, the delivery of in-kind redemption
proceeds for Foreign Funds may take longer than three Business Days after the
day on which the redemption request is received in proper form. In such cases,
the local market settlement procedures will not commence until the end of the
local holiday periods. See below for a list of the local holidays in the
foreign countries relevant to the Foreign Funds.
42
<PAGE>
In connection with taking delivery of shares of Fund Securities upon
redemption of iShares of Foreign Funds, a redeeming Beneficial Owner or
Authorized Participant action on behalf of such Beneficial Owner must maintain
appropriate security arrangements with a qualified broker-dealer, bank or other
custody providers in each jurisdiction in which any of the Fund Securities are
customarily traded, to which account such Fund Securities will be delivered.
To the extent contemplated by an Authorized Participant's agreement, in the
event the Authorized Participant has submitted a redemption request in proper
form but is unable to transfer all or part of the Creation Unit Aggregation to
be redeemed to the Distributor, on behalf of the Fund, at or prior to the
closing time of the regular trading session on the AMEX on the date such
redemption request is submitted, the Distributor will nonetheless accept the
redemption request in reliance on the undertaking by the Authorized Participant
to deliver the missing iShares as soon as possible, which undertaking shall be
secured by the Authorized Participant's delivery and maintenance of collateral
consisting of cash having a value (marked to market daily) at least equal to
125% of the value of the missing iShares. The current procedures for
collateralization of missing iShares require, among other things, that any cash
collateral shall be in the form of U.S. dollars in immediately-available funds
and shall be held by IBT and marked to market daily, and that the fees of IBT
and any sub-custodians in respect of the delivery, maintenance and redelivery of
the cash collateral shall be payable by the Authorized Participant. The
Authorized Participant's agreement will permit the Trust, on behalf of the
affected Fund, to purchase the missing iShares or acquire the Deposit Securities
and the Cash Component underlying such shares at any time and will subject the
Authorized Participant to liability for any shortfall between the cost to the
Trust of purchasing such shares, Deposit Securities or Cash Component and the
value of the collateral.
The calculation of the value of the Fund Securities and the Cash Redemption
Amount to be delivered upon redemption will be made by IBT according to the
procedures set forth under Determination of NAV computed on the Business Day on
which a redemption order is deemed received by the Trust. Therefore, if a
redemption order in proper form is submitted to IBT by a DTC Participant not
later than Closing Time on the Transmittal Date, and the requisite number of
iShares of the relevant Fund are delivered to IBT prior to the DTC Cut-Off-Time,
then the value of the Fund Securities and the Cash Redemption Amount to be
delivered will be determined by IBT on such Transmittal Date. If, however, a
redemption order is submitted to IBT by a DTC Participant not later than the
Closing Time on the Transmittal Date but either (i) the requisite number of
iShares of the relevant Fund are not delivered by the DTC Cut-Off-Time, as
described above, on such Transmittal Date, or (ii) the redemption order is not
submitted in proper form, then the redemption order will not be deemed received
as of the Transmittal Date. In such case, the value of the Fund Securities and
the Cash Redemption Amount to be delivered will be computed on the Business Day
that such order is deemed received by the Trust, i.e., the Business Day on which
the iShares of the relevant Fund are delivered through DTC to IBT by the DTC
Cut-Off-Time on such Business Day pursuant to a properly submitted redemption
order.
If it is not possible to effect deliveries of the Fund Securities, the
Trust may in its discretion exercise its option to redeem such iShares in cash,
and the redeeming Beneficial Owner will be required to receive its redemption
proceeds in cash. In addition, an investor may request a redemption in cash
that the Fund may, in its sole discretion, permit. In either case, the investor
will receive a cash payment equal to the NAV of its iShares based on the NAV of
iShares of the relevant Fund next determined after the redemption request is
received in proper form (minus a redemption transaction fee and additional
charge for requested cash redemptions specified above, to offset the Trust's
brokerage and other transaction costs associated with the disposition of Fund
Securities). A Fund may also, in its sole discretion, upon request of a
shareholder, provide such redeemer a portfolio of securities that differs from
the exact composition of the Fund Securities but does not differ in NAV.
Redemptions of iShares for Fund Securities will be subject to compliance
with applicable federal and state securities laws and each Fund (whether or not
it otherwise permits cash redemptions) reserves the right to redeem Creation
Unit Aggregations for cash to the extent that the Trust could not lawfully
deliver specific Fund Securities upon redemptions or could not do so without
first registering the Fund Securities under such laws. An Authorized
Participant or an investor for which it is acting subject to a legal restriction
with respect to a particular stock included in the Fund Securities applicable to
the redemption of a Creation Unit
43
<PAGE>
Aggregation may be paid an equivalent amount of cash. The Authorized Participant
may request the redeeming Beneficial Owner of the iShares to complete an order
form or to enter into agreements with respect to such matters as compensating
cash payment.
Because the Portfolio Securities of a Foreign Fund may trade on the
relevant exchange(s) on days that the AMEX is closed or are otherwise not
Business Days for such Foreign Fund, stockholders may not be able to redeem
their shares of such Foreign Fund, or to purchase and sell iShares of such
Foreign Fund on the AMEX, on days when the NAV of such Foreign Fund could be
significantly affected by events in the relevant foreign markets.
Foreign Market Hours
Australia
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 4:00 p.m.
Closing Single Price Auction: 4:00 p.m. to 4:05 p.m.
Late trading daily: 4:05p.m. to 7:00p.m.
Austria
Primary Exchange Trading Hours: Monday through Friday, 9:16 a.m. to 3:00 p.m.
Electronic Quote Delivery Service (EQOS): 9:30a.m. to 3:00 p.m. (Other trading)
Belgium
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 4:45 p.m.
Brazil
Primary Exchange Trading Hours: Monday through Friday, 11:30 a.m. to 1:00 p.m.;
2:30 p.m. to 6:00 p.m.
Canada
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 4:00 p.m.
Chile
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 5:30 p.m.
Denmark
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 5:00 p.m.
Finland
Primary Exchange Trading Hours: Monday through Friday 10:30 a.m. to 5:30 p.m.
Continuous trading (Preceded by a 10 min pre-matching period)
France
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 10:00 a.m.
(Pre-market) 10:00a.m. to 5:05 p.m.
Germany
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 5:00 p.m.
Greece
44
<PAGE>
Primary Exchange Trading Hours: Monday through Friday, 10:45 a.m. to 1:30 p.m.
(Pre-trading 10:15 a.m. to 10:45 a.m.)
Hong Kong
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 12:30
p.m./ 2:30 p.m. to 4:00 p.m.
Indonesia
Primary Exchange Trading Hours: Monday through Thursday, 9:30 a.m. to 12:00
p.m.; :30 p.m. to 4:00 p.m. Friday; 9:30 a.m. to 11:30 a.m. and 2:00 p.m. to
4:00 p.m.
Ireland
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 5:30 p.m.
Italy
Primary Exchange Trading Hours: Monday through Friday, 8:00 a.m. to 9:30 a.m.
(Pre-open)/ 9:30-5:45 (Trading)
Japan
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 11:00a.m./
12:30 pm to 3:00 pm (Osaka has a 10 min pre & post session)
Mexico
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 3:00 p.m.
Netherlands
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 4:30 p.m.
New Zealand
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 9:30 a.m.
(Pre-market)
9:30 a.m. to 3:30 p.m.
Norway
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 4:00 p.m.
(with 1/2 hour, pre-market matching session).
Philippines
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 12:00 p.m.
There is a 10 minute extension at the close.
Portugal
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 4:30 p.m.
Singapore
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 12:30
p.m./2:00 p.m. to 5:00 p.m.
South Africa
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 1:00 p.m./
2:00 p.m. to 4:30 p.m.
South Korea
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 12:00 p.m./
1:00 p.m. to 3:00 p.m. After-hours session 3:10 p.m. to 3:40 p.m.
Spain
45
<PAGE>
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 10:00 a.m.
(Pre-opening) 10:00 a.m. to 5:00 p.m. (Trading)
Sweden
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 5:00 p.m.
Switzerland
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 5:00 p.m.
Taiwan
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 12:00 p.m.
Saturday, 9:00 a.m. to 11:00 a.m.
(Closed 2nd & 4th Saturday of each month)
Thailand
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 12:30
p.m./ 2:30 p.m. to 4:30 p.m.
United Kingdom
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 4:30 p.m.
United States
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 4:00 p.m.
(NASDAQ) 9:30 a.m. to 4:00 p.m. (NYSE)
Venezuela
Primary Exchange Trading Hours: Monday through Friday, 9:45 a.m. to 2:00 p.m.
Regular Holidays. The dates in calendar year 2000 in which the regular holidays
affecting the relevant securities markets of the below listed countries are as
follows:
Australia
January 3 April 24 August 7
January 26 April 25 December 25
April 21 June 12 December 26
Austria
January 6 June 12 December 8
April 21 June 22 December 24
April 24 August 15 December 25
May 1 October 26 December 29
June 1 November 1
Belgium
April 24 June 12 November 1
May 1 July 21 December 25
June 1 August 15 December 26
Brazil
March 6 May 1 October 12
March 7 June 22 November 2
April 21 September 7 November 15
December 25
Canada
January 3 July 3 October 9
April 21 August 7 December 25
46
<PAGE>
May 22 September 4 December 26
Chile
April 21 August 15 October 12
May 1 September 4 November 1
June 22 September 18 December 8
June 28 September 19 December 25
Denmark
April 20 May 19 June 10
April 21 June 1 December 24
April 24 June 5 December 25
December 26
Finland
January 6 April 24 June 23
April 20 (early close) May 1 December 6
April 21 June 1 December 25
December 26
France
April 21 June 1 November 1
April 24 June 12 December 25
May 1 July 14 December 26
May 8 August 15
Germany
April 21 June 1 October 3
April 24 June 12 December 25
May 1 June 22 December 26
Greece
January 6 May 1 December 25
March 13 June 19 December 26
April 28 August 15
Hong Kong
February 4 April 24 September 13
February 7 May 1 October 2
April 4 May 11 October 6
April 21 June 6 December 25
Indonesia
March 16 May 18 October 25
April 4 June 1 December 25
April 6 June 15 December 27
April 21 August 17 December 28
Ireland
January 3 April 24 August 7
March 17 May 1 October 30
April 21 June 5 December 25
December 26
Italy
April 24 August 15 December 8
47
<PAGE>
May 1 November 1 December 25
December 26
Japan
January 3 May 3 September 15
January 10 May 4 October 9
February 11 May 5 November 3
March 20 July 20 November 23
Korea
January 3 May 1 August 15
February 4 May 5 September 11
March 1 May 11 September 12
April 5 June 6 September 13
April 13 July 17 October 3
December 25
Mexico
March 21 May 1 December 12
April 20 May 5 December 25
April 21 December 1
Netherlands
April 21 May 5 June 12
April 24 June 1 December 25
December 26
New Zealand
January 3 April 21 June 5
January 4 April 24 October 23
January 24 April 25 December 25
December 26
Norway
April 20 April 21 April 24
May 1 June 1 December 25
May 17 June 12 December 26
Philippines
February 25 May 1 November 2
April 20 June 12 November 30
April 21 November 1 December 25
Portugal
March 7 May 1 November 1
April 21 June 22 December 1
April 24 August 15 December 8
April 25 October 5 December 25
Singapore
February 7 May 1 October 26
March 16 May 18 December 25
April 21 August 9 December 27
South Africa
January 3 April 27 August 9
March 21 May 1 September 25
48
<PAGE>
April 21 June 16 December 25
December 26
Spain
January 6 May 1 December 6
April 21 October 12 December 8
April 24 November 1 December 25
December 26
Sweden
January 6 May 1 June 23
April 21 June 1 December 25
April 24 June 12 December 26
Switzerland
January 3 May 1 August 1
April 21 June 1 December 25
April 24 June 12 December 26
Taiwan (includes Saturday Trading)
January 1 April 3 September 9
January 3 April 4 September 12
January 8 April 8 September 23
January 22 April 22 October 10
February 2 May 1 October 14
February 3 May 13 October 28
February 4 May 27 November 11
February 5 June 6 November 25
February 7 June 10 December 9
February 12 June 24 December 23
February 26 July 8 December 25
February 28 July 22
March 11 August 12
March 25 August 26
Thailand
January 3 May 1 October 23
February 21 May 5 December 5
April 6 May 17 December 11
April 13 July 17
April 14 August 14
United Kingdom
January 3 May 1 December 25
April 21 May 29 December 26
April 24 August 28
United States
January 17 May 29 October 9
February 21 July 4 November 10
April 21 September 4 November 23
December 25
Venezuela
January 3 June 5 November 6
March 6 June 26 December 11
March 7 July 3 December 25
April 19 July 5
49
<PAGE>
April 20 July 24
April 21 August 14
May 1
Settlement Periods Greater than Seven Days for Year 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
# of
Country Settlement Period Trade Date Settlement Calendar
Days
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Belgium Forward Market 12/11/00 12/27 16
Stocks:
End of a two week
period
- ------------------------------------------------------------------------------------------------------------------------------
Denmark T+3 4/17/00 4/25/00 8
- ------------------------------------------------------------------------------------------------------------------------------
France Last day of acct 8/1/00 8/31/00 30
trading month
- ------------------------------------------------------------------------------------------------------------------------------
Germany T+5 12/18/00 12/27/00 9
- ------------------------------------------------------------------------------------------------------------------------------
United Kingdom T+5 12/18/00 12/27/00 9
- ------------------------------------------------------------------------------------------------------------------------------
Italy T+5 12/18/00 12/27/00 9
- ------------------------------------------------------------------------------------------------------------------------------
Norway T+3 4/17/00 4/25/00 8
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Taxes
The following information also supplements and should be read in
conjunction with the section in the Prospectus entitled Taxes.
Each Fund intends to qualify for and to elect treatment as a separate
Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue
Code (the "Code"). To qualify for treatment as a RIC, a company must annually
distribute at least 90% of its net investment company taxable income (which
includes dividends, interest and net short-term capital gains) and meet several
other requirements. Among such other requirements are the following: (i) at
least 90% of the company's annual gross income must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities or foreign currencies, or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
and (ii) at the close of each quarter of the company's taxable year, (a) at
least 50% of the market value of the company's total assets must be represented
by cash and cash items, U.S. government securities, securities of other
regulated investment companies and other securities, with such other securities
limited for purposes of this calculation in respect of any one issuer to an
amount not greater than 5% of the value of the company's assets and not greater
than 10% of the outstanding voting securities of such issuer, and (b) not more
than 25% of the value of its total assets may be invested in the securities of
any one issuer or of two or more issuers that are controlled by the company
(within the meaning of Section 851(b)(3)(B) of the Code) and that are engaged in
the same or similar trades or businesses or related trades or businesses (other
than U.S. government securities or the securities of other regulated investment
companies).
A Fund will be subject to a 4% excise tax on certain undistributed income
if it does not distribute to its shareholders in each calendar year at least 98%
of its ordinary income for the calendar year plus 98% of its capital gain net
income for the twelve months ended October 31 of such year. Each Fund intends
to
50
<PAGE>
declare and distribute dividends and distributions in the amounts and at the
times necessary to avoid the application of this 4% excise tax.
Each Fund, but in particular the iShares Europe 350 Index Fund and the
iShares S&P/TSE 60 Index Fund, may be subject to foreign income taxes withheld
at source. Each Fund that is permitted to do so will elect to "pass through" to
its investors the amount of foreign income taxes paid by the Fund provided that
the investor held the iShares of the Fund, and the Fund held the security, on
the dividend settlement date and for at least fourteen additional days
immediately before and/or thereafter, with the result that each investor will
(i) include in gross income, even though not actually received, the investor's
pro rata share of the Fund's foreign income taxes, and (ii) either deduct (in
calculating U.S. taxable income) or credit (in calculating U.S. federal income
tax) the investor's pro rata share of the Fund's foreign income taxes. A foreign
tax credit may not exceed the investor's U.S. federal income tax otherwise
payable with respect to the investor's foreign source income. For this purpose,
each shareholder must treat as foreign source gross income (i) his proportionate
share of foreign taxes paid by the Fund and (ii) the portion of any dividend
paid by the Fund that represents income derived from foreign sources; the Fund's
gain from the sale of securities will generally be treated as U.S. source
income. This foreign tax credit limitation is applied separately to separate
categories of income; dividends from the Fund will be treated as "passive" or
"financial services" income for this purpose. The effect of this limitation may
be to prevent investors from claiming as a credit the full amount of their pro
rata share of the Fund's foreign income taxes.
If any Fund owns shares in certain foreign investment entities, referred to
as "passive foreign investment companies", the Fund will be subject to one of
the following special tax regimes: (i) the Fund is liable for U.S. federal
income tax, and an additional charge in the nature of interest, on a portion of
any "excess distribution" from such foreign entity or any gain from the
disposition of such shares, even if the entire distribution or gain is paid out
by the Fund as a dividend to its shareholders; (ii) if the Fund were able and
elected to treat a passive foreign investment company as a "qualified electing
fund", the Fund would be required each year to include in income, and distribute
to shareholders in accordance with the distribution requirements set forth
above, the Fund's pro rata share of the ordinary earnings and net capital gains
of the passive foreign investment company, whether or not such earnings or gains
are distributed to the Fund; or (iii) the Fund may be entitled to mark-to-market
annually the shares of the passive foreign investment company, and, in such
event, would be required to distribute to shareholders any such mark-to-market
gains in accordance with the distribution requirements set forth above.
The Trust on behalf of each Fund has the right to reject an order for a
purchase of iShares if the purchaser (or group of purchasers) would, upon
obtaining the iShares so ordered, own 80% or more of the outstanding iShares of
a given Fund and if, pursuant to section 351 of the Code, that Fund would have a
basis in the securities different from the market value of such securities on
the date of deposit. The Trust also has the right to require information
necessary to determine beneficial share ownership for purposes of the 80%
determination.
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Purchasers of iShares should consult their
own tax advisors as to the tax consequences of investing in such shares,
including under state, local and foreign tax laws. Finally, the foregoing
discussion is based on applicable provisions of the Code, regulations, judicial
authority and administrative interpretations in effect on the date hereof.
Changes in applicable authority could materially affect the conclusions
discussed above, and such changes often occur.
Federal Tax Treatment of Futures and Options Contracts. Each Fund is required,
for federal income tax purposes, to mark-to-market and recognize as income for
each taxable year its net unrealized gains and losses on certain futures and
options contracts as of the end of the year as well as those actually realized
during the year. Gain or loss from futures and options contracts on broad-based
indices required to be marked-to-market will be 60% long-term and 40% short-term
capital gain or loss. Application of this rule may alter the timing and
character of distributions to shareholders. A Fund may be required to defer the
recognition of losses on futures contracts, option contracts and swaps to the
extent of any unrecognized gains on offsetting positions held by the Fund.
51
<PAGE>
In order for a Fund to continue to qualify for federal income tax treatment
as a RIC, at least 90% of its gross income for a taxable year must be derived
from qualifying income, i.e., dividends, interest, income derived from loans of
securities, gains from the sale of securities or of foreign currencies or other
income derived with respect to the Fund's business of investing in securities.
It is anticipated that any net gain realized from the closing out of futures or
options contracts will be considered qualifying income for purposes of the 90%
requirement.
Each Fund intends to distribute to shareholders annually any net capital
gains that have been recognized for federal income tax purposes (including
unrealized gains at the end of the Fund's fiscal year) on futures or options
transactions. Such distributions are combined with distributions of capital
gains realized on the Fund's other investments and shareholders are advised on
the nature of the distributions.
The foregoing is only a summary of certain material tax consequences
affecting each Fund and shareholders. Shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in each Fund.
Determination of NAV
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled Determining NAV.
The NAV per iShare of each Fund is computed by dividing the value of the
net assets of such Fund (i.e., the value of its total assets less total
liabilities) by the total number of iShares of such Fund outstanding, rounded to
the nearest cent. Expenses and fees, including without limitation, the
management, administration and distribution fees, are accrued daily and taken
into account for purposes of determining NAV. The NAV of per iShare for each
Fund is calculated by IBT and determined as of the close of the regular trading
session on the NYSE (ordinarily 4:00 p.m., Eastern time) on each day that such
exchange is open.
In computing a Fund's NAV, the Fund's securities holdings are valued based
on their last quoted current price. Price information on listed securities is
taken from the exchange where the security is primarily traded. Securities
regularly traded in an over-the-counter market are valued at the latest quoted
bid price in such market. Other portfolio securities and assets for which
market quotations are not readily available are valued based on fair value as
determined in good faith by BGFA in accordance with procedures adopted by the
Board.
Dividends and Distributions
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled Shareholder Information.
General Policies. Dividends from net investment income, if any, are declared
and paid at least annually by each Fund. Distributions of net realized
securities gains, if any, generally are declared and paid once a year, but the
Trust may make distributions on a more frequent basis for certain Funds. The
Trust reserves the right to declare special distributions if, in its reasonable
discretion, such action is necessary or advisable to preserve the status of each
Fund as a RIC or to avoid imposition of income or excise taxes on undistributed
income.
Dividends and other distributions on iShares are distributed, as described
below, on a pro rata basis to Beneficial Owners of such iShares. Dividend
payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with proceeds received from the Funds.
Dividend Reinvestment Service. No reinvestment service is provided by the Trust.
Broker-dealers may make available the DTC book-entry Dividend Reinvestment
Service for use by Beneficial Owners of Funds for reinvestment of their dividend
distributions. Beneficial Owners should contact their broker to
52
<PAGE>
determine the availability and costs of the service and the details of
participation therein. Brokers may require Beneficial Owners to adhere to
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and realized gains will be automatically
reinvested in additional whole iShares of the same Fund purchased in the
secondary market.
Performance and Other Information
The performance of the Funds may be quoted in advertisements, sales
literature or reports to shareholders in terms of average annual total return
and cumulative total return.
Quotations of average annual total return are expressed in terms of the
average annual rate of return of a hypothetical investment in a Fund over
periods of 1, 5 and 10 years (or the life of a Fund, if shorter). Such total
return figures will reflect the deduction of a proportional share of such Fund's
expenses on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Average annual total return is calculated according to the following
formula: P(1 + T)/n/ = ERV (where P = a hypothetical initial payment of $1,000,
T = the average annual total return, n = the number of years and ERV = the
ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the 1, 5 or 10 year period or fractional portion).
Quotations of a cumulative total return will be calculated for any
specified period by assuming a hypothetical investment in a Fund on the date of
the commencement of the period and will assume that all dividends and
distributions are reinvested on ex date. However, currently the Trust does not
make a dividend reinvestment option available to shareholders of iShares and
such calculation is provided for informational purposes only. The net increase
or decrease in the value of the investment over the period will be divided by
its beginning value to arrive at cumulative total return. Total return
calculated in this manner will differ from the calculation of average annual
total return in that it will not be expressed in terms of an average rate of
return.
Quotations of cumulative total return or average annual total return
reflect only the performance of a hypothetical investment in a Fund during the
particular time period on which the calculations are based. Such quotations for
a Fund will vary based on changes in market conditions and the level of such
Fund's expenses, and no reported performance figure should be considered an
indication of performance that may be expected in the future.
The cumulative and average total returns do not take into account federal
or state income taxes which may be payable; total returns would, of course, be
lower if such charges were taken into account.
Whenever the Trust calculates total return using the market values of
iShares as reported by the AMEX, it will also calculate a similar total return
using the relevant Fund's NAV. The Trust may also provide reported closing price
data for iShares and calculations of applicable premiums or discounts against
NAV.
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner.
Because there are different methods for calculating performance, investors
should consider the effects of the methods used to calculate performance when
comparing performance of a Fund with performance quoted with respect to other
investment companies or types of investments.
Because some or all of certain Fund's investments are denominated in
foreign currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of such a Fund's investment performance.
Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements. Such historical information is not
indicative of future fluctuations in the value of the U.S. dollar against these
currencies. In addition, marketing materials may cite country and economic
statistics and historical stock market performance information for any of the
countries in which a Fund invests, including, but not limited to, the following:
population growth, gross domestic product, inflation rate, average stock market
price-earnings ratios and the total value of stock markets. Sources for such
statistics may include official publications of various foreign governments and
exchanges.
53
<PAGE>
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of open-end and
closed-end investment companies with similar investment goals, as tracked by
independent organizations such as Investment Company Data, Inc., Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc.,
Value Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, a Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.
In addition, in connection with the communication of its performance to
current or prospective shareholders, a Fund also may compare those figures to
the performance of certain unmanaged indices which may assume the reinvestment
of dividends or interest but generally do not reflect deductions for
administrative and management costs. Examples of such indices include, but are
not limited to the following:
. Dow Jones Industrial Average
. Consumer Price Index
. Standard & Poor's 500 Composite Stock Price Index (S&P 500)
. NASDAQ OTC Composite Index
. NASDAQ Industrials Index
. International Finance Corporation's (Global) Composite and (Investable)
Composite Indices
. Morgan Stanley Capital International Indices
. NASDAQ Composite Index
. Wilshire 5000 Stock Index
Miscellaneous Information
Counsel. Morgan, Lewis & Bockius, LLP, Washington, D.C., is counsel to the
Trust and has passed upon the validity of the iShares of each Fund.
Independent Auditors. PricewaterhouseCoopers LLP, located at 333 Market Street,
San Francisco, CA 94105, serve as the independent auditors and accountants of
the Trust. They audit the Funds' financial statements and perform other related
audit services.
Financial Statements
Report of Independent Accountants
To the Shareholder and Board of Trustees
of iShares Russell 3000 Value Index Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the iShares Russell
3000 Value Index Fund at April 24, 2000, in conformity with accounting
principles generally accepted in the United States. This financial statement is
the responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Dated: April 24, 2000 /s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
54
<PAGE>
ASSETS:
Cash .................................................. $ 100,000
Total Assets .......................................... 100,000
-------
LIABILITIES:
Total Liabilities 0
-
.....................................
NET ASSETS............................................. $ 100,000
=======
Net assets consist of:
Paid-in Capital $ 100,000
-------
.................................................
NET ASSETS:............................................ $ 100,000
=======
Shares outstanding: 10,000
======
.......................................................
NET ASSET VALUE: $ 10.00
=====
...................................................
See Notes to Statement of Assets and Liabilities
NOTE 1: Organization
iShares Trust (the "Trust") is organized as a Delaware business trust pursuant
to a Declaration of Trust dated December 16, 1999, and has had no operations as
of the date hereof other than matters relating to its organization and
registration as an investment company under the Investment Company Act of 1940
and the Securities Act of 1933 and the sale and issuance of 10,000 shares of
beneficial interest of the iShares Russell 3000 Value Index Fund (the Fund), a
series of the Trust, to SEI Investments Distribution Co. (the "Distributor").
The Trust currently offers thirty five funds; the iShares S&P 500 Index Fund,
iShares S&P 500/BARRA Growth Index Fund, iShares S&P 500/BARRA Value Index Fund,
iShares S&P MidCap 400 Index Fund, iShares S&P MidCap 400/BARRA Growth Index
Fund, iShares S&P MidCap 400/BARRA Value Index Fund, iShares S&P SmallCap 600
Index Fund, iShares S&P SmallCap 600/BARRA Growth Index Fund, iShares S&P
SmallCap 600/BARRA Value Index Fund, iShares S&P Europe 350 Index Fund, iShares
S&P/TSE 60 Index Fund, iShares Dow Jones U.S. Total Market Index Fund, iShares
Dow Jones U.S. Basic Materials Sector Index Fund, iShares Dow Jones U.S.
Consumer Cyclical Sector Index Fund, iShares Dow Jones U.S. Consumer Non-
Cyclical Sector Index Fund, iShares Dow Jones U.S. Energy Sector Index Fund,
iShares Dow Jones U.S. Financial Sector Index Fund, iShares Dow Jones U.S.
Healthcare Sector Index Fund, iShares Dow Jones U.S. Industrial Sector Index
Fund, iShares Dow Jones U.S. Technology Sector Index Fund, iShares Dow Jones
U.S. Telecommunications Sector Index Fund, iShares Dow Jones U.S. Utilities
Sector Index Fund, iShares Dow Jones U.S. Chemicals Index Fund, iShares Dow
Jones U.S. Financial Services Index Fund, iShares Dow Jones U.S. Internet Index
Fund, iShares Dow Jones U.S. Real Estate Index Fund, iShares Russell 3000 Index
Fund, iShares Russell 3000 Growth Index Fund, iShares Russell 3000 Value
55
<PAGE>
Index Fund, iShares Russell 2000 Index Fund, iShares Russell 2000 Growth Index
Fund, iShares Russell 2000 Value Index Fund, iShares Russell 1000 Index Fund,
iShares Russell 1000 Growth Index Fund and iShares Russell 1000 Value Index Fund
(collectively the "Funds").
NOTE 2: Significant Accounting Policies
Use of Estimates - The preparation of this financial statement in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of this financial statement. Actual results could
differ from those estimates.
Federal Income Taxes - The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. If so qualified, the
Fund will not be subject to federal income tax to the extent it distributes
substantially all of its net investment income and capital gains to
shareholders.
NOTE 3: Investment Advisory and Other Agreements
Barclays Global Fund Advisors ("BGFA") serves as investment advisor and provides
investment guidance and policy direction to the Fund. For its services to the
iShares Russell 3000 Value Index Fund, BGFA will receive an annual Management
Fee based on .25% of the Fund's average daily net assets. The Management Fee
covers all expenses of the Fund, including the cost of transfer agency, custody,
fund administration, legal, audit and other services, except interest, taxes,
brokerage commissions and other expenses connected with the execution of
portfolio transactions (which are included in NAV), distribution fees and
extraordinary expenses.
Investors Bank & Trust Company ("IBT") serves as Administrator, Custodian and
Transfer Agent for the Fund. As compensation for its services, IBT receives a
fee that is accrued daily and paid monthly, based on the Fund's average daily
net assets. This fee is included in the Management fee as defined above.
SEI Investments Distribution Co. serves as the Fund's underwriter and
Distributor of the shares of the Fund, pursuant to a Distribution Agreement. The
Distribution Agreement will continue for two years from its effective date and
is renewable thereafter. The Distributor will deliver the Prospectus and
Statement of Additional Information, if so requested, to persons purchasing
Creation Unit Aggregations and will maintain records of both orders placed with
it and confirmations of acceptance furnished by it. The Distributor is a broker-
dealer registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. The Distributor has no role in
determining the investment policies of the Funds or determining which securities
are to be purchased or sold by the Fund.
Expenses related to the organization and initial registration of the Trust will
be borne by the BGFA.
56
<PAGE>
Part C
Other Information
Item 23 Exhibits
Exhibit Number Description
(a) Agreement and Declaration of Trust
(b) Amended and Restated By-Laws
(c) Not applicable
(d) Investment Advisory Agreement between the Trust and
Barclays Global Fund Advisors
(e.1) Distribution Agreement between the Trust and SEI
Investments Distribution Company
(e.2) Form of Authorized Participant Agreement
(f) Not applicable
(g.1) Custodian Agreement between the Trust and Investors Bank
& Trust
(g.2) Securities Lending Agency Agreement between Investors
Bank & Trust and the Trust
(g.3) Delegation Agreement between the Trust and Investors Bank
& Trust
(h.1) Administration Agreement between the Trust and Investors
Bank & Trust
(h.2) Transfer Agency and Service Agreement between the Trust
and Investors Bank & Trust
(h.3i) Sublicense Agreement between Barclays Global Investors,
N.A. and the Trust for S&P Funds
(h.3.ii) Sublicense Agreement between Barclays Global Investors,
N.A. and the Trust for Dow Jones Funds
(h.3.iii) Sublicense Agreement between Barclays Global Investors,
N.A. and the Trust for Russell Funds
(i) Legal Opinion and Consent of Counsel
(j.1) Consent of Independent Accountants
(j.2) Power of Attorney
(k) Not Applicable
(l.1) Subscription Agreement between the Trust and SEI
Investments Distribution Company
<PAGE>
Exhibit Number Description
(1.2) Letter of Representations between the Trust and
Depository Trust Company
(m) Not applicable
(n) Not applicable
(o) Not applicable
(p.i) iShares Trust Code of Ethics
(p.ii) Barclays Global Investors, N.A.
Code of Ethics
Item 24 Persons Controlled By or Under Common Control with Registrant
None
Item 25 Indemnification
The Trust is organized as a Delaware business trust and is operated
pursuant to an Agreement and Declaration of Trust, (the "Declaration of Trust"),
that permits the Trust to indemnify its trustees and officers under certain
circumstances. Such indemnification, however, is subject to the limitations
imposed by the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended. The Declaration of Trust provides that officers and
trustees of the Trust shall be indemnified by the Trust against liabilities and
expenses incurred or paid in connection with any claim, action, suit, or
proceedings against them by reason of the fact that they each serve as an
officer or trustee of the Trust or as an officer or trustee of another entity at
the request of the entity. This indemnification is subject to the following
conditions:
(a) no trustee or officer of the Trust is indemnified against any liability to
the Trust or its security holders that was the result of any willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office;
(b) officers and trustees of the Trust are indemnified only for actions taken in
good faith which the officers and trustees believed were in or not opposed to
the best interests of the Trust; and
The Declaration of Trust provides that if indemnification is not ordered by a
court, indemnification may be authorized upon determination by shareholders, or
by a majority vote of a quorum of the trustees who were not parties to the
proceedings or, if this quorum is not obtainable, if directed by a quorum of
disinterested trustees, or by independent legal counsel in a written opinion,
that the persons to be indemnified have met the applicable standard.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Trust pursuant to foregoing provisions, or otherwise, the Trust
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for Fund expenses incurred or paid by a director, officer or
controlling person of the Fund in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling person in
connection with the securities being registered, the Trust will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 26. (a) Business and Other Connections of Investment Adviser
The Trust is advised by Barclays Global Fund Advisors ("BGFA"), a wholly
owned subsidiary of Barclays Global Investors, N.A. ("BGI"), 45 Fremont Street,
San Francisco, CA 94105. BGFA's business is that of a registered investment
adviser to certain open-end, management investment companies and various other
institutional investors.
<PAGE>
The directors and officers of BGFA consist primarily of persons who during
the past two years have been active in the investment management business. Each
of the directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI. To the knowledge of the
Registrant, except as set forth below, none of the directors or executive
officers of BGFA is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.
Name and Position Principal Business(es) During the last Two Fiscal Years
Patricia Dunn Director of BGFA and Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Garrett F. Bouton Chairman of the Board of Directors of BGFA and Chief
Operating Officer and Director of BGI
Chairman 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Director of BGFA and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI
Chief Financial 45 Fremont Street San Francisco, CA 94105
Officer
Item 27 Principal Underwriters
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or investment
adviser.
The Fund's distributor, SEI Investments Distribution Company (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc November 1, 1992
First American Investment Funds, Inc November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds June 1, 1993
The PBHG Funds, Inc July 16, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc March 1, 1995
STI Classic Variable Trust August 18, 1995
<PAGE>
ARK Funds November 1, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc June 29, 1998
The Parkstone Group of Funds September 14, 1998
CNI Charter Funds April 1, 1999
The Parkstone Advantage Fund May 1, 1999
Amerindo Funds, Inc July 13, 1999
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement and consulting services
and automated execution, clearing and settlement of securities transactions.
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is 1 Freedom Valley Drive, Oaks, PA 19456.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Name Position and Office with Underwriter Positions and Office with Registrant
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors None
Richard B. Lieb Director, Executive Vice President None
Carmen V. Romeo Director None
Mark J. Held President & Chief Operating Officer None
Gilbert L. Beebower Executive Vice President None
Dennis J. McGonigle Executive Vice President None
Robert M. Silvestri Chief Financial Officer & Treasurer None
Leo J. Dolan, Jr Senior Vice President None
Carl A. Guarino Senior Vice President None
Larry Hutchison Senior Vice President None
Jack May Senior Vice President None
Hartland J. McKeown Senior Vice President None
Kevin P. Robins Senior Vice President & General Counsel None
Patrick K. Walsh Senior Vice President None
Robert Aller Vice President None
Gordon W. Carpenter Vice President None
Todd Cipperman Vice President & Assistant Secretary None
S. Courtney E. Collier Vice President & Assistant Secretary None
Robert Crudup Vice President & Managing Director None
Richard A. Deak Vice President & Assistant Secretary None
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Name Position and Office with Underwriter Positions and Office with Registrant
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Barbara Doyne Vice President None
Jeff Drennen Vice President None
James R. Foggo Vice President & Assistant Secretary None
Vic Galef Vice President & Managing Director None
Lydia A. Gavalis Vice President & Assistant Secretary None
Greg Gettinger Vice President & Assistant Secretary None
Kathy Heilig Vice President None
Jeff Jacobs Vice President None
Samuel King Vice President None
Kim Kirk Vice President & Managing Director None
John Krzeminski Vice President & Managing Director None
Carolyn McLaurin Vice President & Managing Director None
W. Kelso Morrill Vice President None
Mark Nagle Vice President None
Joanne Nelson Vice President None
Cynthia M. Parrish Vice President & Secretary None
Kim Rainey Vice President None
Rob Redican Vice President None
Maria Rinehart Vice President None
Steve Smith Vice President None
Daniel Spaventa Vice President None
Kathryn L. Stanton Vice President None
Lynda J. Striegel Vice President & Assistant Secretary None
Lori L. White Vice President & Assistant Secretary None
Wayne M. Withrow Vice President & Managing Director None
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 28 Location of Accounts and Records
(a) The Fund maintains accounts, books and other documents required by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
(collectively, the "Records") at the offices of Investors Bank & Trust, 200
Clarendon Street, Boston, MA 02116.
(b) BGFA maintains all Records relating to its services as advisor at 45
Fremont Street, San Francisco, CA, 94105.
(c) SEI Investments Distributor Company maintains all Records relating to
its services as distributor at 1 Freedom Valley Drive, Oaks, PA 19456.
(d) IBT maintains all Records relating to its services as transfer agent,
fund accountant and custodian at 200 Clarendon Street, Boston, MA 02116.
Item 29 Management Services.
Not applicable.
Item 30 Undertaking
Not applicable.
<PAGE>
Exhibit Index
Exhibit Number Description
(a) Agreement and Declaration of Trust
(b) Amended and Restated By-Laws
(d) Investment Advisory Agreement between the Trust and
Barclays Global Fund Advisors
(e.1) Distribution Agreement between the Trust and SEI
Investments Distribution Company
(e.2) Form of Authorized Participant Agreement
(g.1) Custodian Agreement between the Trust and Investors Bank
& Trust
(g.2) Securities Lending Agency Agreement between Investors
Bank & Trust and the Trust
(g.3) Delegation Agreement between the Trust and Investors Bank
& Trust
(h.1) Administration Agreement between the Trust and Investors
Bank & Trust
(h.2) Transfer Agency and Service Agreement between the Trust
and Investors Bank & Trust
(h.3i) Sublicense Agreement between Barclays Global Investors,
N.A. and the Trust for S&P Funds
(h.3.ii) Sublicense Agreement between Barclays Global Investors,
N.A. and the Trust for Dow Jones Funds
(h.3.iii) Sublicense Agreement between Barclays Global Investors,
N.A. and the Trust for Russell Funds
(i) Legal Opinion and Consent of Counsel
(j.1) Consent of Independent Accountants
(j.2) Power of Attorney
(l.1) Subscription Agreement between the Trust and SEI
Investments Distribution Company
(l.2) Letter of Representations between the Trust and
Depository Trust Company
(p.i) iShares Trust Code of Ethics
(p.ii) Barclays Global Investors, N.A.
Code of Ethics
<PAGE>
Exhibit (a)
iSHARES TRUST
-------------
AGREEMENT AND DECLARATION OF TRUST
DATED DECEMBER 16, 1999
<PAGE>
iSHARES TRUST
-------------
Dated December 16, 1999
This AGREEMENT AND DECLARATION OF TRUST (hereinafter "Trust
Instrument") is made December 16, 1999 (together with all other persons from
time to time duly elected, qualified and serving as Trustees in accordance with
Article III hereof, the "Trustees").
WHEREAS, the Trustees desire to establish a business trust for the
investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust hereunder shall be held and managed in trust under this
Trust Instrument as herein set forth below.
ARTICLE I
---------
NAME AND DEFINITIONS
--------------------
Section 1.01. Name. The name of the trust created hereby is the "iShares
- ------------ ----
Trust."
Section 1.02. Definitions. Wherever used herein, unless otherwise required by
- ------------ -----------
the context or specifically provided:
(a) The term "By-Laws" means the By-Laws referred to in Article IV,
Section 4.01(e) hereof, as from time to time amended;
(b) The term "Commission" has the meaning given it in the 1940 Act (as
defined below). The terms "Affiliated Person," "Assignment," "Interested
Person," and "Principal Underwriter" shall have the meanings given them in the
1940 Act, as modified by or interpreted by any applicable order or orders of the
Commission or any rules or regulations adopted by or interpretive releases of
the Commission thereunder;
(c) The term "Delaware Act" refers to Chapter 38 of Title 12 of the
Delaware Code entitled "Treatment of Delaware Business Trusts," as it may be
amended from time to time;
(d) The term "Net Asset Value" means the net asset value of each
Series (as defined below) of the Trust (as defined below) determined in the
manner provided in Article IX, Section 9.03 hereof;
(e) The term "Outstanding Shares" means those Shares (as defined
below) shown from time to time in the books of the Trust or its Transfer Agent
as then issued and outstanding, but shall not include Shares which have been
redeemed or repurchased by the Trust and which are at the time held in the
treasury of the Trust;
<PAGE>
(f) The term "Series" means a series of Shares of the Trust
established in accordance with the provisions of Article II, Section 2.06
hereof;
(g) The term "Shareholder" means a record owner of Outstanding Shares
of the Trust;
(h) The term "Shares" means the equal proportionate transferable units
of beneficial interest into which the beneficial interest of each Series of the
Trust or class thereof shall be divided and may include fractions of Shares as
well as whole Shares;
(i) The term "Trust" refers to the iShares Trust and all Series of the
iShares Trust, and reference to the Trust, when applicable to one or more Series
of the Trust, shall refer to any such Series;
(j) The term "Trustee" or "Trustees" means the person or persons who
has or have signed this Trust Instrument, so long as he, she or they shall
continue in office in accordance with the terms hereof, and all other persons
who may from time to time be duly qualified and serving as Trustees in
accordance with the provisions of Article III hereof and reference herein to a
Trustee or to the Trustees shall refer to the individual Trustees in their
capacity as Trustees hereunder;
(k) The term "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of one or more of the Trust or any Series, or the Trustees on behalf of the
Trust or any Series.
(l) The term "1940 Act" refers to the Investment Company Act of 1940,
as amended from time to time.
ARTICLE II
----------
BENEFICIAL INTEREST
-------------------
Section 2.01. Shares of Beneficial Ownership Interest. The beneficial interest
- ------------ ---------------------------------------
in the Trust shall be divided into such transferable Shares of one or more
separate and distinct Series or classes of a Series as the Trustees shall from
time to time create and establish. The number of Shares of each Series, and
class thereof, authorized hereunder is unlimited. Each Share shall have no par
value. All Shares issued hereunder, including without limitation Shares issued
in connection with a dividend in Shares or a split or reverse split of Shares,
shall be fully paid and nonassessable.
Section 2.02. Issuance of Shares. The Trustees in their discretion may, from
- ------------ ------------------
time to time, without vote of the Shareholders, issue Shares, in addition to the
then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, subject to
applicable law, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, and may in such manner acquire other
assets
<PAGE>
(including the acquisition of assets subject to, and in connection with, the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees from time to time may divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000th of a Share or
integral multiples thereof.
Section 2.03. Ownership and Transfer of Shares. The Trust or a transfer agent
- ------------ --------------------------------
for the Trust shall maintain a register containing the names and addresses of
the Shareholders of each Series and class thereof, the number of Shares of each
Series and class held by such Shareholders, and a record of all Share transfers.
The register shall be conclusive as to the identity of Shareholders of record
and the number of Shares held by them from time to time. The Trustees may
authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates. Except as otherwise
provided by the Trustees, Shares shall be transferable on the books of the Trust
only by the record holder thereof or by his duly authorized agent upon delivery
to the Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence or the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed to
be the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee or
agent of the Trust, shall be affected by any notice of a proposed transfer.
Section 2.04. Treasury Shares. Shares held in the treasury shall, until
- ------------ ---------------
reissued pursuant to Section 2.02 hereof, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
Section 2.05. Establishment of Series. The Trust created hereby shall consist
- ------------ -----------------------
of one or more Series and separate and distinct records shall be maintained by
the Trust of each Series and the assets associated with any such Series shall be
held and accounted for separately from the assets of the Trust or any other
Series. The Trustees shall have full power and authority, in their sole
discretion, and without obtaining any prior authorization or vote of the
Shareholders of any Series of the Trust, to establish and designate and to
change in any manner such Series of Shares or any classes of initial or
additional Series and to fix such preferences, voting powers, rights and
privileges of such Series or classes thereof as the Trustees may from time to
time determine, to divide and combine the Shares or any Series or classes
thereof into a greater or lesser number, to classify or reclassify any issued
Shares or any Series or classes thereof into one or more Series or classes of
Shares, to abolish any one or more Series or classes of Shares or to take such
other action with respect to the Shares as the Trustees may deem desirable. The
establishment and designation of any Series shall be effective upon the adoption
of a resolution by a majority of the Trustees setting forth such establishment
and designation and the relative rights and preferences of the Shares of such
Series. A Series may issue any number of Shares and need not issue shares.
<PAGE>
All references to Shares in this Trust Instrument shall be deemed to
be Shares of any or all Series, or classes thereof, as the context may require.
All provisions herein relating to the Trust shall apply equally to each Series
of the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal
beneficial interest in the net assets of such Series. Each holder of Shares of
a Series shall be entitled to receive his pro rata share of distributions of
income and capital gains, if any, made with respect to such Series. Upon
redemption of his Shares, such Shareholder shall be paid solely out of the funds
and property of such Series of the Trust.
Section 2.06. Investment in the Trust. The Trustees shall accept investments
- ------------ -----------------------
in any Series of the Trust from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX,
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full or fractional Shares at the Net Asset
Value per Share next determined after the investment is received; provided,
however, that the Trustees may, in their sole discretion, (a) fix the Net Asset
Value per Share of the initial capital contribution or (b) impose a sales charge
upon investments in the Trust in such manner and at such time as determined by
the Trustees. The Trustees shall have the right to refuse to accept investments
in any Series at any time without any cause or reason therefor whatsoever.
Section 2.07. Assets and Liabilities of Series. All consideration received by
- ------------ --------------------------------
the Trust for the issue or sale of Shares of a particular Series, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
be held and accounted for separately from the other assets of the Trust and of
every other Series and may be referred to herein as "assets belonging to" that
Series. The assets belonging to a particular Series shall belong to that Series
for all purposes, and to no other Series, subject only to the rights of
creditors of that Series. In addition, any assets, income, earnings, profits or
funds, or payments and proceeds with respect thereto, which are not readily
identifiable as belonging to any particular Series shall be allocated by the
Trustees between and among one or more of the Series in such manner as the
Trustees, in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes, and such assets, income, earnings, profits or funds, or
payments and proceeds with respect thereto shall be assets belonging to that
Series. The assets belonging to a particular Series shall be so recorded upon
the books of the Trust, and shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Series. The assets belonging to each
particular Series shall be charged with the liabilities of that Series and all
expenses, costs, charges, and reserves attributable to that Series. Any general
liabilities, expenses, costs, charges, or reserves of the Trust which are not
readily identifiable as belonging to a particular Series shall be allocated and
charged by the Trustees between or among any one or more of the Series in such
manner as the Trustees, in their sole discretion, deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series for all purposes.
<PAGE>
Without limitation of the foregoing provisions of this Section 2.07,
but subject to the right of the Trustees in their discretion to allocate general
liabilities, expenses, costs, charges, or reserves as herein provided, the
debts, liabilities, obligations, and expenses incurred, contracted for or
otherwise existing with respect to a particular Series shall be enforceable
against the assets of the Trust generally. Notice of this contractual
limitation on inter-Series liabilities may, in the Trustee's sole discretion, be
set forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon the giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the Delaware Act relating to limitations on liabilities among Series (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any
debt, liability, obligation or expense incurred, contracted for or otherwise
existing with respect to that Series. No Shareholder or former Shareholder of
any Series shall have a claim on or any right to any assets allocated or
belonging to any other Series.
Section 2.08. No Preemptive Rights. Shareholders shall have no preemptive or
- ------------ --------------------
other right to subscribe to any additional Shares or other securities issued by
the Trust or the Trustees, whether of the same or other Series.
Section 2.09. Personal Liability of Shareholders. Each Shareholder of the
- ------------ ----------------------------------
Trust and of each Series shall not be personally liable for debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing with
respect to, the Trust or by or on behalf of any Series. The Trustees shall have
no power to bind any Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription for
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust or to a
Series shall include a recitation limiting the obligation represented thereby to
the Trust or to one or more Series and its or their assets (but the omission of
such a recitation shall not operate to bind any Shareholder or Trustee of the
Trust). Shareholders shall have the same limitation of personal liability as is
extended to shareholders of a private corporation for profit incorporated in the
State of Delaware. Every written obligation of the Trust or any Series shall
contain a statement to the effect that such obligation may only be enforced
against the assets of the appropriate Series or all Series; however, the
omission of such statement shall not operate to bind or create personal
liability for any Shareholder or Trustee.
Section 2.10. Assent to Trust Instrument. Every Shareholder, by virtue of
- ------------ --------------------------
having purchased a Share shall become a Shareholder and shall be held to have
expressly assented and agreed to be bound by the terms hereof.
ARTICLE III
-----------
THE TRUSTEES
------------
<PAGE>
Section 3.01. Management of the Trust. The Trustees shall have exclusive and
- ------------ -----------------------
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices both within and without the State of Delaware, in
any and all states of the United States of America, in the District of Columbia,
in any and all commonwealths, territories, dependencies, colonies, or
possessions of the United States of America, and in any foreign jurisdiction and
to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination
as to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Trust Instrument, the
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees
may be exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders. Such a meeting shall be held on a date fixed by the Trustees.
In the event that less than a majority of the Trustees holding office have been
elected by Shareholders, the Trustees then in office will call a Shareholders'
meeting for the election of Trustees.
Section 3.02. Initial Trustees. The initial Trustees shall be the persons
- ------------ ----------------
named herein. On a date fixed by the Trustees, the Shareholders shall elect
additional Trustees subject to Section 3.06 of this Article III.
Section 3.03. Term of Office of Trustees. The Trustees shall hold office
- ------------ --------------------------
during the lifetime of this Trust, and until its termination as herein provided,
except that: (a) any Trustee may resign his trust by written instrument signed
by him and delivered to the other Trustees, which shall take effect upon such
delivery or upon such later date as is specified therein; (b) any Trustee may be
removed at any time by a vote of at least two-thirds of the number of Trustees
prior to such removal, specifying the date when such removal shall become
effective; (c) any Trustee who requests in writing to be retired or who has
died, becomes physically or mentally incapacitated by reason of disease or
otherwise, or is otherwise unable to serve, may be retired by written instrument
signed by a majority of the other Trustees, specifying the date of his
retirement; and (d) a Trustee may be removed at any meeting of the Shareholders
of the Trust by a vote of Shareholders owning at least two-thirds of the
outstanding Shares.
Section 3.04. Vacancies and Appointment of Trustees. In case of the
- ------------ -------------------------------------
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of disease or otherwise, or a Trustee is otherwise
unable to serve, or an increase in the number of Trustees, a vacancy shall
occur. Whenever a vacancy in the Board of Trustees shall occur, until such
<PAGE>
vacancy is filled, the other Trustees shall have all the powers hereunder and
the certificate of the other Trustees of such vacancy shall be conclusive. In
the case of an existing vacancy, the remaining Trustees shall fill such vacancy
by appointing such other person as they in their discretion shall see fit
consistent with the limitations under the 1940 Act. Such appointment shall be
evidenced by a written instrument signed by a majority of the Trustees in office
or by resolution of the Trustees, duly adopted, which shall be recorded in the
minutes of a meeting of the Trustees, whereupon the appointment shall take
effect.
An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any
Trustee appointed pursuant to this Section 3.04 shall have accepted this trust,
the trust estate shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance, and he or she shall
be deemed a Trustee hereunder. The power to appoint a Trustee pursuant to this
Section 3.04 is subject to the provisions of Section 16(a) of the 1940 Act.
Section 3.05. Temporary Absence of Trustee. Any Trustee may, by power of
- ------------ ----------------------------
attorney, delegate his power for a period not exceeding six months at any one
time to any other Trustee or Trustees, provided that in no case shall less than
two Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
Section 3.06. Number of Trustees. The number of Trustees shall be set
- ------------ ------------------
initially at one (1), and thereafter shall be such number as shall be fixed from
time to time by a majority of the Trustees, provided, however, that the number
of Trustees shall in no event be more than fifteen (15) or less than three (3).
Section 3.07. Effect of Death, Resignation, Etc., of a Trustee. The
- ------------ ------------------------------------------------
declination to serve, death, resignation, retirement, removal, incapacity, or
inability of the Trustees, or any one of them, shall not operate to terminate
the Trust or to revoke any existing agency created pursuant to the terms of this
Trust Instrument.
Section 3.08. Ownership of Assets of the Trust. The assets of the Trust and of
- ------------ --------------------------------
each Series shall be held separate and apart from any assets now or hereafter
held in any capacity other than as Trustee hereunder by the Trustees or any
successor Trustees. Legal title in and beneficial ownership of all of the
assets of the Trust and the right to conduct any business shall at all times be
considered as vested in the Trustees on behalf of the Trust, except that the
Trustees may cause legal title to any Trust Property to be held by, or in the
name of, the Trust, or in the name of any person as nominee. No Shareholder
shall be deemed to have a severable ownership in any individual asset of the
Trust or of any Series or any right of partition or possession thereof, but each
Shareholder shall have, except as otherwise provided for herein, a proportionate
undivided beneficial interest in the Trust or Series. The Shares shall be
personal property giving only the rights specifically set forth in this Trust
Instrument. The Trust, or at the determination of the Trustees one or more of
the Trustees or a nominee acting for and on behalf of the Trust, shall be deemed
to hold legal title and beneficial ownership of any income earned on securities
of the
<PAGE>
Trust issued by any business entities formed, organized, or existing under the
laws of any jurisdiction, including the laws of any foreign country. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he or she shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.
Section 3.09. Compensation. The Trustees as such shall be entitled to
- ------------ ------------
reasonable compensation from the Trust, and they may periodically fix the amount
of such compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust.
