-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WXyNOTjhs9qO/a2uXaH8Cl/4RlVEX23w1M94uQwKq48bMA0I7qiAdMfId5E4QzuT xr7mFQ6mBA97z+/jCg+ukA== 0000893220-97-001450.txt : 19970822 0000893220-97-001450.hdr.sgml : 19970822 ACCESSION NUMBER: 0000893220-97-001450 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970821 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBS INDEX FUND INC CENTRAL INDEX KEY: 0000930667 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-97598 FILM NUMBER: 97667688 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-09102 FILM NUMBER: 97667689 BUSINESS ADDRESS: STREET 1: 400 BELLEVUE PARKWAY CITY: WILMINGTON STATE: DE ZIP: 19809 BUSINESS PHONE: 3027912919 FORMER COMPANY: FORMER CONFORMED NAME: WFBS INDEX FUND INC DATE OF NAME CHANGE: 19961226 FORMER COMPANY: FORMER CONFORMED NAME: FOREIGN FUND INC DATE OF NAME CHANGE: 19950524 485APOS 1 POST-EFFECTIVE AMENDMENT WEBS INDEX FUND, INC. 1 As filed with the Securities and Exchange Commission on August 21, 1997 Registration No. 33-97598 811-9102 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------- FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ POST-EFFECTIVE AMENDMENT NO. 8 /X/ AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ AMENDMENT NO. 11 /X/ (CHECK APPROPRIATE BOX OR BOXES) WEBS INDEX FUND, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) C/O PFPC INC. 19809 400 BELLEVUE PARKWAY (Zip Code) WILMINGTON, DELAWARE (Address of Principal Executive Offices) Registrant's Telephone Number, including Area Code: (302) 791-3239 NATHAN MOST PRESIDENT WEBS INDEX FUND, INC. C/O PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 (Name and Address of Agent for Service) COPIES TO: DONALD R. CRAWSHAW, ESQ. SULLIVAN & CROMWELL 125 BROAD STREET NEW YORK, NEW YORK 10004 It is proposed that this filing will become effective (check appropriate box) / / immediately upon filing pursuant to paragraph (b) / / on (date) pursuant to paragraph (b) /X/ 60 days after filing pursuant to paragraph (a)(1) / / on (date) pursuant to paragraph (a)(1) / / 75 days after filing pursuant to paragraph (a)(2) / / on (date) pursuant to paragraph (a)(ii) of rule 485. If appropriate, check the following box: / / this post-effective amendment designates a new effective date for a previously filed post-effective amendment. ----------------------------------- THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. THE RULE 24f-2 NOTICE AND OPINION FOR THE REGISTRANT'S FISCAL YEAR ENDED AUGUST 31, 1996 WAS FILED ON OCTOBER 25, 1996. ================================================================================ 2 CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION - ------------- -------- PART A Item 1. Cover Page...................................................... Cover Page Item 2. Synopsis........................................................ Summary Expenses Item 3. Condensed Financial Information................................. Financial Highlights Item 4. General Description of Registrant............................... Cover Page; WEBS Index Fund, Inc. and its Investment Objective; Investment Policies; General Information Item 5. Management of the Fund.......................................... Summary Expenses; Management of the Fund Item 6. Capital Stock and Other Securities.............................. Tax Matters; General Information Item 7. Purchase of Securities Being Offered............................ Management of the Fund; Exchange Listing and Trading of WEBS; Purchase and Issuance of WEBS in Creation Units Item 8. Redemption or Repurchase........................................ Redemption of WEBS in Creation Units Item 9. Pending Legal Proceedings....................................... Not Applicable PART B Item 10. Cover Page...................................................... Cover Page Item 11. Table of Contents............................................... Table of Contents Item 12. General Information and History................................. General Description of the Fund Item 13. Investment Objectives and Policies.............................. Investment Policies and Restrictions; Brokerage Transactions Item 14. Management of the Fund.......................................... Management of the Fund; Investment Advisory, Management, Administrative and Distribution Services Item 15. Control Persons and Principal Holders of Securities............. Management of the Fund; Investment Advisory, Management, Administrative and Distribution Services Item 16. Investment Advisory and Other Services.......................... Management of the Fund; Investment Advisory, Management, Administrative and Distribution Services; Counsel and Independent Auditors Item 17. Brokerage Allocation............................................ Brokerage Transactions Item 18. Capital Stock and Other Securities.............................. Capital Stock and Shareholder Reports; Taxes Item 19. Purchase, Redemption and Pricing of Securities Being Offered................................................... Purchase and Issuance of WEBS in Creation Units; Redemption of WEBS in Creation Units; Determining Net Asset Value
3
Item 20. Tax Status...................................................... Dividends and Distributions; Taxes Item 21. Underwriters.................................................... Investment Advisory, Management, Administrative and Distribution Services; Purchase and Issuance of WEBS in Creation Units Item 22. Calculations of Performance Data................................ Performance Information Item 23. Financial Statements............................................ 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. 4 WORLD EQUITY BENCHMARK SHARES(SM) WEBS INDEX FUND, INC. WEBS Index Fund, Inc. (the "Fund") is an index fund consisting of separate series (each, a "WEBS Index Series"), each of which invests primarily in common stocks in an effort to track the performance of a specified foreign equity market index. The initial seventeen WEBS Index Series offered by this Prospectus are the Australia WEBS Index Series, the Austria WEBS Index Series, the Belgium WEBS Index Series, the Canada WEBS Index Series, the France WEBS Index Series, the Germany WEBS Index Series, the Hong Kong WEBS Index Series, the Italy WEBS Index Series, the Japan WEBS Index Series, the Malaysia (Free) WEBS Index Series, the Mexico (Free) WEBS Index Series, the Netherlands WEBS Index Series, the Singapore (Free) WEBS Index Series, the Spain WEBS Index Series, the Sweden WEBS Index Series, the Switzerland WEBS Index Series and the United Kingdom WEBS Index Series. The investment objective of each WEBS Index Series of the initial seventeen WEBS Index Series is to seek to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the aggregate in particular markets, as represented by a particular foreign equity securities index compiled by Morgan Stanley Capital International ("MSCI"). THE MSCI INDICES (AS DEFINED HEREIN) UTILIZED BY THE FUND REFLECT THE REINVESTMENT OF NET DIVIDENDS (EXCEPT FOR THE MSCI MEXICO (FREE) INDEX UTILIZED BY THE MEXICO (FREE) WEBS INDEX SERIES, WHICH REFLECTS THE REINVESTMENT OF GROSS DIVIDENDS). The shares of common stock of each WEBS Index Series are sometimes referred to as "World Equity Benchmark Shares(SM)" or "WEBS(SM)." The WEBS are listed for trading on the American Stock Exchange, Inc. (the "AMEX"). The non-redeemable WEBS trade on the AMEX during the day at prices that differ to some degree from their net asset value. There can be no assurance that an active trading market will develop or be maintained for the WEBS. See "Investment Considerations and Risks" for a discussion of certain investment considerations and risks that should be considered by potential investors. The Fund issues and redeems WEBS of each WEBS Index Series only in aggregations of a specified number of shares (each, a "Creation Unit") at net asset value. EXCEPT WHEN AGGREGATED IN CREATION UNITS, WEBS ARE NOT REDEEMABLE SECURITIES OF THE FUND. The Fund is managed and advised by Barclays Global Fund Advisors (the "Adviser"). PFPC Inc. (the "Administrator") provides certain administrative services to each WEBS Index Series of the Fund. Funds Distributor, Inc. (the "Distributor") serves as the principal underwriter and distributor of the Fund's shares. The Distributor does not maintain a secondary market in WEBS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. This Prospectus sets forth the information about the Fund that an investor should know before investing. It should be read and retained for future reference. A Statement of Additional Information dated October ___, 1997 provides further discussion of certain topics referred to in this Prospectus and other matters which may be of interest to investors. The Statement of Additional Information has been filed with the Securities and Exchange Commission (the "SEC") and is incorporated herein by reference. The Statement of Additional Information may be obtained without charge by writing to the Fund or the Distributor. The Statement of Additional Information, material incorporated by reference herein and other information regarding the Fund is available at the SEC's Web site (http://www.sec.gov). The Fund's and each WEBS Index Series' address is WEBS Index Fund, Inc., c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809. DISTRIBUTOR: FUNDS DISTRIBUTOR, INC. INVESTOR INFORMATION: 1-800-810-WEBS(9327) PROSPECTUS DATED OCTOBER ___, 1997 5 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER OF THE FUND'S SHARES MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY MAY NOT LAWFULLY BE MADE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. 2 6 DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, ARE GENERALLY REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO ANY OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS. TABLE OF CONTENTS
PAGE ----- Prospectus Summary....................................................................... 4 Summary of Fund Expenses................................................................. 6 Financial Highlights..................................................................... 11 The Fund and its WEBS Index Series....................................................... 13 WEBS Index Fund, Inc. and its Investment Objective..................................... 13 World Equity Benchmark Shares: "WEBS".................................................. 13 Who Should Invest?..................................................................... 13 Investment Policies.................................................................... 13 Implementation of Policies............................................................. 14 Investment Limitations................................................................. 15 The Benchmark MSCI Indices Utilized by the WEBS Index Series........................... 16 Management of the Fund................................................................. 20 Exchange Listing and Trading of WEBS................................................... 22 Investment Considerations and Risks.................................................... 22 Determination of Net Asset Value....................................................... 23 Creation Units......................................................................... 24 Purchase and Issuance of WEBS in Creation Units........................................ 24 Redemption of WEBS in Creation Units................................................... 24 Dividends and Capital Gains Distributions.............................................. 25 Tax Matters............................................................................ 25 Book-Entry Only System................................................................. 26 Performance............................................................................ 26 General Information.................................................................... 26 Available Information.................................................................. 27
