SUPPLEMENT DATED FEBRUARY 17, 1999
TO
WEBS INDEX FUND, INC.
PROSPECTUS
DATED NOVEMBER 27, 1998
The information in this Supplement updates the corresponding
information in the Prospectus of WEBS Index Fund, Inc. (the
"Fund") dated November 27, 1998.
Recent Developments Regarding the Malaysia (Free) WEBS Index
Series
As a result of regulatory relief the Fund recently received
from the Malaysian Central Bank, the Malaysia (Free) WEBS Index
Series (the "Malaysia Series") is now permitted to transfer
Malaysian ringgits from its account to a redeeming investor's
account maintained at a duly licensed Malaysian financial
institution. Until further notice, the Fund will honor requests,
in proper form, for the redemption of Creation Units of the
Malaysia Series only through the delivery of Malaysian ringgits.
The Fund has been unable to satisfy redemptions of Malaysia
Series WEBS through the delivery of portfolio securities since
September 1998 as a result of the capital controls imposed by the
Malaysian Government at that time.
Malaysia Series investors accepting redemption proceeds in
ringgits will be subject to significant repatriation penalties
under Malaysian law that involve exit levies and profit taxes.
On February 4, 1999, certain changes to the Malaysian
restrictions referred to in the Fund's Prospectus and Statement
of Additional Information were announced. Certain details
regarding the new restrictions and their implementation are not
available at this time. However, the Fund currently understands
that, effective February 15, 1999, the prior repatriation
restrictions were replaced with a system of graduated exit levies
and profit taxes, ranging from 30% to zero, depending upon the
amount of time the assets in question were in Malaysia. The Fund
cannot assure Malaysia Series investors as to the interpretation
of the restrictions or that they will not be revised in a manner
that is adverse to the interests of an investor that has redeemed
Creation Units of Malaysia Series WEBS for ringgits. Investors
that redeem Creation Units of Malaysia Series WEBS at different
times may be subject to significantly different economic
consequences, depending on how the Malaysian exit levies and
profit taxes are applied.
In order for the Fund to complete a redemption of Malaysia
Series WEBS, a redeeming investor will need to fulfill several
requirements. These include the requirement to establish a
proper account at a duly licensed Malaysian financial institution
for receiving the redemption proceeds and the requirement to sign
a form acknowledging that:
- the redemption proceeds are payable to the investor's
external account in Malaysia exclusively in ringgits rather than
U.S. dollars,
- such redemption proceeds in ringgits will be subject to
repatriation taxes and levies and other restrictions under
applicable Malaysian law, and
- such restrictions may change in a way that is adverse to
the interests of such person.
A redeeming investor of Malaysia Series WEBS that is
resident outside Malaysia will be exposed to currency risk for
the period of time during which the investor holds Malaysia
Series redemption proceeds in ringgits. During such a holding
period, the value of the ringgit could decline relative to the
value of the currency into which the investor may wish to convert
its redemption proceeds.
The Fund is also continuing to suspend sales of Creation
Units of WEBS of the Malaysia Series until further notice.
So long as there remain impediments to creations and/or
redemptions of Creation Units of Malaysia Series WEBS such as
those described above, the Fund expects Malaysia Series WEBS to
trade on the AMEX at substantially wider spreads to net asset
value than they would in the absence of such impediments.
Investors interested in redeeming Creation Units of Malaysia
Series WEBS should carefully review the Fund's Statement of
Additional Information dated November 27, 1998 (the "SAI"), and
any Supplements to the SAI, for further details.
Reduction of Certain Amounts in Fund Expenses Table
In the expense table on pages 7 and 8 of the Prospectus, the
amounts in the line items entitled "Maximum Transaction Fee (a)
for Purchase of one Creation Unit of WEBS: In-kind and Cash
Purchases (b)" and "Maximum Redemption Transaction Fee (a) for
Redemption of one Creation Unit of WEBS: In-kind and Cash
Redemptions (c)" are reduced as indicated for the following WEBS
Index Series:
- Australia WEBS Index Series $1,750
- Austria WEBS Index Series $1,600
- Canada WEBS Index Series $3,250
- Germany WEBS Index Series $2,400
- Hong Kong WEBS Index Series $3,800
- Malaysia (Free) WEBS Index Series $4,150
- Mexico (Free) WEBS Index Series $2,200
- Spain WEBS Index Series $2,300
- United Kingdom WEBS Index Series $4,750
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SUPPLEMENT DATED FEBRUARY 17, 1999
TO
WEBS INDEX FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER 27, 1998
The information set forth herein supplements, and should be
read in conjunction with, the corresponding information in the
Statement of Additional Information of the WEBS Index Fund, Inc.
(the "Fund").
1. The information set forth below under this Item 1. relates
solely to the Malaysia (Free) WEBS Index Series and is not
relevant to any other WEBS Index Series.
As a result of regulatory relief that was recently received
from Bank Negara Malaysia (the Malaysian Central Bank), the
Malaysia (Free) WEBS Index Series (the "Malaysia Series") is now
permitted to transfer Malaysian ringgits from its account to a
redeeming investor's account maintained at a duly licensed
Malaysian financial institution. In such circumstances, until
further notice, the Fund will honor requests submitted in proper
form for the redemption of Creation Units of the Malaysia Series
through the delivery of Malaysian ringgits. The value of the
redemption proceeds will be based on the net asset value of the
Malaysia Series as next computed by the Fund after receipt of the
redemption request in proper form (less the transaction and
redemption fees referred to below). The exchange rate used to
convert such U.S. dollar amount to ringgits will be the same
exchange rate as is used to compute the net asset value of the
Malaysia Series, which currently differs from the "official" rate
established by the Malaysian Government. The official rate is
currently used by the independent compiler of the indicative
optimized portfolio value for the Malaysia Series WEBS that is
disseminated by the American Stock Exchange. The Fund has been
unable to satisfy redemptions of Malaysia Series WEBS through the
delivery of portfolio securities since September 1998 as a result
of the capital controls imposed by the Malaysian Government at
that time.