ARTICLE IV
----------
POWERS OF THE TRUSTEES
----------------------
Section 4.01. Powers. The Trustees in all instances shall act as principals,
- ------------ ------
and are and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider necessary
or appropriate in connection with the management of the Trust. The Trustees
shall not in any way be bound or limited by present or future laws or customs in
regard to trust investments, but shall have full authority and power to make any
and all investments which they, in their sole discretion, shall deem proper to
accomplish the purpose of this Trust without recourse to any court or other
authority. Subject to any applicable limitation in this Trust Instrument or the
By-Laws of the Trust, the Trustees shall have power and authority:
(a) To invest and reinvest cash and other property, and to hold cash
or other property uninvested, without in any event being bound or limited by any
present or future law or custom in regard to investments by trustees, and to
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease
any or all the assets of the Trust;
(b) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations;
(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other Person and
to lend Trust Property;
(d) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;
<PAGE>
(e) To adopt By-Laws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
By-Laws shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(g) To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Trust Instrument or in the By-laws;
(h) To retain one or more transfer agents and shareholder servicing
agents, or both;
(i) To set record dates in the manner provided herein or in the By-
Laws;
(j) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment advisor, manager, custodian,
underwriter or other agent or independent contractor;
(k) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XI, Section 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
powers of attorney to such person or persons as the Trustee shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form; or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series or
to apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a
<PAGE>
particular Series shall be payable solely out of the assets belonging to that
Series as provided for in Article II hereof;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided;
(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the powers
of the Trustees to said committees and to adopt a committee charter providing
for such responsibilities, membership (including Trustees, officers or other
agents of the Trust therein) and any other characteristics of said committees as
the Trustees may deem proper. Notwithstanding the provisions of this Article
IV, and in addition to such provisions or any other provision of this Trust
Instrument or of the By-Laws, the Trustees may by resolution appoint a committee
consisting of less than the whole number of Trustees then in office, which
committee may be empowered to act for and bind the Trustees and the Trust, as if
the acts of such committee were the acts of all the Trustees then in office,
with respect to the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be pending or
threatened to be brought before any court, administrative agency or other
adjudicatory body;
(v) To interpret the investment policies, practices, or limitations of
any Series;
(w) To establish a registered office and have a registered agent in
the state of Delaware;
(x) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable,
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and power,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees. Any action by one or
more of the Trustees in their capacity as
<PAGE>
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
Section 4.02. Issuance and Repurchase of Shares. The Trustees shall have the
- ------------ ---------------------------------
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, and otherwise deal in Shares and, subject to the provisions
set forth in Article II and Article IX, to apply to any such repurchase,
redemption, retirement, cancellation, or acquisition of Shares any funds or
property of the Trust, or the particular Series of the Trust, with respect to
which such Shares are issued.
Section 4.03. Trustees and Officers as Shareholders. Any Trustee, officer, or
- ------------ -------------------------------------
agent of the Trust may acquire, own, and dispose of Shares to the same extent as
if he or she were not a Trustee, officer, or agent; and the Trustees may issue
and sell or cause to be issued and sold Shares to and buy such Shares from any
such person or any firm or company in which he or she is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
By-Laws.
Section 4.04. Action by the Trustees. The Trustees shall act by majority vote
- ------------ ----------------------
at a meeting duly called or by written consent of a majority of the Trustees
without a meeting or by telephone meeting provided a quorum of Trustees
participate in any such telephone meeting, unless the 1940 Act requires that a
particular action be taken only at a meeting at which the Trustees are present
in person. At any meeting of the Trustees, three (3) of the Trustees shall
constitute a quorum. Meetings of the Trustees may be called orally or in
writing by the Chairman or by any two (2) other Trustees. Notice of the time,
date and place of all meetings of the Trustees shall be given by the party
calling the meeting to each Trustee by telephone, telefax, or telegram sent to
his home or business address at least twenty-four (24) hours in advance of the
meeting or by written notice mailed to his home or business address at least
seventy-two (72) hours in advance of the meeting. Notice need not be given to
any Trustee who attends the meeting without objecting to the lack of notice or
who executes a written waiver of notice with respect to the meeting. Any
meeting conducted by telephone shall be deemed to take place at the principal
office of the Trust, as determined by the By-Laws or by the Trustees. Subject
to the requirements of the 1940 Act, the Trustees by majority vote may delegate
to any one or more of their number their authority to approve particular matters
or take particular actions on behalf of the Trust. Written consents or waivers
of the Trustees may be executed in one or more counterparts. Execution of a
written consent or waiver and delivery thereof to the Trust may be accomplished
by telefax.
Section 4.05. Chairman of the Trustees. The Trustees shall appoint one of
- ------------ ------------------------
their number to be Chairman of the Board of Trustees. The Chairman shall preside
at all meetings of the Trustees,
<PAGE>
shall be responsible for the execution of policies established by the Trustees
and the administration of the Trust, and may be (but is not required to be) the
chief executive, financial, and/or accounting officer of the Trust.
Section 4.06. Principal Transactions. Except to the extent prohibited by
- ------------ ----------------------
applicable law, the Trustees, on behalf of the Trust, may, in a manner
consistent with applicable legal requirements, buy any securities from or sell
any securities to, or lend any assets of the Trust to, any Trustees or officer
of the Trust or any firm of which any such Trustee or officer is a member acting
as principal, or have any such dealings with any investment advisor, distributor
or transfer agent for the Trust or with any interested Person of such person;
and the Trust may employ any such person, or firm or company in which such
person is an Interested Person, as broker, legal counsel, registrar, investment
advisor, distributor, transfer agent, dividend disbursing agent, or custodian,
or in any other capacity upon customary terms.
ARTICLE V
---------
EXPENSES OF THE TRUST
---------------------
Section 5.01. Payment of Expenses By The Trust. Subject to the provisions of
- ------------ --------------------------------
Article II, Section 2.07 hereof, the Trust or a particular Series shall pay, or
shall reimburse the Trustees from the assets belonging to all Series or the
appropriate Series for their expenses (or the expenses of a Class of such
Series) and disbursements, including, without limitation, fees and expenses of
Trustees, interest expense, taxes, fees and commissions of every kind, expenses
of pricing Trust portfolio securities, expenses of issue, repurchase and
redemption of shares, including expenses attributable to a program of periodic
repurchases or redemptions, expenses of registering and qualifying the Trust and
its Shares under Federal and State laws and regulations or under the laws of any
foreign jurisdiction, charges of third parties, including investment advisors,
managers, custodians, transfer agents, portfolio accounting and/or pricing
agents, and registrars, expenses of preparing and setting up in type
prospectuses and statements of additional information and other related Trust
documents, expenses of printing and distributing prospectuses sent to existing
Shareholders, auditing and legal expenses, reports to Shareholders, expenses of
meetings of Shareholders and proxy solicitations therefor, insurance expenses,
association membership dues and for such non-recurring items as may arise,
including litigation to which the Trust (or a Trustee acting as such) is a
party, and for all losses and liabilities by them incurred in administering the
Trust, and for the payment of such expenses, disbursements, losses and
liabilities the Trustees shall have a lien on the assets belonging to the
appropriate Series, on the assets of each such Series, prior to any rights or
interests of the Shareholders thereto. This section shall not preclude the
Trust from directly paying any of the aforementioned fees and expenses.
Section 5.02. Payment of Expenses by Shareholders. The Trustee shall have the
- ------------ -----------------------------------
power, as frequently as they may determine, to cause each Shareholder, or each
Shareholder of any particular Series, to pay directly, in advance or arrears,
for charges of the Trust's custodian or transfer, shareholder servicing or
similar agent, an amount fixed from time to time by the Trustees, by setting off
such charges due from such Shareholder from declared but unpaid
<PAGE>
dividends owed such Shareholder and/or by reducing the number of Shares in the
account of such Shareholder by that number of full and/or fractional Shares
which represents the outstanding amount of such charges due from such
Shareholder.
ARTICLE VI
----------
CONTRACTS WITH SERVICE PROVIDERS
--------------------------------
Section 6.01. Investment Advisor. The Trustees may in their discretion, from
- ------------- ------------------
time to time, enter into an investment advisory or management contract or
contracts with respect to the Trust or any Series; provided, however, that the
initial approval and entering into of such contract or contracts shall be
subject to a "majority shareholder vote," as defined by the 1940 Act.
Notwithstanding any other provision of this Trust Instrument, the Trustees may
authorize any investment advisor (subject to such general or specific
instructions as the Trustees from time to time may adopt) to effect purchases,
sales or exchanges of portfolio securities, other investment instruments of the
Trust, or other Trust Property on behalf of the Trustees, or may authorize any
officer, agent, or Trustee to effect such purchases, sales, or exchanges
pursuant to recommendations of the investment advisor (and all without further
action by the Trustees). Any such purchases, sales, and exchanges shall be
deemed to have been authorized by all of the Trustees.
The Trustees may authorize, subject to applicable requirements of the
1940 Act, including those relating to Shareholder approval, the investment
advisor to employ, from time to time, one or more sub-advisors to perform such
of the acts and services of the investment advisor, and upon such terms and
conditions, as may be agreed upon between the investment advisor and sub-
advisor. Any reference in this Trust Instrument to the investment advisor shall
be deemed to include such sub-advisors, unless the context otherwise requires.
Section 6.02. Principal Underwriter. The Trustees may in their discretion from
- ------------ ---------------------
time to time enter into an exclusive or non-exclusive underwriting contract or
contracts providing for the sale of Shares, whereby the Trust may either agree
to sell Shares to the other party to the contract or appoint such other party
its sales agent for such Shares. In either case, the contract shall be on such
terms and conditions, if any, as may be prescribed in the By-Laws, and such
further terms and conditions as the Trustees may in their discretion determine
not inconsistent with the provisions of this Article VI, or of the By-Laws; and
such contract may also provide for the repurchase or sale of Shares by such
other party as principal or as agent of the Trust.
Section 6.03. Transfer Agent. The Trustees may in their discretion from time
- ------------ --------------
to time enter into one or more transfer agency and shareholder service contracts
whereby the other party or parties shall undertake to furnish the Trustees with
transfer agency and shareholder services. The contract or contracts shall be on
such terms and conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Trust Instrument or of the By-Laws.
Section 6.04. Administration Agreement. The Trustees may in their discretion
- ------------ ------------------------
from time to time enter into an administration agreement or, if the Trustees
establish multiple Series or
<PAGE>
classes, separate administration agreements with respect to each Series or
class, whereby the other party to such agreement shall undertake to manage the
business affairs of the Trust or of a Series or class thereof of the Trust and
furnish the Trust or a Series or a class thereof with office facilities, and
shall be responsible for the ordinary clerical, bookkeeping and recordkeeping
services at such office facilities, and other facilities and services, if any,
and all upon such terms and conditions as the Trustees may in their discretion
determine.
Section 6.05. Service Agreement. The Trustees may in their discretion from
- ------------ -----------------
time to time enter into service agreements with respect to one or more Series or
Classes of Shares whereby the other parties to such Service Agreements will
provide administration and/or support services pursuant to administration plans
and service plans, and all upon such terms and conditions as the Trustees in
their discretion may determine.
Section 6.06. Parties to Contract. Any contract of the character described in
- ------------ -------------------
Sections 6.01, 6.02, 6.03, 6.04 and 6.05 of this Article VI or any contract of
the character described in Article VIII hereof may be entered into with any
corporation, firm, partnership, trust, or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered void or voidable by reason of the existence of
any such relationship, nor shall any person holding such relationship be
disqualified from voting on or executing the same in his capacity as Shareholder
and/or Trustee, nor shall any person holding such relationship be liable merely
by reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article VI or Article VIII hereof or of
the By-Laws. The same person (including a firm, corporation, partnership, trust
or association) may be the other party to contracts entered into pursuant to
Sections 6.01, 6.02, 6.03, 6.04 and 6.05 of this Article VI or pursuant to
Article VIII hereof, and any individual may be financially interested or
otherwise affiliated with persons who are parties to any or all of the contracts
mentioned in this Section 6.06.
Section 6.07. Provisions and Amendments. Any contract entered into pursuant to
- ------------ -------------------------
Sections 6.01 or 6.02 of this Article VI shall be consistent with and subject to
the requirements of Section 15 of the 1940 Act or other applicable Act of
Congress hereafter enacted with respect to its continuance in effect, its
termination, and the method of authorization and approval of such contract or
renewal thereof, and no amendment to any contract, entered into pursuant to
Section 6.01 of this Article VI shall be effective unless assented to in a
manner consistent with the requirements of said Section 15, as modified by any
applicable rule, regulation or order of the Commission.
ARTICLE VII
-----------
SHAREHOLDERS' VOTING POWERS AND MEETINGS
----------------------------------------
Section 7.01. Voting Powers. The Shareholders shall have power to vote only
- ------------ -------------
(i) for the election of Trustees as provided in Article III, Section 3.01 and
3.02 hereof, (ii) for the removal
<PAGE>
of Trustees as provided in Article III, Section 3.03(d) hereof, (iii) with
respect to any investment advisory or management contract as provided in Article
VI, Sections 6.01 and 6.07 hereof, and (iv) with respect to such additional
matters relating to the Trust as may be required by law, by this Trust
Instrument, or the By-Laws or any registration of the Trust with the Commission
or any State, or as the Trustees may consider necessary or desirable.
On any matter submitted to a vote of the Shareholders, all Shares
shall be voted separately by individual Series, except: (i) when required by
the 1940 Act, Shares shall be voted in the aggregate and not by individual
Series; and (ii) when the Trustees have determined that the matter affects the
interests of more than one Series, then the Shareholders of all such affected
Series shall be entitled to vote thereon. The Trustees also may determine that
a matter affects only the interests of one (1) or more classes of a Series, in
which case any such matter shall be voted on by such class or classes. Each
whole share shall be entitled to one (1) vote as to any matter on which it is
entitled to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy or in any manner provided
for in the By-Laws. A proxy may be given in writing. The By-Laws may provide
that proxies may also, or may instead, be given by any electronic or
telecommunications device or in any other manner. Notwithstanding anything else
herein or in the By-Laws, in the event a proposal by anyone other than the
officers or Trustees of the Trust is submitted to a vote of the Shareholders of
one or more Series or of the Trust, or in the event of any proxy contest or
proxy solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the By-Laws of the Trust to be taken by Shareholders. Meetings of
shareholders shall be called and notice thereof and record dates therefor shall
be given and set as provided in the By-Laws.
Section 7.02. Quorum and Required Vote. One-third of Shares entitled to vote in
- ------------ ------------------------
person or by proxy shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requests that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transactions of business by that
Series (or that class). Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this Trust
Instrument of the By-Laws, a majority of the Shares voted in person or by proxy
shall decide any questions and a plurality shall elect a Trustee, provided that
where any provision of law or of this Trust Instrument permits or requires that
the holders of any Series shall vote as a Series (or that the holders of any
class shall vote as a class), then a majority of the Shares present in person or
by proxy of that Series or, if required by law, subject to a "majority
shareholder vote", as defined by the 1940 Act, of that Series (or class), voted
on the matter in person or by proxy shall decide matter insofar as that Series
(or class) is concerned. Shareholders may act by unanimous written consent.
Actions taken by Series (or class) may be consented to unanimously in writing by
Shareholders of that Series.
<PAGE>
ARTICLE VIII
------------
CUSTODIAN
---------
Section 8.01. Appointment and Duties. The Trustees at all times shall employ a
- ------------ ----------------------
bank, a company that is a member of a national securities exchange, or a trust
company, each having capital, surplus and undivided profits of at least two
million dollars ($2,000,000), or any other entity satisfying the requirements of
the 1940 Act, as custodian with authority as its agent, but subject to such
restrictions, limitations, and other requirements, if any, as may be contained
in the By-Laws of the Trust:
(1) to hold the securities and other assets of the Trust and deliver
the same upon written order or oral order confirmed in writing;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as
the Trustees may direct; and
(3) to disburse such funds upon orders or vouchers;
and the Trust also may employ such custodian as its agent:
(4) to keep the books and accounts of the Trust or of any Series or
class and furnish clerical and accounting services; and
(5) to compute, if authorized to do so by the Trustees, the Net Asset
Value of any Series, or class thereof, in accordance with the
provisions hereof; all upon such basis of compensation as may be
agreed upon between the Trustees and the custodian.
The Trustees also may authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank, a company that is a member of a
national securities exchange, a trust company or any other entity satisfying the
requirements of the 1940 Act.
Section 8.02. Central Certificate System. Subject to such rules, regulations,
- ------------ --------------------------
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, as amended, or such other person as may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of any
issuer deposited within the system are
<PAGE>
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Trust or its
custodians, sub-custodians or other agents.
ARTICLE IX
----------
DISTRIBUTIONS AND REDEMPTIONS
-----------------------------
Section 9.01. Distributions.
- ------------ -------------
(a) The Trustees from time to time may declare and pay dividends or
other distributions with respect to any Series. No dividend or distribution,
including, without limitation, any distribution paid upon termination of the
Trust or of any Series (or class) with respect to, nor any redemption or
repurchase of, the Shares of any Series (or class) shall be effected by the
Trust other than from the assets held with respect to such Series, nor shall any
Shareholder of any particular Series otherwise have any right or claim against
the assets held with respect to any other Series except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder of such other
Series. The Trustees shall have full discretion to determine which items shall
be treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders. The amount of
such dividends or distributions and the payment of them and whether they are in
cash or any other Trust Property shall be wholly in the discretion of the
Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans, or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary notwithstanding,
the Trustees at any time may declare and distribute a stock dividend pro rata
among the Shareholders of a particular Series, or class thereof, as of the
record date of that Series fixed as provided in paragraph (b) of this Section
9.01.
Section 9.02. Redemptions. The Trustees may specify conditions, prices, and
- ------------ -----------
places of redemption, may specify binding requirements for the proper form or
forms of requests for redemption and may specify the amount of any deferred
sales charge to be withheld from redemption proceeds. Payment of the redemption
price may be wholly or partly in securities or other assets at the value of such
securities or assets used in such determination of Net Asset Value, or may be in
cash. Upon redemption, Shares may be reissued from time to time. The Trustees
may require Shareholders to redeem Shares for any reason under terms set by the
Trustees, including, but not limited to, the failure of a Shareholder to supply
a taxpayer identification number if required to do so, or to have the minimum
investment required, or to pay
<PAGE>
when due for the purchase of Shares issued to him. To the extent permitted by
law, the Trustees may retain the proceeds of any redemption of Shares required
by them for payment of amounts due and owing by a Shareholder to the Trust or
any Series or class or any governmental authority. Notwithstanding the
foregoing, the Trustees may postpone payment of the redemption price and may
suspend the right of the Shareholders to require any Series or class to redeem
Shares during any period of time when and to the extent permissible under the
1940 Act. All authorized Shares shall be subject to redemption and redeemable in
accordance with and pursuant to procedures or methods prescribed or approved by
the Trustees. The Shares of any Series, if so determined by the Trustees, shall
be redeemable only in aggregations of such number of Shares and on such days as
may be determined by or determined pursuant to procedures or methods prescribed
by or approved by the Trustees from time to time with respect to such Series.
The number of Shares comprising an aggregation for purposes of redemption or
repurchase shall be referred to as a "Creation Unit." The Trustees shall have
the unrestricted power to alter the number of shares constituting a Creation
Unit by resolution adopted by the Trustees, at any time including prior to the
time the Trust commences operations. Each holder of a Creation Unit aggregation
of shares of a Series, upon request to the Trust in accordance with procedures
established by the Trustees, shall be entitled to require the Trust to redeem
all or any number of such holder's Shares standing in the name of such holder on
the books of the Trust, but in the case of the Shares of any Series as to which
the Trustees have determined that such Shares shall be redeemable only in
Creation Unit aggregations, only in such Creation Unit aggregations of shares of
such Series as the Trustees may determine from time to time in accordance with
this Article IX, at a redemption price per share equal to an amount determined
by the Trustees in accordance with applicable laws.
Section 9.03. Determination of Net Asset Value and Valuation of Portfolio
- ------------ -----------------------------------------------------------
Assets. The term "Net Asset Value" of any Series shall mean that amount by
- ------
which the assets of that Series exceed its liabilities, all as determined by or
under the direction of the Trustees. Such value shall be determined separately
for each Series and shall be determined on such days and at such times as the
Trustees may determine. The Trustees may delegate any of their powers and
duties under this Section 9.03 with respect to valuation of assets and
liabilities. The resulting amount, which shall represent the total Net Asset
Value of the particular Series, shall be divided by the total number of shares
of that Series outstanding at the time and the quotient so obtained shall be the
Net Asset Value per Share of that Series. At any time the trustees may cause
the Net Asset Value per Share last determined to be determined again in similar
manner and may fix the time when such redetermined value shall become effective.
If, for any reason, the net income of any Series, determined at any time, is a
negative amount, the Trustees shall have the power with respect to that Series:
(i) to offset each Shareholder's pro rata share of such negative amount from the
accrued dividend account of such Shareholder; or (ii) to reduce the number of
Outstanding Shares of such Series by reducing the number of Shares in the
account of each Shareholder by a pro rata portion of the number of full and
fractional Shares which represents the amount of such excess negative net
income; or (iii) to cause to be recorded on the books of such Series an asset
account in the amount of such negative net income (provided that the same shall
thereupon become the property of such Series with respect to such Series and
shall not be paid to any Shareholder), which account may be reduced by the
amount, of dividends declared thereafter upon the Outstanding Shares of such
Series on the day such negative net income is experienced, until such asset
account is reduced to zero; or (iv) to combine the methods described in clauses
<PAGE>
(i) and (ii) and (iii) of the sentence; or (v) to take any other action they
deem appropriate, in order to cause (or in order to assist in causing) the Net
Asset Value per Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and declaration.
The Trustees also shall have the power not to declare a dividend out of net
income for the purpose of causing the Net Asset Value per share to be increased.
The Trustees shall not be required to adopt, but at any time may adopt,
discontinue, or amend the practice of maintaining the Net Asset value per Share
of the Series at a constant amount. In the event that any Series are divided
into classes, the provisions of this Section 9.03, to the extent applicable as
determined in the discretion of the Trustees and consistent with applicable law,
may be equally applied to each such class.
Section 9.04. Suspension of the Right of Redemption. The Trustees may declare
- ------------ -------------------------------------
a suspension of the right of redemption or postpone the date of payment as
permitted under the 1940 Act. Such suspension shall take effect at such time as
the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension.
ARTICLE X
---------
LIMITATION OF LIABILITY AND INDEMNIFICATION
-------------------------------------------
Section 10.01. Limitation of Liability. All persons contracting with or having
- ------------- -----------------------
any claim against the Trust or a particular Series shall look only to the assets
of all Series or such particular Series for payment under such contract or
claim; and neither the Trustees nor, when acting in such capacity, any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Every written instrument or obligation on behalf of
the Trust or any Series shall contain a statement to the foregoing effect, but
the absence of such statement shall not operate to make any Trustee or officer
of the Trust liable thereunder. Provided they have exercised reasonable care
and have acted under the reasonable belief that their actions are in the best
interest of the Trust, the Trustees and officers of the Trust shall not be
responsible or liable for any act or omission or for neglect or wrongdoing of
them or any officer, agent, employee, investment adviser or independent
contractor of the Trust, but nothing contained in this Declaration or in the
Delaware Act shall protect any Trustee or officer of the Trust against liability
to the Trust or to Shareholders to which he or she 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.
Section 10.02. Indemnification.
- ------------- ---------------
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
<PAGE>
(i) every Person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be indemnified
by the Trust to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in connection with
any claim, action, suit, or proceeding in which he or she becomes involved
as a party or otherwise by virtue of his being or having been a Trustee or
officer and against amounts paid or incurred by him in the settlement
thereof; and
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits, or proceedings (civil, criminal, or other,
including appeals), actual or threatened, while in office or thereafter,
and the words "liability" and "expenses" shall include, without limitation,
attorney's fees, costs, judgments, amounts paid in settlement, fines,
penalties, and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of his office
or (B) not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the settlement;
(B) by at least a majority of those Trustees who neither are
Interested Persons of the Trust nor are parties to the matter based
upon a review of readily-available facts (as opposed to a full trial-
type inquiry); or
(C) by written opinion of independent legal counsel based upon a
review of readily-available facts (as opposed to a full trial-type
inquiry); provided, however, that any Shareholder, by appropriate
legal proceedings, may challenge any such determination by the
Trustees or by independent counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors, and administrators of
such a person. Nothing contained herein shall affect any rights
<PAGE>
to indemnification to which Trust personnel, other than Covered Persons, and
other persons may be entitled by contract or otherwise under law.
(d) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 10.02 may be paid by the Trust or Series from time to time prior to
final disposition thereof upon receipt of any undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the Trust or
Series if it ultimately is determined that he or she is not entitled to
indemnification under this Section 10.02; provided, however, that either (a)
such Covered Person shall have provided appropriate security for such
undertaking; (b) the Trust is insured against losses arising out of any such
advance payments, or (c) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily-available facts (as opposed to a trial-type inquiry or full
investigation), that there is a reason to believe that such Covered Person will
be found entitled to indemnification under this Section 10.02.
Section 10.03. Shareholders. In case any Shareholder or former Shareholder of
- ------------- ------------
any Series shall be held to be personally liable solely by reason of his being
or having been a Shareholder of such Series and not because of his acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his heirs, executors, administrators, or other legal representatives, or, in the
case of a corporation or other entity, its corporate or other general successor)
shall be entitled out of the assets belonging to the applicable Series to be
held harmless from and indemnified against all loss and expense arising from
such liability. The Trust, on behalf of the affected Series, shall assume, upon
request by the Shareholder, the defense of any claim made against the
Shareholder for any act or obligation of the Series and satisfy any judgment
thereon from the assets of the Series.
Section 10.04. No Bond Required of Trustees. No Trustee shall be obligated to
- -------------- ----------------------------
give any bond or other security for the performance of any of his duties
hereunder.
Section 10.05. No Duty of Investigation; Notice in Trust Instruments, Etc No
- ------------- ----------------------------------------------------------
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust or a Series thereof shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust or a Series thereof under any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the Trust Property or the Trust Property of
<PAGE>
the applicable Series, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property or the Trust Property of the applicable
Series, its Shareholders, Trustees, officers, employees and agents in such
amount as the Trustees shall deem adequate to cover possible tort liability, and
such other insurance as the Trustees in their sole judgment shall deem
advisable.
Section 10.6. Reliance on Experts, Etc. Each Trustee, officer or employee of
- ------------ -------------------------
the Trust or a Series thereof shall, in the performance of his duties, powers
and discretions hereunder be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust or a Series thereof,
upon an opinion of counsel, or upon reports made to the Trust or a Series
thereof by any of its officers or employees or by the Investment Adviser, the
Administrator, the Distributor, Transfer Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
ARTICLE XI
----------
MISCELLANEOUS
-------------
Section 11.01. Trust Not a Partnership. It is hereby expressly declared that a
- ------------- -----------------------
trust and not a partnership is created hereby. No Trustee hereunder shall have
any power to bind personally either the Trust's officers or any Shareholder.
All persons extending credit to, contracting with, or having any claim against
the Trust or the Trustees shall look only to the assets of the appropriate
Series or (If the Trustees shall have yet to have established the Series) the
Trust for payment under such credit, contract, or claim; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past, present,
or future, shall be personally liable therefore. Nothing in this Trust
Instrument shall protect a Trustee against any liability to which the Trustee
otherwise would be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
Section 11.02. Trustee Action. The exercise by the Trustees of their powers and
- ------------- --------------
discretions hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested.
Subject to the provisions of Article X hereof and to Section 11.01 of this
Article XI, the Trustees shall not be liable for errors of judgment or mistakes
of fact or law.
Section 11.03. Establishment of Record Dates. For the purpose of determining the
- ------------- -----------------------------
Shareholders of any Series (or class) who are entitled to receive payment of any
dividend or of any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such dividend or such
other payment, as the record date for determining the Shareholders of such
Series (or class) having the right to receive such dividend or distribution.
Without fixing a record date, the Trustees may for distribution purposes close
the register or transfer books for one or more Series (or classes) any time
prior to the payment of a distribution.
<PAGE>
Nothing in this Section shall be construed as precluding the Trustees from
setting different record dates for different Series (or classes). The Trustees
may fix in advance a date, to be determined by the Trustees and no longer than
that permitted by applicable law, before the date of any Shareholders' meeting,
or the date for the payment of any dividends or other distributions, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of Shares shall go into effect as a record date for the determination
of the Shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of such dividend or other distribution, or to
receive any such allotment of rights, or to exercise such rights in respect of
any such change, conversion or exchange of Shares.
Section 11.04. Termination of Trust.
- ------------- --------------------
(a) This Trust shall continue without limitation of time but subject
to the provisions of paragraph (b) of this Section 11.04.
(b) The Trustees, subject to a majority shareholder vote of each
Series affected by the matter, or, if applicable, to a majority shareholder vote
of the Trust, and subject to a vote of a majority of the Trustees, may:
(i) sell and convey all or substantially all of the assets of
the Trust or any affected Series to another trust, partnership,
association, or corporation, or to a separate series of shares
thereof, organized under the laws of any state, which trust,
partnership, association, or corporation is an open-end management
investment company as defined in the 1940 Act, or is a series thereof,
for adequate consideration which may include the assumption of all
outstanding obligations, taxes, and other liabilities, accrued or
contingent, of the Trust or any affected Series, and which may include
shares of beneficial interest, stock, or other ownership interests of
such trust, partnership, association, or corporation or of a series
thereof; or
(ii) at any time, sell and convert into money all of the assets
of the Trust or any affected series.
Upon making reasonable provision, in the determination of the
Trustees, for the payment of all such liabilities in either (i) or (ii) of this
Section 11.04(b), by such assumption or otherwise, the Trustees shall distribute
the remaining proceeds or assets (as the case may be) of each Series (or class)
ratably among the holders of Shares of that Series then outstanding.
(c) The Trustees may take any of the actions specified in this
Section 11.04(b)(i) and (ii) above without obtaining the approval of
shareholders if a majority of the Trustees determines that the continuation of
the Trust or Series (or class) is not in the best interests of the Trust, such
Series (or class), or their respective Shareholders as a result of factors or
events adversely affecting the ability of the Trust or such Series (or class) to
conduct its business and operations in an economically viable manner. Such
factors and events may include the inability of the Trust or a Series (or class)
to maintain its assets at an appropriate size, changes in laws or regulations
governing the Trust or the Series (or class) or affecting assets of
<PAGE>
the type in which the Trust or Series (or class) invests, or economic
developments or trends having a significant adverse impact on the business or
operations of the Trust or such Series (or class).
(d) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in paragraph (b) of this Section 11.04, the
Trust or any affected Series shall terminate and the Trustees and the Trust
shall be discharged of any and all further liabilities and duties hereunder and
the right, title, and interest of all parties with respect to the Trust or
Series shall be canceled and discharged.
Upon termination of the Trust, following completion of winding up of
the Trust's business, the Trustees shall cause a certificate of cancellation of
the Trust's certificate of trust to be filed in accordance with the Delaware
Act, which certificate of cancellation may be signed by any one Trustee.
Section 11.05. Reorganization. Notwithstanding anything else herein, the
- ------------- ---------------
Trustees, in order to change the form of organization of the Trust, may, without
prior Shareholder approval, (i) cause the Trust to merge or consolidate with or
into one (1) or more trusts, partnerships, associations, or corporations so long
as the surviving or resulting entity is an open-end management investment
company under the 1940 Act, or is a series thereof, that will succeed to or
assume the Trust's registration under that Act and which is formed, organized,
or existing under the laws of a state, commonwealth, territory, possession, or
colony of the United States or (ii) cause the Trust to incorporate under the
laws of State of Delaware. Any agreement of merger or consolidation or
certificate of merger may be signed by a majority of Trustees and facsimile
signature conveyed by electronic or telecommunication means shall be valid.
Pursuant to and in accordance with the provisions of Section 3815(f)
of the Delaware Act, and notwithstanding anything to the contrary contained in
this Trust Instrument, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 11.05 may effect any amendment to the
Trust Instrument or effect the adoption of a new trust instrument of the Trust
if the Trust is the surviving or resulting trust in the merger or consolidation.
Section 11.06. Filing of Copies; References; Headings. The original or a copy
- ------------- --------------------------------------
of this Trust Instrument and the original or a copy of each amendment hereof or
Trust Instrument supplemental hereto shall be kept at the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing with the Trust may
rely on a certificate by an officer or Trustee of the Trust as to whether or not
any such amendments or supplements have been made and as to any matters in
connection with the Trust hereunder, and, with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this Trust Instrument or of any such amendment or supplemental
Trust Instrument, and references to this Trust Instrument, and all expressions
such as or similar to "herein," "hereof," and "hereunder" shall be deemed to
refer to this Trust Instrument as amended or affected by any such supplemental
Trust Instrument. All expressions such as or similar to "his," "he," and "him"
shall be deemed to include the feminine and neuter, as well as masculine,
genders. Headings are placed herein for convenience of reference only and, in
case of any conflict, the text of this Trust
<PAGE>
Instrument, rather than the headings, shall control. This Trust Instrument may
be executed in any number of counterparts each of which shall be deemed an
original.
Section 11.07. Applicable Law. The trust set forth in this instrument is made
- ------------- --------------
in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and the
laws of said State; provided, however, that there shall not be applicable to the
trust, the Trust, the Trustee or this Trust Instrument (a) the provisions of
Section 3540 of Title 12 of the Delaware Code or (b) any provisions of the laws
(statutory or common) of the State of Delaware (other than the Delaware Act)
pertaining to trusts which relate to or regulate (i) the filing with any court
or governmental body or agency of trustee accounts or schedules of trustee fees
and charges, (ii) affirmative requirements to post bonds for trustees, officers,
agents, or employees of a trust, (iii) the necessity for obtaining court or
other governmental approval concerning the acquisition, holding, or disposition
of real or personal property, (iv) fees or other sums payable to trustees,
officers, agents, or employees of a trust, (v) the allocation of receipts and
expenditures to income and principal, (vi) restrictions or limitations on the
permissible nature, amount, or concentration of trust investments or
requirements relating to the titling, storage, or other manner of holding of
trust assets, or (vii) the establishment of fiduciary or other standards or
responsibilities or limitations on the acts or powers of trustees, which are
inconsistent with the limitations or liabilities or authorities and powers of
the Trustees set forth or referenced in this Trust Instrument. The Trust shall
be of the type commonly called a "Delaware business trust," and, without
limiting the provisions hereof, the Trust may exercise all powers or privileges
afforded to trusts or actions that may be engaged in by trusts under the
Delaware Act, and the absence of a specific reference herein to any such power,
privilege, or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.
Section 11.08. Amendments. Except as specifically provided herein, the
- ------------- ----------
Trustees, without shareholder vote, may amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto, or an
amended and restated trust instrument. Shareholders shall have the right to
vote (i) on any amendment which would affect their right to vote granted in
Section 7.01 of the Article VII hereof, (ii) on any amendment to this Section
11.08, (iii) on any amendment as may be required by law or by the Trust's
registration statement filed with the Commission, and (iv) on any amendment
submitted to the Shareholders by the Trustees. Any amendment required or
permitted to be submitted to Shareholders which, as the Trustees determine,
shall affect the Shareholders of one or more Series shall be authorized by vote
of the Shareholders of each Series affected and no vote of Shareholders of a
Series not affected shall be required. Notwithstanding anything else herein,
any amendment to Article X hereof shall not limit the rights to indemnification
or insurance provided therein with respect to action or omission of Covered
Persons prior to such amendment.
Section 11.09. Derivative Actions. In addition to the requirements set forth
- ------------- ------------------
in Section 3816 of the Delaware Act, a Shareholder may bring a derivative action
on behalf of the Trust only if the following conditions are met:
<PAGE>
(a) Shareholders eligible to bring such derivative action under the
Delaware Act who hold at least 10% of the Outstanding Shares of the Trust, or
10% of the Outstanding Shares of the Series or class to which such action
relates, shall join in the request for the Trustees to commence such action; and
(b) The Trustees must be afforded a reasonable amount of time to
consider such shareholder request and to investigate the basis of such claim.
The Trustees shall be entitled to retain counsel or other advisers in
considering the merits of the request and shall require an undertaking by the
Shareholders making such request to reimburse the Trust for the expense of any
such advisers in the event that the Trustees determine not to bring such action.
Section 11.10. Fiscal Year. The fiscal year of the Trust shall end on a
- ------------- -----------
specified date as set forth in the By-Laws, provided, however, that the
Trustees, without Shareholder approval, may change the fiscal year of the Trust.
Section 11.11. Provisions in Conflict With Law. The provisions of this Trust
- ------------- -------------------------------
Instrument are severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the 1940 Act, with
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or improper, unenforceability shall attach only to such provision in
such jurisdiction and shall not in any manner affect such provisions in any
other jurisdiction or any other provision of this Trust Instrument in any
jurisdiction.
IN WITNESS WHEREOF, the undersigned, being the initial Trustee of the
Trust, has executed this instrument this 16th day of December, 1999.
/s/ Nathan Most
----------------------------------------
as Trustee and not individually
<PAGE>
Exhibit (b)
AMENDED AND RESTATED
BY-LAWS
OF
iSHARES TRUST
These By-Laws of iShares Trust (the "Trust"), a Delaware business
trust, are subject to the Trust's Declaration of Trust, dated February 16, 2000,
as from time to time amended, supplemented, or restated (the "Trust
Instrument"). Capitalized terms used herein which are defined in the Trust
Instrument are used as therein defined.
ARTICLE I
---------
PRINCIPAL OFFICE
----------------
The principal office of the Trust shall be located at 200 Clarendon
Street, Boston Massachusetts 02116 or such other location as the Trustees, from
time to time, may determine. The Trust may establish and maintain such other
offices and places of business as the Trustees, from time to time, may
determine.
ARTICLE II
----------
OFFICERS AND THEIR ELECTION
---------------------------
Section 1. Officers. The officers of the Trust shall be President, a
- --------- --------
Treasurer, a Secretary, and such other officers as the Trustees from time to
time may elect. The Trustees may delegate to any officer or committee the power
to appoint any subordinate officers or agents. It shall not be necessary for
any Trustee or officer to be a holder of Shares in the Trust.
Section 2. Election of Officers. The Treasurer and Secretary shall be chosen by
- --------- --------------------
the Trustees. The President shall be chosen by and from the Trustees. Two (2)
or more offices may be held by a single person except the offices of President
and Secretary. Subject to the provisions of Section 3 of Article II of these
By-Laws, the President, the Treasurer, and the Secretary shall each hold office
until their successors are chosen and qualified and all other officers shall
hold office at the pleasure of the Trustees.
Section 3. Resignations. Any officer of the Trust may resign, notwithstanding
- --------- ------------
Section 2 of Article II of these By-Laws, by filing a written resignation with
the President, the Trustees, or the Secretary, which resignation shall take
effect on being so filed or at such time as may be therein specified.
ARTICLE III
-----------
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
------------------------------------------
Section 1. Management of the Trust; General. The business and affairs of the
- --------- --------------------------------
Trust shall be managed by, or under the direction of, the Trustees, and the
Trustees shall have all powers
<PAGE>
necessary and desirable to carry out their responsibilities, so far as such
powers are not inconsistent with the laws of the State of Delaware, the Trust
Instrument, or with these By-Laws.
Section 2. Executive and Other Committees. The Trustees may elect from their
- --------- ------------------------------
own number an executive committee, which shall have any or all the powers of the
Trustees while the Trustees are not in session. The Trustees also may elect
from their own number other committees from time to time. The number composing
such committees and the powers conferred upon the same are to be determined by
vote of a majority of the Trustees. All members of such committees shall hold
such offices at the pleasure of the Trustees. The Trustees may abolish any such
committee at any time. Any committee to which the Trustees delegate any of
their powers or duties shall keep records of its meetings and shall report its
actions to the Trustees. The Trustees shall have power to rescind any action of
any committee, but no such rescission shall have retroactive effect.
Section 3. Compensation. Each Trustee and each committee member may receive
- --------- ------------
such compensation for his services and reimbursement for his expenses as may be
fixed from time to time by resolution of the Trustees.
Section 4. Chairman of the Trustees. The Trustees shall appoint from among
- --------- ------------------------
their number a Chairman who shall serve as such at the pleasure of the Trustees.
When present, he shall preside at all meetings of the Shareholders and the
Trustees, and he may appoint, subject to the approval of the Trustees, a Trustee
to preside at such meetings in his absence. He shall perform such other duties
as the Trustees from time to time may designate.
Section 5. President. The President shall be the chief executive officer of
- --------- ---------
the Trust and, subject to the direction of the Trustees, shall have general
administration of the business and policies of the Trust. Except as the
Trustees otherwise may order, the President shall have the power to grant,
issue, execute, or sign such powers of attorney, proxies, agreements, or other
documents as may be deemed advisable or necessary in the furtherance of the
interest of the Trust or any Series thereof. He also shall have the power to
employ attorneys, accountants, and other advisers and agents and counsel for the
Trust. The President shall perform such duties additional to all of the
foregoing as the Trustees from time to time may designate.
Section 6. Treasurer. The Treasurer shall be the principal financial and
- --------- ---------
accounting officer of the Trust. He shall deliver all funds and securities of
the Trust which may come into his hands to such company as the Trustees shall
employ as Custodian in accordance with the Trust Instrument and applicable
provisions of law. He shall make annual reports regarding the business and
condition of the Trust, which reports shall be preserved in Trust records, and
he shall furnish such other reports regarding the business and condition of the
Trust as the Trustees from time to time may require. The Treasurer shall
perform such additional duties as the Trustees from time to time may designate.
Section 7. Secretary. The Secretary shall record in books kept for the purpose
- --------- ---------
all votes and proceedings of the Trustees and the Shareholders at their
respective meetings. He shall have the custody of the seal of the Trust. The
Secretary shall perform such additional duties as the Trustees from time to time
may designate.
<PAGE>
Section 8. Vice President. Any Vice President of the Trust shall perform such
- --------- --------------
duties as the Trustees or the President from time to time may designate. At the
request or in the absence or disability of the President, the Vice President
(or, if there are two (2) or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) may perform all the duties of the President
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the President.
Section 9. Assistant Treasurer. Any Assistant Treasurer of the Trust shall
- --------- -------------------
perform such duties as the Trustees or the Treasurer from time to time may
designate, and, in the absence of the Treasurer, the senior Assistant Treasurer,
present and able to act, may perform all the duties of the Treasurer.
Section 10. Assistant Secretary. Any Assistant Secretary of the Trust shall
- ---------- -------------------
perform such duties as the Trustees or the Secretary from time to time may
designate, and, in the absence of the Secretary, the senior Assistant Secretary,
present and able to act, may perform all the duties of the Secretary.
Section 11. Subordinate Officers. The Trustees from time to time may appoint
- ---------- --------------------
such other officers or agents as the Trustees may deem advisable, each of whom
shall have such title, hold office for such period, have such authority, and
perform such duties as the Trustees may determine. The Trustees from time to
time may delegate to one (1) or more officers or committees of Trustees the
power to appoint any such subordinate officers or agents and to prescribe their
respective terms of office, authorities, and duties.
Section 12. Surety Bonds. The Trustees may require any officer or agent of the
- ---------- ------------
Trust to execute a bond (including, without limitation, any bond required by the
Investment Company Act of 1940, as amended ("the 1940 Act") and the rules and
regulations of the Securities and Exchange Commission ("Commission")) to the
Trust in such sum and with such surety or sureties as the Trustees may
determine, conditioned upon the faithful performance of such officer's or
agent's duties to the Trust including responsibility for negligence and for the
accounting of any of the Trust's property, funds, or securities that may come
into such officer's or agent's hands.
Section 13. Removal. Any officer of the Trust may be removed from office
- ---------- -------
whenever in the judgment of the Trustees the best interest of the Trust will be
served thereby, by the vote of a majority of the Trustees given at any regular
meeting or any special meeting of the Trustees. In addition, any officer or
agent appointed in accordance with the provisions of Section 11 hereof may be
removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Trustees.
Section 14. Renumeration. The salaries or other compensation, if any, of the
- ---------- ------------
officers of the Trust shall be fixed from time to time by resolution of the
Trustees.
<PAGE>
ARTICLE IV
----------
SHAREHOLDERS' MEETING
---------------------
Section 1. Special Meetings. A special meeting of the Shareholders shall be
- --------- ----------------
called by the Secretary whenever (i) ordered by the Trustees or (ii) requested
in writing by the holder or holders of at least ten percent (10%) of the
Outstanding Shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than thirty (30) days to call such
special meeting, the Trustees or the Shareholders so requesting, in the name of
the Secretary, may call the meeting by giving notice thereof in the manner
required when notice is given by the Secretary. If the meeting is a meeting of
the Shareholders of one (1) or more Series or classes of Shares, but not a
meeting of all Shareholders of the Trust, then only special meetings of the
Shareholders of such one (1) or more Series or Classes shall be called and only
the Shareholders of such one (1) or more Series or Classes shall be entitled to
notice of and to vote at such meeting.
Section 2. Notices. Except as above provided, notices of any meeting of the
- --------- -------
Shareholders shall be given by the Secretary by delivering, by any method
permitted by applicable law and approved by the Trustees, or mailing, postage
prepaid, to each Shareholder entitled to vote at said meeting, written or
printed notification of such meeting at least fifteen (15) days before the
meeting, to such address as may be registered with the Trust by the Shareholder.
Notice of any Shareholder meeting need not be given to any Shareholder if a
written waiver of notice, executed before or after such meeting, is filed with
the record of such meeting, or to any Shareholder who shall attend such meeting
in person or by proxy. Notice of adjournment of a Shareholders' meeting to
another time or place need not be given, if such time and place are announced at
the meeting and reasonable notice is given to persons present at the meeting and
the adjourned meeting is held within a reasonable time after the date set for
the original meeting.
Section 3. Voting-Proxies. Subject to the provisions of the Trust Instrument,
- --------- --------------
Shareholders entitled to vote may vote either in person or by proxy, provided
that either (i) an instrument authorizing such proxy to act is executed by the
Shareholder in writing and dated not more than eleven (11) months before the
meeting, unless this instrument specifically provides for a longer period or
(ii) the Trustees adopt by resolution an electronic, telephonic, computerized,
or other alternative to execution of a written instrument authorizing the proxy
to act, which authorization is received no more than eleven (11) months before
the meeting. Proxies shall be delivered to the Secretary of the Trust or other
persons responsible for recording the proceedings before being voted. A proxy
with respect to Shares held in the name of two (2) or more persons shall be
valid if executed by one (1) of them unless at or prior to exercise of such
proxy the Trust receives specific written notice to the contrary from any one
(1) of them. Unless otherwise specifically limited by their terms, proxies
shall entitle the holder thereof to vote at any adjournment of a meeting. A
proxy purporting to be exercised by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden or
providing invalidity shall rest on the challenger. At all meetings of the
Shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualifications of voters, the validity or proxies, and the
acceptance or rejection of votes shall be decided by the Chairman of the
meeting. Except as otherwise provided herein or in the Trust Instrument, as
these By-Laws or such Trust Instrument may be amended or supplemented from time
to time, all matters relating to the giving, voting, or
<PAGE>
validity or proxies shall be governed by the General Corporation Law of the
State of Delaware relating to proxies, and judicial interpretations thereunder,
as if the Trust were a Delaware corporation and the Shareholders were
shareholders of a Delaware corporation.
Section 4. Place of Meeting. All special meetings of the Shareholders shall be
- --------- ----------------
held at the principal place of business of the Trust or at such other place in
the United States as the Trustees may designate.
Section 5. Action Without a Meeting. Any action to be taken by Shareholders
- --------- ------------------------
may be taken without a meeting if all Shareholders entitled to vote on the
matter consent to the action in writing and the written consents are filed with
the records of meetings of Shareholders of the Trust. Such consent shall be
treated for all purposes as a vote at a meeting of the Trustees held at the
principal place of business of the Trust.
ARTICLE V
---------
TRUSTEES' MEETINGS
------------------
Section 1. Special Meetings. Special meetings of the Trustees may be called
- --------- ----------------
orally or in writing by the Chairman of the Board of Trustees or any two (2)
other Trustees.
Section 2. Regular Meeting. Regular meetings of the Trustees may be held at
- --------- ---------------
such places and at such times as the Trustees from time to time may determine;
each Trustee present at such determination shall be deemed a party calling the
meeting and no call or notice will be required to such Trustee provided that any
Trustee who is absent when such determination is made shall be given notice of
the determination by the Chairman or any two (2) other Trustees, as provided for
in Section 4.04 of the Trust Instrument.
Section 3. Quorum. Three (3) Trustees shall constitute a quorum for the
- --------- ------
transaction of business and an action of a majority of the quorum shall
constitute action of the Trustees.
Section 4. Notice. Except as otherwise provided, notice of any special meeting
- --------- ------
of the Trustees shall be given by the party calling the meeting to each Trustee,
as provided for in Section 4.04 of the Trust Instrument. A written notice may
be mailed, postage prepaid, addressed to him at his address as registered on the
books of the Trust or, if not so registered, at his last known address.
Section 5. Place of Meeting. All special meetings of the Trustees shall be
- --------- ----------------
held at the principal place of business of the Trust or such other place as the
Trustees may designate. Any meeting may adjourn to any place.
Section 6. Special Action. When all the Trustees shall be present at any
- --------- --------------
meeting, however called or wherever held, or shall assent to the holding of the
meeting without notice, or shall sign a written assent thereto filed with the
record of such meeting, the acts of such meeting shall be valid as if such
meeting had been regularly held.
<PAGE>
Section 7. Action By Consent. Any action by the Trustees may be taken without
- --------- -----------------
a meeting if a written consent thereto is signed by all the Trustees and filed
with the records of the Trustees' meeting. Such consent shall be treated, for
all purposes, as a vote at a meeting of the Trustees held at the principal place
of business of the Trustees.
Section 8. Participation in Meetings By Conference Telephone. Trustees may
- --------- -------------------------------------------------
participate in a meeting of Trustees by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting. Any meeting conducted by telephone shall be deemed to
take place at and from the principal office of the Trust.
ARTICLE VI
----------
SHARES OF BENEFICIAL INTEREST
-----------------------------
Section 1. Beneficial Interest. The beneficial interest in the Trust at all
- --------- -------------------
times shall be divided into such transferable Shares of one (1) or more separate
and distinct Series, or classes thereof, as the Trustees from time to time shall
create and establish. The number of Shares is unlimited, and each Share of each
Series or class thereof shall be without par value and shall represent an equal
proportionate interest with each other Share in the Series, none having priority
or preference over another, except to the extent that such priorities or
preferences are established with respect to one (1) or more classes of shares
consistent with applicable law and any rule or order to the Commission.
Section 2. Transfer of Shares. The Shares of the Trust shall be transferable,
- --------- -------------------
so as to affect the rights of the Trust, only by transfer recorded on the books
of the Trust, in person or by attorney.
Section 3. Equitable Interest Not Recognized. The Trust shall be entitled to
- --------- ---------------------------------
treat the holder of record of any Share or Shares of beneficial interest as the
holder in fact thereof, and shall not be bound to recognize any equitable or
other claim or interest in such Share or Shares on the part of any other person
except as otherwise may be expressly provided by law.
Section 4. Share Certificate. In lieu of issuing certificates for Shares, the
- --------- -----------------
Trustees or the transfer or shareholder services agent either may issue receipts
therefor or may keep accounts upon the books of the Trust for the record holders
of such Shares, who in either case shall be deemed, for all purposes hereunder,
to be holders of certificates for such Shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
ARTICLE VII
-----------
OWNERSHIP OF ASSETS OF THE TRUST
--------------------------------
The Trustees, acting for and on behalf of the Trust, shall be deemed
to hold legal and beneficial ownership of any income earned on securities held
by the Trust issued by any business entity formed, organized or existing under
the laws of any jurisdiction other than a state,
<PAGE>
commonwealth, possession, territory, or colony of the United States or the laws
of the United States.
ARTICLE VIII
------------
INSPECTION OF BOOKS
-------------------
The Trustees from time to time shall determine whether and to what
extent, and at what times and places, and under what conditions and regulations,
the accounts and books of the Trust or any of them shall be open to the
inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees or by resolution of the Shareholders.
ARTICLE IX
----------
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES
----------------------------------------------
The Trust may purchase and maintain insurance on behalf of any Covered
Person or employee of the Trust, including any Covered Person or employee of the
Trust who is or was serving at the request of the Trust as a Trustee, officer,
or employee of a corporation, partnership, association, joint venture, trust, or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not the
Trustees would have the power to indemnify him against such liability.
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its Shareholders to which he otherwise would be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
ARTICLE X
---------
SEAL
----
The seal of the Trust shall be circular in form bearing the
inscription:
"iSHARES TRUST
THE STATE OF DELAWARE"
The form of the seal shall be subject to alteration by the Trustees
and the seal may be used by causing the seal or a facsimile to be impressed or
affixed or printed or otherwise reproduced.
Any officer or Trustee of the Trust, or agent of the Trust acting in
such capacity, shall have authority to affix the seal of the Trust to any
document, instrument, or other paper executed and delivered by or on behalf of
the Trust; however, unless otherwise required by the Trustees, the seal shall
not be necessary to be placed on, and the seal's absence shall not impair the
validity of, any document, instrument, or other paper executed by or on behalf
of the Trust.
<PAGE>
ARTICLE XI
----------
FISCAL YEAR
-----------
The fiscal year of the Trust, or of any Series thereof, shall end on
such date as the Trustees from time to time shall determine.
ARTICLE XII
-----------
AMENDMENTS
----------
These By-Laws may be amended at any meeting of the Trustees of the
Trust by a majority vote.
ARTICLE XIII
------------
REPORT TO SHAREHOLDERS
----------------------
The Trustees at least semiannually shall submit to the Shareholders a
written financial report of the Trust including financial statements which shall
be certified at least annually by independent public accountants.
ARTICLE XIV
-----------
HEADINGS
--------
Headings are placed in these By-Laws for convenience of reference only
and, in case of any conflict, the text of these By-Laws rather than the headings
shall control.
Adopted: December 16, 1999
Amended: February 16, 2000
<PAGE>
Exhibit (d)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of this 10th day of May, 2000 between Barclays Global
Fund Advisors, a corporation organized under the laws of the State of California
(the "Adviser"), and iShares Trust, a business trust organized under the laws of
the State of Delaware (the "Trust").
WHEREAS, the Adviser is principally engaged in the business of rendering
investment management services and is registered as an investment adviser under
the Investment Advisers Act of 1940 (the "Advisers Act"); and
WHEREAS, the Trust proposes to engage in the business of an investment
company and is registered as such under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust intends initially to offer shares representing interests
in each of the separate series listed on Schedule A attached hereto (each, an
"Initial Fund" and collectively, the "Initial Funds"); and
WHEREAS, the Trust desires to appoint the Adviser to serve as the
investment adviser with respect to each of the Initial Funds; and
WHEREAS, the Trust may, from time to time, offer shares representing
interests in one or more additional series (each, an "Additional Fund" and
collectively, the "Additional Funds"); and
WHEREAS, the Trust may desire to appoint the Adviser as the investment
adviser with respect to one or more of the "Additional Funds" (each such
Additional Fund and Initial Fund being referred to herein individually as a
"Fund" and collectively as the "Funds");
NOW THEREFORE, the parties hereto hereby agree as follows:
1. APPOINTMENT OF ADVISER
The Trust hereby appoints the Adviser to act as investment adviser for the
Initial Funds for the period and on terms set forth herein. The Adviser
accepts such appointment and agrees to render such services for the
compensation set forth herein. In the event that the Trust desires to
retain the Adviser to render
<PAGE>
investment advisory services hereunder with respect to an Additional Fund,
and the Adviser is willing to render such services, Schedule A shall be
amended in accordance with Section 8, paragraph b herein, whereupon such
Additional Fund shall become a Fund hereunder.