"World Equity Benchmark Shares" and "WEBS" are service marks of Morgan Stanley, Dean Witter, Discover & Co. used under license by the Fund. "MSCI" and "MSCI Indices" are service marks of Morgan Stanley & Co. Incorporated used under license by the Fund. 3 7 PROSPECTUS SUMMARY
The Fund and its WEBS Index Series........................................ WEBS Index Fund, Inc. (the "Fund") is an index fund consisting of separate series (each, a "WEBS Index Series"), the Australia WEBS Index Series, the Austria WEBS Index Series, the Belgium WEBS Index Series, the Canada WEBS Index Series, the France WEBS Index Series, the Germany WEBS Index Series, the Hong Kong WEBS Index Series, the Italy WEBS Index Series, the Japan WEBS Index Series, the Malaysia (Free) WEBS Index Series, the Mexico (Free) WEBS Index Series, the Netherlands WEBS Index Series, the Singapore (Free) WEBS Index Series, the Spain WEBS Index Series, the Sweden WEBS Index Series, the Switzerland WEBS Index Series and the United Kingdom WEBS Index Series. Investment Objective of the WEBS Index Series............................... The investment objective of each WEBS Index Series of the initial seventeen WEBS Index Series is to seek to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the aggregate in particular markets, as represented by a particular foreign equity securities index compiled by Morgan Stanley Capital International ("MSCI"). Such indices are referred to herein as "MSCI Indices." THE MSCI INDICES UTILIZED BY THE FUND REFLECT THE REINVESTMENT OF NET DIVIDENDS (EXCEPT FOR THE MSCI MEXICO (FREE) INDEX UTILIZED BY THE MEXICO (FREE) WEBS INDEX SERIES, WHICH REFLECTS THE REINVESTMENT OF GROSS DIVIDENDS). WEBS........................................ The shares issued in respect of each WEBS Index Series are referred to as "World Equity Benchmark Shares" or "WEBS." WEBS of a WEBS Index Series are issued by the Fund only in large aggregations of WEBS called "Creation Units" on a continuous basis through Funds Distributor, Inc. at their net asset value next determined after receipt of an order. WEBS are not offered by the Fund in less than Creation Unit aggregations, but shares of WEBS may be bought or sold in the secondary market. EXCEPT WHEN AGGREGATED IN CREATION UNITS, WEBS ARE NOT REDEEMABLE SECURITIES OF THE FUND. Exchange Listing and Trading of WEBS........................................ The WEBS have been listed for secondary market trading on the American Stock Exchange, Inc. A "round lot" of WEBS is 100 shares. At ___________, 1997, the closing price per share of the WEBS of each WEBS Index Series was between $_____ (______ WEBS Index Series) and $_____ (______ WEBS Index Series) although there can be no assurance of this price range or that an active trading market will develop or be maintained for WEBS of a particular WEBS Index Series. Who Should Invest?....................... WEBS are designed for investors who seek a relatively low-cost "passive" approach for investing in a portfolio of equity securities of companies located in the country of the subject MSCI Index. Unlike equity mutual funds that seek to "beat" market averages with unpredictable results, the WEBS Index Series seek to provide investment results that correspond generally to the price and yield performance of their respective benchmark indices. See "Investment Considerations and Risks" for a discussion of certain investment considerations and risks that should be considered by potential investors. Fund Management....................... ADVISER. Barclays Global Fund Advisors is the Adviser to the Fund and, subject to the supervision of the Board of Directors of the Fund, is responsible for the investment management of each WEBS Index Series. ADMINISTRATOR. PFPC Inc. is the Administrator of the Fund, and performs certain clerical, fund accounting, recordkeeping and bookkeeping services in such capacity. DISTRIBUTOR. Funds Distributor, Inc. is the Distributor of WEBS in Creation Unit aggregations. CUSTODIAN, LENDING AGENT AND SUB-ADMINISTRATOR. Morgan Stanley Trust Company ("MSTC") serves as the Custodian for the cash and portfolio securities of each WEBS Index Series, as Lending Agent of the portfolio securities of each WEBS Index Series and as a Sub-Administrator of the Fund.
4 8 THE MSCI INDICES ARE THE PROPERTY OF MORGAN STANLEY & CO. INCORPORATED ("MORGAN STANLEY"). MORGAN STANLEY CAPITAL INTERNATIONAL IS A SERVICE MARK OF MORGAN STANLEY AND HAS BEEN LICENSED FOR USE BY WEBS INDEX FUND, INC. ("LICENSEE"). THE MSCI INDICES ARE DETERMINED, COMPOSED AND CALCULATED BY CAPITAL INTERNATIONAL PERSPECTIVE S.A. ("CIPSA"), A SUBSIDIARY OF CAPITAL INTERNATIONAL S.A. WORLD EQUITY BENCHMARK SHARES ARE NOT SPONSORED, ENDORSED, OR PROMOTED BY MORGAN STANLEY. MORGAN STANLEY MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE WEBS OF ANY WEBS INDEX SERIES OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY, OR IN THE WEBS OF ANY WEBS INDEX SERIES PARTICULARLY, OR THE ABILITY OF THE INDICES IDENTIFIED HEREIN TO TRACK GENERAL STOCK MARKET PERFORMANCE. MORGAN STANLEY IS THE LICENSOR OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES OF MORGAN STANLEY, INCLUDING THE MORGAN STANLEY CAPITAL INTERNATIONAL SERVICE MARK ("MSCI") WHICH MARK IS ASCRIBED TO THE INDICES CREATED BY CIPSA AND LICENSED TO MORGAN STANLEY. THE MSCI INDICES IDENTIFIED HEREIN ARE DETERMINED, COMPOSED AND CALCULATED WITHOUT REGARD TO THE WEBS OF ANY WEBS INDEX SERIES OR THE ISSUER THEREOF. NEITHER MORGAN STANLEY NOR CIPSA HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUER OF THE WEBS OF ANY WEBS INDEX SERIES OR THE OWNERS OF THE WEBS OF ANY WEBS INDEX SERIES INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING, IN THE CASE OF CIPSA, OR DISSEMINATING, IN THE CASE OF MORGAN STANLEY, THE RESPECTIVE MSCI INDICES. NEITHER MORGAN STANLEY NOR CIPSA IS RESPONSIBLE FOR, NOR HAVE THEY PARTICIPATED IN, THE DETERMINATION OF THE TIMING OF, PRICES OF, OR QUANTITIES OF THE WEBS OF ANY WEBS INDEX SERIES TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE WEBS OF ANY WEBS INDEX SERIES ARE REDEEMABLE. NEITHER MORGAN STANLEY NOR CIPSA HAS ANY OBLIGATION OR LIABILITY TO OWNERS OF THE WEBS OF ANY WEBS INDEX SERIES IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE WEBS OF ANY WEBS INDEX SERIES. ALTHOUGH CIPSA SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDICES FROM SOURCES WHICH IT CONSIDERS RELIABLE, NEITHER MORGAN STANLEY NOR CIPSA GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE COMPONENT DATA OF ANY MSCI INDEX OBTAINED FROM INDEPENDENT SOURCES. NEITHER MORGAN STANLEY NOR CIPSA MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE MSCI INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER ANY LICENSE AGREEMENT OR FOR ANY OTHER USE. NEITHER MORGAN STANLEY NOR CIPSA MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND EACH HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE MSCI INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MORGAN STANLEY OR CIPSA 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. The information contained herein regarding MSCI, the MSCI Indices, local securities markets and The Depository Trust Company ("DTC") was obtained from publicly available sources. 5 9 SUMMARY OF FUND EXPENSES The purpose of the following tables is to assist investors in understanding the various costs and expenses an investor will bear directly and indirectly with respect to each WEBS Index Series of the Fund. The tables show all expenses and fees the Fund is expected to incur. The information under "Annual Series Operating Expenses" is based on actual expenses incurred by the Fund in the fiscal year ended August 31, 1997, adjusted to reflect changes in the rate of Rule 12b-1 and administration fees that became effective on , 1997. The examples set forth below are presented for an investment of $1,000 (see next paragraph) as required by rules of the SEC. THE EXAMPLES IN THE TABLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The notes to the tables and the information under "Explanation of Tables" should be carefully reviewed when reading the tables. As of _________, 1997, the values of the portfolio of index securities comprising a deposit of a designated portfolio of equity securities constituting an optimized representation of the subject MSCI Index ("Deposit Securities") for an in-kind purchase or redemption of a Creation Unit of WEBS of each WEBS Index Series were as follows: the Australia WEBS Index Series, $_________; the Austria WEBS Index Series, $________; the Belgium WEBS Index Series, $________; the Canada WEBS Index Series, $________; the France WEBS Index Series, $________; the Germany WEBS Index Series, $_________; the Hong Kong WEBS Index Series, $________; the Italy WEBS Index Series, $________; the Japan WEBS Index Series, $________; the Malaysia (Free) WEBS Index Series, $________; the Mexico (Free) WEBS Index Series, $________; the Netherlands WEBS Index Series, $________; the Singapore (Free) WEBS Index Series, $________; the Spain WEBS Index Series, $________; the Sweden WEBS Index Series, $________; the Switzerland WEBS Index Series, $________; and the United Kingdom WEBS Index Series, $________. The foregoing values are based on information available on ________, 1997. The actual dollar values on any particular day will fluctuate and may be greater or less than such values. For additional information, please refer to "Creation Units" on page __ of this Prospectus. 6 10
AUSTRIA WEBS BELGIUM WEBS CANADA WEBS FRANCE WEBS AUSTRALIA WEBS INDEX INDEX INDEX INDEX INDEX SERIES SERIES SERIES SERIES SERIES ------------ ------ ------ ------ ------ A. Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases of Creation Units of WEBS (as a percentage of amount of investment) None None None None None Maximum Transaction Fee (a) for Purchase of one Creation Unit of WEBS: In-kind and Cash Purchases (b) $2,400 $2,200 $1,800 $4,400 $4,000 Additional Variable Charge for Cash Purchases (NOTE - The Fund will not ordinarily permit cash purchases.)(b) .60% .67% .30% .30% .25% Deferred Sales Load None None None None None Maximum Redemption Transaction Fee (a) for Redemption of one Creation Unit of WEBS: In-kind and Cash Redemptions (c) $2,400 $2,200 $1,800 $4,400 $4,000 Additional Variable Charge for Cash Redemptions (NOTE - The Fund will not ordinarily permit cash redemptions.)(c) .60% .67% .30% .30% .25% B. Annual Series Operating Expenses (as a percentage of average net assets) Management Fees .27% .27% .27% .27% .27% 12b-1 Fees (d) .20% .20% .20% .20% .20% ===== ===== ===== ===== ===== Other Expenses* % % % % % ===== ===== ===== ===== ===== Total Operating Expenses* % % % % % ===== ===== ===== ===== =====