In addition to the requirements applicable to any WEBS
redemption request (including the requirement that it be
submitted through an Authorized Participant), a redemption
request in respect of Malaysia Series WEBS will not be considered
to be in "proper form" unless and until the redeeming investor
has presented its Authorized Participant and the Distributor with
satisfactory evidence that the redeeming investor has established
the requisite account for receipt of redemption proceeds in
ringgit with a duly licensed Malaysian financial institution.
Any redemptions of Creation Units of Malaysia Series WEBS will be
subject to the relevant redemption transaction fee (currently,
$4,150 per Creation Unit redeemed) PLUS the additional variable
charge associated with cash redemptions (currently, 1.07% of the
value of the ringgit proceeds). The basic redemption transaction
fee will be paid by the redeeming investor to the Fund in U.S.
dollars, and the additional variable charge will be deducted from
the ringgit proceeds transferred to the account of the redeeming
investor.
Persons accepting redemption proceeds in ringgit will be
subject to repatriation penalties under Malaysian law that
involve exit levies and profit taxes. On February 4, 1999,
certain changes to the Malaysian restrictions referred to in the
Fund's Prospectus and Statement of Additional Information were
announced. Certain details regarding the new restrictions and
their implementation are not available at this time. However,
the Fund currently understands that, effective February 15, 1999,
the prior repatriation restrictions were replaced with a system
of graduated exit levies and profit taxes. The levies and taxes,
certain of which are subject to approval by the Malaysian
Parliament, vary depending on whether or not the ringgit assets
in question entered Malaysia before February 15, 1999, and they
range from 30% to zero based on the amount of time such assets
have been in Malaysia and whether they are treated as "principal"
or "profit". There can be no assurance regarding the
interpretation of the restrictions or that they will not be
revised in a manner that is adverse to the interests of an
investor that has redeemed its Creation Units of Malaysia Series
WEBS for ringgits. Investors that redeem Creation Units of
Malaysia Series WEBS at different times may be subject to
significantly different economic consequences, depending on how
the Malaysian exit levies and profit taxes are applied, including
the extent to which, if any, the Malaysian authorities trace the
source of ringgits paid to redeeming investors by the Fund. In
particular, based on preliminary information received from Bank
Negara Malaysia, the Fund believes that redemption proceeds paid
to redeeming investors for ringgit assets that entered Malaysia
before February 15, 1999 will be viewed as being made out of
"principal" of the Malaysia Series' ringgit assets before its
"profits". Since repatriations of "principal" are subject to
greater burdens than repatriations of "profits" under the new
Malaysian restrictions, early redeemers of Creation Units of
Malaysia Series WEBS (i.e., those whose redemption proceeds are
viewed as being paid from "principal") may be subject to harsher
repatriation penalties than later ones (i.e., those whose
redemption proceeds are viewed as being made from "profits").
Principal with the shortest holding period will be deemed to be
repatriated first. Consequently, owners of Creation Units of
Malaysia Series WEBS that wish to redeem any Creation Units
should consult with Malaysian expert advisers concerning the
implications to them of the applicable Malaysian requirements and
restrictions. Any investor that wishes to redeem a Creation Unit
of Malaysia Series WEBS must acknowledge in writing that the
redemption proceeds are payable to the investor's external
account in Malaysia exclusively in ringgits rather than U.S.
dollars, that such redemption proceeds in ringgits will be
subject to repatriation taxes and levies and other restrictions
under applicable Malaysian law, and that such restrictions may
change in a way that is adverse to the interests of such person.
For U.S. federal income tax purposes, a shareholder that
receives a distribution of ringgits upon redemption of some or
all of its Malaysia Series WEBS will have an amount realized
equal to the U.S. dollar value of the ringgits at the time of the
distribution. Pursuant to Section 988 of the Internal Revenue
Code of 1986, as amended, upon subsequent disposition of the
ringgits, the shareholder will recognize ordinary income or loss
in respect of the change in the U.S. dollar value of the
ringgits. Investors should consult their own tax advisers
regarding the tax treatment, in their particular circumstances,
of redeeming Malaysia Series WEBS and disposing of the ringgit
redemption proceeds.
2. The information set forth below under this Item 2. supplements
the information under "Redemption of WEBS in Creation Units" and
applies to all WEBS Index Series.
To the extent contemplated by an Authorized Participant's
agreement with the Fund, in the event the Authorized Participant
has submitted a redemption request in proper form is unable to
transfer all or part of the Creation Units of WEBS 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
WEBS 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 at least equal to
125% of the value of the missing WEBS. Information concerning
the Fund's current procedures for collateralization of missing
WEBS is available from the Distributor. Such procedures 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 the Fund's Custodian and marked to market daily, and that the
fees of the Custodian and any subcustodians 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 Fund to purchase the
missing WEBS or acquire the Deposit Securities and the Cash
Component underlying such WEBS at any time and will subject the
Authorized Participant to liability for any shortfall between the
cost to the Fund of purchasing such WEBS, Deposit Securities or
Cash Component and the value of the collateral.
* * *