2. DUTIES OF THE ADVISER
The Adviser, at its own expense shall: (i) furnish continuously an
investment program for each Fund; (ii) manage the investment and
reinvestment of Fund assets; (iii) determine what investments shall be
purchased, held, sold or exchanged for each Fund and what portion, if any,
of the assets of each Fund shall be held uninvested; (iv) make changes on
behalf of the Trust in the investments for each Fund; (v) provide the Trust
with records concerning the Adviser's activities that the Trust is required
to maintain; and (vi) render reports to the Trust's officers and Board of
Trustees concerning the Adviser's discharge of the foregoing
responsibilities. In addition, the Adviser will arrange for other necessary
services, including custodial, transfer agency and administration. The
Adviser shall furnish to the Trust all office facilities, equipment,
services and executive and administrative personnel necessary for managing
the investment program of the Trust for each Fund. The Adviser may at its
expense employ others to provide all or any part of such facilities and
personnel.
The Adviser shall discharge the foregoing responsibilities subject to the
control of the Board of Trustees of the Trust and in compliance with such
policies as the Trustees may from time to time establish, each Fund's
investment objective and policies, as set forth in the then current
prospectus and statement of additional information for such Fund contained
in the Trust's Registration Statement on Form N-1A, as such prospectus and
statement of additional information is amended or supplemented from time to
time, and applicable laws and regulations.
3. CERTAIN RECORDS AND REPORTS
Any records required to be maintained and preserved pursuant to the
provisions of Rule 31a-1 and Rule 31a-2 under the 1940 Act that are
prepared or maintained by the Adviser (or any sub-adviser) on behalf of the
Trust are the property of the Trust and will be surrendered promptly to the
Trust at its request (the "Records"). The Adviser agrees to preserve the
Records for the periods prescribed in Rule 31a-2 under the 1940 Act. The
Trust and the Adviser agree to furnish to each other, if applicable,
current prospectuses, proxy statements, reports to shareholders, certified
copies of their financial statements, and such other information with
regard to their affairs as each may reasonably request.
2
<PAGE>
4. ADVISORY FEES
For the services to be provided by the Adviser hereunder with respect to
each Fund, the Trust shall pay to the Adviser a fee at the rate set forth
on Schedule A attached hereto. The Adviser agrees to pay all expenses
incurred by the Trust except for interest, taxes, brokerage expenses and
other expenses connected with the execution of portfolio transactions,
extraordinary expenses, and distribution fees and expenses paid by the
Trust under any distribution plan adopted pursuant to rule 12b-1 under the
1940 Act. Schedule A shall be amended from time to time to reflect the
addition and/or termination of any Fund as a Fund hereunder and to reflect
any change in the advisory fees payable with respect to any Fund duly
approved in accordance with Section 8, paragraph b hereunder. All fees
payable hereunder shall be accrued daily and paid as soon as practical
after the last day of each month.
In any case of commencement or termination of this Agreement with respect
to any Fund during any calendar quarter, the fee with respect to such Fund
for that quarter shall be reduced proportionately based upon the number of
calendar days during which it is in effect, and the fee shall be computed
upon the average daily net assets of such Fund for the days during which it
is in effect.
5. PORTFOLIO TRANSACTIONS
In connection with the management of the investment and reinvestment of
Fund assets pursuant to this Agreement, the Adviser, acting by its own
officers, directors or employees, is authorized to select the brokers or
dealers (including brokers and dealers that are affiliated with the Adviser
or the Trust's principal underwriter) that will execute purchase and sale
transactions for the Trust. In executing portfolio transactions and
selecting brokers or dealers, if any, the Adviser will use its best efforts
to seek on behalf of a Fund the best overall terms available, as described
from time to time, in the Trust's Registration Statement. In assessing the
best overall terms available for any transaction, the Adviser shall
consider all factors it deems relevant, including the breadth of the market
in and the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the
commission, if any (for the specific transaction and on a continuing
basis). In evaluating the best overall terms available, and in selecting
the broker or dealer, if any, to execute a particular transaction, the
Adviser may also consider the brokerage and research services (as those
terms are defined in Section 28(e) of the 1934 Act) provided to any fund of
the Trust. The Adviser may pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission another broker
or dealer would have charged for effecting the transaction if, but only if,
the Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided. The
Trust acknowledges
3
<PAGE>
that any such research may be useful to the Adviser in connection with
other accounts managed by it. Brokerage transactions for the Trust may be
effected through affiliates of the Adviser if approved by the Board of
Trustees, subject to applicable rules and regulations. The Adviser will
promptly communicate to the officers and the Trustees of the Trust such
information relating to Fund transactions as they may reasonably request.
6. LIABILITY OF ADVISER
Neither the Adviser nor its officers, directors, employees, agents,
affiliated persons or controlling persons or assigns shall be liable for
any error of judgment or mistake of law or for any loss suffered by the
Trust or its shareholders in connection with the matters to which this
Agreement relates; provided that no provision of this Agreement shall be
deemed to protect the Adviser against any liability to the Trust or its
shareholders resulting from any willful misfeasance, bad faith or gross
negligence in the performance of its duties or obligations hereunder, the
reckless disregard of its duties or obligations hereunder, or breach of its
fiduciary duty to the Trust, any Fund or its shareholders.
7. FORCE MAJEURE
Notwithstanding any other provision of this Agreement, Adviser shall not be
liable for any loss suffered by the Trust or its shareholders caused
directly or indirectly by circumstances beyond Adviser's reasonable control
including, without limitation, government restrictions, exchange or market
rulings, suspensions of trading, acts of civil or military authority,
national emergencies, labor difficulties, fires, earthquakes, floods or
other catastrophes, acts of God, wars, riots or failures of communication
or power supply.
8. DURATION, TERMINATION AND AMENDMENT
a. DURATION. This Agreement shall become effective with respect to each
Initial Fund on the date hereof and, with respect to any Additional
Fund, on the date Schedule A is amended to reflect such Additional
Fund in accordance with paragraph b below. Unless terminated in
accordance with this Section 8, the Agreement shall remain in full
force and effect for two years from the date hereof with respect to
each Initial Fund and, with respect to each Additional Fund, for two
years from the date on which such Fund becomes a Fund hereunder.
Subsequent to such initial periods of effectiveness, this Agreement
shall continue in full force and effect for periods of one year
thereafter with respect to each Fund so long as such continuance with
respect to such Fund is specifically approved at least annually (i) by
either the Board of Trustees of the Trust or by vote of a "majority of
the outstanding voting securities" (as defined in the 1940 Act) of
such Fund, and (ii), in either event, by the vote of a majority of the
4
<PAGE>
Trustees of the Trust who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such
approval. If the shareholders of any Fund fail to approve the
Agreement as provided herein, the Adviser may continue to serve
hereunder in the manner and to the extent permitted by the 1940 Act
and rules and regulations thereunder. The foregoing requirement that
continuance of this Agreement be "specifically approved at least
annually" shall be construed in a manner consistent with the 1940 Act
and the rules and regulations thereunder.
b. AMENDMENT. Any amendment to this Agreement shall become effective
with respect to a Fund upon approval of the Adviser, the Board of
Trustees of the Trust, including a majority of the Trustees of the
Trust who are not parties to this Agreement or "interested persons"
(as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting such approval and, if
required under the 1940 Act, a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund.
c. APPROVAL, AMENDMENT OR TERMINATION BY A FUND. Any approval, amendment
or termination of this Agreement with respect to a Fund will not
require the approval of any other Fund or the approval of a majority
of the outstanding voting securities of the Trust, unless such
approval is required by applicable law.
d. AUTOMATIC TERMINATION. This Agreement shall automatically and
immediately terminate in the event of its "assignment" (as defined in
the 1940 Act).
e. TERMINATION. This Agreement may be terminated with respect to any
Fund at any time, without payment of any penalty, by vote of the Board
of Trustees of the Trust or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of that Fund, or by the
Adviser, in each case on not less than 30 days' nor more than 60 days'
prior written notice to the other party; provided, that a shorter
notice period shall be permitted for a Fund in the event its shares
are no longer listed on a national securities exchange.
9. SERVICES NOT EXCLUSIVE
The services of the Adviser to the Trust hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to
others so long as its services hereunder are not impaired thereby. The
Adviser shall be deemed to be an independent contractor and shall, unless
otherwise expressly provided or
5
<PAGE>
authorized, have no authority to act for or represent the Trust in any way
or otherwise be deemed an agent of the Trust.
10. MISCELLANEOUS
a. NOTICE. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party
at such address as such other party may designate in writing for the
receipt of such notices.
b. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder shall not be thereby affected.
c. APPLICABLE LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of
the State of Delaware, or any of the provisions herein, conflict with
the applicable provisions of the 1940 Act, the latter shall control.
d. EXECUTION BY COUNTERPART. This Agreement may be executed in any
number of counterparts, all of which together shall constitute one
agreement.
e. SURVIVAL AFTER TERMINATION. The rights and obligations set forth in
Paragraphs 5 and 7 shall survive the termination of this Agreement.
f. PERMISSIBLE INTERESTS. Trustees, officers, agents and shareholders of
the Trust are or may be interested in the Adviser (or any successor
thereof) as directors, partners, officers, agents, shareholders or
otherwise; directors, partners, officers, agents and shareholders of
the Adviser are or may be interested in the Trust as Trustees,
officers, agents, shareholders or otherwise; and the Adviser (or any
successor thereof) is or may be interested in the Trust as a
shareholder or otherwise.
PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION (THE
"COMMISSION") IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE CLIENTS,
THIS DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE
COMMISSION. THE COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING
IN A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING
ADVISOR DISCLOSURE.
CONSEQUENTLY, THE COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING PROGRAM
OR THIS DOCUMENT.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be executed as of the date first set forth above.
iSHARES TRUST
By: /s/ Nathan Most
Name: Nathan Most
Title: President
BARCLAYS GLOBAL FUND ADVISORS
By: /s/ Garrett Bouton
-------------------------
Name: Garrett Bouton
-----------------------
Title: Chairman
----------------------
By: /s/ Lee Kranefuss
-----------------------
Name: Lee Kranefuss
-----------------------
Title: Managing Director
----------------------
7
<PAGE>
Schedule A
to the
Investment Advisory Agreement dated May 10, 2000
between
iShares Trust
and
Barclays Global Fund Advisors
Pursuant to Section 4, the Trust shall pay the Adviser compensation at the
following annual rates:
Fund Annual Fee
- ---- ----------
iShares S&P 500 Index Fund 0.09%
iShares Russell 1000 Index Fund 0.15%
iShares Dow Jones U.S. Internet Index Fund 0.60%
iShares Dow Jones U.S. Technology Sector Index Fund 0.60%
iShares S&P MidCap 400 Index Fund 0.20%
iShares S&P 500/BARRA Growth Index Fund 0.18%
iShares S&P 500/BARRA Value Index Fund 0.18%
iShares S&P SmallCap 600 Index Fund 0.20%
iShares Russell 1000 Growth Index Fund 0.20%
iShares Russell 1000 Value Index Fund 0.20%
iShares Russell 2000 Index Fund 0.20%
iShares Russell 3000 Index Fund 0.20%
iShares Dow Jones U.S. Financial Sector Index Fund 0.60%
iShares Dow Jones U.S. Telecommunications Sector Index Fund 0.60%
iShares S&P Europe 350 Index Fund 0.60%
iShares S&P/TSE 60 Index Fund 0.50%
iShares Dow Jones U.S. Total Market Index Fund 0.20%
iShares Dow Jones U.S. Basic Materials Sector Index Fund 0.60%
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund 0.60%
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund 0.60%
iShares Dow Jones U.S. Energy Sector Index Fund 0.60%
iShares Dow Jones U.S. Healthcare Sector Index Fund 0.60%
iShares Dow Jones U.S. Industrial Sector Index Fund 0.60%
iShares Dow Jones U.S. Utilities Sector Index Fund 0.60%
iShares Dow Jones U.S. Chemicals Index Fund 0.60%
iShares Dow Jones U.S. Financial Services Index Fund 0.60%
iShares Dow Jones U.S. Real Estate Index Fund 0.60%
iShares S&P MidCap 400/BARRA Growth Index Fund 0.25%
iShares S&P MidCap 400/BARRA Value Index Fund 0.25%
iShares S&P SmallCap 600/BARRA Growth Index Fund 0.25%
iShares S&P SmallCap 600/BARRA Value Index Fund 0.25%
iShares Russell 2000 Growth Index Fund 0.25%
iShares Russell 2000 Value Index Fund 0.25%
iShares Russell 3000 Growth Index Fund 0.25%
iShares Russell 3000 Value Index Fund 0.25%
8
<PAGE>
Exhibit (e.1)
3/1/00
DISTRIBUTION AGREEMENT
iShares Trust
c/o Investors' Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02111
April 25, 2000
SEI Investments Distribution Company
One Freedom Valley Drive
Oaks, Pennsylvania 19456
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that you
shall be, for the period of this agreement, the distributor of shares of each
Index Series of the Fund set forth on Exhibit A hereto, as such Exhibit may be
revised from time to time (each, an "Index Series"). For purposes of this
agreement the term "Shares" shall mean the authorized shares of the relevant
Index Series.
1. Services as Distributor
-----------------------
1.1 You will act as the sole agent of the Fund for the distribution of Shares
in Creation Units (as defined herein) covered by, and in accordance with, the
registration statement and prospectus then in effect under the Securities Act of
1933, as amended (the "1933 Act") and will transmit promptly any orders received
by you for purchase or redemption of Shares in Creation Units to the Transfer
Agent for the Fund of which the Fund has notified you in writing. You shall
deliver or cause the delivery of a prospectus to persons purchasing Shares in
Creation Units and shall maintain records of both orders placed with you and
confirmations of acceptance furnished by you. You represent and warrant that
you are a broker-dealer registered under the Securities Exchange Act of 1934
(the "1934 Act") and a member of the National Association of Securities Dealers,
Inc. You agree to comply with all of the applicable terms and provisions of the
1934 Act.
1.2 You agree to use your best efforts to perform the services contemplated
herein on a continuous basis. It is contemplated that you may enter into
"Authorized Participant Agreements" with broker-dealers who agree to solicit
orders for Shares. In addition, you may enter into sales or servicing
agreements with securities dealers, financial institutions and other industry
professionals, such as investment advisers, accountants and estate planning
firms. In entering into sales or servicing agreements, you will act only on
your own behalf as principal.
1.3 You shall act as distributor of Shares in Creation Units in compliance in
all material respects with all applicable laws, rules and regulations,
including, without limitations, all rules
<PAGE>
and regulations made or adopted pursuant to the Investment Company Act of 1940,
as amended, (the "1940 Act") by the Securities and Exchange Commission or any
securities association registered under the Securities Exchange Act of 1934, as
amended (the "1934 Act").
1.4 Whenever the parties hereto, in their collective judgment, mutually agree
that such action is warranted by unusual market, economic or political
conditions, or by abnormal circumstances of any kind deemed by them to render
sales of a Fund's Shares in Creation Units not in the best interest of the Fund,
the parties hereto may agree to decline to accept any orders for, or make any
sales of, any Shares in Creation Units until such time as the parties deem it
advisable to accept such orders and to make such sales.
1.5 The Fund agrees to pay all appropriate costs and expenses, including but
not limited to, all expenses in connection with the registration of Shares under
the 1933 Act and all expenses in connection with maintaining facilities for the
issue and transfer of Shares in Creation Units and for supplying information,
prices and other data to be furnished by the Fund hereunder, and all expenses in
connection with the preparation and printing of the Fund's prospectuses and
statements of additional information for regulatory purposes and for
distribution to shareholders; provided however, that the Fund shall not pay any
of the costs of advertising or promotion for the sale of Shares, except as such
payments may be made pursuant to Rule 12b-1 of the 1940 Act.
1.6 The Fund agrees to execute any and all documents and to furnish any and
all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Fund's officers in connection with the
qualification of Shares for sale in Creation Units in such states as you may
designate to the Fund and the Fund may approve, and the Fund agrees to pay all
expenses which may be incurred in connection with such qualification. You shall
pay all expenses connected with your own qualification as a dealer under state
or Federal laws and, except as otherwise specifically provided in this
agreement, all other expenses incurred by you in connection with the sale of
Shares in Creation Units as contemplated in this agreement.
1.7 The Fund shall furnish you from time to time, for use in connection with
the sale of Shares in Creation Units, such information with respect to the Fund
or any relevant Index Series and the Shares as you may reasonably request, all
of which shall be signed by one or more of the Fund's duly authorized officers;
and the Fund warrants that the statements contained in any such information,
when so signed by the Fund's officers, shall be true and correct. The Fund also
shall furnish you upon request with: (a) semi-annual reports and annual audited
reports of the Fund's books and accounts made by independent public accountants
regularly retained by the Fund, (b) quarterly earnings statements prepared by
the Fund, (c) a monthly itemized list of the securities in the Fund's or, if
applicable, each Index Series' portfolio, (d) monthly balance sheets as soon as
practicable after the end of each month, and (e) from time to time such
additional information regarding the Fund's financial condition as you may
reasonably request.
1.8 The Fund represents to you that all registration statements and
prospectuses filed by the Fund with the Securities and Exchange Commission under
the 1933 Act, and under the 1940 Act, with respect to the Shares have been
prepared in conformity with the requirements of said Acts and rules and
regulations of the Securities and Exchange Commission thereunder. As used in
this agreement the terms "registration statement" and "prospectus" shall mean
any registration statement and prospectus, including the statement of additional
information incorporated by reference therein, filed with the Securities and
Exchange Commission and any amendments and supplements thereto which at any time
shall have been filed with said Commission. The Fund
<PAGE>
represents and warrants to you that any registration statement and prospectus,
when such registration statement becomes effective, will contain all statements
required to be stated therein in conformity with said Acts and the rules and
regulations of said Commission; that all statements of fact contained in any
such registration statement and prospectus will be true and correct when such
registration statement becomes effective; and that neither any registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Fund will give you reasonable notice in advance of its
filing of any amendment to any registration statement or supplement to any
prospectus; provided, however, that nothing contained in this agreement shall in
any way limit the Fund's right to file at any time such amendments to any
registration statement and/or supplements to any prospectus, of whatever
character, as the Fund may deem advisable, such right being in all respects
absolute and unconditional.
1.9 The Fund authorizes you and any dealers with whom you have entered into
sales and investor services agreements to use any prospectus in the form most
recently furnished by the Fund in connection with the sale of Shares in Creation
Units. The Fund agrees to indemnify, defend and hold you, your several officers
and directors, and any person who controls you within the meaning of Section 15
of the 1933 Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred in
connection therewith) which you, your officers and directors, or any such
controlling persons, may incur under the 1933 Act, the 1940 Act or common law or
otherwise, (a) arising out of or on the basis of any untrue statement, or
alleged untrue statement, of a material fact required to be stated in either any
registration statement or any prospectus or any statement of additional
information, or (b) arising out of or based upon any omission, or alleged
omission, to state a material fact required to be stated in any registration
statement, any prospectus or any statement of additional information or
necessary to make the statements in any of them not misleading, (c) arising out
of breach of any obligation, representation or warranty pursuant to this
Agreement by the Fund, or (d) the Fund's failure to comply with applicable
securities laws, except that the Fund's agreement to indemnify you, your
officers or directors, and any such controlling person will not be deemed to
cover any such claim, demand, liability or expense to the extent that it arises
out of or is based upon any such untrue statement, alleged untrue statement,
omission or alleged omission made in any registration statement, any prospectus
or any statement of additional information in reliance upon information
furnished by you, your officers, directors or any such controlling person to the
Fund or its representatives for use in the preparation thereof, and except that
the Fund's agreement to indemnify you and the Fund's representations and
warranties set out in paragraph 1.8 of this Agreement will not be deemed to
cover any liability to the Funds or their shareholders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties, or by reason of your reckless
disregard of your obligations and duties under this Agreement ("Disqualifying
Conduct"). The Fund's agreement to indemnify you, your officers and directors,
and any such controlling person, as aforesaid, is expressly conditioned upon the
Fund's being notified of any action brought against you, your officers or
directors, or any such controlling person, such notification to be given by
letter, by facsimile or by telegram addressed to the Fund at its address set
forth above within a reasonable period of time after the summons or other first
legal process shall have been served. The failure so to notify the Fund of any
such action shall not relieve the Fund from any liability which the Fund
<PAGE>
may have to the person against whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, or alleged omission, otherwise
than on account of the Fund's indemnity agreement contained in this paragraph
1.9. The Fund will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but, in such case, such defense
shall be conducted by counsel of good standing chosen by the Fund and approved
by you. In the event the Fund elects to assume the defense of any such suit and
retain counsel of good standing approved by you, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them; but in case the Fund does not elect to assume the defense of any
such suit, the Fund will reimburse you, your officers and directors, or the
controlling person or persons named as defendant or defendants in such suit, for
the reasonable fees and expenses of any counsel retained by you or them. The
Fund's indemnification agreement contained in this paragraph 1.9 and the Fund's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
you, your officers and directors, or any controlling person, and shall survive
the delivery of any Shares. This agreement of indemnity will inure exclusively
to your benefit, to the benefit of your several officers and directors, and
their respective estates, and to the benefit of any controlling persons or other
affiliates, and their successors. The Fund agrees promptly to notify you of the
commencement of any litigation or proceedings against the Fund or any of its
officers or Board members in connection with the issue and sale of Shares.
1.10 You agree to indemnify, defend and hold the Fund, its several officers
and Board members, and any person who controls the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which the Fund, its officers or Board members, or any
such controlling person, may incur under the 1933 Act, the 1940 Act, or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Fund, its officers or Board members, or such controlling person
resulting from such claims or demands, (a) shall arise out of or be based upon
any information, statements or representations made or provided by you in any
sales literature or advertisements, or any Disqualifying Conduct by you in
connection with the offering and sale of any Shares, (b) shall arise out of or
be based upon any untrue, or alleged untrue, statement of a material fact
contained in information furnished in writing by you to the Fund specifically
for use in the Fund's registration statement and used in the answers to any of
the items of the registration statement or in the corresponding statements made
in the prospectus or statement of additional information, or shall arise out of
or be based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such information not
misleading, (c) arising out of your breach of any obligation, representation or
warranty pursuant to this Agreement, or (d) your failure to comply in any
material respect with applicable securities laws. Your agreement to indemnify
the Fund, its officers and Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being notified of any action
brought against the Fund, its officers or Board members, or any such controlling
person, such notification to be given by letter, by facsimile or by telegram
addressed to you at your address set forth above within a reasonable period of
time after the summons or other first legal process shall have been served. The
failure so to notify you of any such action shall not relieve you from any
liability which you may have to the Fund, its officers or Board members, or to
such controlling person by reason of any such
<PAGE>
untrue, or alleged untrue, statement or omission, or alleged omission, otherwise
than on account of your indemnity agreement contained in this paragraph. You
will be entitled to assume the defense of such action, but, in such case, such
defense shall be conducted by counsel of good standing chosen by you and
approved by an executive officer of the Fund, if such action is based solely
upon such alleged misstatement or omission on your part, and in any other event
Fund, its officers or Board members, or such controlling person shall each have
the right to participate in the defense or preparation of the defense of any
such action. This agreement of indemnity will inure exclusively to the Fund's
benefit, to the benefit of the Fund's officers and Board members, and their
respective estates, and to the benefit of any controlling persons and their
successors. You agree promptly to notify the Fund of the commencement of any
litigation or proceedings against you or any of your officers or directors in
connection with the issue and sale of Shares.
1.11 No Shares shall be offered by either you or the Fund under any of the
provisions of this agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act or if and so long as a current prospectus as required by Section 10 of said
Act is not on file with the Securities and Exchange Commission; provided,
however, that nothing contained in this paragraph 1.11 shall in any way restrict
or have any application to or bearing upon the Fund's obligation to redeem or
repurchase any Shares from any shareholder in accordance with the provisions of
the Fund's prospectus or charter documents.
1.12. The Fund agrees to advise you immediately in writing of the occurrence
of any of the following events, as soon as any such event comes to the attention
of the Fund:
(a) any request by the Securities and Exchange Commission for material
amendments to the registration statement or prospectus then in effect or for
additional information;
(b) the event of the issuance by the Securities and Exchange Commission
of any stop order suspending the effectiveness of the registration statement
or prospectus then in effect or the initiation of any proceeding for that
purpose;
(c) the happening of any event which makes untrue any statement of a
material fact made in the registration statement or prospectus then in effect
or which requires the making of a change in such registration statement or
prospectus in order to make the statements therein not misleading; and
(d) all material actions of the Securities and Exchange Commission with
respect to any amendments to any registration statement or prospectus which
may from time to time be filed with the Securities and Exchange Commission.
2. Offering Creation Units
-----------------------
Shares in Creation Units of each Index Series will be offered for sale
by you at a price per Creation Unit in the manner set forth in the then-current
prospectus, based on a net asset value determined in accordance with the Fund's
prospectus and charter documents. Any payments to dealers shall be governed by a
separate agreement between you and such dealer and the Fund's then-current
prospectus.
You will accept as compensation for the performance of your obligations
hereunder such compensation, if any, as may be provided for in any plan of
distribution adopted by the Fund with respect to the Fund or any Index Series
pursuant to Rule 12b-1 under the 1940 Act; or (b) the Service Standards
Agreements, made as of March 24, 2000, by and among you, Barclays Global Fund
Advisors and Barclays Global Investors, N.A.
<PAGE>
3. Term
----
This Agreement shall become effective with respect to each Index Series
of the Fund as of the date hereof and will continue for an initial two-year term
and is renewable annually thereafter so long as such continuance is specifically
approved (i) by the Fund's Board on behalf of each Index Series or (ii) by a
vote of a majority (as defined in the 1940 Act) of the Shares of the Fund or the
relevant Index Series, as the case may be, provided that in either event its
continuance also is approved by a majority of the Board members who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This agreement may be terminated in respect of an Index
Series at any time, without the payment of any penalty, (i) by vote of a
majority of the Directors who are not interested persons of the Fund (as defined
under the 1940 Act) or (ii) by vote of a majority (as defined under the 1940
Act) of the outstanding voting securities of the relevant Index Series, on at
least 60 days' written notice to you. This agreement may also be terminated at
any time by you, without the payment of any penalty, upon 60 days' notice by you
and will terminate automatically in the event of its assignment (as defined
under the 1940 Act).
4. Miscellaneous
-------------
4.1 The Fund recognizes that your directors, officers and employees may from
time to time serve as directors, trustees, officers and employees of
corporations and business trusts (including other investment companies), and
that you or your affiliates may enter into distribution or other agreements with
such other corporations and trusts.
4.2 No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
4.3 This Agreement shall be governed by the laws of the State of New York,
without regard to principles of conflicts of laws.
4.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
Please confirm that the foregoing is in accordance with your understanding
and indicate your acceptance hereof by signing below, whereupon it shall become
a binding agreement between us.
Very truly yours,
iSHARES TRUST
By: /s/ Nathan Most
Accepted:
SEI INVESTMENTS DISTRIBUTION COMPANY
By: /s/ James R. Foggo, Esq.
<PAGE>
EXHIBIT A
INDEX SERIES OF THE iSHARES TRUST
iShares S&P 500 Fund
iShares S&P 100 Fund
iShares S&P 500/BARRA Growth Fund
iShares S&P 500/BARRA Value Fund
iShares S&P MidCap 400 Fund
iShares S&P MidCap 400/BARRA Growth Fund
iShares S&P MidCap 400/BARRA Value Fund
iShares S&P SmallCap 600 Fund
iShares S&P SmallCap 600 Fund/BARRA Growth Fund
iShares S&P SmallCap 600 Fund/BARRA Value Fund
iShares S&P Euro Plus Fund
iShares S&P/TSE 60 Fund
iShares Dow Jones Total Market Fund
iShares Dow Jones U.S. Basic Materials Sector Fund
iShares Dow Jones U.S. Consumer Cyclicals Sectors Fund
iShares Dow Jones U.S. Consumer Non-Cyclicals Sector Fund
iShares Dow Jones U.S. Energy Sector Fund
iShares Dow Jones U.S. Financial Sector Fund
iShares Dow Jones U.S. Healthcare Sector Fund
iShares Dow Jones U.S. Industrials Sector Fund
iShares Dow Jones U.S. Technology Sector Fund
iShares Dow Jones U.S. Telecommunications Sector Fund
iShares Dow Jones U.S. Utilities Sector Fund
iShares Dow Jones U.S. Chemicals Fund
iShares Dow Jones U.S. Financial Services Fund
iShares Dow Jones Internet Fund
iShares Dow Jones U.S. Real Estate Fund
iShares Russell 3000 Fund
iShares Russell 3000 Growth Fund
iShares Russell 3000 Value Fund
iShares Russell 2000 Fund
iShares Russell 2000 Growth Fund
iShares Russell 2000 Value Fund
iShares Russell 1000 Fund
iShares Russell 1000 Growth Fund
iShares Russell 1000 Value Fund
<PAGE>
Exhibit (e.2)
iShares Trust
FORM OF
AUTHORIZED PARTICIPANT AGREEMENT
This Authorized Participant Agreement (the "Agreement") is entered into by
and between SEI Investments Distribution Company (together with its affiliates,
the "Distributor") and __________________________________ (the "Participant")
and is subject to acceptance by Investors Bank & Trust ("IBT" or the "Transfer
Agent"). The Transfer Agent serves as the transfer agent for the iShares Trust
(the "Fund") and is an Index Receipt Agent as that term is defined in the rules
of the National Securities Clearing Corporation ("NSCC"). The Distributor, the
Transfer Agent and the Participant acknowledge and agree that the Fund shall be
a third party beneficiary of this Agreement, and shall receive the benefits
contemplated by this Agreement, to the extent specified herein. The Distributor
has been retained to provide services as principal underwriter of the Fund
acting on an agency basis in connection with the sale and distribution of shares
of beneficial interest, par value $.001 per share (sometimes referred to as
"iSharesSM"), of the iShares Index Series of the Fund (each, an "Index Series")
named on Annex I hereto. As specified in the Fund's Prospectus and Statement of
Additional Information incorporated therein (the "Prospectus") included as part
of its registration statement, as amended, on Form N-1A (No. 811-09729), the
iShares of any Index Series offered thereby may be purchased or redeemed only in
aggregations of a specified number of iShares referred to therein and herein as
a "Creation Unit". The number of iShares presently constituting a Creation Unit
of each Index Series is set forth in Annex I. Creation Units of iShares may be
purchased only by or through a Participant that has entered into an Authorized
Participant Agreement with the Fund and the Distributor.
The Prospectus provides that Creation Units generally will be sold in
exchange for an in-kind deposit of a designated portfolio of equity securities
(the "Deposit Securities") and an amount of cash computed as described in the
Prospectus (the "Cash Component"), plus a purchase transaction fee as described
in the Prospectus, delivered to the Fund by the Participant for its own account
or acting on behalf of another party. Together, the Deposit Securities and the
Cash Component constitute the "Portfolio Deposit", which represents the minimum
initial and subsequent investment amount for iShares of any Index Series of the
Fund. References to the Prospectus are to the then current Prospectus as it may
be supplemented or amended from time to time. Capitalized terms not otherwise
defined herein are used herein as defined in the Prospectus.
This Agreement is intended to set forth certain premises and the
procedures by which the Participant may purchase and/or redeem Creation Units of
iShares (i) through the Continuous Net Settlement ("CNS") clearing processes of
NSCC as such processes have been enhanced to effect purchases and redemptions of
Creation Units, such processes being referred to herein as the "iShares Clearing
Process", or (ii) outside the iShares Clearing Process (i.e., through the
facilities of The Depository Trust Company ("DTC")). The procedures for
processing an order to purchase iShares (each a "Purchase Order") and an order
to redeem iShares (each a "Redemption Order") are described in the Fund's
Prospectus and in Annex II to this Agreement. All Purchase and Redemption
Orders must be made pursuant to the procedures set forth in Annex II. A
Participant may not place a Purchase Order before the fifth Business
<PAGE>
Day (as defined below) following execution and delivery to the Distributor of
this Agreement and notification by the Distributor of the Participant's status.
A Participant may not cancel a Purchase Order or a Redemption Order after an
order is placed by the Participant.
The parties hereto in consideration of the premises and of the mutual
agreements contained herein agree as follows:
1. STATUS OF PARTICIPANT. The Participant hereby represents, covenants and
---------------------
warrants that with respect to Purchase Orders or Redemption Orders of
Creation Units of iShares of any Index Series(i) through the iShares
Clearing Process, it is a member of NSCC and a participant in the CNS
System of NSCC (as defined in the Fund's Prospectus, a "Participating
Party"), and/or (ii) outside the iShares Clearing Process, it is a DTC
Participant (as defined in the Fund's Prospectus, a "DTC Participant"). The
Participant may place Purchase Orders or Redemption Orders for Creation
Units either through the iShares Clearing Process or outside the iShares
Clearing Process, subject to the procedures for purchase and redemption
referred to in paragraph 2 and Annex II of this Agreement ("Execution of
Orders"). Any change in the foregoing status of the Participant shall
terminate this Agreement and the Participant shall give prompt written
notice to the Distributor and the Fund of such change.
The Participant hereby represents and warrants that, unless the following
paragraph is applicable to it, it is registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended, is qualified to act as a
broker or dealer in the states or other jurisdictions where it transacts
business, and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"), and the Participant agrees that it
will maintain such registrations, qualifications, and membership in good
standing and in full force and effect throughout the term of this
Agreement. The Participant agrees to comply with all applicable Federal
laws, the laws of the states or other jurisdictions concerned, and the
rules and regulations promulgated thereunder and with the Constitution,
By-Laws and Conduct Rules of the NASD, and that it will not offer or sell
iShares of any Index Series of the Fund in any state or jurisdiction
where they may not lawfully be offered and/or sold.
If the Participant is offering and selling iShares of any Index Series of
the Fund in jurisdictions outside the several states, territories and
possessions of the United States and is not otherwise required to be
registered, qualified, or a member of the NASD as set forth above, the
Participant nevertheless agrees to observe the applicable laws of the
jurisdiction in which such offer and/or sale is made, to comply with the
full disclosure requirements of the Securities Act of 1933, as amended (the
"1933 Act") and the regulations promulgated thereunder and to conduct its
business in accordance with the spirit of the NASD Conduct Rules.
The Participant understands and acknowledges that the proposed method by
which Creation Units of iShares will be created and traded may raise
certain issues under applicable securities laws. For example, because new
Creation Units of iShares may be issued and sold by the Fund on an ongoing
basis, at any point a "distribution", as such term is used in the 1933 Act,
may occur. The Participant understands and acknowledges that some
activities on its part, depending on the circumstances, may result in its
being deemed a participant in a distribution in a manner which could render
it a statutory underwriter and subject it to the prospectus delivery and
liability provisions of the 1933 Act. The Participant also
<PAGE>
understands and acknowledges that dealers who are not "underwriters" but
are effecting transactions in iShares, whether or not participating in the
distribution of iShares, are generally required to deliver a prospectus.
2. EXECUTION OF PURCHASE ORDERS AND REDEMPTION ORDERS. All Purchase Orders or
--------------------------------------------------
Redemption Orders shall be made in accordance with the terms of the
Prospectus and the procedures described in Annex II to this Agreement. Each
party hereto agrees to comply with the provisions of such documents to the
extent applicable to it. It is contemplated that the phone lines used by
the iShares telephone representatives will be recorded, and the Participant
hereby consents to the recording of all calls with the iShares telephone
representatives. The Fund reserves the right to issue additional or other
procedures relating to the manner of purchasing or redeeming Creation Units
and the Participant agrees to comply with such procedures as may be issued
from time to time, including but not limited to the iShares Cash Collateral
Settlement Procedures that are referenced in Annex II to this Agreement.
The Participant acknowledges and agrees on behalf of itself and any party
for which it is acting (whether as a customer or otherwise) that delivery
of a Purchase Order or Redemption Order shall be irrevocable, provided that
the Fund and the Distributor on behalf of the Fund reserves the right to
reject any Purchase Order until the trade is released as "good" as
described in Annex II and any Redemption Order that is not in "proper form"
as defined in the Prospectus.
With respect to any Redemption Order, the Participant also acknowledges and
agrees on behalf of itself and any party for which it is acting (whether as
a customer or otherwise) to return to the Fund any dividend, distribution
or other corporate action paid to it or to the party for which it is acting
in respect of any Deposit Security that is transferred to the Participant
or any party for which it is acting that, based on the valuation of such
Deposit Security at the time of transfer, should have been paid to the
Index Series. With respect to any Redemption Order, the Participant also
acknowledges and agrees on behalf of itself and any party for which it is
acting (whether as a customer or otherwise) that the Fund is entitled to
reduce the amount of money or other proceeds due to the Participant or any
party for which it is acting by an amount equal to any dividend,
distribution or other corporate action to be paid to it or to the party for
which it is acting in respect of any Deposit Security that is transferred
to the Participant or any party for which it is acting that, based on the
valuation of such Deposit Security at the time of transfer, should be paid
to the Index Series. With respect to any Purchase Order, the Fund
acknowledges and agrees to return to the Participant or any party for which
it is acting any dividend, distribution or other corporate action paid to
the Fund in respect of any Deposit Security that is transferred to the Fund
that, based on the valuation of such Deposit Security at the time of
transfer, should have been paid to the Participant or any party for which
it is acting.
3. NSCC. Solely with respect to Purchase Orders or Redemption Orders through
----
the iShares Clearing Process, the Participant, as a Participating Party,
hereby authorizes the Transfer Agent to transmit to the NSCC on behalf of
the Participant such instructions, including amounts of the Deposit
Securities and Cash Components as are necessary, consistent with the
instructions issued by the Participant to the iShares telephone
representative. The Participant agrees to be bound by the terms of such
instructions issued by the Transfer Agent and reported to NSCC as though
such instructions were issued by the Participant directly to NSCC.
<PAGE>
4. MARKETING MATERIALS AND REPRESENTATIONS. The Participant represents,
---------------------------------------
warrants and agrees that it will not make any representations concerning
iShares other than those contained in the Fund's then current Prospectus or
in any promotional materials or sales literature furnished to the
Participant by the Distributor. The Participant agrees not to furnish or
cause to be furnished to any person or display or publish any information
or materials relating to iShares (including, without limitation,
promotional materials and sales literature, advertisements, press releases,
announcements, statements, posters, signs or other similar materials),
except such information and materials as may be furnished to the
Participant by the Distributor and such other information and materials as
may be approved in writing by the Distributor. The Participant understands
that the Fund will not be advertised or marketed as an open-end investment
company, i.e., as a mutual fund, which offers redeemable securities, and
that any advertising materials will prominently disclose that the iShares
are not redeemable units of beneficial interest in the Fund. In addition,
the Participant understands that any advertising material that addresses
redemptions of iShares, including the Fund's Prospectus, will disclose that
the owners of iShares may acquire iShares and tender iShares for redemption
to the Fund in Creation Unit aggregations only. Notwithstanding the
foregoing, the Participant may without the written approval of the
Distributor prepare and circulate in the regular course of its business
research reports that include information, opinions or recommendations
relating to iShares (i) for public dissemination, provided that such
research reports compare the relative merits and benefits of iShares with
other products and are not used for purposes of marketing iShares and (ii)
for internal use by the Participant.
5. SUBCUSTODIAN ACCOUNT. The Participant understands and agrees that in the
--------------------
case of each International Index Series, the Fund has caused the Fund's
custodian Investors Bank & Trust Co. ("Custodian") to maintain with the
applicable subcustodian for such Index Series an account in the relevant
foreign jurisdiction to which the Participant shall deliver or cause to be
delivered in connection with the purchase of a Creation Unit the securities
and any other cash amounts (or the cash value of all or a part of such
securities, in the case of a permitted or required cash purchase or "cash
in lieu" amount) on behalf of itself or any party for which it is acting
(whether or not a customer), with any appropriate adjustments as advised by
the Fund, in accordance with the terms and conditions applicable to such
account in such jurisdiction.
6. TITLE TO SECURITIES; RESTRICTED SHARES. The Participant represents on
--------------------------------------
behalf of itself and any party for which it acts that upon delivery of a
portfolio of Deposit Securities to the Custodian and/or the relevant
subcustodian in accordance with the terms of the Prospectus, the Fund will
acquire good and unencumbered title to such securities, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any
adverse claims, including, without limitation, any restriction upon the
sale or transfer of such securities imposed by (i) any agreement or
arrangement entered into by the Participant or any party for which it is
acting in connection with a Purchase Order or (ii) any provision of the
1933 Act, and any regulations thereunder (except that portfolio securities
of issuers other than U.S. issuers shall not be required to have been
registered under the 1933 Act if exempt from such registration), or of the
applicable laws or regulations of any other applicable jurisdiction and
(iii) no such securities are "restricted securities" as such term is used
in Rule 144(a)(3)(i) promulgated under the 1933 Act.
<PAGE>
7. CASH COMPONENT AND FEES.
-----------------------
(a) For Domestic Funds. The Participant hereby agrees that as between the
------------------
Fund and itself or any party for which it acts in connection with a
Purchase Order, it will make available in same day funds for each
purchase of iShares an amount of cash sufficient to pay the Cash
Component (as defined in the prospectus) and any other amounts of cash
due to the Fund in connection with the purchase of any Creation Unit
of iShares (including the purchase transaction fee for in-kind and
cash purchases and the additional variable charge for cash purchases
(when, in the sole discretion of the Fund, cash purchases are
available or specified)) (the "Cash Amount") which shall be made
through DTC to an account maintained by the Custodian at Investors
Bank and Trust Company, Boston, Massachusetts and shall be provided in
same day or immediately available funds on or before the settlement
date in accordance with the Fund's prospectus ("Contractual Settlement
Date"). The Participant hereby agrees to ensure that the Cash Amount
will be received by the Fund on or before the Contractual Settlement
Date, and in the event payment of such Cash Amount has not been made
by such Contractual Settlement Date, the Participant agrees on behalf
of itself or any party for which it acts in connection with a Purchase
Order to pay the full cash amount, plus interest, computed at such
reasonable rate as may be specified by the Fund from time to time. The
Participant may require its customer to enter into an agreement with
the Participant with respect to such matters. The Participant shall be
liable to the Custodian and/or the Fund for any amounts advanced by
the Custodian in its sole discretion to the Participant for payment of
the amounts due and owing for the Cash Component, the purchase
transaction fee, cash collateral discrepancies and/or the additional
variable charge for cash purchases (when, in the sole discretion of
the Fund, cash purchases are available or specified).
(b) For International Funds. The Participant hereby agrees that as between
-----------------------
the Fund and itself or any party for which it acts in connection with
a Purchase Order, it will make available in same day funds for each
purchase of iShares an amount of cash sufficient to pay the Cash
Component (as defined in the prospectus) and any other amounts of cash
due to the Fund in connection with the purchase of any Creation Unit
of iShares (including the purchase transaction fee for in-kind and
cash purchases and the additional variable charge for cash purchases
(when, in the sole discretion of the Fund, cash purchases are
available or specified)) (the "Cash Amount") which shall be made via
Fed Funds Wire to an account maintained by the Custodian at Investors
Bank and Trust Company, Boston, Massachusetts and shall be provided in
same day or immediately available funds at least one business day
before contractual settlement date. The Participant hereby agrees to
ensure that the Cash Amount will be received by the Fund on or before
the Contractual Settlement Date, and in the event payment of such Cash
Amount has not been made by such Contractual Settlement Date, the
Participant agrees on behalf of itself or any party for which it acts
in connection with a Purchase Order to pay the full cash amount, plus
interest, computed at such reasonable rate as may be specified by the
Fund from time to time. The Participant may require its customer to
enter into an agreement with the Participant with respect to such
matters. The Participant shall be liable to the Custodian and/or the
Fund for any amounts advanced by the Custodian in its sole discretion
to the Participant for payment of the amounts due and owing for the
Cash Component, the purchase transaction fee, cash
<PAGE>
collateral discrepancies and/or the additional variable charge for
cash purchases (when, in the sole discretion of the Fund, cash
purchases are available or specified).
8. ROLE OF PARTICIPANT.
-------------------
(a) The Participant acknowledges and agrees that for all purposes of this
Agreement, the Participant will be deemed to be an independent
contractor, and will have no authority to act as agent for the Fund or
the Distributor in any matter or in any respect. The Participant
agrees to make itself and its employees available, upon request,
during normal business hours to consult with the Fund or the
Distributor or their designees concerning the performance of the
Participant's responsibilities under this Agreement.
(b) In executing this Agreement, the Participant agrees in connection with
any purchase or redemption transactions in which it acts for a
customer or for any other DTC Participant or indirect participant, or
any other Beneficial Owner, that it shall extend to any such party all
of the rights, and shall be bound by all of the obligations, of a DTC
Participant in addition to any obligations that it undertakes
hereunder or in accordance with the Prospectus.
(c) The Participant agrees to maintain records of all sales of iShares
made by or through it and to furnish copies of such records to the
Fund or the Distributor upon the request of the Fund or the
Distributor.
9. AUTHORIZED PERSONS. Concurrently with the execution of this Agreement and
------------------
from time to time thereafter as may be requested by the Fund or
Distributor, the Participant shall deliver to the Distributor and the Fund,
with copies to the Transfer Agent (referred to below) duly certified as
appropriate by its Secretary or other duly authorized official, a
certificate in a form approved by the Fund (see Annex III hereto) setting
forth the names and signatures of all persons authorized to give
instructions relating to any activity contemplated hereby or any other
notice, request or instruction on behalf of the Participant (each an
"Authorized Person"). Such certificate may be accepted and relied upon by
the Distributor and the Fund as conclusive evidence of the facts set forth
therein and shall be considered to be in full force and effect until
delivery to the Distributor and the Fund of a superseding certificate in a
form approved by the Fund bearing a subsequent date. Upon the termination
or revocation of authority of such Authorized Person by the Participant,
the Participant shall give immediate written notice of such fact to the
Distributor and the Fund and such notice shall be effective upon receipt by
both the Distributor and the Fund. The Distributor shall issue to each
Authorized Participant a unique personal identification number ("PIN
Number") by which such Authorized Participant shall be identified and
instructions issued by the Participant hereunder shall be authenticated.
The PIN Number shall be kept confidential and only provided to Authorized
Persons. If after issuance, a Participant's PIN Number is changed, the new
PIN Number will become effective on a date mutually agreed upon by the
Participant and the Distributor.
10. REDEMPTION. The Participant understands and agrees that Redemption Orders
----------
may be submitted only on days that the American Stock Exchange, Inc. (the
"AMEX") is open for trading or business.
<PAGE>
(a) The Participant represents and warrants that it will not attempt to
place a Redemption Order for the purpose of redeeming any Creation
Unit of iShares of any Index Series unless it first ascertains that it
or its customer, as the case may be, owns outright or has full legal
authority and legal and beneficial right to tender for redemption the
requisite number of iShares of the relevant Index Series to be
redeemed and to the entire proceeds of the redemption and that such
iShares have not been loaned or pledged to another party and are not
the subject of a repurchase agreement, securities lending agreement or
any other arrangement that would preclude the delivery of such iShares
to the Transfer Agent in accordance with the Prospectus or as
otherwise required by the Fund. The Participant understands that
iShares of any Index Series may be redeemed only when one or more
Creation Units of iShares of a Beneficial Owner are held in the
account of a single Participant.
(b) In the case of a resident Australian or New Zealand holder,
notwithstanding the foregoing, the Participant understands and agrees
that such holder is only entitled to receive cash upon its redemption
of Creation Units of iShares. In the Redemption Order the Participant
will be required to confirm that an in-kind redemption request has not
been submitted on behalf of a beneficial owner who is an Australian
resident.
11. BENEFICIAL OWNERSHIP. The Participant represents and warrants to the
--------------------
Distributor and the Fund that (based upon the number of outstanding iShares
of such Index Series made publicly available by the Fund) it does not, and
will not in the future, hold for the account of any single Beneficial Owner
of iShares of the relevant Index Series 80 percent or more of the currently
outstanding iShares of such relevant Index Series, so as to cause the Fund
to have a basis in the portfolio securities deposited with the Fund with
respect to such Index Series different from the market value of such
portfolio securities on the date of such deposit, pursuant to section 351
of the Internal Revenue Code of 1986, as amended. The Participant agrees
that the confirmation relating to any order for one or more Creation Units
of iShares of an Index Series shall state as follows: "Purchaser represents
and warrants that, after giving effect to the purchase of iShares to which
this confirmation relates, it will not hold 80 percent or more of the
outstanding iShares of the relevant Index Series of the Fund and that it
will not treat such purchase as eligible for tax-free treatment under
Section 351 of the Internal Revenue Code of 1986, as amended. If purchaser
is a dealer, it agrees to deliver similar written confirmations to any
person purchasing any of the iShares to which this confirmation relates
from it." The Fund and its Transfer Agent and Distributor shall have the
right to require information from the Participant regarding iShares
ownership of each Index Series, and to rely thereon to the extent necessary
to make a determination regarding ownership of 80 percent or more of the
currently outstanding iShares of any Index Series by a Beneficial Owner as
a condition to the acceptance of a deposit of Deposit Securities.
12. INDEMNIFICATION. This paragraph shall survive the termination of this
---------------
Agreement.
(a) The Participant hereby agrees to indemnify and hold harmless the
Distributor, the Fund, the Transfer Agent, their respective
subsidiaries, affiliates, directors, officers, employees and agents,
and each person, if any, who controls such persons within the meaning
of Section 15 of the 1933 Act (each an "Indemnified Party") from and
against any loss, liability, cost and expense (including attorneys'
fees) incurred by such Indemnified Party as a result of (i) any breach
by the Participant of any provision of this Agreement that relates to
the Participant; (ii) any failure on the part of the Participant to
perform any of its obligations set forth in the Agreement; (iii) any
failure
<PAGE>
by the Participant to comply with applicable laws, including rules and
regulations of self-regulatory organizations; or (iv) actions of such
Indemnified Party in reliance upon any instructions issued in
accordance with Annex II, III or IV (as each may be amended from time
to time) reasonably believed by the Distributor and/or the Transfer
Agent to be genuine and to have been given by the Participant. The
Participant and the Distributor understand and agree that the Fund as
a third party beneficiary to this Agreement is entitled and intends to
proceed directly against the Participant in the event that the
Participant fails to honor any of its obligations pursuant to this
Agreement that benefit the Fund. The Distributor shall not be liable
to the Participant for any damages arising out of mistakes or errors
in data provided to the Distributor, or out of interruptions or delays
of communications with the Indemnified Parties who are service
providers to the Fund, nor is the Distributor liable for any action,
representation, or solicitation made by the wholesalers of the Fund.
(b) The Distributor hereby agrees to indemnify and hold harmless the
Participant, its respective subsidiaries, affiliates, directors,
officers, employees and agents, and each person, if any, who controls
such persons within the meaning of Section 15 of the 1933 Act (each an
"Indemnified Party") from and against any loss, liability, cost and
expense (including attorneys' fees) incurred by such Indemnified Party
as a result of (i) any breach by the Distributor of any provision of
this Agreement that relates to the Distributor; (ii) any failure on
the part of the Distributor to perform any of its obligations set
forth in this Agreement; (iii) any failure by the Distributor to
comply with applicable laws, including rules and regulations of self-
regulatory organizations; or (iv) actions of such Indemnified Party in
reliance upon any representations made in accordance with Annex II,
III and IV (as each may be amended from time to time) reasonably
believed by the Participant to be genuine and to have been given by
the Distributor. The Participant shall not be liable to the
Distributor for any damages arising out of mistakes or errors in data
provided to the Participant, or out of interruptions or delays of
communications with the Indemnified Parties who are service providers
to the Fund, nor is the Participant liable for any action,
representation, or solicitation made by the wholesalers of the Fund.
13. INFORMATION ABOUT PORTFOLIO DEPOSITS. The Participant understands that the
------------------------------------
number and names of the designated portfolio of Deposit Securities to be
included in the current Portfolio Deposit for each Index Series will be
made available by NSCC on each day that the AMEX is open for trading and
will also be made available on each such day through the facilities of the
National Securities Clearing Corporation.
14. ACKNOWLEDGMENT. The Participant acknowledges receipt of the Prospectus and
--------------
represents it has reviewed such documents and understands the terms
thereof.
15. NOTICES. Except as otherwise specifically provided in this Agreement, all
-------
notices required or permitted to be given pursuant to this Agreement shall
be given in writing and delivered by personal delivery or by postage
prepaid registered or certified United States first class mail, return
receipt requested, or by telex, telegram or facsimile or similar means of
same day delivery (with a confirming copy by mail). Unless otherwise
notified in writing, all notices to the Fund shall be at the address or
telephone, facsimile or telex numbers as follows: Attn: Steven Gallant,
Director, Investors Bank and Trust Company, 200 Clarendon Street, P.O. Box
9130, Boston, Massachusetts 02117-9130.
<PAGE>
All notices to the Participant, the Distributor and the Transfer Agent
shall be directed to the address or telephone, facsimile or telex numbers
indicated below the signature line of such party.
16. EFFECTIVENESS, TERMINATION AND AMENDMENT. This Agreement shall become
----------------------------------------
effective five Business Days after execution and delivery to the
Distributor upon notice by the Distributor to the Authorized Participant. A
"Business Day" shall mean each day the American Stock Exchange, Inc. is
open for regular trading. This Agreement may be terminated at any time by
any party upon sixty days prior written notice to the other parties and may
be terminated earlier by the Fund or the Distributor at any time in the
event of a breach by the Participant of any provision of this Agreement or
the procedures described or incorporated herein. This Agreement supersedes
any prior such agreement between or among the parties. This Agreement may
be amended by the Fund or the Distributor from time to time without the
consent of any Beneficial Owner by the following procedure. The Fund or the
Distributor will mail a copy of the amendment to the Participant and the
Fund or Distributor, as applicable. For purposes of this Agreement, mail
will be deemed received by the recipient thereof on the fifth (5/rd/)
Business Day following the deposit of such mail into the U.S. Postal
system. If neither the Participant or the other party objects in writing to
the amendment within five days after its receipt, the amendment will become
part of this Agreement in accordance with its terms.
17. GOVERNING LAW. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of New York. The parties irrevocably
submit to the non-exclusive jurisdiction of any New York State or United
States Federal court sitting in New York City over any suit, action or
proceeding arising out of or relating to this Agreement.
18. COUNTERPARTS. This Agreement may be executed in several counterparts, each
------------
of which shall be an original and all of which shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year written below.