GERMANY WEBS ITALY WEBS INDEX HONG KONG WEBS INDEX JAPAN WEBS SERIES INDEX SERIES SERIES INDEX SERIES ------ ------------ ------ ------------ A. Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases of Creation Units of WEBS (as a percentage of amount of investment) None None None None Maximum Transaction Fee (a) for Purchase of one Creation Unit of WEBS: In-kind and Cash Purchases (b) $2,900 $3,400 $2,300 $8,900 Additional Variable Charge for Cash Purchases (NOTE - The Fund will not ordinarily permit cash purchases.)(b) .25% .60% .30% .15% Deferred Sales Load None None None None Maximum Redemption Transaction Fee (a) for Redemption of one Creation Unit of WEBS: In-kind and Cash Redemptions (c) $2,900 $3,400 $2,300 $8,900 Additional Variable Charge for Cash Redemptions (NOTE - The Fund will not ordinarily permit cash redemptions.)(c) .25% .60% .30% .40% B. Annual Series Operating Expenses (as a percentage of average net assets) Management Fees .27% .27% .27% .27% 12b-1 Fees (d) .20% .20% .20% .20% ===== ===== ===== ===== ===== Other Expenses* % % % % ===== ===== ===== ===== ===== Total Operating Expenses* % % % % ===== ===== ===== =====
- ------------------------------------------------ *These expense ratio percentages reflect the average daily net assets of the 17 WEBS Index Series for the fiscal year ended August 31, 1997, which totaled $ million. The net assets of the 17 WEBS Index Series totaled $ __________ million as of August 31, 1997. 7 11
MALAYSIA MEXICO NETHERLANDS SINGAPORE (FREE) WEBS INDEX (FREE) WEBS WEBS (FREE) WEBS SPAIN WEBS SERIES INDEX SERIES INDEX SERIES INDEX SERIES INDEX SERIES ------ ------------ ------------ ------------ ------------ A. Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases of Creation Units of WEBS (as a percentage of amount of investment) None None None None None Maximum Transaction Fee (a) for Purchase of one Creation Unit of WEBS: In-kind and Cash Purchases (b) $8,500 $2,700 $2,000 $2,200 $2,300 Additional Variable Charge for Cash Purchases (NOTE - The Fund will not ordinarily permit cash purchases.) (b) 1.07% .50% .25% 1.30% .25% Deferred Sales Load None None None None None Maximum Redemption Transaction Fee (a) for Redemption of one Creation Unit of WEBS: In-kind and Cash Redemptions (c) $5,500 $2,700 $2,000 $2,200 $2,300 Additional Variable Charge for Cash Redemptions (NOTE - The Fund will not ordinarily permit cash redemptions.) (c) 1.07% .50% .25% 1.30% .45% B. Annual Series Operating Expenses (as a percentage of average net assets) Management Fees .27% .27% .27% .27% .27% 12b-1 Fees (d) .20% .20% .20% .20% .20% ===== ===== ===== ===== ===== Other Expenses* % % % % % ===== ===== ===== ===== ===== Total Operating Expenses* % % % % % ===== ===== ===== ===== =====
UNITED SWEDEN WEBS SWITZERLAND WEBS KINGDOM WEBS INDEX SERIES INDEX SERIES INDEX SERIES ------------ ------------ ------------ A. Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases of Creation Units of WEBS (as a percentage of amount of investment) None None None Maximum Transaction Fee (a) for Purchase of one Creation Unit of WEBS: In-kind and Cash Purchases (b) $2,900 $2,100 $5,900 Additional Variable Charge for Cash Purchases (NOTE - The Fund will not ordinarily permit cash purchases.) (b) .30% .40% .25% Deferred Sales Load None None None Maximum Redemption Transaction Fee (a) for Redemption of one Creation Unit of WEBS: In-kind and Cash Redemptions (c) $2,900 $2,100 $5,900 Additional Variable Charge for Cash Redemptions (NOTE - The Fund will not ordinarily permit cash redemptions.) (c) .30% .40% .75% B. Annual Series Operating Expenses (as a percentage of average net assets) Management Fees .27% .27% .27% 12b-1 Fees (d) .20% .20% .20% ===== ===== ===== Other Expenses* % % % ===== ===== ===== Total Operating Expenses* % % % ===== ===== =====
- ------------------------------------------------ *These expense ratio percentages reflect the average daily net assets of the 17 WEBS Index Series for the fiscal year ended August 31, 1997, which totaled $ ________ million. The net assets of the 17 WEBS Index Series totaled $ ______ million as of August 31, 1997. 8 12 (a) In addition to Transaction Fees shown, an investor purchasing a Creation Unit of WEBS will bear the costs of transferring the securities in the Portfolio Deposit (defined herein) to the Fund and an investor redeeming Creation Units will bear the costs of transferring securities in the Portfolio Deposit from the Fund to the investor. In each case, such costs will include settlement and custody charges, registration costs, transfer taxes and similar charges. As some of such costs are fixed, the cost of transferring Deposit Securities relating to multiple Creation Units of WEBS of the same WEBS Index Series may be proportionally less than the cost of transferring Deposit Securities relating to one Creation Unit. See "Purchase and Issuance of WEBS in Creation Units" and "Redemption of WEBS in Creation Units." (b) Paid to the Fund to offset transaction costs incurred by each WEBS Index Series in connection with the issuance of a Creation Unit. The purchase transaction fee is not a sales charge. The purchase transaction fees listed are the fees expected to be imposed in connection with the purchase of Creation Units of a given WEBS Index Series. The basic purchase transaction fees for in-kind and cash purchases are the same no matter how many Creation Units of a given WEBS Index Series are being purchased pursuant to any one purchase order except in the case of the Malaysia (Free) WEBS Index Series where the amount shown reflects inclusion of a variable charge based on the total market value of one Creation Unit of the relevant WEBS Index Series. The variable charge represents stamp duty or "put through" fees imposed when securities are delivered in the local market. The charge for Malaysia is .30% of market value. The Fund may adjust such fees from time to time based upon actual experience. Cash purchases of Creation Units, when available, are also subject to an Additional Variable Charge, expressed as a percentage of the value of the Portfolio Deposit. The Fund will not ordinarily permit cash purchases. See "Purchase and Issuance of WEBS in Creation Units." (c) Paid to the Fund to offset transaction costs incurred by each WEBS Index Series in connection with the redemption of a Creation Unit. The redemption transaction fees listed are the fees expected to be imposed in connection with the redemption of Creation Units of a given WEBS Index Series. The basic redemption transaction fees are the same no matter how many Creation Units of a given WEBS Index Series are being redeemed pursuant to any one redemption request. The Fund may adjust such fees from time to time based upon actual experience. Cash redemptions of Creation Units, when available, are also subject to an Additional Variable Charge, expressed as a percentage of the value of the Creation Unit(s) being redeemed. The Fund does not ordinarily permit cash redemptions. See "Redemption of WEBS in Creation Units." (d) All payments by the Fund to the Distributor will be made pursuant to the Fund's Rule 12b-1 Plan at a rate set from time to time by the Board of Directors, provided that the annual rate may not exceed .25% of the Fund's average daily net assets. The Board of Directors has determined to limit the annual fee payable under the Rule 12b-1 Plan with respect to each WEBS Index Series so as not to exceed .20% of the average daily net assets of each WEBS Index Series until further notice. See "Management of the Fund -- Distributor." A long-term shareholder of a WEBS Index Series may pay more in total sales charges than the economic equivalent of the maximum front-end sales charges otherwise permitted by the rules of the National Association of Securities Dealers, Inc. In addition, the Distributor has entered into agreements whereby certain broker-dealers and/or their salespersons may receive a portion of the Rule 12b-1 fee to compensate them for their distribution of WEBS and/or for services provided to their shareholders or to the Fund. For additional information on these compensation arrangements, see "Investment Advisory, Management, Administrative and Distribution Services -- The Distributor" in the Statement of Additional Information. EXPLANATION OF TABLES A. Shareholder Transaction Expenses are charges that investors pay to buy or sell Creation Units of the Fund. The figures in the table are estimates and actual shareholder transaction expenses may vary from such estimates. See "Purchase and Issuance of WEBS in Creation Units" and "Redemption of WEBS in Creation Units" in this Prospectus and in the Statement of Additional Information for an explanation of how these charges apply. B. Annual Series Operating Expenses are based on actual expenses incurred by the Fund for the fiscal year ended August 31, 1997, as adjusted to reflect changes to the rates of Rule 12b-1 and administration fees that became effective on _______________, 1997. Actual expenses may vary and will be affected by, among other things, the levels of average net assets of a WEBS Index Series and the Fund. Management fees are paid to the Adviser to provide each WEBS Index Series with investment advisory, management and certain administrative services. "Other Expenses" include fees paid to the Administrator to provide the Fund with administrative and fund accounting services. From time to time, the Administrator may waive the administration fees otherwise payable to it or may reimburse the Fund for its operating expenses. Distribution fees are paid to the Distributor, to compensate the Distributor and/or reimburse it for certain expenses and for payments made to dealers and other persons providing distribution, marketing and shareholder services to the Fund. See "Management of the Fund" for additional information. 9 13 EXAMPLES OF EXPENSES (a) WEBS in less than Creation Units are not redeemable. The Fund redeems Creation Units principally on an in-kind basis for Deposit Securities. See "Redemption of WEBS in Creation Units" herein and in the Statement of Additional Information. If an investor were permitted to purchase and redeem less than a Creation Unit of WEBS on an in-kind basis, such investor would pay the following expenses on a $1,000 investment (payment with a deposit of Deposit Securities), assuming (1) a 5% annual return and (2) redemption (delivery of Deposit Securities), at the end of each indicated time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ($) ($) ($) ($) ------ ------- ------- -------- Australia WEBS Index Series.................................................. Austria WEBS Index Series.................................................... Belgium WEBS Index Series.................................................... Canada WEBS Index Series..................................................... France WEBS Index Series..................................................... Germany WEBS Index Series.................................................... Hong Kong WEBS Index Series.................................................. Italy WEBS Index Series...................................................... Japan WEBS Index Series...................................................... Malaysia (Free) WEBS Index Series............................................ Mexico (Free) WEBS Index Series.............................................. Netherlands WEBS Index Series................................................ Singapore (Free) WEBS Index Series........................................... Spain WEBS Index Series...................................................... Sweden WEBS Index Series..................................................... Switzerland WEBS Index Series................................................ United Kingdom WEBS Index Series.............................................