DATED: ____________
SEI INVESTMENTS DISTRIBUTION
COMPANY
BY:___________________________________
TITLE:________________________________
ADDRESS:______________________________
______________________________________
______________________________________
TELEPHONE:____________________________
FACSIMILE:____________________________
TELEX:________________________________
[NAME OF PARTICIPANT]
BY:___________________________________
TITLE:________________________________
ADDRESS:______________________________
______________________________________
______________________________________
TELEPHONE:____________________________
<PAGE>
FACSIMILE:___________________________________
TELEX:_______________________________________
ACCEPTED BY:
________________________________, AS
TRANSFER AGENT
BY:__________________________________________
TITLE:_______________________________________
ADDRESS:_____________________________________
_____________________________________________
_____________________________________________
TELEPHONE:___________________________________
FACSIMILE:___________________________________
TELEX:_______________________________________
<PAGE>
ANNEX I
iShares Trust
INDEX SERIES AND iSHARES PER CREATION UNIT
Index iShares per
Series Creation Unit
------ -------------
iShares S&P 500 Fund 50,000
iShares S&P 500/BARRA Growth Fund 50,000
iShares S&P 500/BARRA Value Fund 50,000
iShares S&P MidCap 400 Fund 50,000
iShares S&P MidCap 400/BARRA Growth Fund 50,000
iShares S&P MidCap 400/BARRA Value Fund 50,000
iShares S&P SmallCap 600 Fund 50,000
iShares S&P SmallCap 600 Fund/BARRA Growth Fund 50,000
iShares S&P SmallCap 600 Fund/BARRA Value Fund 50,000
iShares S&P Europe 350 Fund 50,000
iShares S&P/TSE 60 Fund 50,000
iShares Dow Jones Total Market Fund 50,000
iShares Dow Jones U.S. Basic Materials Sector Fund 50,000
iShares Dow Jones U.S. Consumer Cyclicals Sectors Fund 50,000
iShares Dow Jones U.S. Consumer Non-Cyclicals Sector Fund 50,000
iShares Dow Jones U.S. Energy Sector Fund 50,000
iShares Dow Jones U.S. Financial Sector Fund 50,000
iShares Dow Jones U.S. Healthcare Sector Fund 50,000
iShares Dow Jones U.S. Industrials Sector Fund 50,000
iShares Dow Jones U.S. Technology Sector Fund 50,000
iShares Dow Jones U.S. Telecommunications Sector Fund 50,000
iShares Dow Jones U.S. Utilities Sector Fund 50,000
iShares Dow Jones U.S. Chemicals Fund 50,000
iShares Dow Jones U.S. Financial Services Fund 50,000
iShares Dow Jones U.S. Internet Fund 50,000
iShares Dow Jones U.S. Real Estate Fund 50,000
iShares Russell 3000 Fund 50,000
iShares Russell 3000 Growth Fund 50,000
iShares Russell 3000 Value Fund 50,000
iShares Russell 2000 Fund 50,000
iShares Russell 2000 Growth Fund 50,000
iShares Russell 2000 Value Fund 50,000
iShares Russell 1000 Fund 50,000
iShares Russell 1000 Growth Fund 50,000
iShares Russell 1000 Value Fund 50,000
<PAGE>
ANNEX II
iShares Trust
PROCEDURES FOR PROCESSING
PURCHASE ORDERS AND REDEMPTION ORDERS
This Annex II to the Authorized Participant Agreement supplements the
Prospectus with respect to the procedures to be used in processing a Purchase
Order for the purchase of iShares in Creation Units of each Index Series and a
Redemption Order for the redemption of iShares in Creation Units of each Index
Series. Capitalized terms, unless otherwise defined in this Annex II, have the
meanings attributed to them in the Authorized Participant Agreement or the
Prospectus.
A Participant is required to have signed the Authorized Participant
Agreement. Upon acceptance of the Agreement and execution thereof by the Fund
and in connection with the initial Purchase Order submitted by the Participant,
the Distributor will assign a PIN Number to each Authorized Person authorized to
act for a Participant. This will allow a Participant through its Authorized
Person(s) to place a Purchase Order or Redemption Order with respect to the
purchase or redemption of Creation Units of iShares.
ANNEX II -- PART A
TO PLACE AN ORDER FOR PURCHASE OF
CREATION UNIT(S) OF iShares
1. PLACING A PURCHASE ORDER. Purchase Orders for Creation Units iShares may be
------------------------
initiated only on days that the American Stock Exchange is open for trading.
To begin a Purchase Order, Authorized Participant ("Participant") must
telephone Distributor at (888) 276-2328. This telephone call must be made by
an Authorized Person of Participant not later than the closing time of the
regular trading session on the American Stock Exchange which is ordinarily
4:00 p.m. Eastern Standard Time ("AMEX Closing Time"). Upon verifying the
authenticity of Participant (as determined by the use of the appropriate PIN
Number), Distributor will request that Participant place the Purchase Order.
To do so, Participant must provide ticker symbols when referring to each
iShares series. After Participant has placed the Purchase Order, Distributor
will read the Purchase Order back to Participant. Participant then must
affirm that the Purchase Order has been taken correctly by Distributor. If
Participant affirms that Purchase Order has been taken correctly, Distributor
will issue an Confirmation Number to Participant.
PLEASE NOTE: A PURCHASE ORDER REQUEST IS NOT COMPLETE UNTIL THE CONFIRMATION
NUMBER IS ISSUED BY DISTRIBUTOR.. AN ORDER MAY NOT BE CANCELED BY A
PARTICIPANT AFTER THE CONFIRMATION NUMBER IS ISSUED. INCOMING TELEPHONE CALLS
ARE QUEUED AND WILL BE HANDLED IN THE SQUENCE RECEIVED. CALLS PLACED BEFORE
THE AMEX CLOSING TIME WILL BY PROCESSED EVEN IF THE CALL IS ANSWERED BY
DISTRIBUTOR
<PAGE>
AFTER THE AMEX CLOSING TIME. ACCORDINGLY, PARTICIPANT SHOULD NOT HANG UP AND
REDIAL. INCOMING CALLS THAT ARE RECEIVED AFTER THE AMEX CLOSING TIME WILL NOT
BE ANSWERED BY DISTRIBUTOR. ALL TELEPHONE CALLS WILL BE RECORDED BY
DISTRIBUTOR.
2. RECEIPT OF TRADE CONFIRMATION. Subject to the conditions that a properly
-----------------------------
completed telephone Purchase Order has been placed by Participant (either on
its own or another investor's behalf) not later than the AMEX Closing Time,
the Distributor will accept the Purchase Order on behalf of Fund and
Distributor and will confirm in writing to Participant that its Purchase
Order has been accepted by 7:00 p.m. Eastern Standard Time on the Business
Day that the Purchase Order is received.
3. QUALITY ASSURANCE. After a Confirmation Number is issued by Distributor to
-----------------
Participant, Distributor will either fax or email a written version of the
Purchase Order to Participant. Upon receipt, Participant should immediately
telephone Distributor, if the Participate believes that the Purchase Order
has not been taken correctly by Distributor. In addition, Distributor will
telephone Participant within 15 minutes of the fax or e-mail to corroborate
the Purchase Order
4. PROCESSING A PURCHASE ORDER. During the telephone call, Distributor will
---------------------------
request that Participant state that Participant will not own 80% or more of
the shares of an iShares series upon execution of the Purchase Order. If
Participant is not able to so confirm, Distributor has the right to not
accept the Purchase Order.
5. REJECTING OR SUSPENDING PURCHASE ORDERS. Fund or Distributor reserve the
---------------------------------------
absolute right to reject or suspend a Purchase Order if (i) the portfolio of
Deposit Securities delivered is not as specified by Distributor; (ii)
acceptance of the Deposit Securities would have certain adverse tax
consequences to the Index Series; (iii) the acceptance of the Portfolio
Deposit would, in the opinion of counsel, be unlawful; (iv) the acceptance of
the Portfolio Deposit would otherwise, in the discretion of Fund or Adviser,
have an adverse effect on Fund or the rights of beneficial owners of an
iShares series; or (v) circumstances outside the control of Fund, Distributor
or Adviser make it for all practical purposes impossible to process a
Purchase Order. Fund shall notify Participant of its rejection of any
Purchase Order. Fund and Distributor are under no duty, however, to give
notification of any defects or irregularities in the delivery of Portfolio
Deposits nor shall either of them incur any liability for the failure to give
any such notification.
Except as provided herein, all Purchase Orders for Creation Units of iShares
are irrevocable. Fund acknowledges its agreement to return to Participant or
any party for which it is acting any dividend, distribution or other
corporate action paid to Fund in respect of any Deposit Security that is
transferred to Fund that, based on the valuation of such Deposit Security at
the time of transfer, should have been paid to Participant or any party for
which it is acting.
6. CONTRACTUAL SETTLEMENT
----------------------
(a) For Domestic Funds: Except as provided below, Deposit Securities must be
-------------------
delivered through the National Securities Clearing Corporation (NSCC) to
a Depository Trust Company (DTC) account maintained at the applicable
custodian of Fund on or before the Contractual Settlement Date (defined
below). Participant must also make available on or before the Contractual
Settlement Date, by means satisfactory to Fund, immediately available or
same day funds estimated by Fund to be sufficient to pay the Cash
Component next determined after acceptance of the Purchase Order,
together with
<PAGE>
the applicable purchase transaction fee (as described in the Prospectus
as "the Normal Clearing Process"). Any excess funds will be returned
following settlement of the issue of the Creation Unit of iShares. The
"Contractual Settlement Date" is the earlier of (i) date upon which all
of the required Deposit Securities, the Cash Component and any other cash
amounts which may be due are delivered to Fund and (ii) trade date +
three business days. Except as provided in the next two paragraphs, a
Creation Unit of iShares of an Index Series will be issued concurrently
with the transfer of good title to Fund of the portfolio of Deposit
Securities through the NSCC's Continuous Net Settlement (CNS) system and
the payment of the Cash Component and the purchase transaction fee
through the DTC.
The Trust reserves the right to permit or require the substitution of an
amount of cash (i.e., a "cash in lieu" amount ) to be added to the Cash
Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or which may not be eligible for
transfer through the Clearing Process, or which may not be eligible for
transfer through the systems of DTC and hence not eligible for transfer
through the Clearing Process (discussed below) and will be at the expense
of Fund and will affect the value of all Fund shares; but BGFA, subject
to the approval of the Board, may adjust the "Transaction Fee" within the
parameters described below to protect ongoing shareholders.
Any settlement outside the "Normal Clearing Process" is subject to
additional requirements and fees as discussed in the Statement of
Additional Information.
(b) For International Funds: Except as provided below, Deposit Securities
------------------------
must be delivered to an account maintained at the applicable local
subcustodian of Fund on or before the Contractual Settlement Date
(defined below). Participant must also make available on or before the
Contractual Settlement Date, by means satisfactory to Fund, immediately
available or same day funds estimated by Fund to be sufficient to pay the
Cash Component next determined after acceptance of the Purchase Order,
together with the applicable purchase transaction fee (as described in
the Prospectus). Any excess funds will be returned following settlement
of the issue of the Creation Unit of iShares. The "Contractual Settlement
Date" is the earlier of (i) the date upon which all of the required
Deposit Securities, the Cash Component and any other cash amounts which
may be due are delivered to Fund and (ii) the latest day for settlement
on the customary settlement cycle in the jurisdiction where the any of
securities of the iShares Series are customarily traded.
Except as provided in the next two paragraphs, a Creation Unit of iShares
will not be issued until the transfer of good title to Fund of the
portfolio of Deposit Securities and the payment of the Cash Component and
the purchase transaction fee have been completed. When the subcustodian
confirms to Custodian that the required securities included in the
Portfolio Deposit (or, when permitted in the sole discretion of Fund, the
cash value thereof) have been delivered to the account of the relevant
subcustodian, Custodian shall notify Distributor and Adviser, and Fund
will issue and cause the delivery of the Creation Unit of iShares.
<PAGE>
Fund may in its sole discretion permit or require the substitution of an
amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash
Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or for other similar reasons. If Adviser
notifies Distributor that a "cash in lieu" amount will be accepted,
Distributor will notify Participant and Participant shall deliver, on
behalf of itself or the party on whose behalf it is acting, the "cash in
lieu" amount, with any appropriate adjustments as advised by Fund. Any
excess funds will be returned following settlement of the issue of the
Creation Unit of iShares.
In the event that a Portfolio Deposit is incomplete on the settlement
date for a Creation Unit of iShares because certain or all of the Deposit
Securities are missing, Fund will issue a Creation Unit of iShares
notwithstanding such deficiency in reliance on the undertaking of
Participant to deliver the missing Deposit Securities as soon as
possible, which undertaking shall be secured by such Participant's
delivery and maintenance of collateral consisting of cash having a value
at least equal to 125% of the value of the missing Deposit Securities.
The parties hereto agree that the delivery of such collateral shall be
made in accordance with the iShares Cash Collateral Settlement
Procedures, which such procedures shall be provided to Participant by
Distributor upon request. The parties hereto further agree that Fund may
purchase the missing Deposit Securities at any time and Participant
agrees to accept liability for any shortfall between the cost to Fund of
purchasing such securities and the value of the collateral, which may be
sold by Fund at such time, and in such manner, as Fund may determine in
its sole discretion.
7. CASH PURCHASES. When, in the sole discretion of Fund, cash purchases of
--------------
Creation Units of iShares are available or specified for an Index Series,
such purchases shall be effected in essentially the same manner as in-kind
purchases thereof. In the case of a cash purchase, Participant must pay the
cash equivalent of the Deposit Securities it would otherwise be required to
provide through an in-kind purchase, plus the same Cash Component required
to be paid by an in-kind purchaser. In addition, to offset Fund's brokerage
and other transaction costs associated with using the cash to purchase the
requisite Deposit Securities, Participant must pay a fixed purchase
transaction fee, plus an additional variable charge for cash purchases,
which is expressed as a percentage of the value of the Deposit Securities.
The transaction fees for in-kind and cash purchases of Creation Units of
iShares are described in the Prospectus.
<PAGE>
ANNEX II -- PART B
TO PLACE AN ORDER FOR REDEMPTION OF
CREATION UNIT(S) OF iSHARES
1. PLACING A REDEMPTION ORDER. Redemption Orders for Creation Units iShares
--------------------------
may be initiated only on days that the American Stock Exchange is open for
trading. To begin a Redemption Order, Participant must telephone
Distributor at (888) 276-2328. This telephone call must be made by an
Authorized Person of Participant not later than the closing time of the
regular trading session on the American Stock Exchange which is ordinarily
-------
4:00 p.m. Eastern Standard Time ("AMEX Closing Time"). Upon verifying the
authenticity of Participant (as determined by the use of the appropriate
PIN Number), Distributor will request that Participant place the Redemption
Order. To do so, Participant must provide ticker symbols when referring to
each iShares series. After Participant has placed the Redemption Order,
Distributor will read the Redemption Order back to Participant. Participant
then must affirm that the Redemption Order has been taken correctly by
Distributor. If Participant affirms that Redemption Order has been taken
correctly, Distributor will issue an Confirmation Number to Participant.
PLEASE NOTE: A REDEMPTION ORDER REQUEST IS NOT COMPLETE UNTIL THE
CONFIRMATION NUMBER IS ISSUED BY DISTRIBUTOR. AN ORDER MAY NOT BE CANCELED
BY A PARTICIPANT AFTER THE CONFIRMATION NUMBER IS ISSUED. INCOMING
TELEPHONE CALLS ARE QUEUE AND WILL BE HANDLED IN THE SEQUENCE RECEIVED.
CALLS PLACED BEFORE THE AMEX CLOSING TIME WILL BY PROCESSED EVEN IF THE
CALL IS ANSWERED BY DISTRIBUTOR AFTER THE AMEX CLOSING TIME. ACCORDINGLY,
PARTICIPANT SHOULD NOT HANG UP AND REDIAL. INCOMING CALLS THAT ARE RECEIVED
AFTER THE AMEX CLOSING TIME WILL NOT BE ANSWERED BY DISTRIBUTOR. ALL
TELEPHONE CALLS MAY BE RECORDED BY DISTRIBUTOR.
2. RECEIPT OF CONFIRMATION. Subject to the conditions that a duly completed
-----------------------
Redemption Order is received by Distributor from Participant on behalf of
itself or another redeeming investor by the AMEX Closing Time, the
Distributor will accept the Redemption Order on behalf of Fund and
Distributor and will confirm in writing to Participant that its Redemption
Order has been accepted by 7:00 p.m. Eastern Standard Time on the Business
Day the Redemption Order is received.
3. QUALITY ASSURANCE. After an Confirmation Number is issued by Distributor
-----------------
to Participant, Distributor will either fax or email a copy of the
Redemption Order to Participant. Upon receipt, Participant should
immediately telephone Distributor, if the Participant believes that the
Redemption Order has not been taken correctly by Distributor. In addition,
Distributor will telephone Participant within 15 minutes of the fax or e-
mail to corroborate the Redemption Order.
In the Redemption Order, Participant will be required to acknowledge its
agreement on behalf of itself and any party for which it is acting
(whether as a customer or otherwise) to return to Fund any dividend,
distribution or other corporate action paid to it or to the party for
which it is acting in respect of any Deposit Security that is transferred
to Participant or any party for which it is acting that, based on the
valuation of such Deposit Security at the
<PAGE>
time of transfer, should be paid to the Index Series to which the
Redemption Order relates. In the Redemption Order, Participant will also
be required to acknowledge its agreement on behalf of itself and any
party for which it is acting (whether as a customer or otherwise) that
Fund is entitled to reduce the amount of money or other proceeds due to
Participant or any party for which it is acting by an amount equal to any
dividend, distribution or other corporate action to be paid to it or to
the party for which it is acting in respect of any Deposit Security that
is transferred to Participant or any party for which it is acting that,
based on the valuation of such Deposit Security at the time of transfer,
should be paid to the Index Series to which the Redemption Order relates.
4. TAKING DELIVERY OF DEPOSIT SECURITIES. The Deposit Securities constituting
-------------------------------------
in-kind redemption proceeds will be delivered to the appropriate account
which must be indicated in Participant's Standing Redemption Instructions.
An Authorized Person of Participant may amend Participant's Standing
Redemption Instructions from time to time in writing to Distributor and
Fund in a form approved by Fund. A redeeming Beneficial Owner or
Participant acting on behalf of such Beneficial Owner must maintain
appropriate securities broker-dealer, bank or other custody arrangements to
which account such Deposit Securities will be delivered. Redemptions of
-----
iShares for Deposit Securities will be subject to compliance with
applicable United States federal and state securities laws.
5. CONTRACTUAL SETTLEMENT.
----------------------
(a) For Domestic Funds: Except as provided below, the iShares must be
-------------------
delivered through the National Securities Clearing Corporation (NSCC)
to a Depository Trust Company (DTC) account maintained at the
applicable custodian of Fund on or before the Contractual Settlement
Date (defined below). The Fund will make available on the Contractual
Settlement Date, the Cash Component next determined after acceptance
of the Redemption Order, less the applicable purchase transaction fee
(as described in the Prospectus as "the Normal Clearing Process"). The
"Contractual Settlement Date" is the date upon which all of the
required iShares must be delivered to the fund and, the Deposit
Securities, Cash Component less any fees are delivered by the Fund to
the Participant (ordinarily trade date + three business days). Except
as provided in the next two paragraphs, the Deposit Securities
representing a Redemption Unit will be issued concurrently with the
transfer of good title to Fund of the required aggregation of iShares
through the NSCC's Continuous Net Settlement (CNS) system and the
delivery of the Cash Component less the purchase transaction fee
through the DTC.
The Trust reserves the right to permit or require the substitution of
an amount of cash (i.e., a "cash in lieu" amount ) to be added to the
Cash Component to replace any Deposit Security which may not be
available in sufficient quantity for delivery or which may not be
eligible for transfer through the Clearing Process, or which may not
be eligible for transfer through the systems of DTC and hence not
eligible for transfer through the Clearing Process (discussed below)
and will be at the expense of Fund and will affect the value of all
Fund shares; but BGFA, subject to the approval of the Board, may
adjust the "Transaction Fee" within the parameters described below to
protect ongoing shareholders. Any settlement outside the "Normal
Clearing Process" is subject to additional requirements and fees as
discussed in the Statement of Additional Information.
<PAGE>
(b) For International Funds: Except as provided below, iShares must be
------------------------
delivered to an account maintained at the applicable local
subcustodian of Fund on or before the business day immediately
following the date on which the redemption order was placed. The Fund
will also make available on the Contractual Settlement Date,
immediately available or same day funds sufficient to pay the Cash
Component next determined after acceptance of the Purchase Order, less
the applicable redemption transaction fee (as described in the
Prospectus). The "Contractual Settlement Date" is the earlier of (i)
the date upon which all of the Deposit Securities are delivered to
Participant and (ii) the latest day for settlement on the customary
settlement cycle in the jurisdiction where the any of securities of
the iShares Series are customarily traded.
Deliveries of redemption proceeds by the iShares Series generally will
be made within three Business Days. Due to the schedule of holidays in
certain countries, however, the delivery of in-kind redemption
proceeds may take longer than three Business Days after the day on
which the Redemption Order is placed
Except as provided in the next two paragraphs, the Deposit Securities
will not be issued until the transfer of good title to Fund of the
required iShares aggregation has been completed. When the subcustodian
confirms to Custodian that the required iShares (or, when permitted in
the sole discretion of Fund, the cash value thereof) have been
delivered to the account of the relevant subcustodian, Custodian shall
notify Distributor and Adviser, and Fund will issue and cause the
delivery of the Deposit Securities.
Fund may in its sole discretion permit or require the substitution of
an amount of cash (i.e., a "cash in lieu" amount) to be added to the
Cash Component to replace any Deposit Security which may not be
available in sufficient quantity for delivery or for other similar
reasons. If Adviser notifies Distributor that a "cash in lieu" amount
will be delivered, Distributor will notify Participant and Participant
shall receive, on behalf of itself or the party on whose behalf it is
acting, the "cash in lieu" amount, with any appropriate adjustments as
advised by Fund.
In the event that an aggregation of iShares is incomplete on the
settlement date for a Redemption Unit of iShares, the Fund will issue
the Deposit Securities notwithstanding such deficiency in reliance on
the undertaking of Participant to deliver the missing iShares as soon
as possible, which undertaking shall be secured by such Participant's
delivery and maintenance of collateral consisting of cash having a
value at least equal to 125% of the value of the missing iShares. The
parties hereto agree that the delivery of such collateral shall be
made in accordance with the iShares Cash Collateral Settlement
Procedures, which such procedures shall be provided to Participant by
Distributor upon request. The parties hereto further agree that Fund
may purchase the missing iShares at any time and Participant agrees to
accept liability for any shortfall between the cost to Fund of
purchasing such securities and the value of the collateral, which may
be sold by Fund at such time, and in such manner, as Fund may
determine in its sole discretion.
<PAGE>
6. CASH REDEMPTIONS. In the event that, in the sole discretion of Fund, cash
----------------
redemptions are permitted or required by Fund, proceeds will be paid to
Participant redeeming shares on behalf of the redeeming investor as soon as
practicable after the date of redemption.
7. STANDING REDEMPTION INSTRUCTIONS. Annex V hereto contains Participant's
--------------------------------
Standing Redemption Instructions, which includes information identifying
the account(s) into which Deposit Securities of each Index Series and any
other redemption proceeds should be delivered by Fund pursuant to a
Redemption Order.
<PAGE>
ANNEX II -- PART C
FLOW PROCESS
This Annex II supplements the Fund's Prospectus with respect to the
procedures to be used by the Distributor and Transfer Agent in processing an
order for the creation or redemption of iShares.
A Participant is required to have signed the Participant Agreement. assign
a personal identification number to each Authorized Participant authorized to
act for the Participant. This will allow a Participant through its Authorized
Participant(s) to place a creation or redemption order with respect to iShares.
The Authorized Participant and Distributor shall implement the "Exchange
Traded Funds Flow Process" as agreed to by the parties from time to time.
<PAGE>
EXCHANGE TRADED FUNDS FLOW PROCESS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ORIGINATOR ACTIVITY
---------- --------
- ----------------------------------------------------------------------------------------------------
<S> <C>
1. AP calls on SEI's recorded 1-800 1. SEI rep greets caller.
number to place a share creation
and/or redemption order. These
trades are to be placed by 4:00 PM
EST.
- ----------------------------------------------------------------------------------------------------
2. AP identifies his name, the 2. SEI rep selects the AP from drop down box to pull
Institution he represents, and PIN up the account registration and list of authorized
#. transacters. The SEI rep verifies that the caller is
authorized to place trades on behalf of that
institution. The rep then asks the AP for his PIN #.
The rep types the number, which will be alpha numeric
into the database. The SEI rep will read to the AP a
statement confirming that the AP will not be placing
trades that would raise their total holdings of 80%
or more of each fund. The trader confirms the rule
and the rep will click "ok". The database will then
open to a trading input screen for the rep to start
entering trades online.
- ----------------------------------------------------------------------------------------------------
3. AP tells SEI Rep that he wants 2. SEI rep is checking the creation or redemption
to place a creation or redemption box and then types in the fund's ticker. If the
of units in a specific fund. The transacter is eligible to trade in that fund, the
AP states the Fund name and ticker. fund name will appear.
Exception: The redemption process for the iShares
international funds will include an extra step.
These funds require confirmation from the IBT
Transfer Agency before a redemption can be processed.
The AP wishing to redeem from these funds will place
a call to an SEI rep prior to 4:00 PM EST with an
"Intent to Redeem". The AP will provide the number
of units and the fund that they wish to redeem. This
call is necessary to verify that the iShares unit has
been returned to the custodian before an actual
redemption trade can take place. The SEI rep will
enter the redemption into the ETF system and as with
a domestic redemption, an affirmation will be
produced and sent via email or fax to the AP. The
SEI rep will call IBT to get confirmation that
iShares units have been delivered so that SEI can
finalize the redemption with the AP. The IBT
Transfer Agency will confirm that the iShare unit has
been delivered to the custody account, and will email
SEI that the redemption can be processed. After IBT
confirms the redemption, SEI will call the AP to
approve the trade
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
on the affirmation. This call may not come within the normal
fifteen minute window if the iShares units are not delivered
to the custody account immediately. If the iShares unit is
not delivered by 4:00 PM EST to the custody account, AP
will no longer be able to place the redemption for that trade
date and will need to place the trade the following day if it
is still necessary.
- -------------------------------------------------------------------------------------------------------------
4. AP states the number of units he 4. SEI rep types in the number of units to be created or
wants to create or redeem. Steps 4 redeemed. Steps 3 and 4 continue until the AP has completed
and 5 continue until the AP has all transactions.
completed all transactions.
- -------------------------------------------------------------------------------------------------------------
5. AP states he has finished 5. The database will summarize all trading into one online text
trading. box, which the SEI rep reads back to the AP, asking for a verbal
confirmation. The representative reads back the fund's ticker
and name, along with create or redeem and the amount of units.
- -------------------------------------------------------------------------------------------------------------
6. The AP confirms the statement. 6. SEI rep then reads to the AP a single system generated trade
confirm number for all trades placed. Also, the SEI rep sends a
written affirmation to the AP via a system-generated fax of all
trades.
- -------------------------------------------------------------------------------------------------------------
7. The AP receives fax. 7.
. The SEI rep will contact the AP within 15 minutes after
faxing the affirmation to ensure all trades are good. Once
this second verbal confirmation is given, the trades are
released as "good". Contact of the AP is done on a "best
efforts" level. Meaning, if the SEI rep can not get in touch
with the AP, then SEI will release the trade as it was taken.
The AP will assume responsibility for an incorrect trade if
they are not available for the second phone call to reaffirm
trades placed with a SEI rep.
. If trades are incorrect, the SEI rep will delete the first
trade and reenter the corrected trade. A second
affirmation will be faxed to the AP with all trades placed
that day. The corrected trade will be coded on the
affirmation so that the AP can see the correction. A
second SEI rep will call the AP back to confirm the
correction.
Exception: If an "Intent to Redeem" was called for an
international fund, the AP will not receive a call from an
SEI rep to approve the affirmation until IBT confirms that
the iShares units have been delivered to the custodian.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------
<S> <C>
8. Once all trades have been 8. SEI rep checks trades pending file in database to
confirmed for the 2nd time, the SEI insure all trades have been approved. Trades not
database creates an interface file approved will be highlighted for approval purposes.
going to IBT. A trade file will not be generated if there are
unapproved trades in the system.
- ------------------------------------------------------------------------------------------------
9. After balancing interface file 9. IBT receives trade file, runs through validation
with database pend file, SEI rep process on their end, and creates an acknowledgement
transmits file via FTP to IBT and file to send back to SEI.
BGI. SEI rep will also email a PDF
file summarizing the trades sent in
the FTP file.
- ------------------------------------------------------------------------------------------------
10. IBT transmits acknowledgement 10. SEI rep receives acknowledgement from IBT and an
file to SEI confirming the # of auto reconciliation process is done to account for
units received from SEI, # of all records sent.
orders received and # of rejects.
IBT will call SEI if any trades
reject.
- ------------------------------------------------------------------------------------------------
11. If IBT sends back reject trades. 11. SEI will generate an additional interface to send
to IBT. The additional transmission will include only
those trades that previously rejected.
- ------------------------------------------------------------------------------------------------
12. IBT transmits to SEI the cash 12. SEI will auto-fax confirmations including cash
component and full confirmation of amount to AP.
trades.
- ------------------------------------------------------------------------------------------------
</TABLE>
* Times may vary depending on the trade volume from APs.
<PAGE>
ANNEX III
iShares Trust
FORM OF CERTIFIED AUTHORIZED PERSONS OF PARTICIPANT
The following are the names, titles and signatures of all persons (each an
"Authorized Person") authorized to give instructions relating to any activity
contemplated by this Authorized Participant Agreement or any other notice,
request or instruction on behalf of the Participant pursuant to this Authorized
Participant Agreement.
Name: __________________
Title: __________________
Signature: __________________
Name: __________________
Title: __________________
Signature: __________________
Name: __________________
Title: __________________
Signature: __________________
The undersigned, [name], [title], [company], does hereby certify that the
persons listed above have been duly elected to the offices set forth beneath
their names, that they presently hold such offices, that they have been duly
authorized to act as Authorized Participants pursuant to the Authorized
Participant Agreement by and among iShares Trust, SEI Investments Distribution
Company and [name of Participant], dated [date] and that their signatures set
forth above are their own true and genuine signatures.
In Witness Whereof, the undersigned has hereby set his/her hand and the seal of
[company].
Date: _________________ ___________________
[name, title]
<PAGE>
ANNEX IV
iShares Trust
FUND SUBCUSTODIAN ACCOUNTS FOR DELIVERY OF DEPOSIT SECURITIES
The subcustodian accounts into which a Participant should deposit the
securities constituting the Deposit Securities of each Index Series are set
forth below:
iShares S&P 500 Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P 100 Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P 500/BARRA Growth Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P 500/BARRA Value Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P MidCap 400 Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P MidCap 400/BARRA Growth Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P MidCap 400/BARRA Value Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P SmallCap 600 Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
<PAGE>
iShares S&P SmallCap 600 Fund/BARRA Growth Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P SmallCap 600 Fund/BARRA Value Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P Euro Plus Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares S&P/TSE 60 Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones Total Market Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Basic Materials Sector Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Consumer Cyclicals Sectors Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Consumer Non-Cyclicals Sector Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Energy Sector Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
<PAGE>
iShares Dow Jones U.S. Financial Sector Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Healthcare Sector Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Industrials Sector Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Technology Sector Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Telecommunications Sector Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Utilities Sector Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Chemicals Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones U.S. Financial Services Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Dow Jones Internet Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
<PAGE>
iShares Dow Jones U.S. Real Estate Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Russell 3000 Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Russell 3000 Growth Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Russell 3000 Value Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Russell 2000 Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Russell 2000 Growth Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Russell 2000 Value Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Russell 1000 Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
iShares Russell 1000 Growth Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
<PAGE>
iShares Russell 1000 Value Fund
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
<PAGE>
ANNEX V
iShares Trust
PARTICIPANT ACCOUNTS FOR DELIVERY OF DEPOSIT SECURITIES
The accounts into which the fund should deposit the securities constituting
the Deposit Securities of each Index Series upon redemption are set forth below:
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
<PAGE>
Exhibit (g.1)
CUSTODIAN AGREEMENT
AGREEMENT made as of this 25th day of April, 2000, between iShares TRUST, a
business trust established under the laws of the state of Delaware (the "Fund"),
and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company on behalf of the series
listed on Appendix A hereto (as such Appendix A may be amended from time to
---------- ----------
time) (each an "Index Series" and collectively, the "Index Series"), desires to
place and maintain all of its portfolio securities and cash in the custody of
the Bank. The Bank has at least the minimum qualifications required by Section
17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to act as
custodian of the portfolio securities and cash of the Fund, and has indicated
its willingness to so act, subject to the terms and conditions of this
Agreement.
The Fund will issue and redeem shares of each Index Series only in
aggregations of shares known as "Creation Units" which may be purchased and
redeemed principally in-kind for portfolio securities of the respective Index
Series, as more fully described in the then current prospectus and statement of
additional information of the Fund (together, the "Prospectus") included in its
registration statement on Form N-1A (the "Registration Statement") Registration
Nos. 333-92935 and 811-09729.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as custodian
------------------------
of its portfolio securities and cash delivered to the Bank as hereinafter
described and the Bank agrees to act as such upon the terms and conditions
hereinafter set forth. For the services rendered pursuant to this Agreement the
Fund agrees to pay to the Bank the fees set forth on Appendix B hereto. As
----------
custodian, Bank shall have general responsibility for the safekeeping of all
securities, cash and other property of the Index Series that are delivered to
the Bank for custody.
2. Definitions. Whenever used herein, the terms listed below will have the
-----------
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
-----------------
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Trustees of the Fund.
-----
2.3 Security. The term security as used herein will have the same meaning
--------
assigned to such term in the Securities Act of 1933, as amended, including,
without limitation, any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or
<PAGE>
participation in any profit sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share, investment
contract, voting-trust certificate, certificate of deposit for a security,
fractional undivided interest in oil, gas, or other mineral rights, any put,
call, straddle, option, or privilege on any security, certificate of deposit, or
group or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered into on
a national securities exchange relating to a foreign currency, or, in general,
any interest or instrument commonly known as a "security", or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to, or option contract to
purchase or sell any of the foregoing, and futures, forward contracts and
options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security owned by
------------------
the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
---------------------
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal Reserve-
-----------------
Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
----------
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i) instructions
-------------------
regarding the purchase or sale of Portfolio Securities, and payments and
deliveries in connection therewith, given by an Authorized Person (which shall
include the Fund's Distributor), such instructions to be given in such form and
manner as the Bank and the Fund shall agree upon from time to time, and (ii)
instructions (which may be continuing instructions) regarding other matters
signed or initialed by an Authorized Person. Oral instructions will be
considered Proper Instructions if the Bank reasonably believes them to have been
given by an Authorized Person. The Fund shall cause all oral instructions to be
promptly confirmed in writing. The Bank shall act upon and comply with any
subsequent Proper Instruction which modifies a prior instruction and the sole
obligation of the Bank with respect to any follow-up or confirmatory instruction
shall be to make reasonable efforts to detect any discrepancy between the
original instruction and such confirmation and to report such discrepancy to the
Fund. The Fund shall be responsible, at the Fund's expense, for taking any
action, including any reprocessing, necessary to correct any such discrepancy or
error, and to the extent such action requires the Bank to act, the Fund shall
give the Bank specific Proper Instructions as to the action required. Proper
Instructions shall include communication effected directly between electro-
mechanical or electronic devices, including information transmitted by the
Fund's Distributor. The Fund hereby authorizes such use of
<PAGE>
electro-mechanical or electronic communication and the Fund and the Bank will
agree as to procedures which shall afford adequate safeguards for the Fund's
assets.
3. Separate Accounts. The Bank will segregate the assets of each Index
-----------------
Series to which this Agreement relates into a separate account for each such
Index Series containing the assets of such Index Series (and all investment
earnings thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its Index Series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
portfolio securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable Index Series, any duty or obligation of the
Bank hereunder to the Fund shall be deemed to refer to duties and obligations
with respect to such individual Index Series and any obligation or liability of
the Fund hereunder shall be binding only with respect to such individual Index
Series, and shall be discharged only out of the assets of such Index Series.
4. Certification as to Authorized Persons. The Secretary or Assistant
--------------------------------------
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
---------------
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the Fund,
----------------------
against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or
<PAGE>
receipt for the account of the Bank pursuant to the provisions of Section 6
below, each such payment to be made at the purchase price shown on a broker's
confirmation (or transaction report in the case of Book Entry Paper (as that
term is defined in Section 6.6 hereof)) of purchase of the securities received
by the Bank before such payment is made, as confirmed in the Proper Instructions
received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary in connection with the
-----------
repurchase or redemption of Creation Units of an Index Series offered for
repurchase or redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account of
----------------------------------
the Fund of dividends or other distributions to shareholders as may from time to
time be declared by the Board, interest, taxes, management or supervisory fees,
distribution fees, fees of the Bank for its services hereunder and reimbursement
of the expenses and liabilities of the Bank as provided hereunder, fees of any
transfer agent, fees for legal, accounting, and auditing services, or other
operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with the
--------------------------------
conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but, in
------------------
the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
-----------------
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
-----------------------------
(a) For payments in connection with foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements") which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the
<PAGE>
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of
-------------------------
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as hereinafter
-----------
set forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
----------
6.1 Segregation and Registration. Except as otherwise provided
----------------------------
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. The Bank will vote the Portfolio Securities
------------------
held hereunder, only in accordance with Proper Instructions or an Officers'
Certificate. The Bank will execute and deliver, or cause to be executed and
delivered, to the Fund all notices, proxies and proxy soliciting materials
delivered to the Bank with respect to such Securities, such proxies to be
executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
<PAGE>
6.3 Corporate Action. If at any time the Bank is notified that an
----------------
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action in accordance with the
procedures set forth in the Service Level Agreement between the Bank and the
Fund (the "SLA"), the Response required in connection with the Corporate Action
and the Bank's deadline for receipt from the Fund of Proper Instructions
regarding the Response (the "Response Deadline"). The Bank shall forward to the
Fund via telecopier, overnight courier or any other manner agreed to by the
parties all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank.
(a) Except as provided below, the Bank shall act upon a required
Response only after receipt by the Bank of Proper Instructions from the Fund no
later than 5:00 p.m. on the date specified as the Response Deadline and only if
the Bank (or its agent or subcustodian hereunder) has actual possession of all
necessary Securities, consents and other materials no later than 5:00 p.m. on
the date specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response
if Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank no later than 5:00 p.m. on the date specified as the Response Deadline,
provided that the Bank has acted in accordance with the procedures set forth in
this Agreement and in the SLA regarding such Corporate Action. Notwithstanding,
the Bank may, in its reasonable discretion, use its best efforts to act upon a
Response for which Proper Instructions and/or necessary Securities, consents or
other materials are received by the Bank after 5:00 p.m. on the date specified
as the Response Deadline, it being acknowledged and agreed by the parties that
any undertaking by the Bank to use its best efforts in such circumstances shall
in no way create any duty upon the Bank to complete such Response prior to its
expiration. Notwithstanding the foregoing sentence, if the Bank has, by its
negligence or failure to act in accordance with the procedures set forth in this
Agreement or the SLA, caused the Fund to provide a Response on a Corporate
Action after 5:00 p.m. on the date specified as the Response Deadline for such
Corporate Action, the Bank will use its best efforts to act upon such Response.
(c) In the event that the Fund notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no other notice of such
Corporate Action, the Response Deadline shall be 48 hours prior to the Response
expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by an Eligible Foreign
Custodian (as defined below).
<PAGE>
6.4 Book-Entry System. The Fund acknowledges and agrees that:
-----------------
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of securities loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advices from the Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers
to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
6.5 Use of a Depository. The Fund acknowledges and agrees that:
-------------------
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
<PAGE>
(b) Registration of Portfolio Securities may be made in the name of
any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment therefor or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded immediately to
the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. The Fund acknowledges
---------------------------------------------
and agrees that, upon receipt of Proper Instructions and upon receipt of
confirmation from an Issuer (as defined below) that the Fund has purchased such
Issuer's Book-Entry Paper, the Bank shall issue and hold in book-entry form, on
behalf of the Fund, commercial paper issued by issuers with whom the Bank has
entered into a book-entry agreement (the "Issuers"). In maintaining procedures
for Book-Entry Paper, the Bank agrees that:
<PAGE>
(a) The Bank will maintain all Book-Entry Paper held by the Fund
in an account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Fund's purchase
of Book-Entry Paper through the Bank will identify, by book-entry, commercial
paper belonging to the Fund which is included in the Book-Entry System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund; and
(e) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the Fund may
reasonably request from time to time.
6.7 Options and Futures Transactions.
--------------------------------
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts")
and call options ("calls") purchased or sold (written) by the Fund regarding
escrow or other arrangements (i) in accordance with the provisions of any
agreement entered into upon receipt of Proper Instructions among the Bank, any
broker-dealer that is a member of the National Association of Securities
Dealers, Inc. (the "NASD"), and, if necessary, the Fund, relating to the
compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.8 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held in a
Segregated Account is
<PAGE>
sufficient to protect such broker or the Fund against any loss; (ii) cause the
return of any collateral delivered to a broker; or (iii) advise the Fund that
any option it holds, has or is about to expire. Such duties or obligations shall
be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement entered into upon the receipt of Proper Instructions
among the Fund, the Bank 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 Fund.
(ii) The responsibilities of the Bank as to futures, puts and
calls traded on commodities exchanges, any Futures Commission Merchant account
and the Segregated Account shall be limited as set forth in subparagraph (a)(ii)
of this Section 6.7 as if such subparagraph referred to Futures Commission
Merchants rather than brokers, and Futures and puts and calls thereon instead of
options.
6.8 Segregated Account. The Bank shall upon receipt of Proper
------------------
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement among
the Fund, the Bank 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 organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
<PAGE>
(iv) for the purposes of compliance by the Fund 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;
(v) for other proper corporate purposes, but only, in the case
of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the executive committee of
the Board 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.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v) above,
in accordance with the purposes of such account as set forth in Proper
Instructions.
6.9 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt
--------------------------------------
of Proper Instructions relating to the purchase by the Fund of interest-bearing
fixed-term and call deposits, transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of
<PAGE>
the Bank therefore shall be the same as and no greater than the Bank's
responsibility in respect of other Portfolio Securities of the Fund.
6.10 Transfer of Securities. The Bank will transfer, exchange, deliver or
----------------------
release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, only upon receipt of Proper Instructions. The
Proper Instructions shall state that such transfer, exchange or delivery is for
a purpose permitted under the terms of this Section 6.10, and shall specify the
applicable subsection, or describe the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection. After receipt of such Proper Instructions, the Bank will transfer,
exchange, deliver or release Portfolio Securities only in the following
circumstances:
(a) Upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full, or
against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided,
however, that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, except to the extent caused by negligence, bad faith, willful
misconduct or a material breach of this Agreement on the part of the Bank in
connection with such offer of exchange, tender offer, or other exercise of
rights, the Bank shall have no liability for failure to so tender in a timely
manner unless such Proper Instructions are received by the Bank at least two
business days prior to the date required for tender, and unless the Bank (or its
agent or subcustodian hereunder) has actual possession of such Security at least
two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their terms
into other securities;
(d) For the purpose of redeeming in-kind Shares of the Fund upon
authorization from the Fund or its authorized agent, as may be described from
time to time in the Prospectus. It is understood and agreed that, in accordance
with generally accepted settlement practices and customs in certain
jurisdictions or markets in which Portfolio Securities may be held, the Bank may
deliver Portfolio Securities prior to the receipt of Shares of the Index Series
the redemption for which such Portfolio Securities were being delivered. Any
loss resulting from such "free" delivery of Portfolio Securities will be for the
account of the Fund and the Fund will hold the Bank harmless and indemnify the
Bank for any such losses, except to the extent caused by negligence or a
material breach of this Agreement on the part of the Bank;
<PAGE>
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to
a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.10,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. The Bank shall, upon receipt of notification and
-----------
instructions by the Fund's transfer agent of receipt of a request for redemption
of Creation Units of an Index Series in proper form, make cash and the
applicable Portfolio Securities available for payment to, or in
<PAGE>
accordance with instructions of, the relevant Authorized Participant (as defined
in the Prospectus). The Bank shall transfer the applicable Portfolio Securities
to or on the order of the Authorized Participant through the Clearing Process
(as defined in the Prospectus) or, at the election of the Authorized
Participant, outside of the Clearing Process through the DTC system. Any cash
redemption payment (less any applicable cash redemption transaction fees) due to
the Authorized Participant on redemption shall be effected through the Clearing
Process or through wire transfer in the case of redemptions effected outside the
Clearing Process through DTC. All payments shall be made in accordance with the
Declaration of Trust and By-laws of the Fund (the "Articles"), any applicable
votes of the Board of Trustees of the Fund and the Prospectus, from assets
available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
---------------------------------
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees through
the end of the then current term of this Agreement, and disbursements and
expenses of the Bank, and provided that at such time the Bank is not in material
breach of this Agreement or owing money to the Fund, this Agreement will
terminate and the Bank shall be released from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
-------------------------------------------
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the Fund's transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities received
as a distribution on Portfolio Securities as a result of a stock dividend, share
split-up, reorganization, recapitalization, merger, consolidation, readjustment,
distribution of rights and similar securities issued with respect to any
Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the
<PAGE>
Treasury Department issued thereunder, or by the laws of any state, now or
hereafter in effect, inserting the Fund's name on such certificates as the owner
of the securities covered thereby, to the extent it may lawfully do so and as
may be required to obtain payment in respect thereof. The Bank will execute and
deliver such certificates in connection with Portfolio Securities delivered to
it or by it under this Agreement as may be required under the provisions of the
Internal Revenue Code and any Regulations of the Treasury Department issued
thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
------------------------
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay in
accordance with the time limits set forth in the SLA.
11. Maintenance of Records and Accounting Services. The Bank will
----------------------------------------------
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act. Such books and records
shall be the property of the Fund.
The Bank shall perform the fund accounting services listed on Appendix C
hereto and shall keep the books of account and render statements or copies from
time to time as reasonably requested by the Treasurer or any executive officer
of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Yield Calculation
-------------------------------------
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
---------------
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a
<PAGE>
share of capital stock of the Fund, such determination to be made in accordance
with the provisions of the Articles and By-laws of the Fund and the Prospectus
and Statement of Additional Information relating to the Fund, as they may from
time to time be amended, and any applicable resolutions of the Board at the time
in force and applicable; and promptly to notify the Fund, the proper exchange
and the NASD or such other persons as the Fund may request of the results of
such computation and determination. In computing the net asset value hereunder,
the Bank may rely in good faith upon information furnished to it by any
Authorized Person in respect of (i) the manner of accrual of the liabilities of
the Fund and in respect of liabilities of the Fund not appearing on its books of
account kept by the Bank, (ii) reserves, if any, authorized by the Board or that
no such reserves have been authorized, (iii) the source of quotations or the
quotations to be used in computing the net asset value, (iv) the value to be
assigned to any security for which no price quotations are available, and (v)
the method of computation of the public offering price on the basis of the net
asset value of the shares.
12.2. Yield Calculation. The Bank will compute the performance results
------------------
of the Fund (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Fund for the
stated periods of time as shall be mutually agreed upon, and communicate in a
timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, the Bank will derive the
items of data necessary for the computation from the records it generates and
maintains for the Fund pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
(c) At the request of the Bank, the Fund shall provide, and the Bank
shall be entitled to rely on, written standards and guidelines to be followed by
the Bank in interpreting and applying the computation methods set forth in the
Releases or any Subsequent Staff Positions as they specifically apply to the
Fund. In the event that the computation methods in the Releases or the
Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Fund, the
Fund or its designated agent shall have the full responsibility for making the
determination of how the security or payment is to be treated for purposes of
the computation and how the computation is to be made and shall inform the Bank
thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is
<PAGE>
covered by this Section, and shall not be responsible for its computations made
in accordance with such determinations so long as such computations are
mathematically correct.
(d) The Fund shall keep the Bank informed of all publicly available
information and of any non-public advice, or information obtained by the Fund
from its independent auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related to the computations to
be undertaken by the Bank pursuant to this Agreement and the Bank shall not be
deemed to have knowledge of such information (except as contained in the
Releases) unless it has been furnished to the Bank in writing.
12.3 Determination of Cash Component, etc. Subject to and in accordance
------------------------------------
with the directions of the Fund's investment advisor, the Bank shall determine
for each Index Series after the close of each day on which the Fund is open to
accept orders, in accordance with the respective Index Series' policies as
adopted from time to time by the Fund's Board of Trustees and in accordance with
the procedures set forth in the Prospectus, the Cash Component (as defined in
the Prospectus). Such determination shall be based on the best information
reasonably available to the Bank as of 4:00 p.m. Eastern time on each day such
determination is to be made. The Bank shall provide (or cause to be provided)
this information to the Fund's investment advisor, the Fund's distributor and
other persons in accordance with policies to be adopted by the Fund's Board of
Trustees and shall disseminate such information on each day that the [American
Stock Exchange LLC ("AMEX")] is open, including through the facilities of the
National Securities Clearing Corporation, prior to the opening of trading on the
[AMEX]. It is understood and agreed that the Bank shall not be responsible for
the determination of the Deposit Securities.
13. Additional Services. The Bank shall perform the additional services
-------------------
for the Fund as are set forth on Appendix C hereto. Appendix C may be amended
---------- ----------
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix B shall be appropriately increased.
----------
14. Duties of the Bank.
------------------
14.1 Performance of Duties and Standard of Care. In performing its
------------------------------------------
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities purchased
by or for the Fund, the legality of the purchases thereof or the propriety of
the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for
the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the Fund
or the sufficiency of the amount to be received therefor;
<PAGE>
(d) the legality of the repurchase of any common shares of the Fund
or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in kind
of such dividend; and
(f) any property or moneys of the Fund unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund Held in
---------------------------------------------------------------------
the United States. The Bank may employ agents of its own selection in the
- -----------------
performance of its duties hereunder and shall be responsible for the acts and
omissions of such agents as if performed by the Bank hereunder. Without
limiting the foregoing, certain duties of the Bank hereunder may be performed by
one or more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Fund, provided that any such subcustodian
meets at least the minimum qualifications required by Section 17(f)(1) of the
1940 Act to act as a custodian of the Fund's assets with respect to property of
the Fund held in the United States. The Bank shall have no liability to the Fund
or any other person by reason of any act or omission of any subcustodian
(including any act or omission in connection with corporate actions) selected by
or at the direction of the Fund and the Fund shall indemnify the Bank and hold
it harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any subcustodian, except to the
extent caused by the negligence, bad faith, willful misconduct or material
breach of this Agreement on the part of the Bank. Upon request of the Bank, the
Fund shall assume the entire defense of any action, suit, or claim subject to
the foregoing indemnity. The Fund shall pay all fees and expenses of any
subcustodian selected by or at the direction of the Fund.
14.3 Duties of the Bank with Respect to Property of the Fund Held Outside
--------------------------------------------------------------------
of the United States.
- --------------------
(a) Appointment of Foreign Custody Manager.
--------------------------------------
(i) If the Fund has appointed the Bank Foreign Custody Manager
(as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's duties
and obligations with respect to the Fund's Portfolio Securities and other assets
maintained outside the United States shall be, to the extent not set forth
herein, as set forth in the Delegation Agreement between the Fund and the Bank
(the "Delegation Agreement").
<PAGE>
(ii) If the Fund has appointed any other person or entity Foreign
Custody Manager, the Bank shall act only upon Proper Instructions from the Fund
with regard to any of the Fund's Portfolio Securities or other assets held or to
be held outside of the United States, and the Bank shall be without liability
for any Claim (as that term is defined in Section 15 hereof) arising out of
maintenance of the Fund's Portfolio Securities or other assets outside of the
United States. The Fund also agrees that it shall enter into a written
agreement with such Foreign Custody Manager that shall obligate such Foreign
Custody Manager to provide to the Bank in a timely manner all information
required by the Bank in order to complete its obligations hereunder. The Bank
shall not be liable for any Claim arising out of the failure of such Foreign
Custody Manager to provide such information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its books
-------------------------
as belonging to the Fund the Foreign Portfolio Securities held by each foreign
sub-custodian (each an "Eligible Foreign Custodian") selected by the Foreign
Custody Manager, subject to receipt by the Bank of the necessary information
from such Eligible Foreign Custodian if the Foreign Custody Manager is not the
Bank.
(c) Access of Independent Accountants of the Fund. If the Bank is the
---------------------------------------------
Fund's Foreign Custody Manager, upon request of the Fund, the Bank will use its
best 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 an Eligible Foreign Custodian insofar as such books and records
relate to the performance of such foreign banking institution with regard to the
Fund's Portfolio Securities and other assets.
(d) Reports by Bank. If the Bank is the Fund's Foreign Custody
---------------
Manager, the Bank will supply to the Fund the reports required under the
Delegation Agreement. In addition, the Bank shall use reasonable efforts to
notify the Fund promptly of any changes in foreign subcustodians used by the
Fund and any change in the indemnification provided to the Bank by such foreign
subcustodians.
(e) Transactions in Foreign Custody Account. Transactions with
---------------------------------------
respect to the assets of the Fund held by an Eligible Foreign Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable agreement between the Foreign Custody
Manager and such Eligible Foreign Custodian. If at any time any Foreign
Portfolio Securities shall be registered in the name of the nominee of the
Eligible Foreign Custodian, the Fund agrees to hold any such nominee harmless
from any liability to the extent arising by reason of the registration of such
securities in the name of such nominee, except to the extent caused by the
Bank's negligence, bad faith, willful misconduct or material breach of this
Agreement.
<PAGE>
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the
account of the Fund and delivery of Foreign Portfolio Securities maintained
for the account of the Fund 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.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Fund pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) Tax Law. The Bank shall have no responsibility or liability for
-------
any obligations now or hereafter imposed on the Fund or the Bank as custodian of
the Fund by the tax laws of any jurisdiction, and it shall be the responsibility
of the Fund to notify the Bank of the obligations imposed on the Fund or the
Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Eligible Foreign 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.
14.4 Insurance.
---------
(a) The Bank shall, during the period that this Agreement remains in
effect, (i) maintain an Errors & Omissions policy of at least $50 million, which
policy will insure against all claims sustained by any party (including the
Fund) as a result of any actual or alleged wrongful act by the Bank, or error or
omission in the Bank's rendering of or failure to render services in accordance
with the terms set forth in the Bank's agreements with its clients, and (ii)
maintain a separate Errors & Omissions policy of at least $25 million, which
policy will insure against claims sustained solely by the Fund as a result of
any actual or alleged wrongful act, error
<PAGE>
or omission in the Bank's rendering of or failure to render services in
accordance with the terms set forth in this Agreement.
(b) Upon the Fund's written request, the policy referred to in clause
(a)(ii) above will be expanded to $50 million when the Fund's total assets reach
$25 billion. The Fund will reimburse (or cause its agent to reimburse) the Bank
in advance for the cost of the policy referred to in clause (a)(ii) above. When
the policy is expanded to $50 million, the Fund will reimburse (or cause its
agent to reimburse) the Bank in advance for the total cost of such expanded
policy.
14.5. Fees and Expenses of the Bank. The Fund will pay or reimburse the
-----------------------------
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay or reimburse
to the Bank such compensation or fees and expenses at such rates as shall be
agreed upon in writing by the parties from time to time. The Fund shall pay all
such fees and reimburse all such expenses on a monthly basis on the last day of
each month and the Bank is hereby authorized to deduct such fees and expenses
from the Fund's accounts. The Bank will also be entitled to reimbursement by
the Fund for all reasonable expenses incurred in conjunction with termination of
this Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion, advance
--------------------
funds on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such payments
by the Fund. Should such a payment or payments, with advanced funds, result in
an overdraft (due to insufficiencies of the Fund's account with the Bank, or for
any other reason) this Agreement deems any such overdraft or related
indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness and to the
extent required by law, in and to any property at any time held by it for the
Fund's benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, to charge any overdraft or indebtedness, together with interest due
thereon, against any balance of account standing to the credit of the Fund on
the Bank's books in accordance with the procedures set forth in the SLA.
15. Limitation of Liability.
-----------------------
15.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including reasonable legal fees, (a "Claim")
arising as a result of any act or omission of the Bank or any Indemnified Party
under this
<PAGE>
Agreement, except for any Claim to the extent such Claim results from the
material breach of this Agreement by or negligence, willful misfeasance or bad
faith of the Bank or any Indemnified Party.
15.2 The Bank shall indemnify and hold the Fund, its Board of Trustees,
officers and employees and its agents harmless from and against any and all
Claims to the extent any such Claim arises out of the negligent acts or
omissions, bad faith, willful misconduct or material breach of this Agreement by
the Bank, its officers, directors or employees or any of its agents or
subcustodians in connection with the activities undertaken pursuant to this
Agreement, provided that the Bank's indemnification obligation with respect to
the acts or omissions of its subcustodians shall not exceed the indemnification
provided by the applicable subcustodian to the Bank.
15.3 Notwithstanding anything to the contrary in this Agreement, in no
event shall a party to this Agreement be liable to the other party or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
15.4 Notwithstanding anything to the contrary in this Agreement, in no
event shall a party to this Agreement be liable to the other party or any third
party for losses resulting from (i) any acts of God, fires, floods, or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, or insurrection, and (ii) other happenings
or events beyond the reasonable control or anticipation of the party effected,
provided that (A) the effected party has in place appropriate business
resumption procedures, systems and facilities and (B) the effected party uses
its best efforts to avoid or remove the cause of such losses.
15.5 In performing its duties hereunder, the Bank will be entitled to
receive and act upon the advice of independent counsel of its own selection,
which may be counsel for the Fund.
15.6 The Bank may rely upon any Proper Instruction which it reasonably
believes to be genuine and to be signed or presented by any Authorized Person.
The Bank shall not be held to have notice of any change of authority of any
Authorized Person until receipt of appropriate written notice thereof has been
received by the Bank from the Fund.
15.7 In order that the indemnification provisions contained in this
Article 14 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
seeking indemnification shall give the indemnifying party full and complete
authority, information and assistance to defend such claim or proceeding, and
the indemnifying party shall have, at its option, sole control of the defense of
such claim or proceeding and all negotiations for its compromise or settlement.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written
<PAGE>
consent, which consent shall not be unreasonably withheld.
16. Termination.
-----------
16.1 The term of this Agreement shall be three years commencing upon the
date hereof (the "Initial Term"), unless earlier terminated as provided herein.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party breaches any
material provision of this Agreement, provided that the non-breaching party
gives written notice of such breach to the breaching party and the breaching
party does not cure such violation within 90 days of receipt of such notice.
(b) The Fund may terminate this Agreement prior to the expiration
of the Initial Term upon ninety days' prior written notice in the event that:
(i) the Bank's parent, Investors Financial Services Corp.
("IFSC"), fails to maintain a minimum capital level as
follows: (i) total stockholders' equity, as set forth in
IFSC's most recent annual or quarterly financial statements,
shall be equal to no less than $100 million, and (ii) the sum
of (x) total stockholders' equity and (y) the outstanding
amount of company-obligated, manditorily redeemable, preferred
securities, each as set forth in IFSC's most recent annual or
quarterly financial statements, shall be equal to no less than
$125 million; or
(ii) the Board of the Fund votes to liquidate the Fund and
terminate its registration with the Securities and Exchange
Commission other than in connection with a merger or
acquisition of the Fund or the Fund's investment adviser.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund ("Transfer"). The obligation of the Bank to deliver and transfer over the
assets of the Fund held by it directly to such successor custodian will commence
as soon as such successor is appointed and will continue until completed as
aforesaid. If the Fund does not select a successor custodian within ninety (90)
days from the date of delivery of notice of termination the Bank may, subject to
the provisions of subsection 16.3, deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or
<PAGE>
trust company so selected by the Bank will become the successor custodian of
such assets of the Fund with the same effect as though selected by the Board.
Thereafter, the Bank shall be released from any and all obligations under this
Agreement. Notwithstanding anything to the contrary in this Agreement, each
party's obligations under Section 15 hereof shall continue and remain in full
force and effect after the termination of this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 If this Agreement is terminated by the Bank under 16.1(a) or the
Fund under 16.1(b), the Fund shall reimburse the Bank for any reasonable
expenses incurred by the Bank in connection with the Transfer.
16.5 At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of the Bank relating
to its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
---------------
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
-------
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
<PAGE>
(a) In the case of notices sent to the Fund to:
iShares Trust
c/o Fund Administration
Barclays Global Fund Advisers
45 Fremont Street
San Francisco, California 94105
With a copy to: Legal Department
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Steven Gallant, Director - Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time
designate in writing.
19. Binding Effect; Amendments. This Agreement shall extend to and shall
--------------------------
be binding upon the parties hereto and their respective successors and assigns.
This Agreement may not be altered or amended, except by an instrument in
writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
-------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
-------------
governed by the laws of the State of New York, without regard to conflict of
laws provisions.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices,
----------------
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. Fund Liability. The Bank agrees that the obligations assumed by the
--------------
Fund hereunder shall be limited in all cases to the assets of the Fund and that
the Bank shall not seek satisfaction
<PAGE>
of any such obligation from the officers, agents, employees, trustees, or
shareholders of the Fund.
25. Several Obligations of the Index Series. This Agreement is an
---------------------------------------
agreement entered into between the Bank and the Fund with respect to each Index
Series. With respect to any obligation of the Fund on behalf of any Index Series
arising out of this Agreement, the Bank shall look for payment or satisfaction
of such obligation solely to the assets of the Index Series to which such
obligation relates as though the Bank had separately contracted with the Fund by
separate written instrument with respect to each Index Series.
26. Use of Name. A party shall not use the name of the other party or any
-------------
of its affiliates in any prospectus, sales literature or other material relating
to the Fund in a manner not approved by the other party prior thereto in
writing; provided however, that such approval shall not be required for any use
of its name which merely refers in accurate and factual terms to the Bank's
appointment hereunder or which is required by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided further, that in no
----------------
event shall such approval be unreasonably withheld or delayed.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
iShares TRUST
By: /s/ Nathan Most
-------------------------------
Name: Nathan Most
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Kevin Sheehan
-------------------------------
Name: Kevin Sheehan
Title: President
<PAGE>
Appendices
----------
Appendix A................................ Index Series
Appendix B................................ Fee Schedule
Appendix C................................ Additional Services (N/A)
<PAGE>
APPENDIX A
LIST OF FUNDS
<TABLE>
<S> <C> <C>
iShares S&P 500 iShares Dow Jones U.S. Total Market iShares Russell 3000
Index Fund Index Fund Index Fund
iShares S&P 500/BARRA iShares Dow Jones U.S. Basic Materials iShares Russell 3000 Growth
Growth Index Fund Sector Index Fund Index Fund
iShares S&P 500/BARRA iShares Dow Jones U.S. Consumer Cyclical iShares Russell 3000 Value
Value Index Fund Sector Index Fund Index Fund
iShares S&P MidCap 400 iShares Dow Jones U.S. Consumer iShares Russell 2000
Index Fund Non-Cyclical Sector Index Fund Index Fund
iShares S&P MidCap iShares Dow Jones U.S. Energy iShares Russell 2000 Growth
400/BARRA Growth Index Sector Index Fund Index Fund
Fund
iShares S&P MidCap iShares Dow Jones U.S. Financial iShares Russell 2000 Value
400/BARRA Value Index Sector Index Fund Index Fund
Fund
iShares S&P SmallCap 600 iShares Dow Jones U.S. Healthcare iShares Russell 1000
Index Fund Sector Index Fund Index Fund
iShares S&P SmallCap iShares Dow Jones U.S. Industrial iShares Russell 1000 Growth
600/BARRA Growth Index Sector Index Fund Index Fund
Fund
iShares S&P SmallCap iShares Dow Jones U.S. Technology iShares Russell 1000 Value
600/BARRA Value Index Sector Index Fund Index Fund
Fund
iShares S&P Europe 350 iShares Dow Jones U.S.
Index Fund Telecommunications Sector Index Fund
iShares S&P/TSE 60 iShares Dow Jones U.S. Utilities
Index Fund Sector Index Fund
iShares Dow Jones U.S. Chemicals
Index Fund
iShares Dow Jones U.S. Financial
Services Composite Index Fund
iShares Dow Jones U.S. Internet
Index Fund
</TABLE>
<PAGE>
iShares Dow Jones U.S. Real Estate
Index Fund
<PAGE>
Schedule B
Fee Schedule*
Exchange Traded Funds
March 8, 2000
============================================================================
CUSTODY, FUND ACCOUNTING, ADMINISTRATION, and
INSTITUTIONAL TRANSFER AGENCY
============================================================================
Assumptions used in developing the fee schedule:
-The launch of the 36 new funds will begin around May 1, 2000.
-BGI will use IBT for securities lending for a minimum of 2.5 years from
the date that at least 14 funds are serviced by Investors Bank.
-BGI will use IBT for foreign exchange.
-BGI will use IBT for custody, fund accounting, administration and
transfer agency services.
-IBT will provide accounting information to BGI for the PCF file.
============================================================================
CUSTODY
============================================================================
A. Transactions**
--------------
. DTC/Fed Book Entry $ 3***
. Physical Securities 35
. Options and Futures 18
. GNMA Securities 30
. Principal Paydown 5
. Foreign Currency 18****
. Outgoing Wires 7
. Incoming Wires 5
** These fees assume that trade information is sent to Investors Bank
electronically utilizing the same format as we are using today or electronically
from NSCC. For non-automated DTC/Fed Book trades the per trade fee will be
$10.00.
***There are no transaction charges for the use of Investors Bank Repo product.
****There are no transaction charges for F/X contracts executed by Investors
Bank.
B. Foreign Subcustodian Fees
-------------------------
. Incremental basis point and transaction fees will be charged for all
foreign assets for which we are custodian. The asset based fees and
transaction fees vary by country, based upon the global custody fees
below. Local duties, script fees, reclaims, registration, exchange fees,
and other market charges are out-of-pocket.
<PAGE>
. Investors Bank will require the fund to hold all international assets at
the subcustodian of our choice.
Basis Point Per
Country Charge Trade
- ------- ------
Charge
------
Australia 2.5 $40
Austria 3.5 $35
Belgium 3.5 $40
Canada 2.5 $20
Euroclear 2.5 $20
France 2.5 $43
Germany 2.5 $23
Hong Kong 3.0 $60
Italy 2.5 $30
Japan 2.0 $20
Malaysia 8 $60
Mexico 6 $24
Netherlands 3.5 $30
Singapore 7 $60
Spain 4 $43
Sweden 2.5 $35
Switzerland 4 $45
UK 3.0 $30
Brazil 22 $60
Korea 8 $50
South Africa 5 $30
Taiwan 11 $50
Thailand 7.5 $50
Denmark 2.5 $43
Finland 3.5 $50
Ireland 4 $56
Norway 2.5 $35
Portugal 14 $90
<PAGE>
================================================================================
FUND ACCOUNTING, ADMINISTRATION and TRANSFER AGENCY
================================================================================
A. Fund Accounting, Calculation of N.A.V., Administration and Transfer
-------------------------------------------------------------------
Agency
------
. The following basis point fee is based on all assets for which we are
fund accountant, administrator and transfer agent. This amount does not
include transactions.
Annual Fee
-----------------
First $4 billion in assets 4.5 Basis Points
Next $8 billion in assets 4.0 Basis Points
Next $8 billion in assets 3.0 Basis Points
Assets in excess of $20 billion 1.5 Basis Points
. There will be an incremental .5 basis point fee on each global
portfolio.
. There will be a yearly complex minimum of $3,600,000 which includes 36
funds. For each new fund beyond 36 the complex minimum will increase by
$100,000 (This fee does not include transactions or global custody). The
$3.6 million complex minimum will be billed monthly beginning on May 1,
2000. Any additional basis point fees owed to Investors Bank will be
calculated at the end of the first 12 month period (April 31, 2001)
based on the above fee schedule and the end of month assets for each of
the previous 12 months (May 1, 2000 to April 31, 2001). After the
initial 12 months, the complex minimum or basis points, whichever is
larger, will be billed on a monthly basis.
. The monthly minimum fee of $300,000 will be billed starting on May 1,
2000. Also, Barclays Global Investors agrees to pay Investors Bank $2.4
million in calendar year 2000.
<PAGE>
================================================================================
MISCELLANEOUS
================================================================================
A. Out-of-Pocket
-------------
. The charges next to each section are for proforma purposes only. Actual
charges may vary.
. These charges consist of:
-Third Party Review ($250/fd/yr) -InvestView
-Legal Expenses -Customized Reporting
-Printing, Delivery & Postage -Non-Standard Transmissions/Extracts
-Extraordinary Travel Expenses -Blue Sky ($100/permit)
-Forms and Supplies -Microfiche
-Pricing (per security/fund/day $.035 equities, $.40 bonds, $.45
int'l)
-Telecommunications (Per month/fund dom $61.25, int'l $77.06)
-International Verification ($.50/security/fund/month)
-Printing of shareholder reports -Copy fitting
-Financial statement report modification (after initially agreed upon
parameters) as to style, layout or format.
-Board meeting attendance -Data Transmissions
-Ad Hoc Reporting -Customized Statements
B. Domestic Balance Credit
-----------------------
. We allow use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship. The
monthly earnings allowance is equal to 75% of the 90-day T-bill rate.
C. Securities Lending, Cash Management and Foreign Exchange
--------------------------------------------------------
. The fee schedule is predicated on Investors Bank performing cash
management, foreign exchange and securities lending for the portfolios.
Securities lending revenue is split with the funds and Investors Bank as
follows:
$0-$15 billion in assets 60%/40%. 60% going to the funds
Assets in excess of $15 billion 70%/30%. 70% going to the funds
D. Systems
-------
. The details of any systems work will be determined after a thorough
business analysis. Any systems work will be billed on a time and material
basis. Investors Bank provides an allowance of 10 system hours for data
extract set-up and reporting extract set-up.
<PAGE>
E. Payment
-------
. The above fees will be charged against the fund's custodian checking
account on the last business day of the month. All fees will be billed
monthly.
* This fee schedule assumes the execution of our standard contractual
agreements for a term of 3 years and utilizing Investors Bank for
custody, fund accounting, transfer agent, administration and ancillary
services mentioned above.
<PAGE>
Exhibit (g.2)
SECURITIES LENDING AGENCY AGREEMENT
BETWEEN
INVESTORS BANK & TRUST COMPANY
AND
iShares TRUST
<PAGE>
SECURITIES LENDING AGENCY AGREEMENT
AGREEMENT, dated as of April 25, 2000, between iShares Trust (the
"Client"), a Delaware business trust, acting on behalf of the funds listed on
Schedule A hereto (each fund, a "Lender"), and Investors Bank & Trust Company, a
trust company organized and existing under the laws of the Commonwealth of
Massachusetts (the "Bank"). Schedule A may be amended from time to time by
written notice from the Client to the Bank.
WHEREAS, the Client is registered as an open-end investment company under
the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Bank currently acts as custodian for securities held by it in
the Account (as defined below) from time to time on behalf of the Lender;
WHEREAS, the Client desires to appoint the Bank as its agent for the
purpose of lending securities in the Account as more fully set forth below; and
WHEREAS, the Bank has agreed to act as the Client's agent for such purpose
pursuant to the terms hereof;
NOW, THEREFORE, for and in consideration of the mutual promises set forth
herein, the parties hereto agree as follows:
1. Definitions.
-----------
Whenever used in this Agreement, unless the context otherwise requires, the
following words shall have the meanings set forth below. Capitalized terms used
but not defined herein shall have the meaning assigned to them in the applicable
Securities Borrowing Agreement.
1.1 "Account" shall mean the custodial account or accounts established and
maintained by the Bank on behalf of each Lender for the safekeeping of
securities and monies received by the Bank from time to time.
1.2 "Approved Investment" shall mean any type of security, participation
or interest in property in which Cash Collateral may be invested or reinvested,
as set forth on Schedule I hereto (which may be amended from time to time to add
additional Approved Investments with the written consent of the Bank and the
Client, or to delete any Approved Investment at the written direction of the
Client).
1.3 "Authorized Person" shall be any officer of the Client and any other
person, whether or not any such person is an officer or employee of the Client,
duly authorized by corporate resolutions of the Board of Directors or Trustees,
as the case may be, of the Client to give Oral and/or Written Instructions on
behalf of the Client, such persons to be designated in a Certificate which
contains a specimen signature of such person.
<PAGE>
1.4 "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for receiving and delivering Government Securities (as defined herein),
its successors and nominees.
1.5 "Borrower" shall mean any entity named on Schedule II hereto (as such
Schedule may be amended from time to time to add additional Borrowers with the
written consent of the Bank and the Client, or to delete any Borrower at the
written direction of the Client). The Client will promptly notify the Bank if
at any time any Borrower is or becomes or potential Borrower is an "affiliated
person," as defined in the 1940 Act, of any Lender, or an affiliated person of
such affiliated person.
If the Client provides such notice, the Bank shall take appropriate action
to prevent the applicable Lenders from engaging in a Loan with any Borrower so
identified by the Client. The Bank shall be entitled to rely upon such notices
from the Client (and the absence of such notices) in its operation of the
securities lending program.
1.6 "Cash Collateral" shall mean either fed funds or New York Clearing
House funds, as applicable for a particular loan of Securities.
1.7 "Certificate" shall mean any notice, instruction, schedule or other
instrument in writing, authorized or required by this Agreement to be given to
the Bank, which is actually received by the Bank and signed on behalf of the
Client by an Authorized Person or a person reasonably believed by the Bank to be
an Authorized Person.
1.8 "Collateral" shall mean Cash Collateral unless the Bank and the Client
have agreed in writing to additional collateral, including Government Securities
and Letters of Credit.
1.9 "Collateral Account" shall mean a segregated account established and
maintained by the Bank for the purpose of holding Collateral and Approved
Investments, interest, dividends and other payments and distributions received
with respect to Collateral and Approved Investments ("Distributions"), and any
Securities Loan Fee paid by Borrowers in connection with Securities loans
hereunder.
1.10 "Depository" shall mean the Depository Trust Company, Participant's
Trust Company, Euroclear, and any other securities depository or clearing agency
(and their respective successors and nominees) authorized under applicable law
or regulation to act as a securities depository or clearing agency, including
any foreign securities depository approved by the Client.
1.11 "Government Security" shall mean book-entry Treasury securities (as
defined in Subpart 0 of Treasury Department Circular No. 300, 31 C.F.R. 306) and
any other securities issued or fully guaranteed by the United States government
or any agency or instrumentality of the United States government.
1.12 "Letter of Credit" shall mean a clean, unconditional and irrevocable
letter of credit in favor of the Bank as agent for the Lender issued by a bank
named on Schedule III hereto as
<PAGE>
may be amended from time to time to add additional banks by the written consent
of the parties hereto, or to delete any Bank at the written direction of the
Client.
1.13 "Oral Instructions" shall mean verbal instructions actually received
by the Bank from an Authorized Person or from a person reasonably believed by
the Bank to be an Authorized Person.
1.14 "Rebate" shall mean the amount payable by the Lender to a Borrower (as
set forth in a Receipt) in connection with Securities loans at any time
collateralized by Cash Collateral.
1.15 "Receipt" shall mean an advice or confirmation setting forth the terms
of a particular loan of Securities hereunder, including, without limitation, the
Collateral with respect to such loan.
1.16 "Securities Borrowing Agreement" shall mean with, respect to any
Borrower, the agreement pursuant to which the Bank lends securities on behalf of
its customers (including the Lender) to such Borrower as may be amended from
time to time.
1.17 "Securities Loan Fee" shall mean the amount payable by a Borrower to
the Bank, as agent for the Lender, pursuant to the applicable Securities
Borrowing Agreement in connection with Securities loans, if any, collateralized
by Collateral other than Cash Collateral.
1.18 "Security" shall mean any Government Securities, non-U.S. securities,
common stock and other equity securities, bonds, debentures, corporate debt
securities, notes, mortgages or other obligations, and any certificates,
warrants or other instruments representing rights to receive, purchase, or
subscribe for the same, or evidencing or representing any other rights or
interests therein, which are available for lending pursuant to Section 2.2 of
this Agreement.
1.19 "Written Instructions" shall mean written communications actually
received by the Bank from an Authorized Person or from a person reasonably
believed by the Bank to be an Authorized Person by letter, memorandum, telegram,
cable, telex, telecopy facsimile, computer, video (CRT) terminal or other on-
line system, or any other method whereby the Bank is able to verify with a
reasonable degree of certainty the identity of the sender of such communications
or the sender is required to provide a password or other identification code.
2. Appointment; Scope of Agency Authority.
--------------------------------------
2.1 Appointment. The Client hereby appoints the Bank as its agent to lend
-----------
Securities in the Account to Borrowers from time to time as hereinafter set
forth, and the Bank hereby accepts appointment as such agent and agrees to so
act.
2.2 Securities Subject to Lending. Unless the Client provides otherwise in
-----------------------------
writing to the Bank, all Securities maintained in the Account shall be available
for lending pursuant to this Agreement.
<PAGE>
2.3 Securities Borrowing Agreement. The Lender hereby acknowledges receipt
------------------------------
of a Securities Borrowing Agreement with respect to each Borrower. The Bank is
hereby authorized to lend Securities in the Account to Borrowers pursuant to
such agreements. The Bank shall provide the Client with any proposed material
amendments or changes to such agreements prior to their effectiveness. The
Client may elect, without penalty, to terminate any Borrower from Schedule II if
it opposes the change. Attached hereto as Exhibit A are the forms of Securities
Borrowing Agreements in effect between the Bank and the Borrowers as of the date
hereof.
2.4 Loan Opportunities. The Client on behalf of each Lender acknowledges
------------------
and agrees that the Bank shall have the right to decline to make any loans of
Securities under any Securities Borrowing Agreement and to discontinue lending
under any Securities Borrowing Agreement in its sole discretion and without
notice to the Client. The Client on behalf of each Lender agrees that it shall
have no claim against the Bank based on, or relating to, loans made for other
customers or for the Bank's own account, or loan opportunities refused
hereunder, whether or not the Bank has made fewer or more loans for any other
customer or for the Bank's own account than for the Lender, and whether or not
any loan for another customer or for the Bank's own account, or the opportunity
refused, could have resulted in loans made hereunder.
2.5 Use of Book-Entry System and Depositories. The Client on behalf of
-----------------------------------------
each Lender hereby authorizes the Bank on a continuous and on-going basis, to
deposit in the Book-Entry System and any Depositories all Securities eligible
for deposit therein and to utilize the Book-Entry System and Depositories to the
extent possible in connection with its receipt and delivery of Securities,
Collateral, Approved Investments and monies under this Agreement. Where
Securities, Collateral (other than Cash Collateral) and Approved Investments
eligible for deposit in the Book-Entry System or a Depository are transferred to
the Account, the Bank shall identify as belonging to the Lender a quantity of
securities in a fungible bulk of securities shown on the Bank's account on the
books of the Book-Entry System or the applicable Depository. Securities,
Collateral and Approved Investments deposited in the Book-Entry System or a
Deposit will be represented in accounts which include only assets held by the
Bank for customers, including but not limited to accounts in which the Bank acts
in a fiduciary or agency capacity.
3. Representations and Warranties.
------------------------------
3.1 Client's Representations The Client hereby represents and warrants to
------------------------
the Bank, which representations and warranties shall be deemed to be continuing
and to be reaffirmed on any day that a Securities loan hereunder is outstanding,
that:
(a) This Agreement has been approved by the Board of Trustees of
the Client and the Approved Investments have been and will be annually
determined to be in the best interests of shareholders of each Lender; this
Agreement is, and each Securities loan and Approved Investment will be, legally
and validly entered into by the Client on behalf of each Lender, does not, and
will not, violate any statute, regulation, rule, order or, judgment binding on
the Lender, or any provision of the Client's charter or by-laws, or any
agreement binding on the Client or affecting its property, and is enforceable
against the Client and each Lender in accordance with its terms, except as may
be limited by bankruptcy, insolvency or similar laws, or by equitable principles
relating to or limiting creditors rights generally;
<PAGE>
(b) The person executing this Agreement and all Authorized
Persons acting on behalf of the Client or any Lender has and have been duly and
properly authorized to do so;
(c) Each Lender is lending Securities as principal for its own
account and it will not transfer, assign or encumber its interest in, or rights
with respect to, any securities loans;
(d) All Securities subject to lending pursuant to Section 2.2 of
this Agreement are free and clear of all liens, claims, security interests and
encumbrances, no such Security subject to lending has been sold and the Client
on behalf of each Lender has no present intention to sell any of the Securities
subject to lending. The Client shall promptly delete from the list referenced in
Section 2.2 hereof any and all Securities which are no longer subject to the
representations contained in this sub-paragraph (d).
3.2 Bank's Representations The Bank hereby represents and warrants to the
----------------------
Client, which representations and warranties shall be deemed to be continuing
and to be reaffirmed on any day that a Securities loan hereunder is outstanding,
that:
(a) This Agreement is legally and validly entered into by the
Bank, does not and will not, violate any statute, regulation, rule, order or,
judgment binding on the Bank, or any provision of the Bank's charter or by-laws,
or any agreement binding on the Bank or affecting its property, and is
enforceable against the Bank in accordance with its terms, except as may be
limited by bankruptcy, insolvency or similar laws, or by equitable principles
relating to or limiting creditors rights generally; and
(b) The person executing this Agreement on behalf of the Bank
and all persons acting on the Bank's behalf pursuant to this Agreement have been
duly and properly authorized to do so.
(c) It will comply with all laws, rules and regulations
applicable to the securities lending transactions contemplated by this
Agreement.
4. Securities Lending Transactions.
-------------------------------
4.l Loan Initiation. From time to time the Bank may lend Securities to
---------------
Borrowers and deliver such Securities against receipt of Collateral in
accordance with the applicable Securities Borrowing Agreement. The Bank shall
deliver to the Lender a Receipt in connection with each loan made hereunder,
prior to settlement of such loan. If instructed by the Client in writing, Bank
will refrain from lending a particular security or from making loans to a
particular Borrower.
4.2 Receipt of Collateral; Approved Investments.
-------------------------------------------
(a) For each loan hereunder the Bank shall (i) initially receive
Cash Collateral equivalent to no less than 102% (105% in the case of loans of
foreign securities denominated in non-U.S. dollars) of the market value of the
securities lent and (ii) thereafter shall request on a
<PAGE>
daily basis as necessary additional Collateral, which for Cash Collateral shall
be an amount such that the value of the Cash Collateral in no event be
equivalent to less than 100% of the market value of the Securities lent (as
determined in accordance with the applicable Securities Borrowing Agreement),
and the Bank is hereby authorized and directed, without obtaining any further
approval from the Lender, to invest and reinvest all or substantially all of the
Cash Collateral received in any Approved Investment. The Bank shall credit all
Collateral, Approved Investments and Distributions received with respect to
Collateral and Approved Investments to the Collateral Account and mark its books
and records to identify the Lender's ownership thereof as appropriate.
(b) All Approved Investments shall be for the account and risk
of the Lender. To the extent any loss arising out of Approved Investments
results in a deficiency in the amount of Collateral available for return to a
Borrower pursuant to the Securities Borrowing Agreement, the Lender agrees to
pay the Bank on demand cash in an amount equal to such deficiency.
(c) Except as otherwise provided herein, all Collateral,
Approved Investments and Distributions credited to the Collateral Account shall
be controlled by, and subject only to the instructions of, the Bank, and the
Bank shall not be required to comply with any instructions of the Lender with
respect to the same.
4.3 Distributions on Loaned Securities. Except as provided in the next
----------------------------------
sentence, all interests, dividends, and other distributions paid with respect to
loaned Securities shall be credited to the Lender's account on the date such
amounts are delivered by the Borrower to the Bank. Any non-cash distribution on
loaned Securities which is in the nature of a stock split or a stock dividend
shall be added to the applicable loan (and shall be considered to constitute
loaned Securities) as of the date such non-cash distribution is declared payable
whether or not it has been received by the Borrower, provided that any such
addition shall be conditional upon the actual receipt of such non-cash
distribution and may be reversed by the Bank to the extent that such non-cash
distribution is not received.
4.4 Marks to Market. The Bank shall on each Business Day mark to market in
---------------
U.S. dollars the value of all Securities loaned hereunder and accordingly
receive and release Collateral in accordance with the applicable Securities
Borrowing Agreement.
4.5 Collateral Substitutions. The Bank shall accept substitutions of
------------------------
Collateral in accordance with the applicable Securities Borrowing Agreement and
shall credit all such substitutions to the Collateral Account, provided however
that unless other Collateral has been mutually agreed upon in writing by the
Bank and the Client, no other Collateral may be substituted for Cash Collateral.
The Bank will not accept Letters of Credit as Collateral hereunder from any
Borrower unless the Securities Borrowing Agreement with such Borrower provides
that in the event of a material adverse change in in the financial condition of
any bank issuing a Letter of Credit that serves as Collateral thereunder, the
Borrower will be required to immediately substitute Cash Collateral or
appropriate securities Collateral for such Letter of Credit.
<PAGE>
4.6 Termination of Loans. The Bank shall terminate any Securities loan to
--------------------
a Borrower in accordance with the applicable Securities Borrowing Agreement as
soon as practicable after:
(a) receipt by the Bank of a notice of termination pursuant to
the Securities Borrowing Agreement;
(b) receipt by the Bank of Written Instructions instructing it
to terminate a Securities loan; provided that the Client may require that each
Security must be returned to the Lender by no later than the date which is the
standard settlement date for trades of such Security entered into on the date of
such Written Instruction;
(c) receipt by the Bank of Written Instructions deleting the
Borrower to whom such loan was made from Schedule II hereto;
(d) upon the Bank's becoming aware of the occurrence of any
default pursuant to the applicable Securities Borrowing Agreement requiring
termination of such loan; or
(e) whenever the Bank, in its sole discretion, elects to
terminate such loan.
4.7 Securities Loan Fee. The Bank shall receive any applicable Securities
-------------------
Loan Fee paid by Borrowers pursuant to the Securities Borrowing Agreement and
credit all such amounts received to the Collateral Account.
4.8 The Borrower's Financial Condition. The Bank has delivered to the
----------------------------------
Lender each of the Borrower's most recent statements that have been made
available to the Bank pursuant to the Securities Borrowing Agreements. The Bank
shall promptly deliver to the Client all statements and financial information
subsequently delivered to the Bank and required to be furnished to the Bank
under the Securities Borrowing Agreements.
4.9 Transfer Taxes and Necessary Costs. All transfer taxes and necessary
----------------------------------
costs with respect to the transfer of the loaned Securities by the Lender to the
Borrower and the Borrower to the Lender upon the termination of the loan shall
be paid by the Borrower in accordance with the applicable Securities Borrowing
Agreement.
4.10 Borrower Default Indemnification. If, at the time of a default by a
--------------------------------
Borrower with respect to a loan hereunder (within the meaning of the applicable
Securities Borrowing Agreement), some or all of the loaned Securities under such
loan have not been returned by the Borrower, subject to the terms of this
Agreement, the Bank shall indemnify Lender against the failure of the Borrower
as follows:
(a) The Bank shall purchase a number of Securities of the same
issuer and class as the loaned Securities equal to the number of such unreturned
loaned Securities ("Replacement Securities"), to the extent that such
Replacement Securities are available on the open market. Such Replacement
Securities shall be purchased by applying the proceeds of the Collateral with
respect to such loan to the purchase of such Replacement Securities. If and to
the extent that such proceeds are insufficient or the Collateral is unavailable,
the purchase of such Replacement Securities shall be made at the Bank's expense.
The cost of the purchase of Replacement
<PAGE>
Securities shall include all costs, fees and expenses (including, without
limitation, attorneys' fees) incurred in connection with any purchase of
Replacement Securities; and the value of proceeds of the Collateral shall be
calculated less any costs, fees and expenses (including, without limitation,
attorneys' fees) incurred in connection with selling or otherwise realizing on
such Collateral.
(b) If and to the extent that it is impossible or commercially
impracticable for the Bank to purchase Replacement Securities pursuant to
Paragraph (a) hereof, the Bank shall credit to the Lender's account an amount
equal to the Market Value of the unreturned loaned Securities for which
Replacement Securities are not purchased, determined as of the close of trading
on the business day that the Bank as agent of the Lender, in its sole
discretion, either applies the proceeds of any Collateral with respect to such
loan to the purchase of any Replacement Securities or elects to treat any loaned
Securities as having been purchased by the Borrower, pursuant to the applicable
Securities Borrowing Agreement.
(c) Any credits required under Paragraph (b) hereof shall be
made by application of the proceeds of the Collateral (if any) that remains
after the purchase of Replacement Securities pursuant to Paragraph (a). If and
to the extent that the Collateral is unavailable or the value of the proceeds of
the remaining Collateral is less than the value of the sum of the credits
required to be made under Paragraph (b), such credits shall be made at the
Bank's expense.
(d) The Bank shall be subrogated to all rights of Lender against
Borrower in respect of any amounts paid by Bank pursuant to the provisions of
this Section; provided, however, that until such time as all obligations of
Borrower to Lender have been irrevocably paid in full, the Bank shall not be
entitled to take action to enforce such rights and any amounts received by or
distributable to the Bank on account of such rights shall be paid or distributed
to Lender.
4.11 Bank's Obligation. Except as specifically set forth herein, or in any
-----------------
applicable Securities Borrowing Agreement, the Bank shall have no duty or
obligation to take action to effect payment by a Borrower of any amounts owed by
such Borrower pursuant to the Securities Borrowing Agreement.
5. Concerning the Bank.
-------------------
5.1 Standard of Care: Indemnification.
---------------------------------
(a) It is expressly understood and agreed that in exercising its
rights and performing its obligations hereunder, the Bank owes no fiduciary duty
to the Lender. The Bank shall not be liable for any costs, expenses, damages,
liabilities or claims (including reasonable attorneys and accountants fees)
incurred by the Lender, except to the extent those costs, expenses, damages,
liabilities or claims result from the Bank's material breach of this Agreement
or the Bank's negligence, willful misconduct, bad faith, or reckless disregard
of its obligations and duties hereunder.
<PAGE>
Neither the Client nor the Bank shall have any obligation hereunder for
costs, expenses, damages, liabilities or claims (including reasonable
attorneys and accountants fees), which are sustained or incurred by reason
of any action or inaction by the Book-Entry System or any Depository or
their respective successors or nominees. In no event shall either party be
be liable to the other for special, punitive or consequential damages,
arising under or in connection with this Agreement, even if previously
informed of the possibility of such damages.
(b) The Client on behalf of each Lender agrees to indemnify the Bank
and to hold it harmless from and against any and all costs, expenses, damages,
liabilities or claims (including reasonable fees and expenses of counsel) which
the Bank may sustain or incur or which may be asserted against the Bank by
reason of or as a result of any action taken or omitted by the Bank in
connection with or arising out of the Bank's operating under and in compliance
with this Agreement, except those costs, expenses, damages, liabilities or
claims arising out of the Bank's negligence, bad faith, willful misconduct, or
reckless disregard of its obligations and duties hereunder. Actions taken or
omitted in reasonable reliance upon Oral or Written Instructions, any
Certificate, or upon any information, order, indenture, stock certificate, power
of attorney, assignment, affidavit or other instrument reasonably believed by
the Bank to be genuine or bearing the signature of a person or persons
reasonably believed by the Bank to be genuine or bearing the signature of a
person or persons reasonably believed to be authorized to sign, countersign or
execute the same, shall be presumed to have been taken or omitted in good faith.
(c) The Bank shall indemnify and hold harmless the Lender, its Board
of Trustees and its agents and Barclays Global Fund Advisors from any and all
loss, liability, costs, damages, actions, and claims ("Loss") to the extent that
any such Loss arises out of the material breach of this Agreement by or
negligent acts or omissions or willful misconduct of the Bank, its officers,
directors or employees or any of its agents or subcustodians in connection with
the securities lending activities undertaken pursuant to this Agreement,
provided that the Bank's indemnification obligation with respect to the acts or
omissions of its subcustodians shall not exceed the indemnification provided by
the applicable subcustodian to the Bank.
5.2 No Obligation to Inquire. Without limiting the generality of the
------------------------
foregoing, the Bank shall be under no obligation to inquire into, and shall not
be liable for, the validity of the issue of any Securities at any time held in
the Account or Approved Investments held in the Collateral Account.
5.3 Advances, Overdrafts and Indebtedness; Security Interest.
--------------------------------------------------------
(a) The Bank may, in its sole discretion, (i) advance funds on behalf of
the Lender in order to pay to Borrowers any Rebates with respect to fixed income
securities loans, (ii) with the prior approval of the Client on behalf of a
Lender, advance funds in order to pay to Borrowers any Rebates with respect to
equity securities loans or to return to Borrowers Cash Collateral to which they
are entitled pursuant to the Securities Borrowing Agreement (any such advance
listed in clause (i) of (ii) an "Approved Advance"), or (iii) without prior
approval of the Client on behalf of a Lender, advance funds in order to pay to
Borrowers any Rebates with respect to equity securities loans or to return to
Borrowers Cash Collateral to which they are entitled pursuant to
<PAGE>
the Securities Borrowing Agreement (any such advance listed in this clause (iii)
a "Bank Advance")(Approved Advances and Bank Advances hereinafter referred to
collectively as "Advances"). The Bank may also, in its sole discretion, as a
matter of bookkeeping convenience, credit the Account with interest, dividends
or other distributions payable on Securities prior to its actual receipt of
final payment therefor, with the prior approval of the Client on behalf of a
Lender (an "Approved Credit"), or without the prior approval of the Client on
behalf of a Lender (a "Bank Credit") (Approved Credits and Bank Credits
hereinafter referred to collectively as "Credits"). The Client of behalf of each
Lender agrees that such Credits may also be reflected on its books, and
otherwise, as "immediately available" or "same day" funds or by some similar
characterization. Notwithstanding any such Credit or characterization, all
Credits shall be conditional upon the Bank's actual receipt of final payment and
may be reversed by the Bank to the extent that final payment is not received. If
the Bank, in its sole discretion, permits a Lender to use funds credited to the
Account prior to receipt by the Bank of final payment thereof, such Lender shall
nonetheless, continue to bear the risk of, and liability for, the Bank's non-
receipt of final payment in full.
(b) The Client agrees that each Lender shall repay the Bank on
demand the amount of any Advance or Credit described in Section 3(a) above plus
accrued interest at a rate per annum (based on a 360-day year for the actual
number of days involved) as agreed to by the parties from time to time. In
order to secure repayment of any Approved Advance or Approved Credit arising
hereunder, the Client on behalf of each Lender hereby agrees that the Bank shall
have a continuing lien and security interest against each Lender, to the extent
of any such Approved Advance, Approved Credit or interest thereon owing, in and
to all assets now or hereafter held in the Account and the Collateral Account of
such Lender, which is then in the Bank's possession or control or in the
possession or control of any third party acting on the Bank's behalf and,
without limiting the foregoing, the Bank shall be entitled to all the rights and
remedies of a pledgee under common law and a secured party under the New York
Uniform Commercial Code and/or any other applicable laws and/or regulations as
then in effect. The Bank shall be entitled to charge any Advance, Credit or
interest thereon owing against any balance of account standing to the credit of
a Lender on the Bank's books and against any cash in the Account of such Lender.
(c) The rights of the Bank and the obligations of the Lender under
this Section are absolute and unconditional whether or not the Bank would be
entitled to indemnification pursuant to Section 5.l(b) hereof.
(d) For all purposes of this Agreement, payment with respect to a
transaction will not be "final" until the Bank shall have received immediately
available funds which under applicable law or rule are irreversible, which are
not subject to any security interest, levy or other encumbrance, and which are
specifically applicable, or deemed by the Bank to be specifically applicable, to
such transaction. A debit by the Bank to any other account of the Lender
maintained by the Bank or to an account of any third party to whom or for whose
account Securities have been delivered shall not constitute final payment to the
extent that such debit creates an overdraft or does not otherwise result in the
receipt by the Bank of immediately available, irreversible and unencumbered
funds.
<PAGE>
5.4 Advice of Counsel The Bank may, with respect to questions of law,
-----------------
apply for and obtain the advice and opinion of counsel which may be counsel to
the Client, provided that the foregoing shall not be deemed to be a waiver by
the client of any conflict of such counsel.
5.5 No Collection Obligations. The Bank shall be under no obligation
-------------------------
or duty to take action to effect collection of any amounts payable in respect of
Securities or Approved Investments if such Securities or Approved Investments
are in default, or if payment is refused after due demand and presentation.
5.6 Pricing Methods. The Bank is authorized to utilize any recognized
---------------
pricing information service or any other means of valuation specified in the
applicable Securities Borrowing Agreement ("Pricing Methods") in order to
perform its valuation responsibilities with respect to loaned Securities,
Collateral and Approved Investments, and the Lender agrees to hold the Bank
harmless from and against any loss or damage suffered or incurred as a result of
errors or omissions of any such Pricing Methods.
5.7 Agent's Fee.
-----------
(a) In connection with each Securities loan hereunder, the
Lender shall pay to the Bank a fee as specified below:
(i) If the value of Securities maintained in the Accounts, in the
aggregate, is less than or equal to $15 billion, Bank shall
receive 40% of the fee basis (the "Fee Basis") formed by (i) the
net realized income derived from the investment of Cash
Collateral, plus (ii) any Securities Loan Fee paid by the
Borrower, minus (iii) any Rebate paid to the Borrower, or
(ii) If the value of the Securities maintained in the Accounts, in the
aggregate, exceeds $15 billion, the bank shall receive a fee
equal to the product of the following fraction (the "Blended
Rate") multiplied by the Fee Basis:
[(1 / (Value of assets in Accounts / 15,000,000,000)] x .40} +
({1 - [1 / (Value of assets in Accounts / 15,000,000,000)]} X
.30)
(b) The Bank is authorized on a monthly basis to charge the fee owed by
the Lender under this paragraph against the applicable Collateral Account. Such
fee shall be charged and paid at the end of each month. The Blended Rate shall
be calculated on the first business day of each month based on the value of the
Securities maintained in the Accounts as of the last business day of the
preceding month.
(c) Examples illustrating the calculation of fees to be paid by
Lender to the Bank appear in Exhibit 1 hereto.
5.8 Reliance On Certificates and Instructions. The Bank shall be entitled
-----------------------------------------
to rely upon any Certificate, any information contained on any Schedule hereto
as may be amended in accordance
<PAGE>
with the terms hereof, and Written or Oral Instruction actually received by the
Bank and reasonably believed by the Bank to be duly authorized and delivered.
The Client agrees to forward to the Bank Written Instructions confirming Oral
Instructions in such manner so that such Written Instructions are received by
the Bank by the close of business of the same day that such Oral Instructions
are given to the Bank. The Client agrees that the fact that such confirming
Written Instructions are not received on a timely basis or that contrary
instructions are received by the Bank shall in no way affect the validity or
enforceability of the transactions authorized by the Client. The Bank will use
reasonable efforts to report any subsequently received contrary instructions. In
this regard, the records of the Bank shall be presumed to reflect accurately any
Oral Instructions given by an Authorized Person or a person reasonably believed
by the Bank to be an Authorized Person.
5.9 Disclosure of Account Information. The Bank may not disclose or supply
---------------------------------
any information regarding the Account unless required by any law or governmental
regulation now or hereafter in effect or requested to do so by Client; provided
that Bank may disclose or supply information regarding the Account as necessary
in the sole discretion of the Bank in order to facilitate, effect or continue
any loans hereunder.
5.10 Statements. The Bank will at least daily furnish the Lender with
----------
statements relating to loans hereunder.
5.11 Force Majeure. Notwithstanding anything to the contrary in this
-------------
Agreement, in no event shall a party to this Agreement be liable to the other
party or any third party for losses resulting from (i) any acts of God, fires,
floods, or other disturbances of nature, epidemics, strikes, riots,
nationalization, expropriation, currency restrictions, or insurrection, and (ii)
other happenings or events beyond the reasonable control or anticipation of the
party effected, provided that (A) the effected party has in place appropriate
business resumption procedures, systems and facilities and (B) the effected
party uses its best efforts to avoid or remove the cause of such losses.
5.12 No Implied Duties.
-----------------
(a) The Bank shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement and in the applicable Securities Borrowing Agreement, and no covenant
or obligation shall be implied against the Bank in connection with this
Agreement.
(b) Neither the Client nor any Lender shall have any duties or
responsibilities whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or obligation shall be
implied against the Client or any Lender in connection with this Agreement.
6. Termination. This Agreement may be terminated at any time by either party
-----------
upon delivery to the other party of a written notice specifying the date of such
termination, which shall be not less than 60 days after the date of receipt of
such notice. Notwithstanding any such notice, this
<PAGE>
Agreement shall continue in full force and effect with respect to all loans of
Securities outstanding on the date of termination.
7. Miscellaneous.
-------------
7.1 Exclusivity. The Client agrees that it shall not enter into any other
-----------
agreement with any third party whereby such third party is permitted to make
loans on behalf of any Lender of any securities held by the Bank in the Account
from time to time.
7.2 Certificates. The Client agrees to furnish to the Bank a new
------------
Certificate in the event that any then present Authorized Person ceases to be an
Authorized Person or in the event that any other Authorized Persons are
appointed and authorized. Until such new Certificate is received, the Bank shall
be fully protected in acting upon Oral Instructions or signatures of the present
Authorized Persons.
7.3 Notices.
-------
(a) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Bank, shall be sufficiently given
if addressed to the Bank and received by it at its offices at 200 Clarendon
Street, P.O. Box 9130, Boston, Massachusetts 02117-9130, Attention: Securities
Lending Department, , with a copy to: John E. Henry, General Counsel or at such
other place as the Bank may from time to time designate in writing.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Client shall be sufficiently given
if addressed to the Lender and mailed or delivered to iShares Trust, Fund
Administration, c/o Barclays Global Fund Advisors, 45 Fremont Street, San
Francisco, California 94105,with a copy to: Legal Department, Attn:
________________________, or at such other place as the Client may from time to
time designate in writing.
7.4 Cumulative Rights and No Waiver. Each and every right granted to a
-------------------------------
party hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of a party to exercise, and
no delay in exercising, any right will operate as a waiver thereof, nor will any
single or partial exercise by a party of any right preclude any other or future
exercise thereof or the exercise of any other right.
7.5 Severability. In case any provision in or obligation under this
------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or obligations
shall not in any way be affected or impaired thereby, and if any provision is
inapplicable to any person or circumstances, it shall nevertheless remain
applicable to all other persons and circumstances.
7.6 Amendments. This Agreement may not be amended or modified in any
----------
manner except by a written agreement executed by both parties.
<PAGE>
7.7 Successors and Assigns. This Agreement shall extend to and shall be
----------------------
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by either party
without the written consent of the other.
7.8 Governing Law; Consent to Jurisdiction. This Agreement shall be
--------------------------------------
construed in accordance with the laws of the State of New York without regard to
conflict of laws principles thereof.
7.9 No Third Party Beneficiaries. In performing hereunder, the Bank is
----------------------------
acting solely on behalf of the Client and, except as specifically provided
herein, no contractual or service relationship shall be deemed to be established
hereby between the Bank and any other person.
7.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
7.11 SIPA Notice. The provisions of the securities investor protection act
-----------
of 1970 may not protect the lender with respect to loans hereunder and,
therefore, the collateral delivered to the bank as agent for the lender may
constitute the only source of satisfaction of a borrower's obligation in the
event such borrower fails to return the loaned securities.
7.12 Survival of Indemnification. The indemnifications provided by a party
-----------------------------
hereunder shall be a continuing obligation of such party, its successors and
assigns, notwithstanding the termination of any loans hereunder or of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as of the day and year
first above written.
iShares TRUST
By: /s/ Nathan Most
________________________________
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Kevin Sheehan
________________________________
Title: President
<PAGE>
Schedule A
Lenders
iShares Dow Jones U.S. Basic Materials Sector Index Fund
iShares Dow Jones U.S. Chemicals Index Fund
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund
iShares Dow Jones U.S. Energy Sector Index Fund
iShares Dow Jones U.S. Financial Sector Index Fund
iShares Dow Jones U.S. Financial Services Composite Index Fund
iShares Dow Jones U.S. Healthcare Sector Index Fund
iShares Dow Jones U.S. Industrial Sector Index Fund
iShares Dow Jones U.S. Internet Index Fund
iShares Dow Jones U.S. Real Estate Index Fund
iShares Dow Jones U.S. Technology Sector Index Fund
iShares Dow Jones U.S. Telecommunications Sector Index Fund
iShares Dow Jones U.S. Total Market Index Fund
iShares Dow Jones U.S. Utilities Sector Index Fund
iShares Russell 1000 Growth Index Fund
iShares Russell 1000 Index Fund
iShares Russell 1000 Value Index Fund
iShares Russell 2000 Growth Index Fund
iShares Russell 2000 Index Fund
iShares Russell 2000 Value Index Fund
iShares Russell 3000 Growth Index Fund
iShares Russell 3000 Index Fund
iShares Russell 3000 Value Index Fund
iShares S&P 100 Index Fund
iShares S&P 500 Index Fund
iShares S&P 500/BARRA Growth Index Fund
iShares S&P 500/BARRA Value Index Fund
iShares S&P Europe 350 Index Fund
iShares S&P MidCap 400 Index Fund
iShares S&P MidCap 400/BARRA Growth Index Fund
iShares S&P MidCap 400/BARRA Value Index Fund
iShares S&P SmallCap 600 Index Fund
iShares S&P SmallCap 600/BARRA Growth Index Fund
iShares S&P SmallCap 600/BARRA Value Index Fund
iShares S&P/TSE 60 Index Fund
<PAGE>
Schedule I
Approved Investments
A. US Government Securities (defined as follows):
US Treasury Securities
------------------------------------------------------------------
US Treasury Bills
US Treasury Notes
US Treasury Bonds
US Government Agency Discounts Notes
------------------------------------------------------------------
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Regular Agency Mortgage Pass-Throughs
------------------------------------------------------------------
Freddie Mac Mortgage Gold PCs
Freddie Mac Adjustable Rate PCs
Fannie Mae Fixed Rate MBS
Fannie Mae Adjustable Rate MBS
GNMA Single Family Loan Pool 15-30 Years (I and II)
GNMA Single Family Loan Pool 15 Years (I and II)
GNMA Singe Family Platinum Pool 30 Years (I and II)
GNMA II Single Family Adjustable Rate MBS
B. Repurchase Agreements with the below-named counterparties, in amounts not
to exceed the specified limit with respect to each such counterparty.
Securities that are eligible as collateral under such Repurchase Agreements
shall be limited to the US Government Securities listed under Section A of
this Schedule above.
Repo Counterparties Credit Limits
------------------------------------- --------------
Bear Stearns & Co., Inc. USD300mm.
------------------------
Credit Suisse First Boston Corp USD200mm.
Goldman Sachs & Co. USD300mm.
-------------------
JP Morgan Securities Inc. USD200mm.
------------------------
Lehman Brothers Inc. USD200mm.
--------------------
Merrill Lynch Government Securities USD300mm.
-----------------------------------
Morgan Stanley & Co., Inc. USD400mm.
--------------------------
PaineWebber, Inc. USD200mm.
-----------------
Salomon Smith Barney Inc. USD300mm.
-------------------------
Warburg Dillon Read LLC USD200mm.
-----------------------
<PAGE>
C. Money Market Investments in the following funds:
Dreyfus Cash Management
Dreyfus Treasury Cash Management
Goldman Sachs Financial Square Money Market Fund
Goldman Sachs Financial Square Prime Obligation Fund
S-T Investments Co. Liquid Assets Portfolio
S-T Investments Co. Prime Portfolio
TempCash
TempFund
(continued next page)
<PAGE>
Schedule I
Approved Investments
(continued)
D. The maximum maturity for any security will be one year. No more than 5% of
each iShare Fund's total assets will be invested in any one issuer, with
the exception of US Government Securities. All investments shall be made in
compliance with the Investment Company Act of 1940, as amended, including
without limitation, Section 12(d)(1) thereof, and other applicable law.
<PAGE>
Schedule II
Approved Borrowers
Borrower Borrowing Limit
-------------------------------------------------- ---------------
Bear Stearns & Co., Inc. USD200mm.
BT Alex Brown Inc. USD100mm.
Credit Suisse First Boston Corp. USD100mm.
Deutsche Bank Securities Inc. USD100mm.
Donaldson, Luftkin & Jenrette Securities Corp. USD100mm.
Goldman Sachs & Co. USD200mm.
JP Morgan Securities Inc. USD100mm.
Lehman Brothers Inc. USD200mm.
Merrill Lynch, Pierce, Fenner & Smith Incorporated USD300mm.
Morgan Stanley & Co., Inc. USD200mm.
MS Securities Services, Inc. USD200mm.
PaineWebber, Inc. USD200mm.
Salomon Smith Barney Inc. USD175mm.
Warburg Dillon Read LLC USD175mm.
<PAGE>
Schedule III
Approved Issuing Banks for Letters of Credit
Bank of America
Chase Manhattan Bank
Mellon Bank
Morgan Guaranty Trust Company
Republic National Bank
<PAGE>
Schedule IV
Securities Lending Guidelines
1. The Bank shall only lend securities to "Approved Borrowers" as designated
by Barclays Global Fund Advisors (BGFA).
2. The Bank will make all loans versus acceptable collateral.
3. Collateral may include US Dollars (USD), Letters of Credit (with Banks
approved by BGFA), or US Government Securities as set forth on the Approved
Investment Schedule (Schedule I hereto).
4. The Bank will ensure that each loan will be initially collateralized at
102% for USD-denominated securities and 105% for securities not denominated
in USD, and will request additional collateral on a daily basis in the
event the collateral coverage falls below the applicable standard.
5. The Bank shall only invest the cash collateral in accordance with the
"Approved Investment" schedule as designated by BGFA.
6. The Bank shall terminate securities loans upon the sale of securities, upon
receipt of written instructions from the Lender, or as otherwise provided
in the Agreement.
7. The Bank shall disburse rebates to the Borrowers in accordance with this
Agreement.
8. The Bank shall collect all dividends, interest payments and other income on
loaned securities.
9. The Bank shall provide periodic reporting to BGFA detailing the securities
on loan, collateral, and cash reinvestment.
<PAGE>
Exhibit 1
Fees
The following two examples illustrate the calculation of fees to be paid by
Lender to the Bank:
Example A: Value of Securities in Account as of March 31 = $15,000,000,000
Value of Fee Basis for the month of April = $1,000,000
Fee to be paid to Bank on April = .40 x 1,000,000 = $400,000
Example B: Value of Securities in Account as of March 31 = $30,000,000,000
Value of Fee Basis for the month of April = $2,000,000
Blended Rate = {[1 / (30,000,000,000 / 15,000,000,000)] x
.40} +
({1- (1 / (30,000,000,000 / 15,000,000,000)]} x .30) =
.20 + .15 = .35
Fee to be paid to Bank on April 30 = $2,000,000 x .35 =
$750,000
<PAGE>
Exhibit (g.3)
DELEGATION AGREEMENT
AGREEMENT, dated as of April 25, 2000 by and between INVESTORS BANK & TRUST
COMPANY, a Massachusetts trust company (the "Delegate"), and iShares TRUST, a
business trust established under the laws of the State of Delaware (the "Fund").