(b) Such an investor would pay the following expenses on the same investment, assuming no redemptions:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ($) ($) ($) ($) ------ ------- ------- -------- Australia WEBS Index Series.................................................. Austria WEBS Index Series.................................................... Belgium WEBS Index Series.................................................... Canada WEBS Index Series..................................................... France WEBS Index Series..................................................... Germany WEBS Index Series.................................................... Hong Kong WEBS Index Series.................................................. Italy WEBS Index Series...................................................... Japan WEBS Index Series...................................................... Malaysia (Free) WEBS Index Series............................................ Mexico (Free) WEBS Index Series.............................................. Netherlands WEBS Index Series................................................ Singapore (Free) WEBS Index Series........................................... Spain WEBS Index Series...................................................... Sweden WEBS Index Series..................................................... Switzerland WEBS Index Series................................................ United Kingdom WEBS Index Series.............................................
The examples above illustrate the estimated expenses associated with a $1,000 investment in a Creation Unit of WEBS on an in-kind basis over periods of 1, 3, 5 and 10 years, based on the expenses in the table and an assumed annual rate of return of 5%. The presentation of a $1,000 investment in a Creation Unit is for illustration purposes only, as WEBS may only be purchased from the Fund or redeemed by the Fund in Creation Units. Further, the return of 5% and estimated expenses are for ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED WEBS INDEX SERIES EXPENSES OR PERFORMANCE, BOTH OF WHICH MAY VARY. The expenses associated with a $1,000 investment in WEBS include a pro rata portion of shareholder transaction expenses associated with the purchase or sale of a Creation Unit, which would have been valued as of __________, 1997 at between $________ and $________ depending on the WEBS Index Series, assuming for this purpose that the net asset value of a Creation Unit was the same as the value of the Deposit Securities as of such date. See the second paragraph under "Summary of Fund Expenses." 10 14 FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) The following tables set forth certain information concerning the investment results of each WEBS Index Series. The financial highlights for the periods indicated have been audited by Ernst & Young LLP, independent auditors, whose current report on the financial statements and financial highlights of the Fund is incorporated by reference in the Statement of Additional Information. The tables should be read in conjunction with the financial statements and related notes incorporated by reference in the Statement of Additional Information. The financial data for each WEBS Index Series for the period ending August 31, 1996 is a part of previous financial statements audited by Ernst & Young LLP. Further information about the performance of the Fund is available in the annual report to shareholders, which may be obtained free of charge by calling the Distributor at 1-800-810-WEBS (9327).
Australia WEBS Index Austria WEBS Index Belgium WEBS Index Series Series Series For For For For Year Period* For Year Period* For Year Period* Ended Ended Ended Ended Ended Ended Aug. 31, Aug. 31, Aug. 31, Aug. 31, Aug. 31, Aug. 31, 1997 1996 1997 1996 1997 1996 ---- ---- ---- ---- ---- ---- Per Share Operating Performance Net asset value, beginning of period ........................................ -- $9.95(1) -- $10.91(1) -- $14.92(1) ------------------------------------------------------------------- Net Investment Income/(loss) (+)................... -- 0.10 -- 0.04 -- 0.40 Net realized and unrealized gain/(loss) on investments, foreign currency related transactions, and translation of other assets and liabilities denominated in foreign currencies..................................... -- 0.29 -- (0.41) -- 0.36 ------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from operations................................ -- 0.39 -- (0.37) -- 0.76 Less distributions Dividends from net investment income............... -- (0.08) -- (0.02) -- (0.54) Dividends from excess of net investment income..... -- (0.05) -- (0.01) -- (0.09) Distributions from net realized capital gains...... -- (0.02) -- (0.03) -- (0.06) Distributions from excess of net realized gains.... -- -- -- -- -- -- Return of capital.................................. -- (0.04) -- (0.08) -- -- -------------------------------------------------------------------- Total dividends and distributions.............. -- (0.19) -- (0.14) -- (0.69) -------------------------------------------------------------------- Net asset value, end of period..................... -- $10.15 -- $10.40 -- $14.99 -------------------------------------------------------------------- Total Investment Return (2)(4)......................... -- 3.88% -- (3.39)% -- 5.01% Ratios/Supplemental Data Net assets, end of period (in 000's)............... -- $12,177 -- $13,520 -- $1,800 Ratios of expenses to average net assets (3)(5).................................. -- 1.59% -- 1.56% -- 2.29% Ratios of net investment income/(loss) to average net assets (3)(5).............................. -- 2.18% -- 0.87% -- 5.67% Portfolio turnover (4)(6).......................... -- 8.84% -- 9.60% -- 6.25% Average commission rate paid....................... -- $0.0085 -- $0.2986 -- $0.4327
* For the period March 12, 1996 (commencement of operations) through August 31, 1996. ** Less than one cent per share. + Based on average shares outstanding throughout the periods. (1) Net asset value per share on March 12, 1996 (commencement of operations). (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized (4) Not Annualized (5) Includes voluntary waivers by the AMEX. If such waivers had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers (3)............................. -- 1.60% -- 1.57% -- 2.30% Ratios of net investment income/(loss) to average net assets before waivers (3).......... -- 2.17% -- 0.86% -- 5.66% (6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
Canada WEBS Index France WEBS Index Germany WEBS Index Series Series Series For For For For Year Period* For Year Period* For Year Period* Ended Ended Ended Ended Ended Ended Aug. 31, Aug. 31, Aug. 31, Aug. 31, Aug. 31, Aug. 31, 1997 1996 1997 1996 1997 1996 ---- ---- ---- ---- ---- ---- Per Share Operating Performance Net asset value, beginning of period ........................................ -- $10.17(1) -- $12.42(1) -- $13.23(1) ----------------------------------------------------------------------- Net Investment Income/(loss) (+)................... -- 0.04 -- 0.17 -- 0.06 Net realized and unrealized gain/(loss) on investments, foreign currency related transactions, and translation of other assets and liabilities denominated in foreign currencies..................................... -- 0.43 -- 0.45 -- 0.47 ----------------------------------------------------------------------- Net increase/(decrease) in net assets resulting from operations................................ -- 0.47 -- 0.62 -- 0.53 Less distributions Dividends from net investment income............... -- (0.03) -- (0.09) -- (0.03) Dividends from excess of net investment income..... -- (0.01) -- (0.01) -- (0.01) Distributions from net realized capital gains...... -- -- -- 0.00** -- -- Distributions from excess of net realized gains.... -- 0.00** -- -- -- (0.01) Return of capital.................................. -- 0.00** -- (0.21) -- (0.07) ----------------------------------------------------------------------- Total dividends and distributions.............. -- (0.04) -- (0.31) -- (0.12) ----------------------------------------------------------------------- Net asset value, end of period..................... -- $10.60 -- $12.73 -- $13.64 ----------------------------------------------------------------------- Total Investment Return (2)(4)......................... -- 4.63% -- 4.95% -- 4.00% Ratios/Supplemental Data Net assets, end of period (in 000's)............... -- $13,776 -- $22,930 -- $28,664 Ratios of expenses to average net assets (3)(5).... -- 1.44% -- 1.84% -- 1.68% Ratios of net investment income/(loss) to average net assets (3)(5).............................. -- 0.79% -- 2.72% -- 1.00% Portfolio turnover (4)(6).......................... -- 0.00% -- 0.00% -- 0.00% Average commission rate paid....................... -- -- -- $0.3956 -- --
* For the period March 12, 1996 (commencement of operations) through August 31, 1996. ** Less than one cent per share. + Based on average shares outstanding throughout the periods. (1) Net asset value per share on March 12, 1996 (commencement of operations). (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized (4) Not Annualized (5) Includes voluntary waivers by the AMEX. If such waivers had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers (3)............................. -- 1.45% -- 1.85% -- 1.69% Ratios of net investment income/(loss) to average net assets before waivers (3).......... -- 0.78% -- 2.71% -- 0.99% (6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
Hong Kong WEBS Index Italy WEBS Index Japan WEBS Index Series Series Series For For For Year Period* For Year Period* For Ended Ended Ended Ended For Year Period* Aug. 31, Aug. 31, Aug. 31, Aug. 31, Ended Aug. Ended Aug. 1997 1996 1997 1996 31, 1997 31, 1996 ---- ---- ---- ---- -------- -------- Per Share Operating Performance Net asset value, beginning of period ........................................ -- $12.83(1) -- $13.62(1) -- $14.79(1) ---------------------------------------------------------------------- Net Investment Income/(loss) (+)................... -- 0.15 -- 0.25 -- (0.07) Net realized and unrealized gain/(loss) on investments, foreign currency related transactions, and translation of other assets and liabilities denominated in foreign currencies............................. -- 0.27 -- 0.31 -- (0.39) ------------------------------------------------------------------------ Net increase/(decrease) in net assets resulting from operations................... -- 0.42 -- 0.56 -- (0.46) Less distributions Dividends from net investment income............... -- (0.13) -- (0.14) -- -- Dividends from excess of net investment income..... -- (0.02) -- (0.03) -- -- Distributions from net realized capital gains...... -- (0.01) -- (0.14) -- -- Distributions from excess of net realized gains.... -- -- -- -- -- -- Return of capital.................................. -- (0.04) -- (0.08) -- -- ---------------------------------------------------------------------- Total dividends and distributions.............. -- (0.20) -- (0.39) -- -- ---------------------------------------------------------------------- Net asset value, end of period..................... -- $13.05 -- $13.79 -- 14.33 ---------------------------------------------------------------------- Total Investment Return (2)(4)......................... -- 3.22% -- 4.11% -- (3.11)% Ratios/Supplemental Data Net assets, end of period (in 000's)............... -- $7,845 -- $35,170 -- $103,164 Ratios of expenses to average net assets (3)(5).... -- 1.52% -- 1.43% -- 1.37% Ratios of net investment income/(loss) to average net assets (3)(5).............................. -- 2.37% -- 3.69% -- (1.01)% Portfolio turnover (4)(6).......................... -- 0.00% -- 19.80% -- 21.54% Average commission rate paid....................... -- $0.0007 -- $0.0046 -- $0.0152
* For the period March 12, 1996 (commencement of operations) through August 31, 1996. ** Less than one cent per share. + Based on average shares outstanding throughout the periods. (1) Net asset value per share on March 12, 1996 (commencement of operations). (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized (4) Not Annualized (5) Includes voluntary waivers by the AMEX. If such waivers had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers (3)............................. -- 1.53% -- 1.44% -- 1.38% Ratios of net investment income/(loss) to average net assets before waivers (3).......... -- 2.36% -- 3.68% -- (1.02)% (6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
11 15