WHEREAS, pursuant to the provisions of Rule 17f-5(b) under the Investment
Company Act of 1940, and subject to the terms and conditions set forth herein,
the Board of Trustees of the Fund desires to delegate to the Delegate, and the
Delegate hereby agrees to accept and assume, certain responsibilities described
herein concerning Assets held outside of the United States, including those
assigned to the Foreign Custody Manager as set forth in paragraphs (c)(1),
(c)(2) and (c)(3) of Rule 17f-5.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Definitions
-----------
Capitalized terms in this Agreement have the following meanings:
a. Assets
------
Assets means any of Fund's investments (including foreign currencies)
for which the primary market is outside the United States, and such cash and
cash equivalents as are reasonably necessary to effect Fund's transactions in
such investments.
b. Authorized Representative
-------------------------
Authorized Representative means any one of the persons who are
empowered, on behalf of the parties to this Agreement, to receive notices from
the other party and to send notices to the other party.
c. Board
-----
Board means the Board of Trustees (or the body authorized to exercise
authority similar to that of the board of directors of a corporation) of Fund.
d. Country Risk
------------
Country Risk means all factors reasonably related to the systemic risk
of holding assets in a particular country including, but not limited to, such
country's financial infrastructure (including any Securities Depositories
operating in such country);
<PAGE>
prevailing custody and settlement practices; and laws applicable to the
safekeeping and recovery of Assets held in custody.
e. Eligible Foreign Custodian
--------------------------
Eligible Foreign Custodian has the meaning set forth in Rule 17f-
5(a)(1) and shall also include foreign branches of U.S. Banks (as the term "U.S.
Bank" is defined in Rule 17f-5).
f. Foreign Custody Manager
-----------------------
Foreign Custody Manager has the meaning set forth in Rule 17f-5(a)(2).
g. Monitor
-------
Monitor means to re-assess or re-evaluate, at reasonable intervals, a
decision or determination previously made.
h. Securities Depository
---------------------
Securities Depository has the meaning set forth in Rule 17f-5(a)(6).
2. Representations
---------------
a. Delegate's Representations
--------------------------
Delegate represents that it is a trust company chartered under the
laws of the Commonwealth of Massachusetts and a U.S. Bank (as such term is
defined in Rule 17f-5). Delegate further represents that the persons executing
this Agreement and any amendment or appendix hereto on its behalf are duly
authorized to so bind the Delegate with respect to the subject matter of this
Agreement.
b. Fund's Representations
----------------------
Fund represents that the Board has determined that it is reasonable to
rely on Delegate to perform the responsibilities delegated by this Agreement.
Fund further represents that the persons executing this Agreement and any
amendment or appendix hereto on its behalf are duly authorized to so bind the
Fund with respect to the subject matter of this Agreement.
3. Jurisdictions Covered
---------------------
a. Initial Jurisdictions
---------------------
The authority delegated by this Agreement applies only with respect to
Assets held in the jurisdictions listed in Appendix A.
----------
<PAGE>
b. Added Jurisdictions
-------------------
Jurisdictions may be added to Appendix A by written agreement in the
----------
form of Appendix B. Delegate's responsibility and authority with respect to any
----------
jurisdiction so added will commence at the later of (i) the time that Delegate's
Authorized Representative and the Fund's Authorized Representative have both
executed a copy of Appendix B listing such jurisdiction, or (ii) the time that
----------
Delegate's Authorized Representative receives a copy of such fully executed
Appendix B.
- ----------
c. Withdrawn Jurisdictions
-----------------------
Board may withdraw its delegation with respect to any jurisdiction
upon written notice to Delegate. Delegate may withdraw its acceptance of
delegated authority with respect to any jurisdiction upon written notice to
Board. Ten days (or such longer period as to which the parties agree) after
receipt of any such notice by the Authorized Representative of the party other
than the party giving notice, Delegate shall have no further responsibility or
authority under this Agreement with respect to the jurisdiction or jurisdictions
is to which authority is withdrawn.
4. Delegation of Authority to Act as Foreign Custody Manager
---------------------------------------------------------
a. Selection of Eligible Foreign Custodians
----------------------------------------
Subject to the provisions of this Agreement and the requirements of
Rule 17f-5 (and any other applicable law), Delegate is authorized and directed
to place and maintain Assets in the care of any Eligible Foreign Custodian or
Custodians selected by Delegate in each jurisdiction to which this Agreement
applies, except that Delegate does not accept such authorization and direction
with regard to Securities Depositories.
b. Contracts With Eligible Foreign Custodians
------------------------------------------
Subject to the provisions of this Agreement and the requirements of
Rule 17f-5 (and any other applicable law), Delegate is authorized and directed
to enter into, on behalf of Fund, such written contracts governing Fund's
foreign custody arrangements with such Eligible Foreign Custodians as Delegate
deems appropriate.
5. Monitoring of Eligible Foreign Custodians and Contracts
-------------------------------------------------------
In each case in which Delegate has exercised the authority delegated under
this Agreement to place Assets with an Eligible Foreign Custodian, Delegate is
authorized to, and shall, on behalf of Fund, establish and maintain a system to
Monitor the appropriateness of maintaining Assets with such Eligible Foreign
Custodian. In each case in which Delegate has exercised the authority delegated
under this Agreement to enter into a written contract governing Fund's foreign
custody arrangements, Delegate is
<PAGE>
authorized to, and shall, on behalf of Fund, establish a system to Monitor the
appropriateness of such contract.
6. Guidelines and Procedures for the Exercise of Delegated Authority
-----------------------------------------------------------------
a. Board's Conclusive Determination Regarding Country Risk
-------------------------------------------------------
In exercising its delegated authority under this Agreement, Delegate
may assume, for all purposes, that the Board (or Fund's investment advisor,
pursuant to authority delegated by the Board) has considered, and pursuant to
its fiduciary duties to Fund and Fund's shareholders, determined to accept, such
Country Risk as is incurred by placing and maintaining Assets in the
jurisdictions to which this Agreement applies. In exercising its delegated
authority under this Agreement, Delegate may also assume that Board (or Fund's
investment advisor, pursuant to authority delegated by Board) has, and will
continue to, Monitor such Country Risk to the extent Board deems necessary or
appropriate.
Nothing in this Agreement shall require Delegate to make any selection
or to engage in any Monitoring on behalf of Fund that would entail consideration
of Country Risk.
b. Selection of Eligible Foreign Custodians
----------------------------------------
In exercising the authority delegated under this Agreement to place
Assets with an Eligible Foreign Custodian, Delegate shall determine that Assets
will be subject to reasonable care, based on the standards applicable to
custodians in the market in which the Assets will be held, after considering all
factors relevant to the safekeeping of such assets, including, without
limitation;
i. The Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if
applicable), the method of keeping custodial records, and the
security and data protection practices;
ii. Whether the Eligible Foreign Custodian has the financial strength
to provide reasonable care for Assets;
iii. The Eligible Foreign Custodian's general reputation and
standing;
iv. Whether Fund will have jurisdiction over and be able to enforce
judgments against the Eligible Foreign Custodian, such as by
virtue of the existence of any offices of the Eligible Foreign
Custodian in the United States or the Eligible Foreign
Custodian's consent to service of process in the United States;
<PAGE>
v. In the case of an Eligible Foreign Custodian that is a banking
institution or trust company, any additional factors and criteria
set forth in Appendix C to this Agreement; and
----------
c. Evaluation of Written Contracts
-------------------------------
In exercising the authority delegated under this Agreement to enter
into written contracts governing Fund's foreign custody arrangements with an
Eligible Foreign Custodian, Delegate shall determine that such contracts provide
reasonable care for Assets based on the standards applicable to Eligible Foreign
Custodians in the relevant market. In making this determination, Delegate shall
ensure that the terms of such contracts comply with the provisions of Rule 17f-
5(c)(2).
d. Monitoring
----------
In exercising the authority delegated under this Agreement to
establish a system to Monitor the appropriateness of maintaining Assets with an
Eligible Foreign Custodian and the appropriateness of a written contract
governing the Fund's foreign custody arrangements, Delegate shall consider any
factors and criteria set forth in Appendix D to this Agreement. If, as a result
----------
of its Monitoring of Eligible Foreign Custodian relationships hereunder or
otherwise, the Delegate determines in its sole discretion that it is in the best
interest of the safekeeping of the Assets to move such Assets to a different
Eligible Foreign Custodian, the Fund shall bear any expense related to such
relocation of Assets, except to the extent such expense results from the
negligence, willful misconduct, bad faith or material breach of this Agreement
by the Bank.
7. Standard of Care
----------------
In exercising the authority delegated under this Agreement, Delegate agrees
to exercise reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of assets of an investment company registered
under the Investment Company Act of 1940 would exercise.
8. Reporting Requirements
----------------------
Delegate agrees to provide written reports notifying Board of the placement
of Assets with a particular Eligible Foreign Custodian and of any material
change in Fund's foreign custody arrangements. Such reports shall be provided to
Board quarterly for consideration at the next regularly scheduled meeting of the
Board or earlier if deemed necessary or advisable by the Delegate in its sole
discretion.
9. Provision of Information Regarding Country Risk
-----------------------------------------------
With respect to the jurisdictions listed in Appendix A, or added thereto
----------
pursuant to Article 3, Delegate agrees to provide annually to Board, such
information relating to
<PAGE>
Country Risk, and information regarding Securities Depositories, if available,
as is specified in Appendix E to this Agreement. Such information relating to
----------
Country Risk shall be updated from time to time as the Delegate deems necessary.
10. Limitation of Liability.
-----------------------
10.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including reasonable legal fees, (a "Claim")
arising as a result of any act or omission of the Bank or any Indemnified Party
under this Agreement, except for any Claim to the extent such Claim results from
the material breach of this Agreement by or negligence, willful misfeasance or
bad faith of the Bank or any Indemnified Party.
10.2 The Bank shall indemnify and hold the Fund, its Board of Trustees,
officers and employees and its agents harmless from and against any and all
Claims to the extent any such Claim arises out of the negligent acts or
omissions, bad faith, willful misconduct or material breach of this Agreement by
the Bank, its officers, directors or employees or any of its agents or
subcustodians in connection with the activities undertaken pursuant to this
Agreement, provided that the Bank's indemnification obligation with respect to
the acts or omissions of its subcustodians shall not exceed the indemnification
provided by the applicable subcustodian to the Bank.
10.3 Notwithstanding anything to the contrary in this Agreement, in no
event shall a party to this Agreement be liable to the other party or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
10.4 Notwithstanding anything to the contrary in this Agreement, in no
event shall a party to this Agreement be liable to the other party or any third
party for losses resulting from (i) any acts of God, fires, floods, or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, or insurrection, and (ii) other happenings
or events beyond the reasonable control or anticipation of the party effected,
provided that (A) the effected party has in place appropriate business
resumption procedures, systems and facilities and (B) the effected party uses
its best efforts to avoid or remove the cause of such losses.
10.5 In performing its duties hereunder, the Bank will be entitled to
receive and act upon the advice of independent counsel of its own selection,
which may be counsel for the Fund.
10.6 The Bank may rely upon any Proper Instruction which it reasonably
believes to be genuine and to be signed or presented by any Authorized Person.
The Bank shall not be held to have notice of any change of authority of any
Authorized
<PAGE>
Person until receipt of appropriate written notice thereof has been received by
the Bank from the Fund.
10.7 In order that the indemnification provisions contained in this
Article 14 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
seeking indemnification shall give the indemnifying party full and complete
authority, information and assistance to defend such claim or proceeding, and
the indemnifying party shall have, at its option, sole control of the defense of
such claim or proceeding and all negotiations for its compromise or settlement.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent, which consent shall not be
unreasonably withheld.
11. Effectiveness and Termination of Agreement
------------------------------------------
This Agreement shall be effective as of the later of the date of execution
on behalf of Board or Delegate and shall remain in effect until terminated as
provided herein. This Agreement may be terminated at any time, without penalty,
by written notice from the terminating party to the non-terminating party.
Termination will become effective 90 days after receipt by the non-terminating
party of such notice.
12. Authorized Representatives and Notices
--------------------------------------
The respective Authorized Representatives of Fund and Board, and the
addresses to which notices and other documents under this Agreement are to be
sent to each, are as set forth in Appendix F. Any Authorized Representative of a
----------
party may add or delete persons from that party's list of Authorized
Representatives by written notice to an Authorized Representative of the other
party.
13. Governing Law
-------------
This Agreement shall be constructed in accordance with the laws of the
State of New York without regard to principles of choice of law.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the date first written above.
INVESTORS BANK & TRUST COMPANY
By: /s/ Kevin Sheehan
___________________________________
Name: Kevin Sheehan
Title: President
iShares TRUST
By: /s/ Nathan Most
____________________________________
Name: Nathan Most
Title: President
<PAGE>
List of Appendices
------------------
A -- Jurisdictions Covered
B -- Additional Jurisdictions Covered
C -- Additional Factors and Criteria To Be Applied in the Selection of
Eligible Foreign Custodians That Are Banking Institutions or Trust
Companies
D -- Factors and Criteria To Be Applied in Establishing Systems For the
Monitoring of Foreign Custody Arrangements and Contracts
E -- Information Regarding Country Risk
F -- Authorized Representatives
<PAGE>
APPENDIX A
----------
Jurisdictions Covered
---------------------
[delete those countries which are not delegated]
Argentina Kenya
Austria Korea
Australia Latvia
Bahrain Lebanon
Bangladesh Lithuania
Belgium Luxembourg
Bermuda Malaysia
Bolivia Mauritius
Botswana Mexico
Brazil Morocco
Bulgaria Namibia
Canada Netherlands
Chile New Zealand
China Norway
Clearstream (Cedel) Oman
Colombia Pakistan
Costa Rica Panama
Croatia Papua New Guinea
Cyprus Peru
Czech Republic Philippines
Denmark Poland
Ecuador Portugal
Egypt Romania
Estonia Russia
Euroclear Singapore
Finland Slovak Republic
France Slovenia
Germany South Africa
Ghana Spain
Greece Sri Lanka
Hong Kong Swaziland
Hungary Sweden
Iceland Switzerland
India Taiwan
Indonesia Thailand
Ireland Turkey
Israel Ukraine
Italy United Kingdom
Ivory Coast Uruguay
Japan Venezuela
Jordan Zambia
Kazakhstan Zimbabwe
<PAGE>
APPENDIX B
----------
Additional Jurisdictions Covered
--------------------------------
Pursuant to Article 3 of this Agreement, Delegate and Board agree that
the following jurisdictions shall be added to Appendix A:
[insert additional countries]
INVESTORS BANK & TRUST COMPANY
By: ___________________________________
Name:
Title:
[FUND]
By:____________________________________
Name:
Title:
DATE: ______________________________
<PAGE>
APPENDIX C
----------
Additional Factors and Criteria To Be Applied
in the Selection of Eligible Foreign Custodians
That Are Banking Institutions or Trust Companies
------------------------------------------------
In addition to the factors set forth in Rule 17f-5(c)(1), in selecting
Eligible Foreign Custodians that are banking institutions or trust companies,
Delegate shall consider the following factors, if such information is available
(check all that apply):
_________ None
_________ Other (list below):
<PAGE>
APPENDIX D
----------
Factors and Criteria To Be Applied
in the Establishing Systems For the Monitoring of
Foreign Custody Arrangements and Contracts
-------------------------------------------
In establishing systems for the Monitoring of foreign custody arrangements
and contracts with Eligible Foreign Custodians, Delegate shall consider the
following factors, if such information is available:
1. Operating performance
2. Established practices and procedures
3. Relationship with market regulators
4. Contingency planning
<PAGE>
APPENDIX E
----------
Information Regarding Country Risk
----------------------------------
To aid the Board in its determinations regarding Country Risk, Delegate
will furnish Board annually with respect to the jurisdictions specified in
Article 3, the following information:
1. Copy of Addenda or Side Letters to Subcustodian Agreements
2. Legal Opinion, if available, with regard to:
a) Access to books and records by the Fund's accountants
b) Ability to recover assets in the event of bankruptcy of a custodian
c) Ability to recover assets in the event of a loss
d) Likelihood of expropriation or nationalization, if available
e) Ability to repatriate or convert cash or cash equivalents
3. Audit Report
4. Copy of Balance Sheet from Annual Report
5. Summary of Central Depository Information
6. Country Profile Matrix containing market practice for:
a) Delivery versus payment
b) Settlement method
c) Currency restrictions
d) Buy-in practice
e) Foreign ownership limits
f) Unique market arrangements
7. Information Regarding Securities Depositories
a) Whether use is voluntary or compulsory
b) Ownership
c) Operating History
d) Established rules, practices and procedures
e) Membership
f) Financial strength
g) Governing regulatory body
<PAGE>
APPENDIX F
----------
Authorized Representatives
--------------------------
The names and addresses of each party's authorized representatives are set forth
below:
A. Board
With a copy to:
B. Delegate
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: _______________, Director, Client Management
Fax: (617) 330-6033
With a copy to:
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: John E. Henry, General Counsel
Fax: (617) 946-1929
<PAGE>
Exhibit (h.1)
ADMINISTRATION AGREEMENT
AGREEMENT made as of April 25, 2000 by and between iShares TRUST, a
business trust established under the laws of the state of Delaware (the "Fund"),
and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank").
WHEREAS, the Fund is a registered investment company under the Investment
Company Act of 1940, as amended (the "1940 Act") consisting of the separate
series listed on Appendix A hereto (as such Appendix A may be amended from time
---------- ----------
to time) (each an "Index Series" and collectively, the "Index Series");
WHEREAS, common shares of each Index Series will be listed on a registered
securities exchange; and
WHEREAS, the Fund desires to retain the Bank to render certain
administrative services to the Fund and the Bank is willing to render such
services.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Bank to act as
-----------
Administrator of the Fund on the terms set forth in this Agreement. The Bank
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. Delivery of Documents. The Fund has furnished the Bank with copies
---------------------
properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of the Bank to provide certain administrative services to the Fund
and approving this Agreement;
(b) The Fund's incorporating documents filed with the state of
Delaware on [date] and all amendments thereto (the "Articles");
(c) The Fund's by-laws and all amendments thereto (the "By-Laws");
(d) The Fund's agreements with all service providers which include
any investment advisory agreements, sub-investment advisory agreements, custody
agreements, distribution agreements and transfer agency agreements
(collectively, the "Agreements");
(e) The Fund's most recent Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and under the 1940
Act and all amendments thereto; and
(f) The Fund's most recent prospectus and statement of additional
information (the "Prospectus"); and
(g) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for the Bank in the proper performance of its
duties hereunder.
<PAGE>
The Fund will promptly furnish the Bank with copies of all amendments
of or supplements to the foregoing. Furthermore, the Fund will promptly notify
the Bank of any matter which would materially affect the performance by the Bank
of its services under this Agreement.
3. Duties of Administrator.
-----------------------
(a) Subject to the supervision and direction of the Board of
Directors of the Fund, the Bank, as Administrator, will conduct various aspects
of the Fund's administrative operations and undertakes to perform the services
described in Appendix B hereto. The Fund hereby represents that the sale of
----------
Fund shares are not subject to Blue Sky laws and the Bank shall not be
responsible for any registration, tracking or other functions related to the
Blue Sky laws of any state. The Bank may, from time to time, perform additional
duties and functions which shall be set forth in an amendment to such Appendix B
----------
executed by both parties. At such time, the fee schedule included in Appendix C
----------
hereto shall be appropriately amended.
(b) In performing all services under this Agreement, the Bank shall
act in conformity with the Fund's Articles and By-Laws and the 1940 Act, as the
same may be amended from time to time, and the investment objectives, investment
policies and other practices and policies set forth in the Fund's Registration
Statement, as the same may be amended from time to time. Notwithstanding any
item discussed herein, the Bank has no discretion over the Fund's assets or
choice of investments and cannot be held liable for any losses resulting from
the exercise of such discretion or investment choices.
(c) (i) The Bank shall, during the period that this Agreement
remains in effect, (x) maintain an Errors & Omissions policy of at least $50
million, which policy will insure against all claims sustained by any party
(including the Fund) as a result of any actual or alleged wrongful act, error or
omission in the Bank's rendering of or failure to render services in accordance
with the terms set forth in the Bank's agreements with its clients, and (y)
maintain a separate Errors & Omissions policy of at least $25 million, which
policy will insure against claims sustained solely by the Fund as a result of
any actual or alleged wrongful act, error or omission in the Bank's rendering of
or failure to render services in accordance with the terms set forth in this
Agreement.
(ii) Upon the Fund's written request, the policy referred to in
clause (c)(i)(y) above will be expanded to $50 million when the Fund's total
assets reach $25 billion. The Fund will reimburse (or cause its agent to
reimburse) the Bank in advance for the cost of the policy referred to in clause
(c)(i)(y) above. When the policy is expanded to $50 million, the Fund will
reimburse (or cause its agent to reimburse) the Bank in advance for the total
cost of such expanded policy.
4. Proper Instructions. Proper Instructions shall mean (i) instructions
-------------------
given by an Authorized Person (which shall include the Fund's Distributor), such
instructions to be given in such form and manner as the Bank and the Fund shall
agree upon from time to time, and (ii) instructions (which may be continuing
instructions) signed or initialed by an Authorized Person. Oral instructions
will be considered Proper Instructions if the Bank reasonably believes them to
have been given by an Authorized Person. The Fund shall cause all oral
instructions to be promptly confirmed in writing. The Bank shall act upon and
comply with any subsequent Proper Instruction which modifies a prior instruction
and the sole obligation of the Bank with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such
<PAGE>
discrepancy to the Fund. The Fund shall be responsible, at the Fund's expense,
for taking any action, including any reprocessing, necessary to correct any such
discrepancy or error, and to the extent such action requires the Bank to act,
the Fund shall give the Bank specific Proper Instructions as to the action
required. Proper Instructions shall include communication effected directly
between electro-mechanical or electronic devices, including information
transmitted by the Fund's Distributor. The Fund hereby authorizes such use of
electro-mechanical or electronic communication and the Fund and the Bank will
agree as to procedures which shall afford adequate safeguards for the Fund's
assets.
5. Fees and Expenses.
-----------------
(a) For the services to be rendered and the facilities to be
furnished by the Bank, as provided for in this Agreement, the Fund will
compensate the Bank in accordance with the fee schedule attached as Appendix C
----------
hereto. Such fees do not include out-of-pocket expenses incurred by the Bank in
connection with the performance of its obligations hereunder (as delineated on
Appendix C hereto) for which the Bank shall be entitled to bill the Fund
separately and for which the Fund shall reimburse the Bank.
(b) The Bank shall not be required to pay any expenses incurred by
the Fund.
6. Limitation of Liability.
-----------------------
6.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including reasonable legal fees, (a "Claim")
arising as a result of any act or omission of the Bank or any Indemnified Party
under this Agreement, except for any Claim to the extent such Claim results from
the material breach of this Agreement by or negligence, willful misfeasance or
bad faith of the Bank or any Indemnified Party.
6.2 The Bank shall indemnify and hold the Fund, its Board of Trustees,
officers and employees and its agents harmless from and against any and all
Claims to the extent any such Claim arises out of the negligent acts or
omissions, bad faith, willful misconduct or material breach of this Agreement by
the Bank, its officers, directors or employees or any of its agents or
subcustodians in connection with the activities undertaken pursuant to this
Agreement, provided that the Bank's indemnification obligation with respect to
the acts or omissions of its subcustodians shall not exceed the indemnification
provided by the applicable subcustodian to the Bank.
6.3 Notwithstanding anything to the contrary in this Agreement, in no
event shall a party to this Agreement be liable to the other party or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
6.4 Notwithstanding anything to the contrary in this Agreement, in no
event shall a party to this Agreement be liable to the other party or any third
party for losses resulting from (i) any acts of God, fires, floods, or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, or insurrection, and (ii) other happenings
or
<PAGE>
events beyond the reasonable control or anticipation of the party effected,
provided that (A) the effected party has in place appropriate business
resumption procedures, systems and facilities and (B) the effected party uses
its best efforts to avoid or remove the cause of such losses.
6.5 In performing its duties hereunder, the Bank will be entitled to
receive and act upon the advice of independent counsel of its own selection,
which may be counsel for the Fund.
6.6 The Bank may rely upon any Proper Instruction which it reasonably
believes to be genuine and to be signed or presented by any Authorized Person.
The Bank shall not be held to have notice of any change of authority of any
Authorized Person until receipt of appropriate written notice thereof has been
received by the Bank from the Fund.
6.7 in order that the indemnification provisions contained in this Article
14 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
seeking indemnification shall give the indemnifying party full and complete
authority, information and assistance to defend such claim or proceeding, and
the indemnifying party shall have, at its option, sole control of the defense of
such claim or proceeding and all negotiations for its compromise or settlement.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent, which consent shall not be
unreasonably withheld.
7. Termination of Agreement.
------------------------
7.1 The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party breaches any
material provision of this Agreement, provided that the non-breaching party
gives written notice of such breach to the breaching party and the breaching
party does not cure such violation within 90 days of receipt of such notice.
(b) The Fund may terminate this Agreement prior to the expiration of
the Initial Term upon ninety days' prior written notice in the event that:
(iii) the Bank's parent, Investors Financial Services Corp. ("IFSC"), fails to
maintain a minimum capital level as follows: (i) total stockholders'
equity, as set forth in IFSC's most recent annual or quarterly financial
statements, shall be equal to no less than $100 million, and (ii) the sum
of (x) total stockholders' equity and (y) the outstanding amount of
company-obligated, manditorily redeemable, preferred securities, each as
set forth in IFSC's most recent annual or quarterly financial statements,
shall be equal to no less than $125 million; or
(iv) the Board of the Fund votes to liquidate the Fund and terminate its
registration with the Securities and Exchange Commission other than in
connection with a merger or acquisition of the Fund or the Fund's
investment adviser.
<PAGE>
7.2 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as Administrator.
8. Miscellaneous.
--------------
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or the Bank shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
iShares Trust
c/o Fund Administration
Barclays Global Fund Advisers
45 Fremont Street
San Francisco, California 94105
With a copy to: Legal Department
To the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02117-9130
Attention: Steven Gallant, Director, Client Management
With a copy to: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable without the written consent of the
other party.
(c) This Agreement shall be construed in accordance with the laws of
the State of New York, without regard to its conflict of laws provisions.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
9. Confidentiality. All books, records, information and data pertaining
---------------
to the business of the other party which are exchanged or received pursuant to
the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required in the performance of duties hereunder or as otherwise
required by law.
<PAGE>
10. Fund Liability. The Bank agrees that the obligations assumed by the
--------------
Fund hereunder shall be limited in all cases to the assets of the Fund and that
the Bank shall not seek satisfaction of any such obligation from the officers,
agents, employees, trustees, or shareholders of the Fund.
11. Several Obligations of the Index Series. This Agreement is an
---------------------------------------
agreement entered into between the Bank and the Fund with respect to each Index
Series. With respect to any obligation of the Fund on behalf of any Index
Series arising out of this Agreement, the Bank shall look for payment or
satisfaction of such obligation solely to the assets of the Index Series to
which such obligation relates as though the Bank had separately contracted with
the Fund by separate written instrument with respect to each Index Series.
12. Use of Name. A party shall not use the name of the other party or any
-----------
of its affiliates in any prospectus, sales literature or other material relating
to the Fund in a manner not approved by the other party prior thereto in
writing; provided however, that such approval shall not be required for any use
of its name which merely refers in accurate and factual terms to the Bank's
appointment hereunder or which is required by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided further, that in no
----------------
event shall such approval be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
iShares TRUST
By: /s/ Nathan Most
-----------------------
Name: Nathan Most
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Kevin Sheehan
-----------------------
Name: Kevin Sheehan
Title: President
<PAGE>
Appendices
----------
Appendix A.................................... Portfolios
Appendix B.................................... Services
Appendix C.................................... Fee Schedule
<PAGE>
Review and Approval
The attached Summary of Administration Functions has been reviewed and
represents the services currently being provided.
_________________________________________________________
___________________________
Signature of Account Director/Date
__________________________________________________________
___________________________
Signature of Authorized Client Representative/ Date
<PAGE>
APPENDIX A
LIST OF FUNDS
<TABLE>
<S> <C> <C>
iShares S&P 500 iShares Dow Jones U.S. Total Market iShares Russell 3000
Index Fund Index Fund Index Fund
iShares S&P 500/BARRA iShares Dow Jones U.S. Basic Materials iShares Russell 3000 Growth
Growth Index Fund Sector Index Fund Index Fund
iShares S&P 500/BARRA iShares Dow Jones U.S. Consumer iShares Russell 3000 Value
Value Index Fund Cyclical Sector Index Fund Index Fund
iShares S&P MidCap 400 iShares Dow Jones U.S. Consumer Non-Cyclical iShares Russell 2000
Index Fund Sector Index Fund Index Fund
iShares S&P MidCap iShares Dow Jones U.S. Energy iShares Russell 2000
400/BARRA Growth Index Fund Sector Index Fund Fund Growth Index
iShares S&P MidCap iShares Dow Jones U.S. Financial iShares Russell 2000 Value
400/BARRA Value Index Fund Sector Index Fund Index Fund
iShares S&P SmallCap 600 iShares Dow Jones U.S. Healthcare iShares Russell 1000
Index Fund Sector Index Fund Index Fund
iShares S&P SmallCap iShares Dow Jones U.S. Industrial iShares Russell 1000 Growth
600/BARRA Growth Index Fund Sector Index Fund Index Fund
iShares S&P SmallCap iShares Dow Jones U.S. Technology iShares Russell 1000 Value
600/BARRA Value Index Fund Sector Index Fund Index Fund
iShares S&P Europe 350 iShares Dow Jones U.S. Telecommunications
Index Fund Sector Index Fund
iShares S&P/TSE 60 iShares Dow Jones U.S. Utilities Sector
Index Fund Index Fund
iShares Dow Jones U.S. Chemicals
Index Fund
iShares Dow Jones U.S. Financial Services
Composite Index Fund
</TABLE>
<PAGE>
iShares Dow Jones U.S. Internet
Index Fund
iShares Dow Jones U.S. Real Estate
Index Fund
<PAGE>
Investors Bank & Trust
Summary of Administration Functions
Barclays Global Investors iShares Trust
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- -------------------------------- --------------------------------- ----------------------------- -----------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
- --------------------------------
<S> <C> <C> <C>
Monitor portfolio compliance in Perform tests of certain specific Continuously monitor A/C - Provide
accordance with the current portfolio activity designed from portfolio activity and Fund consultation as needed
Prospectus and SAI. provisions of the Fund's operations in conjunction on compliance issues.
Prospectus and SAI. Follow-up on with 1940 Act, Prospectus,
potential violations. SAI and any other applicable
laws and regulations.
Monitor testing results and
Frequency: Daily approve resolution of
compliance issues.
Provide compliance summary package. Provide a report of compliance Review report. A/C - Provide
testing results. consultation as needed.
Frequency: Bi- weekly
Perform asset diversification Perform asset diversification Continuously monitor A - Provide consultation
testing to establish qualification tests at each tax quarter end. portfolio activity in as needed in establishing
as a RIC. Follow-up on issues. conjunction with IRS positions to be taken in
requirements. Review test tax treatment of
results and take any particular issues. Review
necessary action. Approve quarter end tests on a
Frequency: Quarterly tax positions taken. current basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ------------------------------------ --------------------------------- ----------------------------- ------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION (CONT.)
- ------------------------------------
<S> <C> <C> <C>
Perform qualifying income testing to Perform qualifying income testing Continuously monitor A- Consult as needed on
establish qualification as a RIC. (on book basis income, unless portfolio activity in tax accounting positions
material differences are conjunction with IRS to be taken. Review in
anticipated) on quarterly basis requirements. Review test conjunction with year-end
and as may otherwise be results and take any audit.
Frequency: Quarterly necessary. Follow-up on issues. necessary action. Approve
tax positions taken.
Prepare the Fund's annual expense Prepare preliminary expense Provide asset level
budget. Establish daily accruals. budget. Notify fund accounting projections and vendor fee
of new accrual rates. information. Approve
Frequency: Annually expense budget.
Monitor the Fund's expense budget. Monitor actual expenses updating Provide asset level C/A - Provide
budgets/ expense accruals. projections quarterly. consultation as
Provide vendor information requested.
as necessary. Review
expense analysis and approve
budget revisions.
Frequency: Quarterly
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ------------------------------------ --------------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
Receive and coordinate payment of Propose allocations of invoice Approve invoices and
fund expenses. among Funds and obtain authorized allocations of payments.
approval to process payment. Send invoices to IBT in a
Frequency: As often as necessary timely manner.
- ------------------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION (CONT.)
- ------------------------------------
Calculate periodic dividend rates to Calculate amounts available for Establish and maintain C - Review dividend
be declared in accordance with distribution. Coordinate review dividend and distribution resolutions in
management guidelines. by management and/or auditors. policies. Approve conjunction with Board
Notify custody and transfer agent distribution rates per share approval.
of authorized dividend rates in and aggregate amounts.
accordance with Board approved Obtain Board approval when A - Review and concur
policy. Report dividends to required. with proposed
Frequency: Quarterly Board as required. distributions
Calculate total return information Provide SEC total return Review total return
on Funds as defined in the current calculations. information.
Prospectus and SAI.
Frequency: Monthly
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ------------------------------------ --------------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
Prepare responses to major industry Prepare, coordinate as necessary, Identify the services to
questionnaires. and submit responses to the which the Funds report.
appropriate agency. Provide information as
Frequency: As often as necessary requested.
Prepare disinterested trustee Form Summarize amounts paid to Provide social security
1099-Misc. directors/trustees during the numbers and current mailing
calendar year. Prepare and mail address for trustees.
Form 1099-Misc. Review and approve
Frequency: Annually information provided for
Form 1099-Misc.
- -------------------------------------
FINANCIAL REPORTING
- -------------------------------------
Prepare financial information for Prepare selected portfolio and Review financial information.
presentation to Fund Management and financial information for
Board of Directors. inclusion in board material.
Frequency: Quarterly
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ------------------------------------ --------------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
Coordinate the annual audit and Coordinate the creation of Provide past financial A - Perform audit and
semi-annual preparation and templates reflecting statements and other issue opinion on annual
printing of financial statements client-selected standardized information required to financial statements.
and notes with management, fund appearance and text of financial create templates, including
accounting and the fund auditors. statements and footnotes. Draft report style and graphics. A/C - Review reports.
and manage production cycle. Approve format and text as
Coordinate with IBT fund standard. Approve
accounting the electronic receipt production cycle and assist
of portfolio and general ledger in managing to the cycle.
information. Assist in Coordinate review and
resolution of accounting issues. approval by portfolio
Using templates, draft financial managers of portfolio
statements, coordinate auditor listings to be included in
and management review, and clear financial statements.
comments. Coordinate printing of Prepare appropriate
reports and EDGAR conversion with management letter and
outside printer and filing with coordinate production of
the SEC via EDGAR. Management Discussion and
Frequency: Annually/semi-annually Analysis. Review and
approve entire report. Make
appropriate representations
in conjunction with audit.
- ------------------------------------
LEGAL
- ------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ------------------------------------ --------------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
Prepare agenda and board materials Maintain annual calendar of Review and approve board C - Review agenda,
for quarterly board meetings. required quarterly and annual materials and board and resolutions, board
approvals. Prepare agenda, committee meeting minutes. material and board and
resolutions and other board committee meeting
materials for quarterly board minutes. Ensure BOD
meetings. Prepare supporting material contains all
information and materials when required information
necessary. Assemble, check and that the BOD must review
distribute books in advance of and/or approve to
meeting. Attend board and perform their duties as
committee meetings and prepare directors.
Frequency: Quarterly minutes.
Prepare and file Form N-SAR. Prepare form for filing. Obtain Provide appropriate C - Review initial filing.
any necessary supporting responses. Review and A - Provide annual audit
documents. File with SEC via authorize filing. internal control letter
EDGAR. to accompany the annual
filing.
Frequency: Semi-annually
Prepare amendments to Registration Prepare and coordinate the filing Review and approve. C - Review and approve
Statement. of post-effective amendments. filings.
Coordinate with outside printers A/C - Provide consents as
Frequency: Annual update (includes the Edgar conversion, filing with appropriate.
updating financial highlights, the SEC and printing of
expense tables, ratios) plus one prospectus.
additional filing per fiscal year
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ------------------------------------ --------------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
- ------------------------------------
LEGAL (CONT.)
- ------------------------------------
Prepare Prospectus/SAI supplements. Prepare Prospectus and SAI Review and approve. C - Review and approve
supplements. File with the SEC filings.
via Edgar. Coordinate printing A/C - Provide consents
of supplements. as appropriate.
Frequency: As often as required
Preparation and filing of 24f-2 Accumulate capital stock Review and approve filing. C - Approve 24f-2 Notice.
Notice. information and draft Form 24f-2.
Notice. File approved Form with A - Review informally
SEC via Edgar. when requested
Frequency: Annually
Proxy Material/Shareholder Meetings Prepare drafts of proxy material Review and approve proxy. C - Review and approve
for review, file materials or proxy.
coordinate filing with SEC and
coordinate printing. Assist
proxy solicitation firm and
prepare scripts. Attend meeting
and prepare minutes.
Frequency: As needed
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ------------------------------------ --------------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
Assist in updating of fidelity bond Make annual filing of fidelity Obtain required fidelity
insurance coverage. bond insurance material with the bond insurance coverage.
SEC. Monitor level of fidelity
bond insurance maintained
Frequency: Annually in accordance with required
coverage.
- ------------------------------------
LEGAL (CONT.)
- ------------------------------------
Respond to regulatory audits. Compile and provide documentation Coordinate with regulatory C - Provide consultation
pursuant to audit requests. auditors to provide as needed.
Frequency: As needed (at least Assist client in resolution of requested documentation and
annually) audit inquiries. resolutions to inquiries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ------------------------------------ --------------------------------- ----------------------------- ----------------------
<S> <C> <C> <C>
- ------------------------------------
TAX
- ------------------------------------
Prepare income tax provisions. Calculate investment company Provide transaction A - Provide consultation
taxable income, net tax exempt information as requested. as needed in establishing
interest, net capital gain and Identify Passive Foreign positions to be taken in
spillback dividend requirements. Investment Companies tax treatment of
Identify book-tax accounting (PFICs). Approve tax particular issues.
differences. Track required accounting positions to be Perform review in
information relating to taken. Approve provisions. conjunction with the
Frequency: Annually accounting differences. year-end audit.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ---------------------------------- --------------------------------- --------------------------- -------------------------
<S> <C> <C> <C>
Calculate excise tax distributions Calculate required distributions Provide transaction A - Provide consultation
to avoid imposition of excise tax. information as requested. as needed in establishing
- Calculate capital gain net Identify Passive Foreign positions to be taken in
income and foreign currency Investment Companies tax treatment of
gain/loss through October 31. (PFICs). Approve tax particular issues.
- Calculate ordinary income and accounting positions to be Review and concur with
distributions through a taken. Review and approve proposed distributions
specified cut off date. all income and distribution per share.
- Project ordinary income from calculations, including
cut off date to December 31. projected income and
- Ascertain dividend shares. dividend shares. Approve
Identify book-tax accounting distribution rates per share
differences. Track required and aggregate amounts.
information relating to Obtain Board approval when
accounting differences. required.
Coordinate review by management
and fund auditors. Notify
custody and transfer agent of
authorized dividend rates in
accordance with Board approved
Frequency: Annually policy. Report dividends to
Board as required.
TAX (CONT.)
- ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust Barclays Global Investors or Counsel
- ---------------------------------- --------------------------------- --------------------------- ------------------------
<S> <C> <C> <C>
Prepare tax returns Prepare excise and RIC tax Review and sign tax return. A - Review and sign tax
returns. return as preparer.
Frequency: Annually
Prepare Form 1099 Obtain yearly distribution Review and approve
information. Calculate 1099 information provided for
reclasses and coordinate with Form 1099.
Frequency: Annually transfer agent.
Prepare other year-end tax-related Obtain yearly income distribution Review and approve
disclosures information. Calculate information provided.
disclosures
(i.e., dividend received
deductions, foreign tax credits,
Frequency: Annually tax-exempt income, income by
jurisdiction) and coordinate with
transfer agent.
</TABLE>
<PAGE>
Schedule C
Fee Schedule*
Exchange Traded Funds
March 8, 2000
================================================================================
CUSTODY, FUND ACCOUNTING, ADMINISTRATION, and
INSTITUTIONAL TRANSFER AGENCY
================================================================================
Assumptions used in developing the fee schedule:
-The launch of the 36 new funds will begin around May 1, 2000.
-BGI will use IBT for securities lending for a minimum of 2.5 years from
the date that at least 14 funds are serviced by Investors Bank.
-BGI will use IBT for foreign exchange.
-BGI will use IBT for custody, fund accounting, administration and
transfer agency services.
-IBT will provide accounting information to BGI for the PCF file.
================================================================================
CUSTODY
================================================================================
A. Transactions**
--------------
. DTC/Fed Book Entry $ 3***
. Physical Securities 35
. Options and Futures 18
. GNMA Securities 30
. Principal Paydown 5
. Foreign Currency 18****
. Outgoing Wires 7
. Incoming Wires 5
** These fees assume that trade information is sent to Investors Bank
electronically utilizing the same format as we are using today or electronically
from NSCC. For non-automated DTC/Fed Book trades the per trade fee will be
$10.00.
***There are no transaction charges for the use of Investors Bank Repo product.
****There are no transaction charges for F/X contracts executed by Investors
Bank.
<PAGE>
B. Foreign Subcustodian Fees
-------------------------
. Incremental basis point and transaction fees will be charged for all
foreign assets for which we are custodian. The asset based fees and
transaction fees vary by country, based upon the global custody fees
below. Local duties, script fees, reclaims, registration, exchange
fees, and other market charges are out-of-pocket.
. Investors Bank will require the fund to hold all international assets
at the subcustodian of our choice.
<TABLE>
<CAPTION>
Per
Basis Point Trade
Country Charge Charge
- ------- ------ ------
<S> <C> <C>
Australia 2.5 $40
Austria 3.5 $35
Belgium 3.5 $40
Canada 2.5 $20
Euroclear 2.5 $20
France 2.5 $43
Germany 2.5 $23
Hong Kong 3.0 $60
Italy 2.5 $30
Japan 2.0 $20
Malaysia 8 $60
Mexico 6 $24
Netherlands 3.5 $30
Singapore 7 $60
Spain 4 $43
Sweden 2.5 $35
Switzerland 4 $45
UK 3.0 $30
Brazil 22 $60
Korea 8 $50
South Africa 5 $30
Taiwan 11 $50
Thailand 7.5 $50
Denmark 2.5 $43
Finland 3.5 $50
Ireland 4 $56
Norway 2.5 $35
Portugal 14 $90
</TABLE>
<PAGE>
================================================================================
FUND ACCOUNTING, ADMINISTRATION and TRANSFER AGENCY
================================================================================
B. Fund Accounting, Calculation of N.A.V., Administration and Transfer
-------------------------------------------------------------------
Agency
------
. The following basis point fee is based on all assets for which we are
fund accountant, administrator and transfer agent. This amount does
not include transactions.
Annual Fee
-----------------
First $4 billion in assets 4.5 Basis Points
Next $8 billion in assets 4.0 Basis Points
Next $8 billion in assets 3.0 Basis Points
Assets in excess of $20 billion 1.5 Basis Points
. There will be an incremental .5 basis point fee on each global
portfolio.
. There will be a yearly complex minimum of $3,600,000 which includes
36 funds. For each new fund beyond 36 the complex minimum will
increase by $100,000 (This fee does not include transactions or
global custody). The $3.6 million complex minimum will be billed
monthly beginning on May 1, 2000. Any additional basis point fees
owed to Investors Bank will be calculated at the end of the first 12
month period (April 31, 2001) based on the above fee schedule and the
end of month assets for each of the previous 12 months (May 1, 2000
to April 31, 2001). After the initial 12 months, the complex minimum
or basis points, whichever is larger, will be billed on a monthly
basis.
. The monthly minimum fee of $300,000 will be billed starting on May 1,
2000. Also, Barclays Global Investors agrees to pay Investors Bank
$2.4 million in calendar year 2000.
================================================================================
MISCELLANEOUS
================================================================================
<PAGE>
A. Out-of-Pocket
-------------
. The charges next to each section are for proforma purposes only. Actual
charges may vary.
. These charges consist of:
-Third Party Review ($250/fd/yr) -InvestView
-Legal Expenses -Customized Reporting
-Printing, Delivery & Postage -Non-Standard Transmissions/Extracts
-Extraordinary Travel Expenses -Blue Sky ($100/permit)
-Forms and Supplies -Microfiche
-Pricing (per security/fund/day $.035 equities, $.40 bonds, $.45
int'l)
-Telecommunications (Per month/fund dom $61.25, int'l $77.06)
-International Verification ($.50/security/fund/month)
-Printing of shareholder reports -Copy fitting
-Financial statement report modification (after initially agreed upon
parameters) as to style, layout or format.
-Board meeting attendance -Data Transmissions
-Ad Hoc Reporting -Customized Statements
B. Domestic Balance Credit
-----------------------
. We allow use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship. The
monthly earnings allowance is equal to 75% of the 90-day T-bill rate.
C. Securities Lending, Cash Management and Foreign Exchange
--------------------------------------------------------
. The fee schedule is predicated on Investors Bank performing cash
management, foreign exchange and securities lending for the portfolios.
Securities lending revenue is split with the funds and Investors Bank as
follows:
$0-$15 billion in assets 60%/40%. 60% going to the funds
Assets in excess of $15 billion 70%/30%. 70% going to the funds
D. Systems
-------
<PAGE>
. The details of any systems work will be determined after a thorough
business analysis. Any systems work will be billed on a time and material basis.
Investors Bank provides an allowance of 10 system hours for data extract set-up
and reporting extract set-up.
E. Payment
-------
. The above fees will be charged against the fund's custodian checking
account on the last business day of the month. All fees will be billed
monthly.
* This fee schedule assumes the execution of our standard contractual
agreements for a term of 3 years and utilizing Investors Bank for
custody, fund accounting, transfer agent, administration and ancillary
services mentioned above.
<PAGE>
Exhibit (h.2)
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 25th day of April, 2000 by and between iShares
TRUST, a business trust established under the laws of the State of Delaware (the
"Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the
"Bank").
WHEREAS, the Fund, an open-end management investment company on behalf of
the series listed on Appendix A hereto (as such Appendix A may be amended from
---------- ----------
time to time) (each an "Index Series" and collectively, the "Index Series")
desires to appoint the Bank as its transfer agent, dividend disbursing agent and
agent in connection with certain other activities, and the Bank desires to
accept such appointment;
WHEREAS, the Bank is duly registered as a transfer agent as provided in
Section 17A(c) of the Securities Exchange Act of 1934, as amended, (the "1934
Act");
WHEREAS, the Fund will issue and redeem shares of each Index Series
only in aggregations of shares known as "Creation Units" principally in-kind for
portfolio securities of the respective Index Series, as more fully described in
the then current prospectus and statement of additional information of the Fund
(together, the "Prospectus") included in its registration statement on Form N-1A
(the "Registration Statement") Registration Nos. 333-92935 and 811-09729; and
WHEREAS, the shares of each of the Index Series have been approved for
listing on the American Stock Exchange LLC ("Amex"), subject to notice of
issuance; and
WHEREAS, the Depository Trust Company, a limited purpose trust company
organized under the laws of the State of New York ("DTC"), or its nominee, will
be the record or registered owner (the "Shareholder") of all shares of each
Index Series;
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the Fund and the Bank agree as follows:
1. Terms of Appointment; Duties of the Bank.
----------------------------------------
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund on behalf of the Index Series hereby employs and appoints the Bank to act,
and the Bank agrees to act, as transfer agent for each of the Index Series'
authorized and issued shares of beneficial interest ("Shares"), and dividend
disbursing agent of the Fund.
<PAGE>
1.2 The Bank agrees that it will perform the following services:
(a) In connection with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Receive from the Fund's distributor (the "Distributor") purchase
orders from the Authorized Participants (as defined in the Prospectus) for
Creation Units received and accepted by or on behalf of the Fund by the
Distributor, transmit appropriate trade instructions to the National Securities
Clearing Corporation, if applicable, and pursuant to such orders issue the
appropriate number of shares of the applicable Index Series in Creation Units
and hold such shares in the account of the Shareholder for each of the
respective Index Series. It is understood and agreed that the Bank will not be
responsible for determining whether any order, if accepted, will result in the
depositor of the Fund Deposit (as defined in the Prospectus) owning or appearing
to own eighty percent (80%) of the outstanding shares of such Index Series;
(ii) Receive from the Distributor redemption requests; deliver the
appropriate documentation thereof to the duly appointed custodian of the Fund
(the "Custodian"); generate and transmit, or cause to be generated and
transmitted, confirmation of receipt of such redemption requests to the
Distributor; transmit appropriate trade instructions to the National Securities
Clearing Corporation, if applicable; and pursuant to such orders redeem the
appropriate number of shares of the applicable Index Series in Creation Units
from the account of the Shareholder for each of the respective Index Series;
(iii) At the appropriate time, cause to be paid over in the appropriate
manner monies to the redeeming party;
(iv) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of an Index Series;
(v) Create and maintain all necessary records including those specified
in Article 10 hereof, in accordance with all applicable laws, rules and
regulations, including but not limited to records required by Section 31(a) of
the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules
promulgated thereunder and those records pertaining to the various functions
performed by it hereunder. All records shall be available for inspection and
use by the Fund. Where applicable, such records shall be maintained by the Bank
for the periods and in the places required by Rule 31a-2 under the 1940 Act;
(vi) Make available during regular business hours all records and other
data created and maintained pursuant to this Agreement for reasonable audit and
inspection by the Fund, or any person retained by the Fund. Upon reasonable
notice by the Fund, the Bank shall make available during regular business hours
its facilities and premises employed in
<PAGE>
connection with its performance of this Agreement for reasonable visitation by
the Fund, or any person retained by the Fund; and
(vii) Record the issuance of Shares of each Index Series and
maintain, pursuant to Rule 17Ad-10(e) under the 1934 Act, a record of the total
number of Shares of the Fund which are authorized, based upon data provided to
it by the Fund, and issued and outstanding. The Bank shall also provide the Fund
on a regular basis with the total number of Shares which are authorized and
issued and outstanding but shall not be responsible for, when recording the
issuance of Shares, monitoring the issuance of such Shares or compliance with
any laws relating to the validity of the issuance or the legality of the sale of
such Shares.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a) or in any Schedule hereto, the Bank shall: perform all of
the customary services of a transfer agent and dividend disbursing agent for
exchange traded funds, including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, coordinating the mailing and
soliciting of proxies, receiving and tabulating proxies, withholding taxes on
all accounts, including nonresident alien accounts, preparing and transmitting
statements of account to the Shareholder for all purchases and redemptions of
Shares, preparing and mailing activity statements for Shareholders (including
dividend and distribution notices and tax information), and providing
Shareholder account information. The Fund hereby informs the Bank that as of the
date hereof the Shares are exempt from Blue Sky reporting for each State.
(c) Additionally, the Bank shall utilize a system to identify all
Share transactions which involve purchase and redemption orders that are
processed at a time other than the time of the computation of net asset value
per share next computed after receipt of such orders, and shall compute the net
effect upon the Index Series of such transactions so identified on a daily and
cumulative basis.
1.3 Instructions shall be deemed to be proper instructions hereunder if
such instructions are (i) instructions given by an Authorized Person (which
shall include the Fund's Distributor), such instructions to be given in such
form and manner as the Bank and the Fund shall agree upon from time to time.
Oral instructions will be considered proper instructions if the Bank reasonably
believes them to have been given by an Authorized Person. The Fund shall cause
all oral instructions to be promptly confirmed in writing. The Bank shall act
upon and comply with any subsequent proper instruction which modifies a prior
instruction and the sole obligation of the Bank with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires the Bank
to act, the Fund shall give the Bank specific proper instructions as to the
action required. Instructions shall include communication effected directly
between electro-mechanical or electronic devices, including information
transmitted by the Fund's Distributor. The Fund hereby authorizes such use of
electro-mechanical or electronic communication and the Fund and the Bank will
agree as to procedures which shall afford adequate safeguards for the Fund's
assets.
<PAGE>
1.4 Authorized Person will mean any of the persons duly authorized to give
proper instructions or otherwise act on behalf of the Fund by appropriate
resolution of its Board, and set forth in a certificate provided to the Bank.
2. Sale of Fund Shares.
-------------------
2.1 Whenever the Fund shall sell or cause to be sold any Shares of an
Index Series, the Fund shall deliver or cause to be delivered to the Bank a
document duly specifying: (i) the name of the Index Series whose Shares were
sold; (ii) the number of Shares sold, trade date, and price; (iii) the amount of
money and/or securities to be delivered to the Custodian for the sale of such
Shares and specifically allocated to such Index Series; and (iv) in the case of
a new account, a new account application or sufficient information to establish
an account.
2.2 The Bank will, upon receipt by it of a check or other payment
identified by it as an investment in Shares of one of the Index Series and drawn
or endorsed to the Bank as agent for, or identified as being for the account of,
one of the Index Series, promptly deposit such check or other payment to the
appropriate account postings necessary to reflect the investment in the
appropriate Index Series. The Bank will notify the Fund (or its designated
agent) and the Custodian of all purchases and related account adjustments.
2.3 Under procedures as established by mutual agreement between the Fund
and the Bank, the Bank shall issue to the purchaser or its authorized agent such
Shares in Creation Units, as he is entitled to receive determined in accordance
with the prospectus and any applicable federal law or regulation. In issuing
Shares to a purchaser or its authorized agent, the Bank shall be entitled to
rely upon the latest proper instructions, if any, previously received by the
Bank from the Fund, the purchaser or their authorized agents concerning the
delivery of such Shares.
2.4 The Bank shall not issue any Shares of the Fund where it has received
a written instruction from the Fund or written notification from any appropriate
federal or state authority that the sale of the Shares of the Index Series in
question has been suspended or discontinued, and the Bank shall be entitled to
rely upon such written instructions or written notification.
2.5 Upon the issuance of any Shares of any Index Series in accordance with
foregoing provisions of this Section, the Bank shall not be responsible for the
payment of any original issue or other taxes, if any, required to be paid by the
Fund in connection with such issuance.
2.6 The Bank may establish such additional rules and regulations governing
the transfer or registration of Shares as it may deem advisable and consistent
with such rules and regulations generally adopted by transfer agents, or with
the written consent of the Fund, any other rules and regulations.
3. Returned Orders. In the event that any order for the transfer of money is
---------------
returned unpaid for any reason, the Bank will take such steps as the Bank may,
in its discretion, deem appropriate to protect the Fund from financial loss or
as the Fund or its designee may instruct.
<PAGE>
4. Redemptions. Shares of any Index Series may be redeemed in accordance with
-----------
the procedures set forth in the Prospectus of the Fund and the Bank will duly
process all redemption requests.
5. [RESERVED]
6. Right to Seek Assurances. The Bank reserves the right to refuse to transfer
------------------------
or redeem Shares until it is satisfied that the requested transfer or redemption
is legally authorized, and it shall incur no liability for the refusal, in good
faith, to make transfers or redemptions which the Bank, in its judgment, deems
improper or unauthorized, or until it is satisfied that there is no basis for
any claims adverse to such transfer or redemption. The Bank may, in effecting
transfers, rely upon the provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be
amended from time to time, which in the opinion of legal counsel for the Fund or
the Bank's own legal counsel, do not require certain documents in connection
with the transfer or redemption of Shares of any Index Series.