Malaysia (Free) WEBS Mexico (Free) WEBS Index Series Index Series --------------------------- ---------------------------- For For For Year Period* For Year Period* Ended Ended Ended Ended Aug. 31, Aug. 31, Aug. 31, Aug. 31, 1997 1996 1997 1996 ---- ---- ---- ---- Per Share Operating Performance Net asset value, beginning of period................... -- $13.24(1) -- $9.95(1) ------------- -------------- -------------- -------------- Net Investment Income/(loss) (+)....................... -- (0.02) -- 0.00** Net realized and unrealized gain/(loss) on investments, foreign currency related transactions, and translation of other assets and liabilities denominated in foreign currencies.................. -- 0.59 -- 1.59 ------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations...................................... -- 0.57 -- 1.59 Less distributions Dividends from net investment income................... -- -- -- -- Dividends from excess of net investment income.................................. -- -- -- (0.01) Distributions from net realized capital gains...................................... -- -- -- -- Distributions from excess of net realized gains..................................... -- -- -- -- Return of capital...................................... -- (0.01) -- (0.01) ------------- -------------- -------------- -------------- Total dividends and distributions.................. -- (0.01) -- (0.02) ------------- -------------- -------------- -------------- Net asset value, end of period......................... -- $13.80 -- $11.52 ------------- -------------- -------------- -------------- Total Investment Return (2)(4)............................. -- 4.28% -- 15.93% Ratios/Supplemental Data Net assets, end of period (in 000's)................... -- $9,318 -- $5,759 Ratios of expenses to average net assets (3)(5)...................................... -- 1.58% -- 1.75% Ratios of net investment income/(loss) to average net assets (3)(5)...................................... -- (0.35%) -- 0.01% Portfolio turnover (4)(6).............................. -- 0.00% -- 0.00% Average commission rate paid........................... -- -- -- -- * For the period March 12, 1996 (commencement of operations) through August 31, 1996 ** Less than one cent per share. + Based on average shares outstanding throughout the periods. (1) Net asset value per share on March 12, 1996 (commencement of operations). (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized (4) Not Annualized (5) Includes voluntary waivers by the AMEX. If such waivers had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to -- 1.59% -- 1.76% average net assets before waivers (3)............................................ Ratios of net investment income/(loss) -- (0.36)% -- 0.00% to average net assets before waivers (3).................................................... (6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
Netherlands WEBS Singapore (Free) WEBS Index Series Index Series ------------------------------- --------------------------------- For For For Year Period* For Year Period* Ended Ended Ended Ended Aug. 31, Aug. 31, Aug. 31, Aug. 31, 1997 1996 1997 1996 ---- ---- ---- ---- Per Share Operating Performance Net asset value, beginning of period.................. -- $15.91(1) -- $12.24(1) ------------- -------------- -------------- -------------- Net Investment Income/(loss) (+)...................... -- 0.24 -- 0.04 Net realized and unrealized gain/(loss) on investments, foreign currency related transactions, and translation of other assets and liabilities denominated in foreign currencies................. -- 1.54 -- (0.86) ------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations..................................... -- 1.78 -- (0.82) Less distributions Dividends from net investment income.................. -- (0.14) -- (0.03) Dividends from excess of net investment income................................. -- (0.01) -- (0.01) Distributions from net realized capital gains..................................... -- (0.08) -- -- Distributions from excess of net realized gains.................................... -- (0.01) -- -- Return of capital..................................... -- (0.09) -- -- ------------- -------------- -------------- -------------- Total dividends and distributions................. -- (0.33) -- (0.04) ------------- -------------- -------------- -------------- Net asset value, end of period........................ -- $17.36 -- $11.38 ------------- -------------- -------------- -------------- Total Investment Return (2)(4)............................ -- 11.19% -- (6.73)% Ratios/Supplemental Data Net assets, end of period (in 000's).................. -- $6,962 -- $9,107 Ratios of expenses to average net assets (3)(5)..................................... -- 1.63% -- 1.56% Ratios of net investment income/(loss) to average net assets (3)(5)..................................... -- 2.93% -- 0.69% Portfolio turnover (4)(6)............................. -- 4.32% -- 26.29% Average commission rate paid.......................... -- $0.0651 -- $0.0118 * For the period March 12, 1996 (commencement of operations) through August 31, 1996 ** Less than one cent per share. + Based on average shares outstanding throughout the periods. (1) Net asset value per share on March 12, 1996 (commencement of operations). (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized (4) Not Annualized (5) Includes voluntary waivers by the AMEX. If such waivers had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to -- 1.64% -- 1.57% average net assets before waivers (3)............................................ Ratios of net investment income/(loss) -- 2.92% -- 0.68% to average net assets before waivers (3).................................................... (6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
Spain WEBS Index Sweden WEBS Index Series Series ----------------------------- ------------------------------ For For For Year Period* For Year Period* Ended Ended Ended Ended Aug. 31, Aug. 31, Aug. 31, Aug. 31, 1997 1996 1997 1996 ---- ---- ---- ---- Per Share Operating Performance Net asset value, beginning of period................... -- $13.28(1) -- $13.22(1) -------------- -------------- -------------- -------------- Net Investment Income/(loss) (+)....................... -- 0.14 -- 0.20 Net realized and unrealized gain/(loss) on investments, foreign currency related transactions, and translation of other assets and liabilities denominated in foreign currencies.................. -- 0.98 -- 1.67 -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations...................................... -- 1.12 -- 1.87 Less distributions Dividends from net investment income................... -- (0.18) -- (0.23) Dividends from excess of net investment income.................................. -- -- -- (0.07) Distributions from net realized capital gains...................................... -- (0.13) -- (0.12) Distributions from excess of net realized gains..................................... -- -- -- -- Return of capital...................................... -- -- -- -- -------------- -------------- -------------- -------------- Total dividends and distributions.................. -- (0.31) -- (0.42) -------------- -------------- -------------- -------------- Net asset value, end of period......................... -- $14.09 -- $14.67 -------------- -------------- -------------- -------------- Total Investment Return (2)(4)............................. -- 8.45% -- 14.13% Ratios/Supplemental Data Net assets, end of period (in 000's)................... -- $4,227 -- $4,400 Ratios of expenses to average net assets (3)(5)...................................... -- 1.76% -- 1.75% Ratios of net investment income/(loss) to average net assets (3)(5)...................................... -- 2.04% -- 3.05% Portfolio turnover (4)(6).............................. -- 4.73% -- 5.87% Average commission rate paid........................... -- $0.0723 -- $0.0561 * For the period March 12, 1996 (commencement of operations) through August 31, 1996 ** Less than one cent per share. + Based on average shares outstanding throughout the periods. (1) Net asset value per share on March 12, 1996 (commencement of operations). (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized (4) Not Annualized (5) Includes voluntary waivers by the AMEX. If such waivers had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to -- 1.77% -- 1.76% average net assets before waivers (3)........................................... Ratios of net investment income/(loss) -- 2.03% -- 3.04% to average net assets before waivers (3).................................................... (6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
Switzerland WEBS United Kingdom WEBS Index Series Index Series -------------------------------- ---------------------------------- For For Year Period* For Year For Ended Ended Ended Period* Aug. 31, Aug. 31, Aug. 31, Ended Aug. 1997 1996 1997 31, 1996 ---- ---- ---- -------- Per Share Operating Performance Net asset value, beginning of period................... -- $12.07(1) -- $12.14(1) -------------- -------------- -------------- --------------- Net Investment Income/(loss) (+)....................... -- 0.08 -- 0.21 Net realized and unrealized gain/(loss) on investments, foreign currency related transactions, and translation of other assets and liabilities denominated in foreign currencies.................. -- 0.24 -- 1.06 -------------- -------------- -------------- --------------- Net increase/(decrease) in net assets resulting from operations...................................... -- 0.32 -- 1.27 Less distributions Dividends from net investment income................... -- (0.10) -- (0.20) Dividends from excess of net investment income.................................. -- -- -- (0.03) Distributions from net realized capital gains...................................... -- -- -- 0.00** Distributions from excess of net realized gains..................................... -- -- -- -- Return of capital...................................... -- -- -- (0.03) -------------- -------------- -------------- --------------- Total dividends and distributions.................. -- (0.10) -- (0.26) -------------- -------------- -------------- --------------- Net asset value, end of period......................... -- $12.29 -- $13.15 -------------- -------------- -------------- --------------- Total Investment Return (2)(4)............................. -- 2.60% -- 10.41% Ratios/Supplemental Data Net assets, end of period (in 000's)................... -- $6,158 -- $15,790 Ratios of expenses to average net assets (3)(5)...................................... -- 1.82% -- 1.61% Ratios of net investment income/(loss) to average net assets (3)(5)...................................... -- 1.39% -- 3.62% Portfolio turnover (4)(6).............................. -- 17.06% -- 0.00% Average commission rate paid........................... -- $0.7852 -- -- * For the period March 12, 1996 (commencement of operations) through August 31, 1996 ** Less than one cent per share. + Based on average shares outstanding throughout the periods. (1) Net asset value per share on March 12, 1996 (commencement of operations). (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized (4) Not Annualized (5) Includes voluntary waivers by the AMEX. If such waivers had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to -- 1.83% -- 1.62% average net assets before waivers (3)............................................ Ratios of net investment income/(loss) -- 1.38% -- 3.61% to average net assets before waivers (3).................................................... (6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