7. Distributions.
-------------
7.1 The Fund will promptly notify the Bank of the declaration of any
dividend or distribution. The Fund shall furnish to the Bank a resolution of the
Board of Trustees of the Fund certified by the Secretary (a "Certificate"): (i)
authorizing the declaration of dividends on a specified periodic basis and
authorizing the Bank to rely on oral instructions or a Certificate specifying
the date of the declaration of such dividend or distribution, the date of
payment thereof, the record date as of which Shareholders entitled to payment
shall be determined and the amount payable per share to Shareholders of record
as of such record date and the total amount payable to the Bank on the payment
date; or (ii) setting forth the date of the declaration of any dividend or
distribution by a Index Series, the date of payment thereof, the record date as
of which Shareholders entitled to payment shall be determined, and the amount
payable per share to the Shareholders of record as of that date and the total
amount payable to the Bank on the payment date.
7.2 The Bank, on behalf of the Fund, shall instruct the Custodian to place
in a dividend disbursing account funds equal to the cash amount of any dividend
or distribution to be paid out. The Bank will calculate, prepare and mail checks
to (at the address as it appears on the records of the Bank), or (where
appropriate) credit such dividend or distribution to the account of, Index
Series Shareholders, and maintain and safeguard all underlying records.
7.3 The Bank will replace lost checks at its discretion and in conformity
with regular business practices.
7.4 The Bank shall not be liable for any improper payments made in
accordance with a resolution of the Board of Trustees of the Fund.
<PAGE>
7.5 If the Bank does not receive from the Custodian sufficient cash to
make payment to all Shareholders of the Fund as of the record date, the Bank
shall, upon notifying the Fund, withhold payment to all Shareholders of record
as of the record date until such sufficient cash is provided to the Bank and
shall not be liable for any claim arising out of such withholding.
8. Other Duties. In addition to the duties expressly provided for herein, the
------------
Bank shall perform such other duties and functions and shall be paid such
amounts therefor as may from time to time be agreed to in writing.
9. Taxes. It is understood that the Bank shall file such appropriate
-----
information returns concerning the payment of dividends and capital gain
distributions and tax withholding with the proper Federal, State and local
authorities as are required by law to be filed by the Fund and shall withhold
such sums as are required to be withheld by applicable law.
10. Books and Records.
-----------------
10.1 The Bank shall maintain confidential records showing for each
Shareholder account in each Index Series, the following: (i) name, address and
tax identification number; (ii) number and class, if any, of Shares held; (iii)
historical information regarding shareholder accounts, including dividends and
distributions and the date and price for each transaction in a shareholder's
account; (iv) any stop or restraining order placed against Shareholder's
account; (v) information with respect to withholdings; (vi) any dividend address
and correspondence relating to the current maintenance of a Shareholder's
account; (vii) any information required in order for the Bank to perform the
calculations contemplated or required by this Agreement; and (viii) such other
information and data as may be required by applicable law.
10.2 Any records required to be maintained by Rule 31a-1 under the 1940 Act
will be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act.
Such records may be inspected by the Fund during regular business hours upon
reasonable notice. The Bank may, at its option at any time, and shall forthwith
upon the Fund's demand, turn over to the Fund and cease to retain in the Bank's
files, records and documents created and maintained by the Bank in performance
of its service or for its protection. At the end of the retention period
required by the 1940 Act, such documents will either be turned over to the Fund,
or destroyed in accordance with the Fund's authorization.
10.3 Procedures applicable to the services to be performed hereunder may be
established from time to time by agreement between the Fund and the Bank. The
Bank shall have the right to utilize any shareholder accounting and
recordkeeping systems which, in its opinion, qualifies to perform any services
to be performed hereunder. The Bank shall keep records relating to the services
performed hereunder, in the form and manner as it may deem advisable.
11. Fees and Expenses.
-----------------
<PAGE>
11.1 For performance by the Bank pursuant to this Agreement, the Fund
agrees to pay the Bank an annual fee as set out in the initial fee schedule
attached as Appendix B hereto. Such fees and out-of-pocket expenses and advances
----------
identified under Section 11.2 below may be changed from time to time, upon
mutual written agreement between the Fund and the Bank.
11.2 In addition to the fee paid under Section 11.1 above, the Fund agrees
to reimburse the Bank for out-of-pocket expenses or advances incurred by the
Bank for the items set out in Appendix B hereto. In addition, any other expenses
incurred by the Bank at the request or with the consent of the Fund including,
without limitation, any equipment or supplies which the Bank orders or purchases
specifically for the Fund, with the approval of the Fund, or which the Fund
specifically orders or requires the Bank to purchase, will be reimbursed by the
Fund.
11.3 The Fund agrees to pay all fees and reimbursable expenses on the last
day of each month in which such services are performed. Postage for mailing of
dividends, proxies, reports and other mailings to all shareholder accounts shall
be advanced to the Bank by the Fund at least three (3) days prior to the mailing
date of such materials. Any waiver or extension by the Bank of time periods
shall not constitute a dismissal of any monies due under this Agreement nor
shall such waiver or extension apply to any future monies due to the Bank
hereunder.
12. Representations and Warranties of the Bank.
------------------------------------------
The Bank represents and warrants to the Fund that:
12.1 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
12.2 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
12.3 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
12.4 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
12.5 It is in full compliance with all applicable federal state and local
laws with respect to its duties under this Agreement.
13. Representations and Warranties of the Fund.
------------------------------------------
The Fund represents and warrants to the Bank that:
13.1 It is a corporation duly organized and existing and in good standing
under the laws of the State of its incorporation as set forth in the preamble
hereto.
<PAGE>
13.2 It is empowered under applicable laws and by its charter documents
and by-laws to enter into and perform this Agreement.
13.3 All proceedings required by said charter documents and by-laws have
been taken to authorize it to enter into and perform this Agreement.
13.4 It is a open-end investment company registered under the 1940 Act.
13.5 A registration statement on Form N-1A (including a prospectus and
statement of additional information) under the Securities Act of 1933 and the
1940 Act will be effective as of the date the Bank begins to provide services
hereunder and will remain effective, and any appropriate state securities law
filings have been made and will continue to be made, with respect to all Shares
of the Fund being offered for sale.
13.6 When Shares are hereafter issued in accordance with the terms of
the Prospectus, such Shares shall be validly issued, fully paid and
nonassessable by the Fund.
14. Indemnification.
---------------
14.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including reasonable legal fees, (a "Claim")
arising as a result of any act or omission of the Bank or any Indemnified Party
under this Agreement, except for any Claim to the extent such Claim results from
the material breach of this Agreement by, or negligence, willful misfeasance or
bad faith of, the Bank or any Indemnified Party.
14.2 The Bank shall indemnify and hold the Fund, its Board of Trustees,
officers and employees and its agents harmless from and against any and all
Claims to the extent any such Claim arises out of the negligent acts or
omissions, bad faith, willful misconduct or material breach of this Agreement by
the Bank, its officers, directors or employees or any of its agents or
subcustodians in connection with the activities undertaken pursuant to this
Agreement, provided that the Bank's indemnification obligation with respect to
the acts or omissions of its subcustodians shall not exceed the indemnification
provided by the applicable subcustodian to the Bank.
14.3 Notwithstanding anything to the contrary in this Agreement, in no
event shall a party to this Agreement be liable to the other party or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
<PAGE>
14.4 Notwithstanding anything to the contrary in this Agreement, in
no event shall a party to this Agreement be liable to the other party or any
third party for losses resulting from (i) any acts of God, fires, floods, or
other disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, or insurrection, and (iii) other
happenings or events beyond the reasonable control or anticipation of the party
effected, provided that (A) the effected party has in place appropriate business
resumption procedures, systems and facilities and (B) the effected party uses
its best efforts to avoid or remove the cause of such losses.
14.5 In performing its duties hereunder, the Bank will be entitled to
receive and act upon the advice of independent counsel of its own selection,
which may be counsel for the Fund.
14.6 The Bank may rely upon any Proper Instruction which it
reasonably believes to be genuine and to be signed or presented by any
Authorized Person. The Bank shall not be held to have notice of any change of
authority of any Authorized Person until receipt of appropriate written notice
thereof has been received by the Bank from the Fund.
14.7 in order that the indemnification provisions contained in this
Article 14 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
seeking indemnification shall give the indemnifying party full and complete
authority, information and assistance to defend such claim or proceeding, and
the indemnifying party shall have, at its option, sole control of the defense of
such claim or proceeding and all negotiations for its compromise or settlement.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent, which consent shall not be
unreasonably withheld.
15. Covenants of the Fund and the Bank.
----------------------------------
15.1 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Bank hereunder and the execution and delivery
of this Agreement.
(b) A copy of the charter documents and by-laws of the Fund and all
amendments thereto.
(c) Copies of each vote of the Trustees designating authorized
persons to give instructions to the Bank, and a Certificate providing specimen
signatures for such authorized persons.
(d) Certificates as to any change in any officer or Trustee of the
Fund.
<PAGE>
(e) All account application forms and other documents relating to
shareholder accounts or relating to any plan, program or service offered by the
Fund.
(f) A list of all Shareholders of each Index Series with the name,
address and tax identification number of each Shareholder, and the number of
Shares of the Index Series held by each, certificate numbers and denominations (
if any certificates have been issued), lists of any account against which stops
have been placed, together with the reasons for said stops, and the number of
Shares redeemed by the Index Series.
(g) An opinion of counsel for the Fund with respect to the validity
of the Shares and the status of such Shares under the Securities Act of 1933.
(h) Copies of the Fund registration statement on Form N-1A (if
applicable)as amended and declared effective by the Securities and Exchange
Commission and all post-effective amendments thereto.
(i) Such other certificates, documents or opinions as the Bank may
reasonably deem necessary or appropriate for the Bank in the proper performance
of its duties hereunder.
15.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
15.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act and the Rules thereunder, the Bank agrees
that all such records prepared or maintained by the Bank relating to the
services to be performed by the Bank hereunder are the confidential property of
the Fund and will be preserved, maintained and made available in accordance with
such Section and Rules, and will be surrendered to the Fund on and in accordance
with its request.
15.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
15.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such request
or demand. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be
subject to enforcement or other action by any court or regulatory body for the
failure to exhibit the Shareholder records to such person.
<PAGE>
15.6 (a) The Bank shall, during the period that this Agreement remains
in effect, (i) maintain an Errors & Omissions policy of at least $50 million,
which policy will insure against all claims sustained by any party (including
the Fund) as a result of any actual or alleged wrongful act, error or omission
in the Bank's rendering of or failure to render services in accordance with the
terms set forth in the Bank's agreements with its clients, and (ii) maintain a
separate Errors & Omissions policy of at least $25 million, which policy will
insure against claims sustained solely by the Fund as a result of any actual or
alleged wrongful act, error or omission in the Bank's rendering of or failure to
render services in accordance with the terms set forth in this Agreement.
(b) Upon the Fund's written request, the policy referred to in
clause (a)(ii) above will be expanded to $50 million when the Fund's total
assets reach $25 billion. The Fund will reimburse (or cause its agent to
reimburse) the Bank in advance for the cost of the policy referred to in clause
(a)(ii) above. When the policy is expanded to $50 million, the Fund will
reimburse (or cause its agent to reimburse) the Bank in advance for the total
cost of such expanded policy.
16. Term of Agreement.
-----------------
16.1 The term of this Agreement shall be three years commencing upon the
date hereof (the "Initial Term"), unless earlier terminated as provided herein.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party breaches any
material provision of this Agreement, provided that the non-breaching party
gives written notice of such breach to the breaching party and the
breaching party does not cure such violation within 90 days of receipt of
such notice.
(b) The Fund may terminate this Agreement prior to the expiration
of the Initial Term upon ninety days' prior written notice in the event
that:
(i) the Bank's parent, Investors Financial Services Corp. ("IFSC"), fails
to maintain a minimum capital level as follows: (i) total
stockholders' equity, as set forth in IFSC's most recent annual or
quarterly financial statements, shall be equal to no less than $100
million, and (ii) the sum of (x) total stockholders' equity and (y)
the outstanding amount of company-obligated, manditorily redeemable,
preferred securities, each as set forth in IFSC's most recent annual
or quarterly financial statements, shall be equal to no less than $125
million; or
(ii) the Board of the Fund votes to liquidate the Fund and terminate its
registration with the Securities and Exchange Commission other than in
connection with a merger or acquisition of the Fund or the Fund's
investment adviser.
16.2 Should the Fund exercise its right to terminate under 16.1(b)(ii), all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund.
<PAGE>
Additionally, the Bank reserves the right to recover from the Fund any other
reasonable expenses associated with such termination.
17. Additional Index Series. In the event that the Fund establishes one or
-----------------------
more series of Shares in addition to the series listed on Appendix A hereto with
----------
respect to which it desires to have the Bank render services as transfer agent
under the terms hereof, it shall so notify the Bank in writing, and if the Bank
agrees in writing to provide such services, such series of Shares shall become
an Index Series hereunder and Appendix A shall be appropriately amended.
----------
18. Assignment.
----------
18.1 Except as provided in Section 18.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
18.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
18.3 The Bank, may without further consent on the part of the Fund,
subcontract for the performance of any of the services to be provided hereunder
to third parties, including any affiliate of the Bank.
19. Amendment. This Agreement may be amended or modified only by a written
---------
agreement executed by both parties.
20. Governing Law. This Agreement shall be construed and the provisions
-------------
thereof interpreted under and in accordance with the laws of the State of New
York, without regard to its conflict of laws provisions.
21. Merger of Agreement and Severability.
------------------------------------
21.1 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
21.2 In the event any provision of this Agreement shall be held
unenforceable or invalid for any reason, the remainder of the Agreement shall
remain in full force and effect.
21.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall together,
constitute only one instrument.
<PAGE>
22. Notices. Any notice or other instrument in writing authorized or required
-------
by this Agreement to be given to either party hereto will be sufficiently given
if addressed to such party and mailed or delivered to it at its office at the
address set forth below:
For the Fund:
iShares Trust
c/o Fund Administration
Barclays Global Fund Advisers
45 Fremont Street
San Francisco, California 94105
With a copy to: Legal Department
For the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Steven Gallant, Director, Client Management
With a copy to: John E. Henry, General Counsel
23. Fund Liability. The Bank agrees that the obligations assumed by the Fund
--------------
hereunder shall be limited in all cases to the assets of the Fund and that the
Bank shall not seek satisfaction of any such obligation from the officers,
agents, employees, trustees, or shareholders of the Fund.
24. Several Obligations of the Index Series. This Agreement is an agreement
---------------------------------------
entered into between the Bank and the Fund with respect to each Index Series.
With respect to any obligation of the Fund on behalf of any Index Series arising
out of this Agreement, the Bank shall look for payment or satisfaction of such
obligation solely to the assets of the Index Series to which such obligation
relates as though the Bank had separately contracted with the Fund by separate
written instrument with respect to each Index Series.
25. Use of Name. A party shall not use the name of the other party or any of
-----------
its affiliates in any prospectus, sales literature or other material relating to
the Fund in a manner not approved by the other party prior thereto in writing;
provided however, that such approval shall not be required for any use of its
name which merely refers in accurate and factual terms to the Bank's appointment
hereunder or which is required by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority; provided further, that in no event shall such approval be
----------------
unreasonably withheld or delayed.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and the year first above written.
iShares TRUST
By: /s/ Nathan Most
__________________________
Name: Nathan Most
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Kevin Sheehan
__________________________
Name: Kevin Sheehan
Title: President
<PAGE>
Appendices
----------
Appendix A.......................................... Series or Portfolios
Appendix B.......................................... Fee Schedule
<PAGE>
APPENDIX A
LIST OF FUNDS
<TABLE>
<S> <C> <C>
iShares S&P 500 iShares Dow Jones U.S. Total Market Index iShares Russell 3000
Index Fund Fund Index Fund
iShares S&P 500/BARRA Growth iShares Dow Jones U.S. Basic Materials iShares Russell 3000 Growth
Index Fund Sector Index Fund Index Fund
iShares S&P 500/BARRA Value Index iShares Dow Jones U.S. Consumer Cyclical iShares Russell 3000 Value
Fund Sector Index Fund Index Fund
iShares S&P MidCap 400 iShares Dow Jones U.S. Consumer iShares Russell 2000
Index Fund Non-Cyclical Sector Index Fund Index Fund
iShares S&P MidCap iShares Dow Jones U.S. Energy Sector Index iShares Russell 2000 Growth
400/BARRA Growth Index Fund Fund Index Fund
iShares S&P MidCap iShares Dow Jones U.S. Financial Sector iShares Russell 2000 Value
400/BARRA Value Index Fund Index Fund Index Fund
iShares S&P SmallCap 600 Index iShares Dow Jones U.S. Healthcare Sector iShares Russell 1000
Fund Index Fund Index Fund
iShares S&P SmallCap iShares Dow Jones U.S. Industrial Sector iShares Russell 1000 Growth
600/BARRA Growth Index Fund Index Fund Index Fund
iShares S&P SmallCap iShares Dow Jones U.S. Technology Sector iShares Russell 1000 Value
600/BARRA Value Index Fund Index Fund Index Fund
iShares S&P Europe 350 iShares Dow Jones U.S. Telecommunications
Index Fund Sector Index Fund
iShares S&P/TSE 60 iShares Dow Jones U.S. Utilities Sector
Index Fund Index Fund
iShares Dow Jones U.S. Chemicals
Index Fund
iShares Dow Jones U.S. Financial Services
Composite Index Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C>
iShares Dow Jones U.S. Internet
Index Fund
iShares Dow Jones U.S. Real Estate Index
Fund
</TABLE>
Schedule B
Fee Schedule*
Exchange Traded Funds
March 8, 2000
==========================================================================
CUSTODY, FUND ACCOUNTING, ADMINISTRATION, and
INSTITUTIONAL TRANSFER AGENCY
==========================================================================
Assumptions used in developing the fee schedule:
-The launch of the 36 new funds will begin around May 1, 2000.
-BGI will use IBT for securities lending for a minimum of 2.5 years from
the date that at least 14 funds are serviced by Investors Bank.
-BGI will use IBT for foreign exchange.
-BGI will use IBT for custody, fund accounting, administration and
transfer agency services.
-IBT will provide accounting information to BGI for the PCF file.
==========================================================================
CUSTODY
==========================================================================
A. Transactions**
. DTC/Fed Book Entry $ 3***
. Physical Securities 35
. Options and Futures 18
. GNMA Securities 30
. Principal Paydown 5
. Foreign Currency 18****
. Outgoing Wires 7
. Incoming Wires 5
** These fees assume that trade information is sent to Investors Bank
electronically utilizing the same format as we are using today or electronically
from NSCC. For non-automated DTC/Fed Book trades the per trade fee will be
$10.00.
<PAGE>
***There are no transaction charges for the use of Investors Bank Repo product.
****There are no transaction charges for F/X contracts executed by Investors
Bank.
B. Foreign Subcustodian Fees
-------------------------
. Incremental basis point and transaction fees will be charged for all
foreign assets for which we are custodian. The asset based fees and
transaction fees vary by country, based upon the global custody fees
below. Local duties, script fees, reclaims, registration, exchange
fees, and other market charges are out-of-pocket.
. Investors Bank will require the fund to hold all international assets
at the subcustodian of our choice.
<TABLE>
<CAPTION>
Per
Basis Point Trade
Country Charge Charge
- ------- ------ ------
<S> <C> <C>
Australia 2.5 $40
Austria 3.5 $35
Belgium 3.5 $40
Canada 2.5 $20
Euroclear 2.5 $20
France 2.5 $43
Germany 2.5 $23
Hong Kong 3.0 $60
Italy 2.5 $30
Japan 2.0 $20
Malaysia 8 $60
Mexico 6 $24
Netherlands 3.5 $30
Singapore 7 $60
Spain 4 $43
Sweden 2.5 $35
Switzerland 4 $45
UK 3.0 $30
Brazil 22 $60
Korea 8 $50
South Africa 5 $30
Taiwan 11 $50
Thailand 7.5 $50
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Denmark 2.5 $43
Finland 3.5 $50
Ireland 4 $56
Norway 2.5 $35
Portugal 14 $90
</TABLE>
================================================================================
FUND ACCOUNTING, ADMINISTRATION and TRANSFER AGENCY
================================================================================
C. Fund Accounting, Calculation of N.A.V., Administration and Transfer
-------------------------------------------------------------------
Agency
------
. The following basis point fee is based on all assets for which we
are fund accountant, administrator and transfer agent. This amount
does not include transactions.
<TABLE>
<CAPTION>
Annual Fee
----------
<S> <C>
First $4 billion in assets 4.5 Basis Points
Next $8 billion in assets 4.0 Basis Points
Next $8 billion in assets 3.0 Basis Points
Assets in excess of $20 billion 1.5 Basis Points
</TABLE>
. There will be an incremental .5 basis point fee on each global
portfolio.
. There will be a yearly complex minimum of $3,600,000 which
includes 36 funds. For each new fund beyond 36 the complex minimum
will increase by $100,000 (This fee does not include transactions
or global custody). The $3.6 million complex minimum will be
billed monthly beginning on May 1, 2000. Any additional basis
point fees owed to Investors Bank will be calculated at the end of
the first 12 month period (April 31, 2001) based on the above fee
schedule and the end of month assets for each of the previous 12
months (May 1, 2000 to April 31, 2001). After the initial 12
months, the complex minimum or basis points, whichever is larger,
will be billed on a monthly basis.
. The monthly minimum fee of $300,000 will be billed starting on May
1, 2000. Also, Barclays Global Investors agrees to pay Investors
Bank $2.4 million in calendar year 2000.
<PAGE>
================================================================================
MISCELLANEOUS
================================================================================
A. Out-of-Pocket
-------------
. The charges next to each section are for pro forma purposes only.
Actual charges may vary.
. These charges consist of:
-Third Party Review ($250/fd/yr) -InvestView
-Legal Expenses -Customized Reporting
-Printing, Delivery & Postage -Non-Standard Transmissions/
Extracts
-Extraordinary Travel Expenses -Blue Sky ($100/permit)
-Forms and Supplies -Microfiche
-Pricing (per security/fund/day $.035 equities, $.40 bonds, $.45
int'l)
-Telecommunications (Per month/fund dom $61.25, int'l $77.06)
-International Verification ($.50/security/fund/month)
-Printing of shareholder reports -Copy fitting
-Financial statement report modification (after initially agreed
upon parameters) as to style, layout or format.
-Board meeting attendance -Data Transmissions
-Ad Hoc Reporting -Customized Statements
B. Domestic Balance Credit
-----------------------
. We allow use of balance credit against fees (excluding out-of-
pocket charges) for fund balances arising out of the custody
relationship. The monthly earnings allowance is equal to 75% of the
90-day T-bill rate.
C. Securities Lending, Cash Management and Foreign Exchange
--------------------------------------------------------
. The fee schedule is predicated on Investors Bank performing cash
management, foreign exchange and securities lending for the
portfolios. Securities lending revenue is split with the funds and
Investors Bank as follows:
$0-$15 billion in assets 60%/40%. 60% going to the funds
Assets in excess of $15 billion 70%/30%. 70% going to the funds
<PAGE>
Exhibit (h.3.i)
SUBLICENSE AGREEMENT
--------------------
This Sublicense Agreement (the "Agreement") is made as of April 25, 2000,
by and between Barclays Global Investors, N.A., a national banking association
organized under the
<PAGE>
laws of the United States ("BGI") and iShares Trust, a business trust
established under the laws of the State of Delaware ("iShares").
RECITALS
WHEREAS, pursuant to that certain "License Agreement" dated April 27,
1999 (the "License Agreement") between The McGraw-Hill Companies, Inc., a New
York corporation, acting through its unincorporated division Standard & Poor's
("S&P") and BGI, BGI obtained a license to use in connection with "BGI Funds"
(as that term is defined in the License Agreement) certain stock indexes owned
and managed by S&P (the "S&P Indexes"), along with associated marks (the "S&P
Marks"); and
WHEREAS, BGI has the right pursuant to paragraph 3 of the License
Agreement to sublicense its rights thereunder to any BGI Fund, of which iShares
Trust is one; and
WHEREAS, iShares Trust wishes to use the S&P Indexes and the S&P Marks
in connection with the establishment of a series of exchange traded funds (each,
an "ETF"), each based on a S&P Index, and to use the S&P Marks in connection
with the identification and marketing of the ETFS and in connection with making
disclosures about the ETFS under applicable laws, rules and regulations; and
WHEREAS, BGI wishes to grant a sublicense to Ishares Trust for the use
of the S&P Indexes and S&P Marks;
NOW THEREFORE, the parties agree as follows:
9. Grant of Sublicense. Subject to the terms and conditions of this Agreement,
-------------------
BGI hereby grants to iShares Trust a sublicense to use the S&P Indexes (and
associated data and information) and the S&P Marks listed on Exhibit A in
the manner set forth in, and subject to the terms of, the License
Agreement, including without limitation the restriction in paragraph 3 of
the License Agreement that iShares Trust will not have the further power to
sublicense third parties to use the S&P Indexes and the S&P Marks.
10. Performance of Obligations Under the License. iShares Trust will be
--------------------------------------------
responsible for performing all of BGI's executory obligations under the
License Agreement (other than the payment of license fees), as such
obligations relate to use of the S&P Indexes and the S&P Marks in
connection with the formation and operation of BGI Funds (as that term is
defined in the License Agreement).
11. Fees. iShares Trust shall no obligation to pay any sublicense fees to BGI
----
or S&P under this sublicense agreement.
12. Termination. This Agreement shall terminate if (a) the License Agreement
-----------
terminates, or (b) BGI or a BGI Affiliate ceases to exercise investment
discretion over the iShares Trust or any ETF in its capacity as manager,
investment adviser, trustee, or other comparable capacity. BGI shall notify
iShares Trust as soon as reasonably practicable of the occurrence of an
event described in (a) above. Upon termination of this Agreement,
<PAGE>
iShares Trust's right to use the S&P Indexes and the S&P Marks shall
terminate immediately.
13. Indemnification. iShares Trust shall indemnify and hold harmless BGI, its
---------------
officers, employees, agents, successors, and assigns against all judgments,
damages, costs or losses of any kind (including reasonable attorneys' and
experts' fees) resulting from any claim, action or proceeding (collectively
"claims") that arises out of or relates to (a) the creation, marketing,
advertising, selling, and operation of the iShares Trust or interests
therein, or (b) any breach by BGI of its covenants, representations, and
warranties under the License Agreement caused by the actions or inactions
of iShares Trust or iShares Trust's sublicensees, or (c) errors in the
calculation of any S&P Index, or delays in the dissemination of any S&P
Index, or (d) any violation of applicable laws (including, but not limited
to, banking, commodities, and securities laws) arising out of the offer,
sale, operation, or trading of the iShares Trust or interests therein,
except to the extent such claims result from the negligence, gross
negligence or willful misconduct of BGI or its affiliates. The provisions
of this section shall survive termination of this Agreement.
14. Assignment. iShares will not make, or purport to make, any assignment or
----------
other transfer of this Agreement. BGI may assign its rights and obligations
under this Agreement effective upon the giving of written notice to
iShares.
15. Amendment. No provision of this Agreement may be waived, altered, or
---------
amended except by written agreement of the parties.
16. Entire Agreement. This Agreement constitutes the entire agreement between
----------------
the parties hereto with respect to the subject matter hereof.
17. Construction. Headings used in this Agreement are for convenience only,
------------
and shall not affect the construction or interpretation of any of its
provisions. Each of the provisions of this Agreement is severable, and the
invalidity or inapplicability of one or more provisions, in whole or in
part, shall not affect any other provision. To the extent not preempted by
federal law, this Agreement shall be construed and interpreted under the
laws of the State of California.
<PAGE>
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts together shall constitute only one instrument.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as
of the date first above written, with intent to be bound hereby.
BARCLAYS GLOBAL INVESTORS, N.A. iSHARES TRUST
By: /s/ Michael Latham By: /s/ Nathan Most
Its: Managing Director Its: President
<PAGE>
Exhibit A to Sublicense Agreement dated April 25, 2000
iShares S&P 500 Index Fund
iShares S&P 500/BARRA Growth Index Fund
iShares S&P 500/BARRA Value Index Fund
Ishares S&P MidCap 400 Index Fund
iShares S&P MidCap400/BARRA Growth Index Fund
iShares S&P MidCap400/BARRA Value Index Fund
iShares S&P SmallCap 600 Index Fund
iShares S&P SmallCap 600/BARRA Growth Index Fund
iShares S&P SmallCap 600/BARRA Value Index Fund
iShares S&P Europe 350 Index Fund
iShares S&P/TSE 60 Index Fund
<PAGE>
Exhibit (h.3.ii)
SUBLICENSE AGREEMENT
--------------------
This Sublicense Agreement (the "Agreement") is made as of April 25,
2000, by and between Barclays Global Investors, N.A., a national banking
association organized under the laws of the United States ("BGI") and iShares
Trust, a business trust established under the laws of the State of Delaware
("iShares").
RECITALS
WHEREAS, pursuant to that certain "License Agreement" dated December
9, 1999 (the "License Agreement") between Dow Jones & Company, Inc.(Dow Jones),
a Delaware corporation, and BGI, BGI obtained a license to use in connection
with "BGI Funds" (as that term is defined in the License Agreement) certain
stock indexes owned and managed by Dow Jones (the "Dow Jones Indexes"), along
with associated marks (the "Dow Jones Marks"); and
WHEREAS, BGI has the right pursuant to paragraph 3 of the License
Agreement to sublicense its rights thereunder to any BGI Fund, of which iShares
Trust is one; and
WHEREAS, iShares Trust wishes to use the Dow Jones Indexes and the Dow
Jones Marks in connection with the establishment of a number of exchange traded
funds (each, an "ETF"), each based on a Dow Jones Index, and to use the Dow
Jones Marks in connection with the identification and marketing of the ETFS and
in connection with making disclosures about the ETFS under applicable laws,
rules and regulations; and
WHEREAS, BGI wishes to grant a sublicense to iShares Trust for the use
of the Dow Jones Indexes and Dow Jones Marks;
NOW THEREFORE, the parties agree as follows:
19. Grant of Sublicense. Subject to the terms and conditions of this
-------------------
Agreement, BGI hereby grants to iShares Trust a sublicense to use the Dow
Jones Indexes (and associated data and information) and the Dow Jones Marks
listed on Exhibit A in the manner set forth in, and subject to the terms
of, the License Agreement, including without limitation the restriction in
paragraph 3 of the License Agreement that iShares Trust will not have the
further power to sublicense third parties to use the Dow Jones Indexes and
the Dow Jones Marks.
20. Performance of Obligations Under the License. iShares Trust will be
--------------------------------------------
responsible for performing all of BGI's executory obligations under the
License Agreement (other than the payment of license fees), as such
obligations relate to use of the Dow Jones Indexes and the Dow Jones Marks
in connection with the formation and operation of BGI Funds (as that term
is defined in the License Agreement).
<PAGE>
21. Fees. iShares Trust shall have no obligation to pay any sublicense fees to
----
BGI or Dow Jones under this sublicense agreement.
22. Termination. This Agreement shall terminate if (a) the License Agreement
-----------
terminates, or (b) BGI or a BGI Affiliate ceases to exercise investment
discretion over the iShares Trust or any ETF in its capacity as manager,
investment adviser, trustee, or other comparable capacity. BGI shall notify
iShares Trust as soon as reasonably practicable of the occurrence of an
event described in (a) above. Upon termination of this Agreement, iShares
Trust's right to use the Dow Jones Indexes and the Dow Jones Marks shall
terminate immediately.
23. Indemnification. iShares Trust shall indemnify and hold harmless BGI, its
---------------
officers, employees, agents, successors, and assigns against all judgments,
damages, costs or losses of any kind (including reasonable attorneys' and
experts' fees) resulting from any claim, action or proceeding (collectively
"claims") that arises out of or relates to (a) the creation, marketing,
advertising, selling, and operation of the iShares Trust or interests
therein, or (b) any breach by BGI of its covenants, representations, and
warranties under the License Agreement caused by the actions or inactions
of iShares Trust or iShares Trust's sublicensees, or (c) errors in the
calculation of any Dow Jones Index, or delays in the dissemination of any
Dow Jones Index, or (d) any violation of applicable laws (including, but
not limited to, banking, commodities, and securities laws) arising out of
the offer, sale, operation, or trading of the iShares Trust or interests
therein, except to the extent such claims result from the negligence, gross
negligence or willful misconduct of BGI or its affiliates. The provisions
of this section shall survive termination of this Agreement.
24. Assignment. iShares will not make, or purport to make, any assignment or
----------
other transfer of this Agreement. BGI may assign its rights and obligations
under this Agreement effective upon the giving of written notice to
iShares.
25. Amendment. No provision of this Agreement may be waived, altered, or
---------
amended except by written agreement of the parties.
26. Entire Agreement. This Agreement constitutes the entire agreement between
----------------
the parties hereto with respect to the subject matter hereof.
27. Construction. Headings used in this Agreement are for convenience only,
------------
and shall not affect the construction or interpretation of any of its
provisions. Each of the provisions of this Agreement is severable, and the
invalidity or inapplicability of one or more provisions, in whole or in
part, shall not affect any other provision. To the extent not preempted by
federal law, this Agreement shall be construed and interpreted under the
laws of the State of California.
<PAGE>
28. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts together shall constitute only one instrument.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as
of the date first above written, with intent to be bound hereby.
BARCLAYS GLOBAL INVESTORS, N.A. iSHARES TRUST
By: /s/ Michael Latham By: Nathan Most
Its: Managing Director Its: President
<PAGE>
Exhibit A to Sublicense Agreement dated April 25, 2000
iShares Dow Jones U.S. Total Market Index Fund
iShares Dow Jones U.S. Basic Materials Sector Index Fund
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund
iShares Dow Jones U.S. Energy Sector Index Fund
iShares Dow Jones U.S. Financial Sector Index Fund
iShares Dow Jones U.S. Healthcare Sector Index Fund
iShares Dow Jones U.S. Industrial Sector Index Fund
iShares Dow Jones U.S. Technology Sector Index Fund
iShares Dow Jones U.S. Telecommunications Sector Index Fund
iShares Dow Jones U.S. Utilities Sector Index Fund
iShares Dow Jones U.S. Chemicals Index Fund
iShares Dow Jones U.S. Financial Services Composite Index Fund
iShares Dow Jones U.S. Internet Index Fund
iShares Dow Jones U.S. Real Estate Index Fund
<PAGE>
Exhibit (h.3.iii)
SUBLICENSE AGREEMENT
--------------------
This Sublicense Agreement (the "Agreement") is made as of April 25,
2000, by and between Barclays Global Investors, N.A., a national banking
association organized under the laws of the United States ("BGI") and iShares
Trust, a business trust established under the laws of the State of Delaware
("iShares").
RECITALS
WHEREAS, pursuant to that certain "License Agreement" dated December
17, 1999 (the "License Agreement") between Frank Russell Company ("FRC"), a
Washington corporation, and BGI, BGI obtained a license to use in connection
with "BGI Funds" (as that term is defined in the License Agreement) certain
stock indexes owned and managed by FRC (the "FRC Indexes"), along with
associated marks (the "FRC Marks"); and
WHEREAS, BGI has the right pursuant to paragraph 3 of the License
Agreement to sublicense its rights thereunder to any BGI Fund, of which iShares
Trust is one; and
WHEREAS, iShares Trust wishes to use the FRC Indexes and the FRC Marks
in connection with the establishment of a number of exchange traded funds (each,
an "ETF"), each based on a FRC Index, and to use the FRC Marks in connection
with the identification and marketing of the ETFS and in connection with making
disclosures about the ETFS under applicable laws, rules and regulations; and
WHEREAS, BGI wishes to grant a sublicense to iShares Trust for the use
of the FRC Indexes and FRC Marks;
NOW THEREFORE, the parties agree as follows:
29. Grant of Sublicense. Subject to the terms and conditions of this Agreement,
-------------------
BGI hereby grants to iShares Trust a sublicense to use the FRC Indexes (and
associated data and information) and the FRC Marks listed on Exhibit A in
the manner set forth in, and subject to the terms of, the License
Agreement, including without limitation the restriction in paragraph 3 of
the License Agreement that iShares Trust will not have the further power to
sublicense third parties to use the FRC Indexes and the FRC Marks.
30. Performance of Obligations Under the License. iShares Trust will be
--------------------------------------------
responsible for performing all of BGI's executory obligations under the
License Agreement (other than the payment of license fees), as such
obligations relate to use of the FRC Indexes and the FRC Marks in
connection with the formation and operation of BGI Funds (as that term is
defined in the License Agreement).
<PAGE>
31. Fees. iShares Trust shall have no obligation to pay any sublicense fees to
----
BGI or FRC under this sublicense agreement.
32. Termination. This Agreement shall terminate if (a) the License Agreement
-----------
terminates, or (b) BGI or a BGI Affiliate ceases to exercise investment
discretion over the iShares Trust or any ETF in its capacity as manager,
investment adviser, trustee, or other comparable capacity. BGI shall notify
iShares Trust as soon as reasonably practicable of the occurrence of an
event described in (a) above. Upon termination of this Agreement, iShares
Trust's right to use the FRC Indexes and the FRC Marks shall terminate
immediately.
33. Indemnification. iShares Trust shall indemnify and hold harmless BGI, its
---------------
officers, employees, agents, successors, and assigns against all judgments,
damages, costs or losses of any kind (including reasonable attorneys' and
experts' fees) resulting from any claim, action or proceeding (collectively
"claims") that arises out of or relates to (a) the creation, marketing,
advertising, selling, and operation of the iShares Trust or interests
therein, or (b) any breach by BGI of its covenants, representations, and
warranties under the License Agreement caused by the actions or inactions
of iShares Trust or iShares Trust's sublicensees, or (c) errors in the
calculation of any FRC Index, or delays in the dissemination of any FRC
Index, or (d) any violation of applicable laws (including, but not limited
to, banking, commodities, and securities laws) arising out of the offer,
sale, operation, or trading of the iShares Trust or interests therein,
except to the extent such claims result from the negligence, gross
negligence or willful misconduct of BGI or its affiliates. The provisions
of this section shall survive termination of this Agreement.
34. Assignment. iShares will not make, or purport to make, any assignment or
----------
other transfer of this Agreement. BGI may assign its rights and obligations
under this Agreement effective upon the giving of written notice to
iShares.
35. Amendment. No provision of this Agreement may be waived, altered, or
---------
amended except by written agreement of the parties.
36. Entire Agreement. This Agreement constitutes the entire agreement between
----------------
the parties hereto with respect to the subject matter hereof.
37. Construction. Headings used in this Agreement are for convenience only,
------------
and shall not affect the construction or interpretation of any of its
provisions. Each of the provisions of this Agreement is severable, and the
invalidity or inapplicability of one or more provisions, in whole or in
part, shall not affect any other provision. To the extent not preempted by
federal law, this Agreement shall be construed and interpreted under the
laws of the State of California.
<PAGE>
38. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts together shall constitute only one instrument.
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed as of the date first above written, with intent to be bound hereby.
BARCLAYS GLOBAL INVESTORS, N.A. iSHARES TRUST
By: /s/ Michael Latham By: /s/ Nathan Most
Its: Managing Director Its: President
<PAGE>
Exhibit A to Sublicense Agreement dated April 25, 2000
iShares Russell 3000 Index Fund
iShares Russell 3000 Growth Index Fund
iShares Russell 3000 Value Index Fund
iShares Russell 2000 Index Fund
iShares Russell 2000 Growth Index Fund
iShares Russell 2000 Value Index Fund
iShares Russell 1000 Index Fund
iShares Russell 1000 Growth Index Fund
iShares Russell 1000 Value Index Fund
<PAGE>
Exhibit (i)
May 1, 2000
iShares Trust
c/o Barclays Global Fund Advisors
45 Fremont Street
San Francisco, CA 94105
Re: Opinion of Counsel regarding Post-Effective Amendment No. 2 to the
Registration Statement filed on Form N-1A under the Securities Act of 1933
--------------------------------------------------------------------------
(File No. 33-92935).
-------------------
Ladies and Gentlemen:
We are furnishing this opinion with respect to the proposed offer and sale from
time to time of an indefinite number of units of beneficial interest, without
par value (the "Shares"), of iShares Trust (the "Trust"), a Delaware business
trust, in registration under the Securities Act of 1933 by a Registration
Statement on Form N-1A (File No. 333-92935) as amended from time to time (the
"Registration Statement").
We have acted as counsel to the Trust since its inception, and we are familiar
with the actions taken by its Trustees to authorize the issuance of the Shares.
We have reviewed the Declaration of Trust, the By-laws, and the minute books of
the Trust, and such other certificates, documents and opinions of counsel as we
deem necessary for the purpose of this opinion.
We have reviewed the Trust's Notification of Registration on Form N-8A under the
Investment Company Act of 1940. We have also reviewed the Trust's Registration
Statement, including all post-effective amendments thereto, filed or to be filed
with the Securities and Exchange Commission.
In our review we have assumed the genuineness of all signatures, the
authenticity and completeness of all documents purporting to be originals
(whether reviewed by us in original or in copy form), and the conformity to the
originals of all documents purporting to be copies.
<PAGE>
iShares Trust
May 1, 2000
Page 2
We have assumed the appropriate action will be taken to register or qualify the
sale of the Shares under any applicable state and federal laws regulating sales
and offerings of securities.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a business trust validly existing under the laws of the State
of Delaware. The Trust is authorized under its Declaration of Trust to
issue an unlimited number of Shares in series representing interests in a
number of separate investment portfolios and in such other series or
classes as the Trustees may hereafter duly authorize.
2. Upon the issuance of any Shares of any of the series or classes of the
Trust for payment therefor as described in, and in accordance with the
Registration Statement and the Declaration of Trust and By-laws of the
Trust, the Shares so issued will be validly issued, fully paid and non-
assessable.
This opinion is intended only for your use in connection with the offering of
Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as Exhibit (i) to the Trust's
Post-Effective Amendment No. 2 to be filed with the Securities and Exchange
Commission and to the reference to our firm under the caption "Counsel" in the
Statement of Additional Information filed as part of such Amendment.
Very truly yours,
/s/ Morgan, Lewis & Bockius, LLP
- --------------------------------
Morgan, Lewis & Bockius, LLP
<PAGE>
Exhibit (j.1)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Statement of Additional Information
constituting part of this Post-effective Amendment No. 2 to the registration
statement on Form N-1A (the "Registration Statement") of iShares Trust of our
report dated April 24, 2000, relating to the financial statement of the iShares
Russell 3000 Value Index Fund which is also included in the Registration
Statement. We also consent to the reference to us under the heading
"Miscellaneous Information" in such Statement of Additional Information.
/s/ PricewaterhouseCoopers
- --------------------------
San Francisco, CA
May 12, 2000
<PAGE>
Exhibit (j.2)
POWER OF ATTORNEY WITH
RESPECT TO iSHARES TRUST
Know all men by these presents that each of the Trustees of iShares Trust (the
"Trust"), whose names and signatures appear below, constitutes and appoints W.
John McGuire, Susan C. Mosher, and Danell J. Doty, his or her attorneys-in-fact,
with power of substitution, and each of them in any and all capacities, to sign
any registration statements and amendments thereto for the Trust and to file the
same with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, his substitute or substitutes, may do or cause to be done
by virtue hereof.
February 15, 2000
/s/ Thomas E. Flanigan /s/ Richard K. Lyons
- -------------------------- ------------------------
Name: Thomas E. Flanigan Name: Richard K. Lyons
/s/ Nathan Most /s/ George G.C. Parker
- -------------------------- ------------------------
Name: Nathan Most Name: George G.C. Parker
<PAGE>
Exhibit (l.1)
[SEI Investments Distribution Co. letterhead]
April 20, 2000
iShares Trust
c/o Barclays Global Fund Advisors
45 Fremont Street
San Francisco, CA 94105
Ladies and Gentlemen:
We propose to acquire shares of beneficial interest (the "Shares") of the
iShares Trust (the "Trust") for a total price of $100,000. We will purchase
the Shares in a private offering prior to the effective date of the Form N-1A
registration statement filed by the Trust under the Securities Act of 1933 and
the Investment Company Act of 1940. The Shares are being purchased pursuant to
section 14 of the Investment Company Act of 1940 to serve as the seed capital
for the Trust prior to the commencement of the public offering of its Shares.
We consent to the filing of this Investment Letter as an exhibit to the Form N-
1A registration statement of the Trust.
Sincerely,
SEI INVESTMENTS DISTRIBUTION CO.
By: /s/ James R. Foggo, Esq.
------------------------
<PAGE>
Exhibit (1.2)
Book-Entry-Only Corporate Equity Securities
Letter of Representations
[To be completed by Issuer and Agent]
iShares Trust
-------------
[Name of Issuer]
Investors Bank & Trust Company
------------------------------
[Name of Agent]
April 14, 2000
----------------
[Date]
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street 49th Floor
New York, NY 10041-0099
Re: iShares Trust consisting of a number of separate investment
-----------------------------------------------------------
portfolios, called Funds. The names of each individual Fund are
----------------------------------------------------------------
provided in Schedule A attached
-------------------------------
[Issuer description, including CUSIP number (the "Securities")]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the Securities. Issuance of the Securities has been authorized
pursuant to an offering document or other such agreement dated December 16, 1999
-----------------
(the "Document"). [Issuer is selling the securities to __________ (the "Initial
Purchaser") pursuant to the Document. Initial Purchaser shall take delivery of
the Securities through the Depository Trust Company ("DTC").]* Agent is acting
as transfer agent, paying agent, and registrar with respect to the Securities.
To induce DTC to accept the Securities as eligible for deposit at DTC, and
to act in accordance with its Rules with respect to the Securities, Issuer and
Agent make the following representations to DTC:
- --------------------
* Not applicable. See attached Rider #1.
<PAGE>
1. Prior to closing on the Securities on _____________ there shall be
deposited with DTC one or more Security certificates registered in the name of
DTC's nominee, Cede & Co., for each of the Securities with the offering value(s)
set forth on Schedule A hereto, the total of which represents 100% of the
offering value of such Securities. If, however, the aggregate offering value of
the Securities exceeds $400 million, one certificate shall be issued with
respect to each $400 million of offering value and an additional certificate
shall be issued with respect to any remaining offering value. Each Security
certificate shall bear the following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to Issuer or its agent for registration
of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative
of DTC (and any payment is made to Cede & Co. or to such
other entity as is requested by an authorized representative
of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
<PAGE>
Issuer represents: [Note: Issuer must represent one of the following, and shall
----
cross out the other.]
- ---------
[The Security certificate(s) shall remain in Agent's custody as a "Balance
Certificate" subject to the provisions of the Balance Certificate Agreement
between Agent and DTC currently in effect.
On each day on which Agent is open for business and on which it receives an
instruction originated by a DTC participant ("Participant") through DTC's
Deposit/Withdrawal at Custodian ("DWAC") system to increase the Participant's
account by a specified number of Securities (a "Deposit Instruction"), Agent
shall, no later than 6:30 p.m. (Eastern Time) that day, either approve or cancel
the Deposit Instruction through the DWAC system.
On each day on which Agent is open for business and on which it receives an
instruction originated by a Participant through the DWAC system to decrease the
Participant's account by a specified number of Securities (a "Withdrawal
Instruction"), Agent shall, no later than 6:30 p.m. (Eastern Time) that day,
either approve or cancel the Withdrawal Instruction through the DWAC system.
Agent agrees that its approval of a Deposit or Withdrawal Instruction shall
be deemed to be the receipt by DTC of a new reissued or reregistered
certificated Security on registration of transfer to the name of Cede & Co. for
the quantity of Securities evidenced by the Balance Certificate after the
Deposit or Withdrawal Instruction is effected.]
[The Security certificate(s) shall be custodied with DTC.]*
2. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by holders
of the Securities, Issuer or Agent shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall send notices of such record date to DTC no fewer than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be directed to DTC's Reorganization Department at
(212) 855-5181 or (212) 855-5182. If the party sending the notice does not
receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (212) 855-5202. Notices to DTC pursuant to
this Paragraph, by mail or by any other means, shall be sent to:
- ----------------------
* Not applicable.
<PAGE>
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
55 Water Street 50th Floor
New York, New York 10041-0099
4. In the event of a stock split, recapitalization, conversion, or any
similar transaction resulting in the cancellation of all or any part of the
Securities represented thereby, Agent shall send DTC a notice of such event as
soon as practicable, but in no event less than five business days prior to the
effective date of such transaction. Notices pursuant to this Paragraph
regarding stock splits shall be directed to DTC's Dividend Department as
indicated in Paragraph 6. All other notices pursuant to this Paragraph shall be
directed to DTC's Reorganization Department as also indicated in Paragraph 6.
5. In the event of a full or partial redemption, Issuer or Agent shall
send a notice to DTC specifying: (a) the amount of the redemption or refunding;
(b) in the case of a refunding, the maturity date(s) established under the
refunding; and (c) the date such notice is to be distributed to Security holders
(the "Publication Date"). Such notice shall be sent to DTC by a secure means
(e.g., legible telecopy, registered or certified mail, overnight delivery) in a
timely manner designed to assure that such notice is in DTC's possession no
later than the close of business on the business day before or, if possible, two
business days before the Publication Date. Issuer or Agent shall forward such
notice either in a separate secure transmission for each CUSIP number or in a
secure transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The
party sending such notice shall have a method to verify subsequently the use of
such means and the timeliness of such notice.) The Publication Date shall be no
fewer than 30 days nor more than 60 days prior to the redemption date or, in the
case of an advance refunding, the date that the proceeds are deposited in
escrow. Notices to DTC pursuant to this Paragraph by telecopy shall be directed
to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190. If
the party sending the notice does not receive a telecopy receipt from DTC
confirming that the notice has been received, such party shall telephone (516)
227-4070. Notices to DTC pursuant to this Paragraph, by mail or by any other
means, shall be sent to:
Manager, Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
<PAGE>
6. In the event of an offering or issuance of rights with respect to the
Securities outstanding, Agent shall send DTC's Dividend and Reorganization
Departments a notice specifying: (a) the amount of an conditions, if any,
applicable to such rights offering or issuance; (b) any applicable expiration or
deadline date, or any date by which any action on the part of holders of such
Securities is required; and (c) the Publication Date of such notice. The
Publication Date will be as soon as practicable after the announcement by the
Company of any such offering or issuance of rights with respect to the
Securities outstanding. DTC requires that the Publication Date be no fewer than
30 days nor more than 60 days prior to the related payment date, distribution
date, or issuance date, respectively. Notices to DTC pursuant to this Paragraph
by telecopy shall be sent to DTC's Dividend Department at (212) 855-4545, and
receipt of such notices shall be confirmed by telephoning (212) 855-4530.
Notices to DTC pursuant to this Paragraph, by mail or any other means, shall be
sent to:
Supervisor, Stock Dividends
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
Notices to DTC pursuant to the above Paragraph by telecopy shall be sent to
DTC's Reorganization Department at (212) 855-5259, and receipt of such telecopy
shall be confirmed by telephoning (212) 855-5260. Such notices to DTC pursuant
to the above Paragraph, by mail or any other means, shall be sent to:
Supervisor, Rights Offerings
Reorganization Department
The Depository Trust Company
35 Water Street 50th Floor
New York, NY 10041-0099
7. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Agent to
Security holders specifying the terms of the tender and the Publication Date of
such notice shall be sent to DTC by a secure means (e.g., legible telecopy,
registered or certified mail, overnight delivery) in a timely manner designed to
assure that such notice is in DTC's possession no later than the close of
business on the business day before or, if possible, two business days before
the Publication Date. Issuer or Agent shall forward such notice either in a
separate secure transmission for each CUSIP number or in a secure transmission
for multiple CUSIP numbers (if applicable) which includes a manifest or list of
each CUSIP number submitted in that transmission. (The party sending such
notice shall have a method to verify subsequently the use and timeliness of such
notice). Notices to DTC pursuant to this Paragraph and notices of other
corporate actions by telecopy shall be sent to DTC's Reorganization Department
at (212) 855-5488, and receipt of such notices shall be
<PAGE>
confirmed by telephoning (212) 855-5290. Notices to DTC pursuant to this
Paragraph, by mail or by any other means, shall be sent to the address indicated
in Paragraph 3.
8. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities and an accompanying description of such Securities.
<PAGE>
9. Issuer or Agent shall provide written notice of dividend payment
information to DTC as soon as the information is available. Issuer or Agent
shall provide such notice directly to DTC electronically, as previously arranged
by Issuer or Agent and DTC. If electronic transmission has not been arranged,
absent any other arrangements between Issuer or Agent and DTC, such information
shall be sent by telecopy to DTC's Dividend Department at (212) 855-4555 or
(212) 855-4556. If the party sending the notice does not receive a telecopy
receipt from DTC confirming that the notice has been received, such party shall
telephone (212) 855-4550. Notices to DTC pursuant to this Paragraph, by mail or
by any other means, shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
10. Issuer or Agent shall notify DTC's Dividend Department of any dividend
payment date with regard to the Securities no later than the close of business
preferably five, but no fewer than two, business days prior to such payment
date. Agent shall include any available payment information at that time.
Notices pursuant to this Paragraph shall be directed to DTC's Dividend
Department as indicated in Paragraph 9.
11. Dividend payments and cash distributions shall be received by Cede &
Co. as nominee of DTC, or its registered assigns, in same day funds no later
than 2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00
p.m. (Eastern Time) on the payment date all such dividend and distribution
payments due Agent, or at such earlier time as may be required by Agent to
guarantee that DTC shall receive payment in same-day funds no later than 2:30
p.m. (Eastern Time) on the payment date. Absent any other arrangements between
Issuer or Agent and DTC, such funds shall be wired to the Dividend Deposit
Account number that will be stamped on the signature page hereof at the time DTC
executes this Letter of Representations.
12. Issuer or Agent shall provide DTC, no later than 12:00 noon (Eastern
Time) on the payment date, automated notification of CUSIP-level detail. If the
circumstances prevent the funds paid to DTC from equaling the dollar amount
associated with the detail payments by 12:00 noon (Eastern Time), Issuer or
Agent must provide CUSIP-level reconciliation to DTC no later than 2:30 p.m.
(Eastern Time). Reconciliation must be provided by either automated means or
written format. Such reconciliation notice, if sent by telecopy to DTC's
Dividend Department, shall be directed to (212) 855-4633, and receipt of such
reconciliation notice shall be confirmed by telephoning (212) 855-4430.
13. Redemption payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns, in same-day funds no later than 2:30 p.m.
(Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m. (Eastern
Time) on the payment date all such redemption payments due Agent, or at such
earlier time as required by Agent to guarantee that DTC shall
<PAGE>
receive payment in same-day funds no later than 2:30 p.m. (Eastern Time) on the
payment date. Absent any other arrangements between Agent and DTC, such funds
shall be wired to the Redemption Deposit Account number that will be stamped on
the signature page hereof at the time DTC executes this Letter of
Representations.
<PAGE>
14. Reorganization payments resulting from corporate actions (such as
tender offers or mergers) shall be received by Cede & Co., as nominee of DTC, or
its registered assigns, in same-day funds no later than 2:30 p.m. (Eastern Time)
on the payment date. Issuer shall remit by 1:00 p.m. (Eastern Time) on the
payment date all such reorganization payments due Agent, or at such earlier time
as required by Agent to guarantee that DTC shall receive payment in same-day
funds no later than 2:30 p.m. (Eastern Time) on the payment date. Absent any
other arrangements between Agent and DTC, such funds shall be wired to the
Reorganization Deposit Account number that will be stamped on the signature page
hereof at the time DTC executes this Letter of Representations.