12 16 THE FUND AND ITS WEBS INDEX SERIES WEBS INDEX FUND, INC. AND ITS INVESTMENT OBJECTIVE The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended, (the "1940 Act"), organized as a series fund. Seventeen WEBS Index Series of the Fund currently issue shares: the Australia WEBS Index Series, the Austria WEBS Index Series, the Belgium WEBS Index Series, the Canada WEBS Index Series, the France WEBS Index Series, the Germany WEBS Index Series, the Hong Kong WEBS Index Series, the Italy WEBS Index Series, the Japan WEBS Index Series, the Malaysia (Free) WEBS Index Series, the Mexico (Free) WEBS Index Series, the Netherlands WEBS Index Series, the Singapore (Free) WEBS Index Series, the Spain WEBS Index Series, the Sweden WEBS Index Series, the Switzerland WEBS Index Series and the United Kingdom WEBS Index Series. Each of the Canada WEBS Index Series, the Japan WEBS Index Series and the United Kingdom WEBS Index Series is classified as a "diversified" investment company under the 1940 Act. Each of the other WEBS Index Series offered hereby is classified as a "non-diversified" investment company under the 1940 Act. The Board of Directors of the Fund may authorize additional WEBS Index Series in the future. The investment objective of each of the initial seventeen WEBS Index Series is to seek to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the aggregate in particular markets, as represented by a particular foreign equity securities index. Each of the WEBS Index Series utilizes an MSCI Index that reflects the reinvestment of net dividends as its benchmark index (except for the MSCI Mexico (Free) Index utilized by the Mexico (Free) WEBS Index Series, which reflects the reinvestment of gross dividends). See "The Benchmark MSCI Indices Utilized by the WEBS Index Series" below. Each MSCI Index is a market capital weighted index of equity securities traded on the principal securities exchange(s) and, in some cases, the over-the-counter market, of the respective country. The investment objective of each WEBS Index Series is a fundamental policy and cannot be changed without the approval of the holders of a majority of the respective WEBS Index Series' voting securities (as defined in the 1940 Act). There can be no assurance that the investment objective of any WEBS Index Series will be achieved. In this regard, it should be noted that the benchmark indices are unmanaged and bear no management, administration, distribution, transaction or other expenses or taxes, while each WEBS Index Series must bear these expenses and is also subject to a number of limitations on its investment flexibility. The WEBS Index Series utilize a portfolio sampling technique and do not invest in all of the securities in their respective MSCI Indices. As a result, a WEBS Index Series' performance will differ from that of the benchmark MSCI Index to a greater extent than if it invested in all of the securities in the benchmark. In addition, the MSCI Indices assume that dividends are received throughout a year ("dividend smoothing") while the WEBS Index Series record them on the ex date and this can cause the performance of a WEBS Index Series to diverge from that of its benchmark, particularly over periods of less than a year. See "Implementation of Policies." In addition, certain WEBS Index Series are subject to foreign tax withholding at rates different than those assumed by the relevant benchmark index. See "The Benchmark MSCI Indices Utilized by the WEBS Index Series." Investing in WEBS of a WEBS Index Series involves special risks of investing in securities of the relevant foreign country. For a discussion of certain special considerations and risk factors relevant to an investment in WEBS, see "Investment Considerations and Risks." WORLD EQUITY BENCHMARK SHARES: "WEBS" The shares of common stock, par value $.001 per share, of each WEBS Index Series are referred to herein as "World Equity Benchmark Shares" or "WEBS." EXCEPT WHEN AGGREGATED IN CREATION UNITS, WEBS ARE NOT REDEEMABLE SECURITIES OF THE FUND. The WEBS are listed for trading on the American Stock Exchange, Inc. (the "AMEX"). The non-redeemable WEBS trade on the AMEX during the day at prices that differ to some degree from their net asset value. See "Determination of Net Asset Value," "Exchange Listing and Trading of WEBS," "Investment Considerations and Risks" and "Redemption of WEBS in Creation Units." WHO SHOULD INVEST? The WEBS of each WEBS Index Series of the Fund are designed for investors who seek a relatively low-cost "passive" approach for investing in a portfolio of equity securities of companies located in the country of the subject MSCI Index. Unlike equity mutual funds that seek to "beat" market averages with unpredictable results, the WEBS Index Series seek to provide investment results that correspond generally to the price and yield performance of their respective benchmark indices. It is generally recognized that international diversification of an investment portfolio reduces risk. Many of the foreign equity securities held by the WEBS Index Series are difficult to purchase or hold, or are, as a practical matter, not available to retail investors. The Fund offers investors a convenient way to obtain indexed exposure to the equity markets of specific foreign countries. It should be noted, however, that the prices of WEBS of a particular WEBS Index Series may be volatile, and investors should be able to tolerate sudden, sometimes substantial fluctuations in the value of their investment. No assurance can be given that any WEBS Index Series will achieve its stated objective and shareholders should understand that they will be exposed to the risks inherent in international equity investing. Because of the risks associated with international equity investments, a WEBS Index Series is intended to be a long-term investment vehicle and is not designed to provide investors with a means of speculating on short-term market movements. See "Investment Considerations and Risks." INVESTMENT POLICIES The Fund is not managed according to traditional methods of "active" investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment. Instead, each WEBS Index Series of the Fund, utilizing a "passive" or indexing investment approach, attempts to approximate the investment performance of its benchmark index by investing in a portfolio of stocks selected through the use of quantitative analytical procedures. Stocks are selected for inclusion in a WEBS Index Series in order to 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 subject MSCI Index taken in its entirety. WEBS Index Series generally will not hold all of the stocks in their respective benchmark indices but will typically hold a representative subset of such stocks selected through the Adviser's application of portfolio sampling techniques. However, each WEBS Index Series reserves the right to invest in all of the stocks in its benchmark index and where a WEBS Index Series benchmark index is comprised of relatively few securities it may do so on a regular basis. In addition, a WEBS Index Series may hold stocks that are not in the relevant MSCI Index if the Adviser determines this to be appropriate in light of the WEBS Index Series' investment objective and relevant investment constraints. Each WEBS Index Series has the policy to remain as fully invested as practicable in a pool of equity securities the performance of which will approximate the performance of the subject MSCI Index taken in its entirety. A WEBS Index Series will 13 17 normally invest at least 95% of its total assets in stocks that are represented in the relevant MSCI Index, and will at all times invest at least 90% of its total assets in such stocks, except that in order to permit the Adviser additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and other regulatory requirements and to manage future corporate actions and index changes in the smaller markets, each of the Austria, Belgium, Hong Kong, Mexico (Free), Netherlands, Spain, Sweden and Switzerland WEBS Index Series will at all times invest at least 80% of its total assets in such stocks and at least 10% of the remaining 20% of its total assets in such stocks or in stocks included in the relevant market, but not in the relevant MSCI Index. A WEBS Index Series may invest its remaining assets in Short-Term Investments (defined below), in stocks that are in the relevant market but not the relevant MSCI Index, and/or in combinations of certain stock index futures contracts, options on such futures contracts, stock index options, stock index swaps, cash, local currency and forward currency exchange contracts that are intended to provide the WEBS Index Series with exposure to such stocks (the WEBS Index Series will not use such instruments to leverage their investment portfolios). "Short-Term Investments" are short-term high quality debt securities that include: obligations of the United States Government and its agencies or instrumentalities; commercial paper (rated Prime-1 by Moody's Investors Services, Inc. or A-1 by Standard & Poor's Ratings Group), bank certificates of deposit and bankers' acceptances; repurchase agreements collateralized by the foregoing securities; participation interests in such securities; and shares of money market funds (subject to applicable limits under the 1940 Act). A WEBS Index Series will not invest in cash reserves or Short-Term Investments or utilize futures contracts, options or swap agreements as part of a temporary defensive strategy to protect against potential stock market declines. A WEBS Index Series may enter into forward currency exchange contracts in order to facilitate settlements in local markets, in connection with positions in stock index futures and to protect against currency exposure in connection with its distributions to shareholders, but not as part of a defensive strategy to protect against fluctuations in exchange rates. See "Implementation of Policies" for a description of these and other investment practices of the Fund. Each WEBS Index Series has a policy to concentrate its investments in an industry or industries if, and to the extent that, its benchmark index concentrates in such industry or industries, except where the concentration of the relevant index is the result of a single stock. As a result of this policy, a WEBS Index Series will maintain at least 25% of the value of its assets in securities of issuers in each industry for which its benchmark index has a concentration of more than 25% (except where the concentration of the index is the result of a single stock). No WEBS Index Series will concentrate its investments otherwise. If the benchmark index for a WEBS Index Series has a concentration of more than 25% because of a single stock (i.e., if one stock in the benchmark index accounts for more than 25% of the index and it is the only stock in the index in its industry), the WEBS Index Series will invest less than 25% of its assets in such stock and will reallocate the excess to stocks in other industries. Changes in a WEBS Index Series' concentration (if any) and non-concentration would be made "passively" -- that is, any such changes would be made solely as a result of changes in the concentrations of the benchmark index's constituents. As of ________, 1997, as a result of this policy, the _______ WEBS Index Series concentrates in the ______ industry. Since the concentration of each WEBS Index Series is based on that of its benchmark index, changes in the market values of the WEBS Index Series' portfolio securities will not necessarily trigger changes in the portfolio of such WEBS Index Series. The concentration policy of each WEBS Index Series is a fundamental policy that may be changed only with shareholder approval. Each of the other investment policies of each WEBS Index Series is a nonfundamental policy that may be changed by the Board of Directors without shareholder approval. However, shareholders would be notified prior to any material change in these policies. See "Investment Limitations" herein and "Investment Policies and Restrictions" in the Statement of Additional Information for a listing of limitations on investment practices that may only be changed with shareholder approval. IMPLEMENTATION OF POLICIES A WEBS Index Series generally will not hold all of the issues that comprise the subject MSCI Index, due in part to the costs involved and, in certain instances, the potential illiquidity of certain securities. Instead, each WEBS Index Series will attempt to hold a representative sample of the securities in the MSCI Index, which will be selected by the Adviser utilizing quantitative analytical models in a technique known as "portfolio sampling." Under this technique, each stock is considered for inclusion in the WEBS Index Series based on its contribution to certain capitalization, industry and fundamental investment characteristics. The Adviser will seek to construct the portfolio of each WEBS Index Series so that, in the aggregate, its capitalization, industry and fundamental investment characteristics perform like those of the subject MSCI Index. Over time, the portfolio composition of a WEBS Index Series may be altered (or "rebalanced") to reflect changes in the characteristics of the subject MSCI Index or with a view to bringing the performance and characteristics of the WEBS Index Series more in line with that of the relevant MSCI Index. Such rebalancings will require the WEBS Index Series to incur transaction costs and other expenses. As noted above, each WEBS Index Series reserves the right to invest in all of the securities in the benchmark index, and WEBS Index Series with benchmark indices comprised of relatively few stocks may do so on a regular basis. DUE TO THE USE OF THIS PORTFOLIO SAMPLING TECHNIQUE AND THE OTHER FACTORS DISCUSSED HEREIN, A WEBS INDEX SERIES IS NOT EXPECTED TO TRACK ITS BENCHMARK INDEX WITH THE SAME DEGREE OF ACCURACY AS WOULD AN INVESTMENT VEHICLE THAT INVESTED IN EVERY COMPONENT SECURITY OF THE SUBJECT INDEX. The Adviser expects that, over time, the "expected tracking error" of a WEBS Index Series relative to the performance of its benchmark index will be less than 5% and that the tracking error will generally be greater for WEBS Index Series that have benchmark indices with fewer rather than greater numbers of component stocks. An expected tracking error of 5% means that there is a 68% probability that the net asset value of the WEBS Index Series will be within plus or minus 5% of the subject MSCI Index level after one year, without rebalancing the portfolio composition. A tracking error of 0% would indicate perfect tracking, which would be achieved when the net asset value of the WEBS Index Series increases or decreases in exact proportion to changes in its benchmark index. Factors such as expenses of the Fund, taxes, the need to comply with the diversification and other requirements of the Internal Revenue Code, the existence of uninvested assets in the portfolios (including cash and deferred organizational expenses), the fact that the MSCI Indices "smooth" dividend payments evenly over a year while the Fund records dividends on the ex date, and the fact that the MSCI Indicies utilized by certain WEBS Index Series assume a different foreign tax withholding rate than that applicable to such WEBS Index Series, may adversely impact the tracking of the performance of a WEBS Index Series to that of its benchmark index. The Adviser will monitor the tracking error of each WEBS Index Series on an ongoing basis and will seek to minimize tracking error to the maximum extent possible. See also the discussion of portfolio sampling in the preceding paragraph. There can be no assurance that any WEBS Index Series will achieve any particular level of tracking error relative to the performance of the relevant benchmark index. Semiannual and annual reports of the Fund disclose tracking error over the previous six month periods, and in the event that tracking error exceeds 5%, the Board will consider what action might be appropriate. 14 18 Although the policy of each WEBS Index Series of the Fund is to remain substantially fully invested in equity securities, a WEBS Index Series may also invest in combinations of certain stock index futures contracts, options on such futures contracts, stock index options, stock index swaps and cash and Short-Term Investments that are intended to provide the WEBS Index Series with exposure to such equity securities, and in cash, local currency, forward currency exchange contacts and certain Short-Term Investments that are not associated with related positions in stock index futures contracts, options on such futures contracts, stock index options or stock index swaps. Such investments may be made to invest uncommitted cash balances or, in limited circumstances, to assist in meeting shareholder redemptions of Creation Units of WEBS. A WEBS Index Series may purchase stock index futures contracts, options on such futures contracts and stock index options and may enter into stock index swaps to simulate full investment in the underlying index to a limited extent. This may be done to facilitate trading (e.g., to rapidly gain exposure to a market in anticipation of purchasing the underlying equities over time), to reduce transaction costs or because the Adviser has determined that the use of such instruments permits the WEBS Index Series to gain exposure to the underlying equities at a lower cost than by making direct investments in the cash market. While each of these instruments can be used to leverage an investment portfolio, no WEBS Index Series may use them to leverage its net assets. A WEBS Index Series may enter into foreign currency forward and foreign currency futures contracts to facilitate settlements in local markets, in connection with stock index futures positions, and to protect against currency exposure in connection with its distributions to shareholders, but may not enter into such contracts for speculative purposes or as a way of protecting against anticipated adverse changes in exchange rates between foreign currencies and the U.S. dollar. A foreign currency forward 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. The Fund may lend securities from the portfolio of a WEBS Index Series to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. Because the government securities or other assets that are pledged as collateral to the Fund in connection with these loans generate income, securities lending enables a WEBS Index Series to earn income that may partially offset the expenses of the WEBS Index Series, and thereby reduce the effect that expenses have on a WEBS Index Series' ability to provide investment results that correspond generally to the price and yield performance of its benchmark index. These loans may not exceed 33% of a WEBS Index Series' total assets. The documentation for these loans will provide that the WEBS Index Series will receive collateral equal to at least 100% of the current market value of the loaned securities, as marked to market each day that the net asset value of the WEBS Index Series is determined, consisting of government securities or other assets permitted by applicable regulations and interpretations. A WEBS Index Series will pay reasonable administrative and custodial fees in connection with the loan of securities. The WEBS Index Series will invest collateral in Short-Term Investments, and the WEBS Index Series will bear the risk of loss of the invested collateral. In addition, a WEBS Index Series will be exposed to the risk of loss should a borrower default on its obligation to return the borrowed securities. MSTC serves as Lending Agent of the Fund and, in such capacity, shares equally with the respective WEBS Index Series any net income earned on invested collateral. A WEBS Index Series' share of income from the loan collateral will be included in the WEBS Index Series' gross investment income. The Fund will comply with the conditions for securities lending established by the SEC staff. Although each WEBS Index Series generally seeks to invest for the long term, the WEBS Index Series retain the right to sell securities irrespective of how long they have been held. However, because of the "passive" investment management approach of the Fund, the portfolio turnover rate for each WEBS Index Series is expected to be under 50%, a generally lower turnover rate than for many other investment companies. A portfolio turnover rate of 50% would occur if one half of a WEBS Index Series' securities were sold within one year. Ordinarily, securities are sold by a WEBS Index Series only to reflect certain administrative changes in an Index (including mergers or changes in the composition of the Index) or to accommodate cash flows out of the WEBS Index Series while seeking to keep the performance of the WEBS Index Series in line with that of its benchmark index. In addition, securities may be sold from a WEBS Index Series in certain circumstances to ensure the WEBS Index Series' compliance with the diversification and other requirements of the Internal Revenue Code and with other requirements, which would tend to raise the portfolio turnover rate of such WEBS Index Series. Purchases and sales of securities in connection with such compliance will involve transaction costs which will be borne by the respective WEBS Index Series. A WEBS Index Series may borrow money from a bank up to a limit of 33% of the market value of its assets, but only for temporary or emergency purposes (e.g., to facilitate distributions to shareholders or to meet redemption requests (in connection with Creation Units of WEBS that the Fund agrees to redeem for cash) prior to the settlement of securities already sold or in the process of being sold by the WEBS Index Series). To the extent that a WEBS Index Series borrows money prior to receiving distributions on its portfolio securities or prior to selling securities in connection with a redemption, it may be leveraged; at such times, the WEBS Index Series may appreciate or depreciate in value more rapidly than its benchmark index. A WEBS Index Series will not make cash purchases of securities when the amount of money borrowed exceeds 5% of the market value of its total assets. INVESTMENT LIMITATIONS Each WEBS Index Series of the Fund intends to observe certain limitations on its investment practices. Specifically, a WEBS Index Series may not: (i) lend any funds or other assets except through the purchase of all or a portion of an issue of securities or obligations of the type in which it is permitted to invest (including participation interests in such securities or obligations) and except that a WEBS Index Series may lend its portfolio securities in an amount not to exceed 33% of the value of its total assets; (ii) issue senior securities or borrow money, except borrowings from banks for temporary or emergency purposes in an amount up to 33% of the value of the WEBS Index Series' total assets (including the amount borrowed), valued at the lesser of cost or market, less liabilities (not including the amount borrowed) valued at the time the borrowing is made, and the WEBS Index Series will not purchase securities while borrowings in excess of 5% of the WEBS Index Series' total assets are outstanding, provided, that for purposes of this restriction, short-term credits necessary for the clearance of transactions are not considered borrowings; (iii) pledge, hypothecate, mortgage or otherwise encumber its assets, except to secure permitted borrowings; or 15 19 (iv) purchase a security (other than obligations of the United States Government, its agencies or instrumentalities) if as a result 25% or more of its total assets would be invested in a single issuer. Except with regard to a WEBS Index Series' borrowing policy and illiquid securities policy, all percentage limitations apply immediately after a purchase or initial investment, and any subsequent change in any applicable percentage resulting from market fluctuations or other changes in total or net assets does not require elimination of any security from the WEBS Index Series' portfolio. The investment limitations described in (i) through (iv) above and the preceding paragraph, and certain additional limitations described in the Statement of Additional Information, may be changed with respect to a WEBS Index Series only with the approval of the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of such WEBS Index Series. THE BENCHMARK MSCI INDICES UTILIZED BY THE WEBS INDEX SERIES Each WEBS Index Series uses the corresponding MSCI Index listed below as its benchmark (the Australia WEBS Index Series uses the MSCI Australia Index, etc.). MSCI publishes several versions of each stock index that it compiles. With the exception of the MSCI Mexico (Free) Index, the MSCI Indices used by WEBS Index Series as benchmarks reflect the reinvestment of net dividends. "Net dividends" means dividends after reduction for taxes withheld at source at the rate applicable to holders of the underlying stocks that are resident in Luxembourg. Such withholding rate currently differs from that applicable to the Australia, Austria and Germany WEBS Index Series. So-called "un-franked" dividends from Australian companies are withheld at a 30% rate to Luxembourg residents and a 15% rate to the Australia WEBS Index Series (there is no difference in the treatment of "franked" dividends). Austrian companies impose a 15% dividend withholding on Luxembourg residents and an 11% rate on the Austria WEBS Index Series. German companies impose a 15% dividend withholding on Luxembourg residents and a 10% rate on the Germany WEBS Index Series. The Mexico (Free) WEBS Index Series' benchmark index, the MSCI Mexico (Free) Index, reflects the reinvestment of gross dividends. "Gross dividends" means dividends before reduction for taxes withheld at source. Mexican companies do not withhold tax to U.S. investors. The stocks included in an MSCI Index are chosen by Morgan Stanley Capital International on a statistical basis. Each stock in an MSCI Index is weighted according to its market value as a percentage of the total market value of all stocks in the Index. (A stock's market value equals the number of shares outstanding times the most recent price of the security.) The inclusion of a stock in an MSCI Index in no way implies that MSCI believes the stock to be an attractive investment. In General The Indices were founded in 1969 by Capital International S.A. as the first international performance benchmarks constructed to facilitate accurate comparison of world markets. Morgan Stanley acquired rights to the Indices in 1986. The MSCI Indices have covered the world's developed markets since 1969, and in 1988, MSCI commenced coverage of the emerging markets. Although local stock exchanges have traditionally calculated their own indices, these are generally not comparable with one another, due to differences in the representation of the local market, mathematical formulas, base dates and methods of adjusting for capital changes. MSCI applies the same criteria and calculation methodology across all markets for all indices, developed and emerging. MSCI Indices are notable for the depth and breadth of their coverage. MSCI generally seeks to have 60% of the capitalization of a country's stock market reflected in the MSCI Index for such country. Thus, the MSCI Indices balance the inclusiveness of an "all share" index against the replicability of a "blue chip" index. Weighting All single-country MSCI Indices are market capitalization weighted, i.e., companies are included in the indices at their full market value (total number of shares issued and paid up, multiplied by price). MSCI believes full market capitalization weighting is preferable to other weighting schemes for both theoretical and practical reasons. MSCI calculates two indices in some countries in order to address the issue of restrictions on foreign ownership in such countries. The additional indices are called "Free" indices, and they exclude companies and share classes not purchasable by foreigners. Free indices are currently calculated for China, Indonesia, Malaysia, Mexico, the Philippines, Singapore and Thailand, and for those regional and international indices which