15. DTC may direct Issuer or agent to use any other number or address as
the number or address to which notices or payments may be sent.
16. In the event of a redemption, acceleration, or any other similar
transaction (e.g., tender made and accepted in response to Issuer's or Agent's
invitation) necessitating a reduction in the aggregate principal amount of
Securities outstanding or an advance refunding of part of the Securities
outstanding, DTC, in its discretion: (a) may request Issuer or Agent to issue
and authenticate a new Security certificate; or (b) may make an appropriate
notation on the Security certificate indicating the date and amount of such
reduction in the number of Securities outstanding, except in the case of final
redemption, in which case the certificate will be presented to Issuer or Agent
prior to payment, if required.
17. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Agent
shall notify DTC of the availability of certificates. In such event, Issuer or
Agent shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
18. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Agent (at which time DTC will confirm with Issuer or Agent the aggregate
principal amount of Securities outstanding). Under such circumstances, at DTC's
request, Issuer and Agent shall cooperate fully with DTC by taking appropriate
action to make available one or more separate certificates evidencing Securities
to any Participant having Securities credited to its DTC accounts.
19. Nothing herein shall be deemed to require Agent to advance funds on
behalf of Issuer.
20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together shall constitute but one and the same
instrument.
21. This Letter of Representations shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
principles of conflicts of law.
<PAGE>
22. The sender of each notice delivered to DTC pursuant to this Letter of
Representations is responsible for confirming that such notice was properly
received by DTC.
23 Issuer recognizes that DTC does not in any way undertake to, and shall
not have any responsibility to, monitor or ascertain the compliance of any
transactions in the Securities with the following, as amended from time to time:
(a) any exemptions from registration under the Securities Act of 1933; (b) the
Investment Company Act of 1940; (c) the Employee Retirement Income Security Act
of 1974; (d) the Internal Revenue Code of 1986; (e) any rules of any self-
regulatory organizations (as defined under the Securities Exchange Act of 1934);
or (f) any other local, state, or federal laws or regulations thereunder.
24. Issuer hereby authorizes DTC to provide to Agent listings of DTC
Participants' holdings, known as Security Position Listings ("SPLs"), with
respect to the Securities from time to time at the request of the Agent. DTC
charges a fee for such SPLs. This authorization, unless revoked by Issuer,
shall continue with respect to the Securities while any Securities are on
deposit at DTC, until and unless Agent shall no longer be acting. In such
event, Issuer shall provide DTC with similar evidence, satisfactory to DTC, of
the authorization of any successor thereto so to act, Requests for SPLs shall be
sent by telecopy to the Proxy Unit of DTC's Reorganization Department at (212)
855-5181 or (212) 855-5182. Receipt of such requests shall be confirmed by
telephoning (212) 855-5202. Request for SPLs, sent by mail or by any other
means, shall be directed to:
Supervisor, Proxy Unit
Reorganization Department
The Depository Trust Company
55 Water Street 50th Floor
New York, NY 10041-0099
25. Issuer and Agent shall comply with the applicable requirements stated
in DTC's Operational Arrangements, as they may be amended from time to time.
DTC's Operational Arrangements are posted on DTC's website at "www.DTC.org."
26. The following rider(s), attached hereto, are hereby incorporated into
this Letter of Representations:
See attached Rider # 1
_______________________________________________________________________________
_______________________________________________________________________________
Riders to Letter of Representations as Attached to Book Entry Only DTC
Application
Rider #1
- --------
As described in the Prospectus and/or the Statement of Additional Information,
shares of each iShares FUnd (each a "Fund" collectively the "Funds") are issued
and sold in creation Unit Aggregations (as defined in the offering Prospectus)
on a continuous basis.
Rider #2
- --------
As described in the Prospectus and/or the Statement of Additional Information,
shares of the Fund are only held in book-entry form. No stock certificates are
available. Depository Trust Company ("DTC"), or its nominee, is the record
owner of all outstanding shares.
<PAGE>
Notes:
- ------
A. If there is an Agent (as defined in
this Letter of Representations), Agent
as well as issuer must sign this Letter.
If there is no Agent, in signing this
Letter Issuer itself undertakes to
perform all of the obligations set forth
herein.
B. Schedule B contains statements that
DTC believes accurately describe DTC,
the method of effecting book-entry
transfers of securities distributed
through DTC, and certain related
matters.
Very truly yours,
iShares Trust
----------------------------------------
[Issuer]
By /s/ Susan C. Mosher
----------------------------------------
[Authorized Officer's Signature]
Investors Bank & Trust Company
----------------------------------------
[Agent]
By: /s/ Kevin Sheehan
----------------------------------------
[Authorized Officer's Signature]
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
cc: Underwriter
Underwriter's Counsel
<PAGE>
Schedule A
iShares Trust CUSIP Information
<TABLE>
<CAPTION>
xxxx
CUSIP Tax
Name Number Ticker ID#
- ---- ------ ------ ---
<S> <C> <C> <C>
iShares S&P MidCap 400 Index Fund 464287507 IJH 94-3351279
iShares S&P 500 Index Fund 464287200 IVV 94-3361276
iShares S&P 500/BARRA Growth Index Fund 464287309 IVW 94-3351277
iShares S&P 500/BARRA Value Index Fund 464287408 IVE 94-3351278
iShares S&P SmallCap 600 Index Fund 464287804 IJR 94-3351285
iShares Russell 1000 Index Fund 464287622 IWB 94-3351327
iShares Russell 1000 Growth Index Fund 464287614 IWF 94-3351328
iShares Russell 1000 Value Index Fund 464287598 IWD 94-3351329
iShares Russell 2000 Index Fund 464287655 IWM 94-3351322
iShares Russell 3000 Index Fund 464287689 IWV 94-3351318
iShares Dow Jones U.S Financial Sector Index Fund 464287788 IYF 94-3351300
iShares Dow Jones U.S. Telecommunications Sector 464287713 IYZ 94-3351316
Index Fund
iShares Dow Jones Internet Index Fund 464287747 IYV 94-3351309
iShares Dow Jones U.S. Technology Sector Index Fund 464287721 IYW 94-3351314
iShares S&P Europe 350 Index Fund 464287861 IEV 94-3351288
iShares S&P/TSE 60 Index Fund 464287853 IKC 94-3351289
iShares Dow Jones U.S. Total Market Index Fund 464287846 IYY 94-3351291
iShares Dow Jones U.S. Basic Materials Sector Index 464287838 IYM 94-3351292
Fund
iShares Dow Jones U.S. Consumer Cyclical Sector 464287580 IYC 94-3351294
Index Fund
iShares Dow Jones U.S. Consumer Non-Cyclical Sector 464287812 IYK 94-3351295
Index Fund
iShares Dow Jones U.S. Energy Sector Index Fund 464287796 IYE 94-3351296
iShares Dow Jones U.S. Healthcare Sector Index Fund 464287762 IYH 94-3351306
iShares Dow Jones U.S. Industrial Sector Index Fund 464287754 IYJ 94-3351307
iShares Dow Jones U.S. Utilities Sector Index Fund 464287697 IDU 94-3351317
iShares Dow Jones U.S. Chemicals Index Fund 464287820 IYD 94-3351293
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
iShares Dow Jones U.S. Real Estate Index Fund 464287739 IYR 94-3351312
iShares Dow Jones U.S. Financial Services Index Fund 484287770 IYG 94-3351305
iShares S&P MidCap 400/BARRA Growth Index Fund 464287606 IJK 94-3351281
iShares S&P MidCap 400/BARRA Value Index Fund 464287705 IJJ 94-3351282
iShares S&P SmallCap 600/BARRA Growth Index Fund 464287887 IJT 94-3351286
iShares S&P SmallCap 600/BARRA Value Index Fund 464287879 IJS 94-3351287
iShares S&P 100 Index Fund 464287101 IXO 94-3351275
iShares Russell 2000 Growth Index Fund 464287648 IWO 94-3351324
iShares Russell 2000 Value Index Fund 464287630 IWN 94-3351325
iShares Russell 3000 Growth Index Fund 464287671 IWZ 94-3351319
iShares Russell 3000 Value Index Fund 464287663 IWW 94-3351321
</TABLE>
<PAGE>
SCHEDULE A
----------
iShares Trust consisting of a number of separate investment portfolios, called
- ------------------------------------------------------------------------------
Funds, as described below.
--------------------------
[Describe Issue]
CUSIP Number Share Total Offering ($) Value
- ----------------------- ------------------------ --------------------------
<PAGE>
SCHEDULE B
----------
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
-------------------------------------------
(Prepared by DTC-bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities
will be issued as fully-registered securities registered in the name of Cede &
Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered Security certificate
will be issued for [each issue of] the Securities, [each] in the aggregate
principal amount of such issue, and will be deposited with DTC. [If, however,
the aggregate principal amount of [any] issue exceeds $400 million, one
certificate will be issued with respect to each $400 million of principal amount
and an additional certificate will be issued with respect to any remaining
principal amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Direct Participants")
deposit with DTC. DTC also facilitates the settlement among Direct Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Direct
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National
Association of Securities Dealers, inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The Rules
applicable to DTC and its Direct and Indirect Participants are on file with the
Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details for the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Direct and Indirect Participants acting on behalf of Beneficial
<PAGE>
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Securities, except in the event that use of the book-
entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of Securities with DTC and their
registration in the name of Cede & Co. or such other nominee do not affect any
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Securities are credited, which may or may
not be the Beneficial Owners. The Direct and Indirect Participants will remain
responsible for keeping account of their holding on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. [Beneficial Owners of Securities may wish
to take certain steps to augment transmission to them of notices of significant
events with respect to the Securities, such as redemptions, tenders, defaults,
and proposed amendments to the security documents. Beneficial Owners of
Securities may wish to ascertain that the nominee holding the Securities for
their benefit has agreed to obtain and transmit notices to Beneficial Owners, or
in the alternative, Beneficial Owners may wish to provide their names and
addresses to the registrar and request that copies of the notices be provided
directly to them.]
[6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or
vote with respect to the Securities. Under its usual procedures, DTC mails an
Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co's consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the
Securities will be made to Cede & Co., or such other nominee as may be requested
by an authorized representative of DTC. DTC's practice is to credit Direct
Participants' accounts, upon DTC's receipt of funds and corresponding detail
information from Issuer or Agent on payable date in accordance with their
respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant and not of DTC, Agent, or Issuer, subject to any statutory or
regulatory requirements as may be in effect from time to time.
<PAGE>
Payment of redemption proceeds, distributions, and dividends to Cede & Co. (or
such other nominee as may be requested by an authorized representative of DTC)
is the responsibility of Issuer or Agent, disbursement of such payments to
Direct Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to [Tender/Remarketing] Agent,
and shall effect delivery of such Securities by causing the Direct Participant
to transfer the Participant's interest in the Securities, on DTC's records, to
[Tender/Remarketing] Agent. The requirement for physical delivery of Securities
in connection with an optional tender or a mandatory purchase will be deemed
satisfied when the ownership rights in the Securities are transferred by Direct
Participants on DTC's records and followed by a book-entry credit of tendered
Securities to [Tender/Remarketing] Agent's DTC account.]
10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Agent. Under such circumstances, in the event that a successor securities
depository is not obtained, Security certificates are required to be printed and
delivered.
11. Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
<PAGE>
Exhibit (p.i)
ISHARES TRUST
CODE OF ETHICS
Adopted Under Rule 17j-1
Effective April 25, 2000
iShares Trust (the Trust) is confident that its Trustees, officers, and
employees act with integrity and good faith. The Trust recognizes, however,
that personal interests may conflict with the Trust's interests where officers
or Trustees:
. know about present or future portfolio transactions; or
. have the power to influence portfolio transactions; and
. engage in securities transactions in their personal account(s).
In an effort to prevent these conflicts and in accordance with Rule 17j-1
under the Investment Company Act of 1940, the Trust has adopted this Code of
Ethics (the Code) to prohibit transactions and conduct that create conflicts of
interest, and to establish reporting requirements and enforcement procedures.
(Definitions of underlined terms are included in Appendix A).
----------
I. About the Trust and the Advisor.
The Trust is a registered investment company that consists of multiple
investment portfolios (the Funds). Barclays Global Fund Advisors (the Advisor)
is the investment advisor for the Funds. The Advisor manages the Funds' assets
with a view to matching the performance of each Fund's corresponding benchmark
index as closely as possible. In buying and selling securities for the Funds,
the Advisor employs replication and representative sampling strategies. Because
of these investment methodologies, the personal securities activities of the
Trustees and officers of the Trust are less likely to create a conflict of
interest than they may in investment companies that employ performance based or
fundamental research driven investment or other discretionary strategies.
Consequently, the Trust has considered, but not adopted, many of the
recommendations of the Investment Company Institute's Advisory Group on Personal
Trading.
II. About this Code of Ethics
A. Who is covered by the Code?
All Trust officers;
--------------
All Trustees, both interested and independent; and
--------- -----------
Natural persons in a control relationship to a Fund who obtain
-------
information concerning recommendations about the purchase or sale
----------------
of any security by a Fund (Natural Control Persons).
-------
<PAGE>
B. What rules apply to me?
This Code sets forth specific prohibitions regarding securities
----------
transactions and sets out certain reporting requirements. For
the reporting requirements that apply to you, please refer to
Parts A - D, as indicated below.
Independent Trustees Part A
--------------------
Interested Trustees Part B
-------------------
Trust Officers Part C
--------------
Natural Control Persons Part D
-------
III. Statement of General Principles.
In recognition of the trust and confidence placed in the Trust by its
shareholders, and because the Trust believes that its operations should benefit
its shareholders, the Trust has adopted the following general principles:
A. The interests of our shareholders are paramount. Shareholder
interests must be placed before your own.
B. You must accomplish all personal securities transactions in a
manner that avoids a conflict between your personal interests and
those of the Trust and its shareholders.
C. You must avoid actions or activities that allow you or your
family to profit or benefit from your position with the Trust, or
that bring into question your independence or judgment.
IV. Prohibition Against Fraud, Deceit and Manipulation.
You cannot, in connection with the direct or indirect purchase or sale of a
security held or to be acquired by a Fund:
- ------------------------------------------
A. employ any device, scheme or artifice to defraud the Fund;
B. make to the Fund any untrue statement of a material fact or omit
to state to the Fund a material fact necessary in order to make
the statements made, in light of the circumstances under which
they are made, not misleading;
C. engage in any act, practice or course of business that operates
or would operate as a fraud or deceit upon the Fund;
D. engage in any manipulative practice with respect to the Fund.
2
<PAGE>
V. Review and Enforcement of the Trust's Code.
A. Appointment of a Review Officer.
A review officer (the Review Officer) will be appointed by the
Chairman of the Board of Trustees (Chairman) to perform the
duties described in this Section V.
B. The Review Officer's Duties and Responsibilities.
(1) The Review Officer shall notify each person who becomes an
Access Person of the Trust and is required to report under the
-------------
Code of their reporting obligations, no later than 10 days before
the first quarter in which such person is obligated to begin
reporting.
(2) The Review Officer will, on a quarterly basis, compare all
reported personal securities transactions with the Funds'
completed portfolio transactions and a list of securities being
considered for purchase (i.e., trade lists) by the Advisor during
the quarter to determine whether a Code violation may have
occurred. The Review Officer may request additional information
or take any other appropriate measure that the Review Officer
decides is necessary to aid in this determination. Before
determining that a person has violated the Code, the Review
Officer must give the person an opportunity to supply explanatory
material.
(3) If the Review Officer finds that a Code violation may have
occurred, the Review Officer must create and submit a written
report regarding the possible violation, together with the
confidential quarterly report and any explanatory material
provided by the person, to the Chairman and legal counsel
(Counsel) for the Trust. The Chairman and Counsel will determine
whether the person violated the Code.
(4) No person is required to participate in a determination of
whether he or she has committed a Code violation or discuss the
imposition of any sanction against himself or herself.
(5) If required, the Review Officer will submit his or her own
reports (as required) to an Alternate Review Officer who will
fulfill the duties of the Review Officer with respect to such
reports. If a securities transaction of the Review Officer is
----------
under review for a possible violation, an officer of the Trust
will act for the Alternate Review Officer for purposes of this
Section V.
C. Exceptions.
In the event that a person subject to the Code believes that he
or she is unable to comply with certain provisions of the Code,
the person must notify the Review
3
<PAGE>
Officer in writing, setting forth the reasons why he or she
cannot comply with the Code.
The Review Officer, in his or her discretion, may exempt this
person from any such provisions of the Code, if the Review
Officer determines that (a) the services of the person are
valuable to the Trust or the Advisor; (b) the failure to grant
this exemption will result in an undue burden on the person or
prevent the person from being able to render services to the
Trust or the Advisor; and (c) granting the exemption does not
detrimentally affect the shareholders of the Trust or the
Advisor. The Review Officer will prepare a report documenting
the nature of any exemption granted, the persons involved and the
reasons for granting such exemption.
Any person granted an exemption with respect to a particular
transaction must furnish the Review Officer with a written report
concerning that transaction within three days of the transaction.
D. Sanctions.
If the Chairman and Counsel determine that a person violated the
Code pursuant to paragraph B.(3) above, disciplinary action may
be taken and sanctions may be imposed.
VI. Recordkeeping.
The Trust will maintain records as set forth below. These records will be
maintained in accordance with Rule 31a-2 under the 1940 Act and the following
requirements. They will be available for examination by representatives of the
Securities and Exchange Commission and other regulatory agencies.
A. A copy of this Code and any other code adopted by the Trust which
is, or at any time within the past five years has been, in effect
will be preserved in an easily accessible place.
B. A record of any Code violation and of any sanctions taken will be
preserved in an easily accessible place for a period of at least
five years following the end of the fiscal year in which the
violation occurred.
C. A copy of each Quarterly, Initial and Annual Report submitted
under this Code, including any information provided in lieu of
such reports, will be preserved for a period of at least five
years from the end of the fiscal year in which it is made, for
the first two years in an easily accessible place.
D. A record of all persons, currently or within the past five years,
who are or were required to submit reports under this Code, and a
list of those who are or were
4
<PAGE>
responsible for reviewing these reports, will be maintained in an
easily accessible place.
E. A copy of each annual issues report and accompanying
verification, as required by Section VIII.C of this Code, must be
maintained for at least five years from the end of the fiscal
year in which it is made, for the first two years in any easily
accessible place.
VII. Interrelationship with Investment Adviser's Code of Ethics.
A. General Principle.
A person who is both an access person of the Trust and an access
------------- ------
person of the Advisor is only required to report under and
------
otherwise comply with the Advisor's or principal underwriter's
Rule 17j-1 code of ethics, provided that such code has been
adopted pursuant to and in compliance with Rule 17j-1. Such
persons, however, are still subject to the principles and
prohibitions contained in Section III and IV hereof.
B. Procedures.
The Advisor must:
(1) Submit to the Board of Trustees a copy of its code of
ethics adopted pursuant to Rule 17j-1;
(2) Promptly furnish to the Trust, upon request, copies of
any reports made under its code of ethics by any person who
is also covered by the Trust's Code; and
(3) Promptly report to the Trust in writing any material
amendments to its code of ethics, along with the
certification described under Section VIII.C hereof.
VIII. Miscellaneous.
A. Confidentiality.
The Trust will endeavor to maintain the confidentiality of all
personal securities transactions reports and any other
information filed with the Trust under this Code. Such reports
and related information, however, may be produced to the
Securities and Exchange Commission and other regulatory agencies.
5
<PAGE>
B. Interpretation of Provisions.
The Board of Trustees may from time to time adopt such
interpretations of this Code as it deems appropriate.
C. Annual Issues Report and Accompanying Certification.
At least annually, the Review Officer, the Advisor, any other
investment advisor to a Fund (including any sub-advisor) and the
Trust's principal underwriter (if applicable) each must provide
the following to the Board:
(1) a report that describes any issues that arose during the
previous year under the its code and any procedures thereto,
including any material code or procedural violations, and any
resulting sanctions; and
(2) a certification that it has adopted procedures necessary to
prevent its access persons from violating its code.
--------------
The Review Officer, Advisor, other advisors and principal
underwriter (if applicable) may report to the Board more
frequently as they deem necessary or appropriate and shall do so
as requested by the Board.
D. Initial and Annual Acknowledgment.
The Review Officer shall promptly provide all persons covered by
this Code with a copy of the Code. In addition, all persons
covered by this Code must complete the Acknowledgment included as
Appendix D within 10 days of becoming an access person of the
-------------
Trust and must submit an Acknowledgment to the Review Officer
each year thereafter.
Adopted: April 25, 2000
6
<PAGE>
PART A
Independent Trustees
I. Quarterly Reports
Each quarter, you must report any securities transactions, as well as any
----------
securities accounts you established during the quarter. You must submit your
report to the Review Officer no later than 10 days after the end of each
calendar quarter. A Quarterly Report is included as Appendix B.
If you had no reportable transactions and did not open any securities accounts
during the quarter, you are still required to submit a report. Please note on
your report that you had no reportable items during the quarter, and return it,
signed and dated.
You need not submit a Quarterly Report if the report would duplicate information
contained in broker trade confirmations or account statements received by the
Trust, provided that all required information is contained in the broker trade
confirmations or account statements and is received by the Review Officer no
later than 10 days after the end of the calendar quarter. Please see the Review
Officer for more information.
II. What Must Be Included In Your Quarterly Reports?
(A) You must report all transaction in securities that: (i) you
----------
directly or indirectly beneficially own or (ii) because of the
------------ ---
transaction, you acquire direct or indirect beneficial ownership. The
--------------------
report must also list each securities account you established during
the quarter in which any securities were held for your direct or
indirect benefit.
(B) Reports of individual securities transactions are required only if
----------
you knew at the time of the transaction or, in the ordinary course of
fulfilling your official duties as a Trustee, should have known, that
during the 15 day period immediately preceding or following the date
of your transaction, the same security was purchased or sold, or was
--------
being considered for purchase or sale, by a Fund.
-------------------------------------
Note: The "should have known" standard does not:
----
. imply a duty of inquiry;
. presume you should have deduced or extrapolated from
discussions or memoranda dealing with a Fund's investment
strategies; or
. impute knowledge from your awareness of a Fund's portfolio
holdings, market considerations, benchmark index, or investment
policies, objectives and restrictions.
A-1
<PAGE>
III. What May Be Excluded from Your Quarterly Reports?
You are not required to include the following securities, transactions or
accounts on your Quarterly Reports:
(A) Purchases or sales effected for any account over which you have no
direct or indirect influence or control.
(B) Purchases you made solely with the dividend proceeds received in a
dividend reinvestment plan or that are part of an automatic payroll
deduction plan, where you purchased a security issued by your
--------
employer.
(C) Purchases effected on the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, as long as you
----------
acquired these rights from the issuer, and sales of such rights.
(D) Purchases or sales which are non-volitional, including purchases
or sales upon exercise of written puts or calls and sales from a
margin account to a bona fide margin call.
(E) Purchases of direct obligations of the U.S. Government, bankers'
acceptances, bank certificates of deposit, commercial paper, high
----
quality short-term debt instruments, including repurchase agreements,
-----------------------------------
and shares issued by registered, open-end investment companies.
You may include a statement in your report that the report shall not be
construed as your admission that you have any direct or indirect beneficial
----------
ownership in a security included in the report.
- --------- --------
A-2
<PAGE>
PART B
Interested Trustees
I. Initial and Annual Report of Securities Holdings and Accounts.
You must provide the Review Officer with a complete listing of your securities
accounts and any securities you beneficially own as of the date you first became
---------- ------------ ---
subject to the Code's reporting requirements. You must submit the initial list
within 10 days of the date you first became subject to the reporting
requirements. Each following year, you must submit a revised list to the Review
Officer showing your securities accounts and any securities you beneficially own
---------- ------------ ---
as of a date no more than 30 days before you submit the list. An Initial Report
and an Annual Report are included as Appendix C.
II. Quarterly Reports.
Each quarter, you must report any securities transactions, as well as any
----------
securities accounts you established during the quarter. You must submit your
report to the Review Officer no later than 10 days after the end of each
calendar quarter. A Quarterly Report is included as Appendix B.
If you had no reportable transactions and did not open any securities accounts
during the quarter, you are still required to submit a report. Please note on
your report that you had no reportable items during the quarter, and return it,
signed and dated.
You need not submit a Quarterly Report if the report would duplicate information
contained in broker trade confirmations or account statements received by the
Trust, provided that all required information is contained in the broker trade
confirmations or account statements and is received by the Review Officer no
later than 10 days after the end of the calendar quarter. Please see the Review
Officer for more information.
III. What Must Be Included In Your Reports?
You must report all transactions in securities that: (i) you directly or
----------
indirectly beneficially own or (ii) because of the transaction, you acquire
------------ ---
direct or indirect beneficial ownership. You also must list on the report each
--------------------
account in which any securities were held for your direct or indirect benefit.
IV. What May Be Excluded from Your Reports?
You are not required to include the following securities, transactions or
accounts on your reports:
(A) Purchases or sales effected for any account over which you have no
direct or indirect influence or control.
(B) Purchases you made solely with the dividend proceeds received in a
dividend reinvestment plan or that are part of an automatic payroll
deduction plan, where you purchased a security issued by your
--------
employer.
B-1
<PAGE>
(C) Purchases effected on the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, as long as you
----------
acquired these rights from the issuer, and sales of such rights.
(D) Purchases or sales which are non-volitional, including purchases
or sales upon exercise of written puts or calls and sales from a
margin account to a bona fide margin call.
(E) Purchases of direct obligations of the U.S. Government, bankers'
acceptances, bank certificates of deposit, commercial paper, high
----
quality short-term debt instruments, including repurchase agreements,
-----------------------------------
and shares issued by registered, open-end investment companies.
You may include a statement in your report that the report shall not be
construed as your admission that you have any direct or indirect beneficial
----------
ownership in a security included in the report.
- --------- --------
B-2
<PAGE>
PART C
Trust Officers
I. Initial and Annual Report of Securities Holdings and Accounts.
You must provide the Review Officer with a complete listing of your securities
accounts and any securities you beneficially own as of the date you first became
---------- ------------ ---
subject to the Code's reporting requirements. You must submit the initial list
within 10 days of the date you first became subject to the reporting
requirements. Each following year, you must submit a revised list to the Review
Officer showing your securities accounts and any securities you beneficially own
---------- ------------ ---
as of a date no more than 30 days before you submit the list. An Initial Report
and an Annual Report are included as Appendix C.
II. Quarterly Reports.
Each quarter, you must report any securities transactions, as well as any
----------
securities accounts you established during the quarter. You must submit your
report to the Review Officer no later than 10 days after the end of each
calendar quarter. A Quarterly Report is included as Appendix B.
If you had no reportable transactions and did not open any securities accounts
during the quarter, you are still required to submit a report. Please note on
your report that you had no reportable items during the quarter, and return it,
signed and dated.
You need not submit a Quarterly Report if the report would duplicate information
contained in broker trade confirmations or account statements received by the
Trust, provided that all required information is contained in the broker trade
confirmations or account statements and is received by the Review Officer no
later than 10 days after the end of the calendar quarter. Please see the Review
Officer for more information.
III. What Must Be Included In Your Reports?
You must report all transactions in securities that: (i) you directly or
----------
indirectly beneficially own or (ii) because of the transaction, you acquire
------------ ---
direct or indirect beneficial ownership. You also must list on the report each
--------------------
account in which any securities were held for your direct or indirect benefit.
IV. What May Be Excluded from Your Reports?
You are not required to include the following securities, transactions or
accounts on your reports:
(A) Purchases or sales effected for any account over which you have no
direct or indirect influence or control.
(B) Purchases you made solely with the dividend proceeds received in a
dividend reinvestment plan or that are part of an automatic payroll
deduction plan, where you purchased a security issued by your
--------
employer.
C-1
<PAGE>
(C) Purchases effected on the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, as long as you
----------
acquired these rights from the issuer, and sales of such rights.
(D) Purchases or sales which are non-volitional, including purchases
or sales upon exercise of written puts or calls and sales from a
margin account to a bona fide margin call.
(E) Purchases of direct obligations of the U.S. Government, bankers'
acceptances, bank certificates of deposit, commercial paper, high
----
quality short-term debt instruments, including repurchase agreements,
-----------------------------------
and shares issued by registered, open-end investment companies.
You may include a statement in your report that the report shall not be
construed as your admission that you have any direct or indirect beneficial
----------
ownership in a security included in the report.
- --------- --------
C-2
<PAGE>
PART D
Natural Control Persons
I. Initial and Annual Report of Securities Holdings and Accounts.
You must provide the Review Officer with a complete listing of your securities
accounts and any securities you beneficially own as of the date you first became
---------- ------------ ---
subject to the Code's reporting requirements. You must submit the initial list
within 10 days of the date you first became subject to the reporting
requirements. Each following year, you must submit a revised list to the Review
Officer showing your securities accounts and any securities you beneficially own
---------- ------------ ---
as of a date no more than 30 days before you submit the list. An Initial Report
and an Annual Report are included as Appendix C.
II. Quarterly Reports.
Each quarter, you must report any securities transactions, as well as any
----------
securities accounts you established during the quarter. You must submit your
report to the Review Officer no later than 10 days after the end of each
calendar quarter. A Quarterly Report is included as Appendix B.
If you had no reportable transactions and did not open any securities accounts
during the quarter, you are still required to submit a report. Please note on
your report that you had no reportable items during the quarter, and return it,
signed and dated.
You need not submit a Quarterly Report if the report would duplicate information
contained in broker trade confirmations or account statements received by the
Trust, provided that all required information is contained in the broker trade
confirmations or account statements and is received by the Review Officer no
later than 10 days after the end of the calendar quarter. Please see the Review
Officer for more information.
III. What Must Be Included In Your Reports?
You must report all transactions in securities that: (i) you directly or
----------
indirectly beneficially own or (ii) because of the transaction, you acquire
------------ ---
direct or indirect beneficial ownership. You also must list on the report each
--------------------
account in which any securities were held for your direct or indirect benefit.
IV. What May Be Excluded from Your Reports?
You are not required to include the following securities, transactions or
accounts on your reports:
(A) Purchases or sales effected for any account over which you have no
direct or indirect influence or control.
D-1
<PAGE>
(B) Purchases you made solely with the dividend proceeds received in a
dividend reinvestment plan or that are part of an automatic payroll
deduction plan, where you purchased a security issued by your
--------
employer.
(C) Purchases effected on the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, as long as you
----------
acquired these rights from the issuer, and sales of such rights.
(D) Purchases or sales which are non-volitional, including purchases
or sales upon exercise of written puts or calls and sales from a
margin account to a bona fide margin call.
(E) Purchases of direct obligations of the U.S. Government, bankers'
acceptances, bank certificates of deposit, commercial paper, high
----
quality short-term debt instruments, including repurchase agreements,
-----------------------------------
and shares issued by registered, open-end investment companies.
You may include a statement in your report that the report shall not be
construed as your admission that you have any direct or indirect beneficial
----------
ownership in a security included in the report.
- --------- --------
V. Pre-Approval of Investments in IPOs or Limited Offerings.
You may not directly or indirectly acquire beneficial ownership in any
--------------------
securities in an IPO or limited offering without obtaining prior approval from
--- ----------------
the Review Officer. The Review Officer must review each request for approval
and record the decision regarding the request. Each such record must include
the Review Officer's reasons supporting the decision. The Trust must maintain a
record of any decision, and the reasons supporting the decision, to approve
these investments for at least five years after the end of the fiscal year in
which the approval is granted.
D-2
<PAGE>
APPENDIX A
Definitions
General Note
The definitions and terms used in this Code of Ethics are intended to mean the
same as they do under the 1940 Act and the other federal securities laws. If a
definition hereunder conflicts with the definition in the 1940 Act or other
federal securities laws, or if a term used in this Code is not defined, you
should follow the definitions and meanings in the 1940 Act or other federal
securities laws, as applicable.
Access person means any director, trustee or officer of a fund or of a fund's
- -------------
investment adviser; any employee of a fund or its investment adviser (or of any
company in a control relationship to the fund or investment adviser) who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of securities by a fund
---------------- ----------
or whose functions relate to the making of any recommendations with respect to
the purchases or sales; and any natural person in a control relationship to a
-------
fund or its investment adviser, who obtains information concerning
recommendations made to the fund with regard to the purchase or sale of
----------------
securities by the fund.
- ----------
Beneficial ownership means the same as it does under Section 16 of the
- --------------------
Securities Exchange Act of 1934 and Rule 16a-1(a)(2) thereunder. You should
generally consider yourself the "beneficial owner" of any securities in which
you have a direct or indirect pecuniary (monetary) interest. In addition, you
should consider yourself the beneficial owner of securities held by your spouse,
your minor children, a relative who shares your home, or other persons by reason
of any contract, arrangement, understanding or relationship that provides you
with sole or shared voting or investment power.
Control means the same as it does under in Section 2(a)(9) of the 1940 Act.
- -------
Section 2(a)(9) provides that "control" means the power to exercise a
controlling influence over the management or policies of a company, unless such
power is solely the result of an official position with such company. Ownership
of 25% or more of a company's outstanding voting securities is presumed to give
the holder of such securities control over the company. This presumption may be
countered by the facts and circumstances of a given situation.
High quality short-term debt instrument means any instrument that has a maturity
- ---------------------------------------
at issuance of less than 366 days and that is rated in one of the two highest
rating categories by a nationally recognized statistical rating organization
(e.g., Moody's Investors Service).
Independent Trustee means a Trustee of the Trust who is not an "interested
- -------------------
person" of the Trust within
the meaning of Section 2(a)(19) of the 1940 Act.
Interested Trustee means a Trustee of the Trust who is an "interested person" of
- ------------------
the Trust within the meaning of Section 2(a)(19) of the 1940 Act.
App. A
<PAGE>
IPO (i.e., initial public offering) means an offering of securities registered
- ---
under the Securities Act of 1933 the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act of 1934.
Limited offering means an offering that is exempt from registration under the
- ----------------
Securities Act of 1933 pursuant to Section 4(2), Section 4(6), Rule 504, Rule
505 or Rule 506 (e.g., private placements).
Purchase or sale of a security includes, among other things, the writing of an
- ------------------------------
option to purchase or sell a security.
--------
Security means the same as it does under Section 2(a)(36) of the 1940 Act,
- --------
except that it does not include direct obligations of the U.S. Government,
bankers' acceptances, bank certificates of deposit, commercial paper, high
----
quality short-term debt instruments, including repurchase agreements, or shares
- -----------------------------------
issued by registered open-end investment companies.
A security held or to be acquired by a Fund means: (i) any security that
------------------------------- --------
within the most recent 15 days is or has been held by the Fund or is being or
--------
has been considered by the Advisor for purchase by the Fund and (ii) any option
- -------------------
to purchase or sell, and any security convertible into or exchangeable for, a
security.
- --------
A security is being purchased by a Fund from the time a purchase or sale
-------- ---------------
program has been communicated to the person who places buy and sell orders for
the Fund until the program has been fully completed or terminated.
A security is being considered for purchase by a Fund when the Advisor
-------- -----------------------------
identifies a security as such. For purposes of this Code, the Advisor considers
securities on its "trade lists" as those "being considered for purchase."
Trust officer means any person lawfully elected by the Board and authorized to
- -------------
act on behalf of the Trust.
App. A
<PAGE>
APPENDIX B
Quarterly Report
Name of Reporting Person: ___________________________
Calendar Quarter Ended: ______________
Date Report Due: ______ 10, ____
Date Report Submitted:_____________
Securities Transactions
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Principal
Amount,
Maturity Name of
Name of Date and Broker,
Issuer No. of Interest Dealer or
and Shares Rate Bank
Date of Title of (if (if Type of Effecting
Transaction Security applicable) applicable) Transaction Price Transaction
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
If you have no securities transactions to report for the quarter, please check
here .
If you do not want this report to be construed as an admission that you have
beneficial ownership of one or more securities reported above, please describe
below and indicate which securities are at issue.
_______________________________________________________________________________
_______________________________________________________________________________
Securities Accounts
If you established a securities account during the quarter, please provide the
following information:
<TABLE>
<CAPTION>
Name of Broker, Dealer or Bank Date Account was Established Name(s) on and Type of Account
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you did not establish a securities account during the quarter, please check
here.
I certify that I have included on this report all securities transactions and
accounts required to be reported pursuant to the Code of Ethics.
Signature: ____________________ Date: __________________
App. B
<PAGE>
APPENDIX C
Initial and Annual Reports of Securities and Accounts
INITIAL HOLDINGS REPORT
Name of Reporting Person: _________________
Date Person Became Subject to the Code's Reporting Requirements: ________
Information in Report Dated As Of: ____________
Date Report Due: __________
Date Report Submitted: __________
Securities Holdings
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Name of Issuer and No. of Shares Principal Amount, Maturity Date and Interest Rate
Title of Security (if applicable) (if applicable)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
If you have no securities holdings to report, please check here.
If you do not want this report to be construed as an admission that you have
beneficial ownership of one or more securities reported above, please describe
below and indicate which securities are at issue.
________________________________________________________________________________
________________________________________________________________________________
Securities Accounts
<TABLE>
<CAPTION>
Name of Broker, Dealer or Bank Name(s) on and Type of Account
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
If you have no securities accounts to report, please check here.
I certify that I have included on this report all securities holdings and
accounts required to be reported pursuant to the Code of Ethics.
Signature: ____________________ Date: __________________
App. C
<PAGE>
APPENDIX C CONTINUED
ANNUAL HOLDINGS REPORT
Name of Reporting Person:________________________________
Information in Report Dated As of:____________
Date Report Due: __________
Calendar Year Ended: December 31, _____
Securities Holdings
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Name of Issuer and No. of Shares Principal Amount, Maturity Date and Interest Rate
Title of Security (if applicable) (if applicable)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you have no securities holdings to report for the year, please check here.
If you do not want this report to be construed as an admission that you have
beneficial ownership of one or more securities reported above, please describe
below and indicate which securities are at issue.
________________________________________________________________________________
________________________________________________________________________________
Securities Accounts
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Name of Broker, Dealer or Bank Date Account Was Name(s) on and Type of Account
Established
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you have no securities accounts to report for the year, please check here.
I certify that I have included on this report all securities transactions and
accounts required to be reported pursuant to the Code of Ethics.
Signature: ____________________ Date: __________________
App. C
<PAGE>
APPENDIX D
Acknowledgment
TO: Review Officer
RE: Acknowledgment of Code of Ethics
- --------------------------------------------------------------------------------
Initial Acknowledgment: Please check here if this is an initial acknowledgment.
I CERTIFY THAT (1) I HAVE RECEIVED, READ AND UNDERSTAND THE CODE OF ETHICS, (2)
I AM AWARE THAT I AM SUBJECT TO THE PROVISIONS OF THIS CODE, (3) I WILL COMPLY
WITH THIS CODE, AND (4) I WILL REPORT ALL HOLDINGS, TRANSACTIONS AND ACCOUNTS
THAT I AM REQUIRED TO REPORT PURSUANT TO THIS CODE.
- --------------------------------------------------------------------------------
Annual Acknowledgment: Please check here if this is an annual acknowledgment.
I CERTIFY THAT (1) I HAVE RECEIVED, READ AND UNDERSTAND THE CODE OF ETHICS, (2)
I AM AWARE THAT I AM SUBJECT TO THE PROVISIONS OF THIS CODE, (3) I HAVE COMPLIED
WITH THIS CODE AT ALL TIMES DURING THE PREVIOUS CALENDAR YEAR, AND (4) I HAVE,
DURING THE PREVIOUS CALENDAR YEAR, REPORTED ALL HOLDINGS, TRANSACTIONS AND
ACCOUNTS THAT I AM REQUIRED TO REPORT PURSUANT TO THIS CODE.
- --------------------------------------------------------------------------------
Name (print): ________________________
Position: ____________________________
Signature: ___________________________
Date Submitted: ______________________
Date Due: ____________________________
App. D
<PAGE>
Exhibit (p.ii)
Barclays Global Investors, N.A.
And its Subsidiaries:
Barclays Global Funds Advisors
Barclays Global Investors Services
CODE OF ETHICS
Introduction
Barclays Global Investors, N.A. and its subsidiaries Barclays Global Funds
Advisors (BGFA) and Barclays Global Investors Services (BGIS), collectively
referred to as "BGI", have adopted the following Code of Ethics regarding
personal securities transaction policies and procedures intended to prevent
their US officers, directors and employees from engaging in any fraudulent or
manipulative acts with respect to accounts managed or advised by BGI as set
forth in SEC 17 CFR 270 Rule 17j-1, SEC 17 CFR 275 Rule 204-2 and OCC
Regulation 12 CFR 12.7. Policies and Procedures on Insider Trading and Chinese
Walls are included in Appendix A.
Definitions
"Securities" are defined as any SEC registered or privately placed equity and
fixed income security, future or option contract, or other related commodity
derivative investment. This includes closed-end mutual funds, unit investment
trusts, physical-form securities, and exchange traded funds. "Securities" do
not include US Treasuries and other direct obligations of the US Government,
banker's acceptance, commercial paper, and shares of registered open- end
investment companies.
"Employee" include any US directors, officers and employees of BGI and his/her
spouse, domestic partner, minor children, a relative who shares the employee's
home or other persons by reason of any contract, arrangement, understanding or
relationship that provides to the employee with sole or shared voting or
investment powers.
"Personal Account" includes any securities account or portfolio in which
securities are held for the employee in which the employee has a direct or
indirect pecuniary (monetary) interest. The term includes IRA and 401(k)
accounts in which securities can be purchased or sold.
Prohibited Trading Activities
Insider Trading
- ---------------
. All employees are prohibited from engaging in insider trading or tipping.
1
<PAGE>
Insider trading occurs when a personal securities transaction occurs on the
basis of or while in possession of material, nonpublic information. Information
is considered material if it could reasonably affect the employee's decision to
invest (or not to invest) in a security. Nonpublic information is that which is
generally not available to the ordinary investors in the marketplace. Refer to
Appendix A for further details on insider trading.
Parallel Trading, Front Running and Shadowing Restrictions
- ------------------------------------------------------------
. All employees are prohibited from conducting personal securities
transactions that are considered parallel trading, front running and
shadowing.
Shadowing and parallel trading occur when an employee observes a BGI trade or
trading pattern and places the same (or similar) trade in his/her account or
passes the information to others inside or outside of the company. Front
running occurs when an employee uses (or passes to others who use the
information) advance knowledge of a BGI trade to enter into a personal
transaction in the same security ahead of BGI's order and to capitalize on the
impact of the BGI order.
Restricted Trading Activities
Trading in Barclays PLC Securities and Securities Underwritten by Barclays'
- ---------------------------------------------------------------------------
Affiliates
- ----------
. All Members of the Board of Directors of BGI, members of the Management
Committee, employees reporting directly to BGI's Chief Financial Officer
and all employees within the U.S. and Global Finance and Treasury Groups
are prohibited from trading in the securities of Barclays PLC during the
period from the end of the accounting year or half year until the relevant
results are announced, i.e., from January 1 to the preliminary results
announcement in February and from July 1 to the interim results
announcement in August. During other times, these individuals must
pre-clear trades in Barclays PLC securities in accordance with the Barclays
PLC policy.
. Access Persons are not permitted to purchase securities underwritten by
Barclays' affiliates as manager or co-manager for a period of sixty days
after an offering is commenced.
Requirements for All Employees
Reporting of Personal Accounts and Securities Transactions
- -----------------------------------------------------------
. All employees must disclose all personal accounts to US Compliance and must
authorize US Compliance to receive duplicate trade confirmations and
account statements.
2
<PAGE>
. Upon employment, new employees must sign a document stating that they
understand and agree to abide by BGI's personal trading requirements,
restrictions and prohibitions.
Annual Certification
- ---------------------
. All employees must provide an annual certification of their personal
accounts and securities holdings.
. All employees must certify at least annually their understanding and
compliance with the Code of Ethics.
60 Day Holding Period
- ----------------------
. Employees are required to hold securities including options and futures for
a minimum of 60 days, and to avoid short-term trading practices. US
Compliance may pre-approve exceptions to the 60 day holding period.
Pre-Clearance Prior to Transactions in IPOs, Private Placements, Options, and
- -----------------------------------------------------------------------------
Futures
- -------
. All employees must obtain pre-clearance for transactions in IPOs, private
placements, options and futures. For options and futures, the employee must
execute the transaction by the end the next business day or request another
pre- clearance.
Blackout Periods
- ----------------
. Employees are restricted from trading securities in selected indexes during
a designated "blackout" period when the specific index is undergoing a
major scheduled reconstitution. US Compliance will notify employees of the
"blackout" periods which will include the period 15 days before and after a
major scheduled index reconstitution.
Additional Requirements for Access Persons
Access persons include all employees whose Group 1) participates in making
securities purchase and sell recommendations or 2) may have access to timely and
material information concerning BGI's securities transactions. Access Persons
also include the Boards of Directors and officers of BGFA and BGIS.
US Compliance will identify BGI's Access Persons who are required to submit
reports under this Code of Ethics and inform them of their reporting and
securities preclearance obligations.
Reporting of Securities Transactions and Holdings
- -------------------------------------------------
3
<PAGE>
. All Access Persons must provide a listing of securities holdings to US
Compliance within 10 calendar days from when a personal account is opened
and provide US Compliance with transaction information until such time as
US Compliance receives duplicate confirmations and statements.
. All newly hired Access Persons must provide a complete listing of
securities holdings on their initial day of employment.
Access Persons Requiring Pre-clearance by Management and US Compliance
- ----------------------------------------------------------------------
. All Access Persons, whose Group directly participates in making securities
purchase or sell recommendations or has timely and material knowledge of
BGI's securities transactions, must pre-clear their personal securities
transactions with their Group manager in addition to pre-clearance by US
Compliance. The manager will verify that there is no timely or material
knowledge of trades pending for specific securities within the Access
Person's Group. These Groups include Portfolio Management, Trading, Trading
Operations, Client Order Management, Transition Services, Index Research
Group, Alpha Strategy Group and other Groups identified by US Compliance
from time to time.
Access Persons Requiring Pre-clearance from US Compliance Only
- --------------------------------------------------------------
. The following Groups have access to information relating to BGI's
securities transactions. Employees within these Groups must pre-clear their
securities transactions with US Compliance. These Groups include Internal
Audit, US Compliance, US Risk Management, the US Executive Committee, US
members of the Management Committee, BGFA and BGIS Board of Directors and
officers. In addition, all BGI staff who have access to the following
systems must also pre- clear trades with US Compliance: Landmark, Bulk
Console, Beacon, Bidbook, Fifus, TOC, ITOC, TSC, IntelProd, Quantex and any
other systems identified by US Compliance from time to time.
Pre-clearance authorization is valid until the next day's closing of the
relevant market.
Access Persons are not required to pre-clear transactions in accounts managed by
a registered investment advisor for which full discretion has been granted.
Documentation of such an arrangement must be provided and an exemption must be
obtained from US Compliance who will confirm the discretionary arrangement.
Pre-clearance is not required for transactions in automatic dividend
reinvestment plans, periodic stock purchase plans or in selling or exercising
rights obtained as a shareholder in an issue.
Monitoring of Personal Securities Transactions
Post Trade Review
- -------------------
4
<PAGE>
. US Compliance will review personal securities transactions to identify
violations of the Code of Ethics. Violations to this policy will be
reviewed by management and disciplinary action may be taken up to and
including dismissal.
Adoption and Approval of BGI Code of Ethics
. US Compliance will present the BGI Code of Ethics for approval by the Board
of Directors or Trustees of all funds for which BGFA or BGIS is the
investment advisor. This will be done at the initiation of investment
advisory services provided by BGFA or BGIS to the fund and no later than
six months after a material change has been adopted. In connection with
each approval, BGFA and BGIS will certify to the board that they have
adopted procedures reasonably necessary to prevent the Access Persons from
materially violating the BGI Code of Ethics.
. BGFA and BGIS will provide to the fund's board a written report describing
issues, material violations and sanctions, and will certify to the board
that procedures have been adopted which are intended to prevent Access
Persons from violating the BGI Code of Ethics. This report and
certification will be submitted Code of Ethics at least annually.
RecordKeeping Requirements
BGI will follow the recordkeeping practices outlined below:
. A copy of the Code of Ethics that is in effect, or at any time within the
past five years was in effect, will be maintained in an easily accessible
place.
. A record of any violation of the Code of Ethics, and of any action taken as
a result of the violation, will be maintained in an easily accessible place
for at least five years after the end of the fiscal year in which the
violation occurs.
. A copy of each personal account statement, trade confirmation and any
information provided in lieu of a report will be retained for five years,
two years in an easily accessible location.
. A record of all persons, currently or within the past five years, who are
or were required to make reports, and who are or were responsible for
reviewing these reports will be retained in an easily accessible location.
. A copy of each report submitted to a fund board pursuant to the Code of
Ethics will be maintained for at least five years after the end of the
fiscal year in which it is made, two years in an easily accessible
location.
. A record of any decision to approve and the reasons supporting the decision
to approve the acquisition by employees of IPOs and private placements will
be maintained for at least five years after the end of the fiscal year in
which the approval is granted.
5
<PAGE>
APPENDIX A
INSIDER TRADING AND CHINESE WALL POLICY
A. Introduction
------------
The continued success of Barclays depends on its relationships with its
customers and on its well-deserved reputation as an institution grounded in
a tradition of integrity and ethical conduct in all of its dealings. To
maintain this high standard and, thus, Barclays' reputation in today's
regulatory and business climate, requires strict observance of ethical
behavior as well as of legal obligations created by the Federal securities
laws and specific contractual undertakings of Barclays such as
confidentiality agreements. This Policy emphasizes generally the
importance of adhering to professional and ethical conduct and provides
specific policies and, in certain instances, procedures, with respect to
Personal Securities Transactions and Chinese Walls. These guidelines will
help employees meet Barclays' contractual, ethical and statutory
obligations.
BGI employees who violate these policies and procedures will be subject to
such disciplinary action as management deems appropriate, including a
letter of censure or suspension, or removal from office, or summary
termination of employment.
B. Insider Trading
---------------
All employees must strictly comply with Federal, provincial or state
securities laws in transactions on behalf of Barclays and in their own
personal transactions. Such securities laws prohibit trading on material
non-public information ("Insider Trading") or communicating such
information to others who may trade on it ("Tipping").
What constitutes material non-public information ("Inside Information")
must be determined on the basis of all pertinent circumstances. First, the
information must be material. Material information is generally defined as
(i) information for which there is a substantial likelihood that a
reasonable investor would consider it important in making his or her
investment decisions, or (ii) information that is reasonably certain to
have a substantial effect on the price of a company's securities. Second,
the information must be non-public. Information that has been communicated
to the market place is generally public and, therefore, not Inside
Information. For example, information found in a filing or a report made
with the Securities and Exchange Commission or appearing in newspapers,
industry journals, financial newsletters or other publications would be
considered public, although information obtained by word-of-mouth or
through rumors would not necessarily be public. Information that is known
only inside a company
6
<PAGE>
or to a limited number of outsiders such as accountants, bankers, financial
advisors or attorneys, is not public.
The following information will generally be Inside Information if not
publicly known: (a) information concerning a company, including information
concerning its business, financial matters and management, such as changes
in earnings or dividends, significant technical achievements, important
discoveries of natural resources, the obtaining or losing of major
contracts, or changes in management; and (b) information concerning a
company's securities, including the market for a security or its terms,
such as a prospective tender offer, merger or acquisition, prospective
block trade, prospective private placement or public offering, impending
stock dividend or stock split or proposed recapitalization. A BGI employee
who had any of the types of Inside Information described above would be
guilty of Tipping if he or she (a) either communicated the Information to
another person or (b) simply told another person, without explanation, to
buy or sell the securities of that company, and the other person did indeed
purchase such securities as a result of such Tipping. Similarly, a staff
member, possessing Inside Information, would be guilty of Insider Trading
if he or she bought or sold securities for his or her personal account, or
for BGI's account, based on that Inside Information.
C. Confidentiality And Chinese Wall Policy
---------------------------------------
Beyond simply complying with the letter of the law, employees are expected
to understand and observe the highest professional and ethical standards in
conducting BGI's business. All BGI employees have a duty to respect the
confidential nature of information received from customers and to use that
information only for the purpose for which it is provided, whether or not
that information is Inside Information and regardless of the basis on which
confidentiality is required - whether it be statutory requirements, ethical
considerations or contractual obligations. Maintaining strict standards
with respect to the confidentiality of information will accomplish several
goals. It will enable BGI to (a) preserve its reputation for corporate
integrity, (b) maintain compliance with the Federal securities laws, and
(c) reduce the occurrence of conflicts of interest both within divisions
(and even within teams) as well as between separate operating entities of
Barclays. Indeed, maintaining strict standards of confidentiality will
enable BGI to serve the needs of its customers more effectively.
In certain areas Chinese Walls will be, or have been, established to ensure
that employees have adopted procedures to safeguard the confidentiality of
information. The term "Chinese Wall" is a familiar one to most people.
However, what it means or how it actually operates in the workplace is
often misunderstood.
7
<PAGE>
A Chinese Wall is a barrier that controls or restricts the flow of
confidential information. It is essentially a system or set of procedures
designed to segregate information and prevent the communication of that
information between certain people or operating areas. The procedures that
comprise each Chinese Wall may vary depending on the location of the
particular wall or the times when it is operative. A Chinese Wall may need
to be in place only at certain times or on a constant basis. A Chinese
Wall may need to be located between various operating areas, between
divisions, between teams within a division and even, temporarily, between
staff who are on the same team but assigned to different accounts. The
existence and proper maintenance of Chinese Walls will allow Barclays to
serve simultaneously the needs of customers who have competing interests.
For the most part, the maintenance of Chinese Walls will reduce the
occurrence of conflicts of interest within Barclays as well as reduce the
possibility of abuse of Inside Information.
Regardless of the existence of specific Chinese Walls, the following
procedures should be observed by all employees at all times:
1. Never communicate confidential information to anyone outside Barclays
except for communications with auditors, approved counsel or other
experts who have been specifically engaged for certain matters.
Communicate confidential information inside Barclays only on a
need-to-know basis.
2. Do not communicate confidential information through a Chinese Wall
unless permission is obtained from the appropriate designated manager
or the Manager of Compliance.
3. Never discuss confidential information in a public place such as an
elevator, a restaurant or a hallway.
4. Always log off your computer before leaving the area for any length of
time and at the end of the day.
5. Use systems and information solely for authorized activities.
6. Notify a supervisor of any unauthorized use or misuse of the system or
information or any activity that appears questionable.
7. Maintain the secrecy of passwords and other system access
identification.
8. Prevent others from using a terminal to which another employee has
logged on until that employee has logged off.
9. Keep documents and papers containing confidential information in
locked file cabinets or other secured facilities. Do not leave papers
and documents containing confidential information exposed on desks or
credenzas.
8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act, the Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of San Francisco and the State of
California on the 1st day of May, 2000.
By: /s/ Nathan Most
------------------------------------
Nathan Most
President and Treasurer
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacity on the dates indicated.
Thomas E. Flanigan
------------------------------------
Thomas E. Flanigan
Trustee
Richard K. Lyons
-------------------------------------
Richard K. Lyons
Trustee
George G. C. Parker
-------------------------------------
George G. C. Parker
Trustee
By: /s/ John McGuire
-------------------------------------
John McGuire
Attorney in fact
By: /s/ Nathan Most
-------------------------------------
Nathan Most
Trustee, President and Treasurer