include such markets. Indonesia, Malaysia, Singapore and Thailand currently impose foreign ownership limits on domestic stock, and when the foreign ownership limit is reached, foreigners may only trade with other foreigners, frequently at a price that is higher than the price available to domestic investors. The Free Indices for such countries are designed to reflect the actual investment conditions for international investors by using the foreign prices for stocks where relevant. The Free Indices for Indonesia, Malaysia, Singapore and Thailand will use foreign prices only when a foreign ownership limit is reached on a constituent stock and a determination is made that there is sufficient long-term liquidity at the foreign price. To compensate for the distorting inflation of a company's weight that may occur as a result of using the higher foreign prices for its shares, a compensating factor called a Free Market Capitalization Factor ("FMCF") may be applied to the total number of shares of a "foreign priced" constituent stock in the respective Index. A FMCF is the approximate ratio of domestic price to foreign price and is applied in an effort to align the free market capitalization weight with the domestic market capitalization weight. Market capitalization weighting, combined with a consistent target of 60% of market capitalization, helps ensure that each country's weight in regional and international indices approximates its weight in the total universe of developing and emerging markets. Maintaining consistent policy among MSCI developed and emerging market indices is also critical to the calculation of certain combined developed and emerging market indices published by MSCI. The MSCI Australia Index ("MSCI Australia"). The MSCI Australia consists primarily of stocks that are traded on the Australian Stock Exchange. On August 31, 1997, the MSCI Australia consisted of __ stocks. The three largest constituents of the MSCI Australia and the respective approximate percentages of the MSCI Australia represented thereby were ___________ (_____%), ____________ (____%) and _________ (____%) for a total of approximately _____% of the MSCI Australia. As of August 31, 1997, the ten largest constituents comprised approximately _____% of the market capitalization of the MSCI Australia. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Australia, and the approximate percentages of the MSCI Australia represented thereby, were ___________ (____%), _______ (____%) and ______ (____%), for a total of 16 20 approximately ____% of the MSCI Australia. The MSCI Australia represented approximately ____% of the aggregate capitalization of the Australian equity markets at August 31, 1997. The MSCI Austria Index ("MSCI Austria"). The MSCI Austria consists primarily of stocks that are traded on the Vienna Stock Exchange. On August 31, 1997, the MSCI Austria consisted of __ stocks. The three largest constituents of the MSCI Austria and the respective approximate percentages of the MSCI Austria represented thereby were _______ (____%), ______ (____%) and ________ (____%) for a total of approximately ____% of the MSCI Austria. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Austria. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Austria, and the approximate percentages of the MSCI Austria represented thereby, were ________ (____%), ________ (_____%) and ________ (____%), for a total of approximately ____% of the MSCI Austria. The MSCI Austria represented approximately ____% of the aggregate capitalization of the Austrian equity markets at August 31, 1997. The MSCI Belgium Index ("MSCI Belgium"). The MSCI Belgium consists primarily of stocks that are traded on the Brussels Stock Exchange. On August 31, 1997, the MSCI Belgium consisted of __ stocks. As of August 31, 1997, the three largest constituents of the MSCI Belgium and the respective approximate percentages of the MSCI Belgium represented thereby were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Belgium. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Belgium. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Belgium, and the approximate percentages of the MSCI Belgium represented thereby, were ________ (____%), ________ (____%) and _______ (____%), for a total of approximately ____% of the MSCI Belgium. The MSCI Belgium represented approximately ____% of the aggregate capitalization of the Belgian equity markets at August 31, 1997. The MSCI Canada Index ("MSCI Canada"). The MSCI Canada consists primarily of stocks that are traded on the Toronto Stock Exchange. On August 31, 1997, the MSCI Canada consisted of __ stocks. The three largest constituents of the MSCI Canada and the respective approximate percentages of the MSCI Canada represented thereby were ________ (____%), ________ (____%) and _______ (____%) for a total of approximately ____% of the MSCI Canada. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Canada. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Canada, and the approximate percentages of the MSCI Canada represented thereby, were _______ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Canada. The MSCI Canada represented approximately ____% of the aggregate capitalization of the Canadian equity markets at August 31, 1997. The MSCI France Index ("MSCI France"). The MSCI France consists primarily of stocks that are traded on the Paris Stock Exchange. On August 31, 1997, the MSCI France consisted of __ stocks. The three largest constituents of the MSCI France and the respective approximate percentages of the MSCI France represented thereby were _______ (____%), ________ (____%) and ________ (____%) for a total of approximately ____% of the MSCI France. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI France. As of August 31, 1997, the three most highly represented industry sectors in the MSCI France, and the approximate percentages of the MSCI France represented thereby, were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI France. The MSCI France represented approximately ____% of the aggregate capitalization of the French equity markets at August 31, 1997. The MSCI Germany Index ("MSCI Germany"). The MSCI Germany consists primarily of stocks that are traded on the Frankfurt Stock Exchange. On August 31, 1997, the MSCI Germany consisted of __ stocks. The three largest constituents of the MSCI Germany and the respective approximate percentages of the MSCI Germany represented thereby were _______ (____%), ________ (____%) and _______ (____%) for a total of approximately ____% of the MSCI Germany. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Germany. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Germany, and the approximate percentages of the MSCI Germany represented thereby, were ________ (____%), ________ (____%) and _______ (____%), for a total of approximately ____% of the MSCI Germany. The MSCI Germany represented approximately ____% of the aggregate capitalization of the German equity markets at August 31, 1997. The MSCI Hong Kong Index ("MSCI Hong Kong"). The MSCI Hong Kong consists primarily of stocks that are traded on The Stock Exchange of Hong Kong Limited (SEHK). On August 31, 1997, the MSCI Hong Kong consisted of __ stocks. The three largest constituents of the MSCI Hong Kong and the respective approximate percentages of the MSCI Hong Kong represented thereby were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Hong Kong. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Hong Kong. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Hong Kong, and the approximate percentages of the MSCI Hong Kong represented thereby, were ________ (____%), ________ (____%) and _______ (____%), for a total of approximately ____% of the MSCI Hong Kong. The MSCI Hong Kong represented approximately ____% of the aggregate capitalization of the Hong Kong equity markets at August 31, 1997. The MSCI Italy Index ("MSCI Italy"). The MSCI Italy consists primarily of stocks that are traded on the Milan Stock Exchange. On August 31, 1997, the MSCI Italy consisted of __ stocks. The three largest constituents of the MSCI Italy and the respective approximate percentages of the MSCI Italy represented thereby were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Italy. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Italy. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Italy, and the approximate percentages of the MSCI Italy represented thereby, were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Italy. The MSCI Italy represented approximately ____% of the aggregate capitalization of the Italian equity markets at August 31, 1997. The MSCI Japan Index ("MSCI Japan"). The MSCI Japan consists primarily of stocks that are traded on the Tokyo Stock Exchange. On August 31, 1997, the MSCI Japan consisted of ___ stocks. The three largest constituents of the MSCI Japan and the respective approximate percentages of the MSCI Japan represented thereby were ________ (____%), ________ (____%) and ________ (____%) for a total of approximately ____% of the MSCI Japan. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Japan. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Japan, and the approximate percentages of the MSCI Japan represented thereby, were 17 21 _______ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Japan. The MSCI Japan represented approximately ____% of the aggregate capitalization of the Japanese equity markets at August 31, 1997. The MSCI Malaysia (Free) Index ("MSCI Malaysia (Free)"). The MSCI Malaysia (Free) consists primarily of stocks that are traded on the Kuala Lumpur Stock Exchange. On August 31, 1997, the MSCI Malaysia (Free) consisted of __ stocks. As of August 31, 1997, the three largest constituents of the MSCI Malaysia (Free) and the respective approximate percentages of the MSCI Malaysia (Free) represented thereby were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Malaysia (Free). As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Malaysia (Free). As of August 31, 1997, the three most highly represented industry sectors in the MSCI Malaysia (Free), and the approximate percentages of the MSCI Malaysia (Free) represented thereby, were ________ (____%), ________ (____%) and _______ (____%), for a total of approximately ____% of the MSCI Malaysia (Free). The MSCI Malaysia (Free) represented approximately ____% of the aggregate capitalization of the Malaysian equity markets at August 31, 1997. The MSCI Mexico (Free) Index ("MSCI Mexico (Free)"). The MSCI Mexico (Free) consists primarily of stocks that are traded on the Mexican Stock Exchange. On August 31, 1997, the MSCI Mexico (Free) consisted of __ stocks. As of August 31, 1997, the three largest constituents of the MSCI Mexico (Free) and the respective approximate percentages of the MSCI Mexico (Free) represented thereby were ________ (____%), ________ (____%) and _________ (____%), for a total of approximately ____% of the MSCI Mexico (Free). As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Mexico (Free). As of August 31, 1997, the three most highly represented industry sectors in the MSCI Mexico (Free), and the approximate percentages of the MSCI Mexico (Free) represented thereby, were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Mexico (Free). The MSCI Mexico (Free) represented approximately ____% of the aggregate capitalization of the Mexican equity markets at August 31, 1997. The MSCI Netherlands Index ("MSCI Netherlands"). The MSCI Netherlands consists primarily of stocks that are traded on the Amsterdam Stock Exchange. On August 31, 1997, the MSCI Netherlands consisted of __ stocks. The three largest constituents of the MSCI Netherlands and the respective approximate percentages of the MSCI Netherlands represented thereby were Royal Dutch ________ (____%), ________ (____%) and ________ (____%) for a total of approximately ____% of the MSCI Netherlands. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Netherlands. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Netherlands, and the approximate percentages of the MSCI Netherlands represented thereby, were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Netherlands. The MSCI Netherlands represented approximately ____% of the aggregate capitalization of the Dutch equity markets at August 31, 1997. The MSCI Singapore (Free) Index ("MSCI Singapore (Free)"). The MSCI Singapore (Free) consists primarily of stocks that are traded on the Singapore Stock Exchange. On August 31, 1997, the MSCI Singapore (Free) consisted of __ stocks. The three largest constituents of the MSCI Singapore (Free) and the respective approximate percentages of the MSCI Singapore (Free) represented thereby were ________ (____%), _________ (____%) and _________ (____%) for a total of approximately ____% of the MSCI Singapore (Free). As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Singapore (Free). As of August 31, 1997, the three most highly represented industry sectors in the MSCI Singapore (Free), and the approximate percentages of the MSCI Singapore (Free) represented thereby, were _______ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Singapore (Free). The MSCI Singapore (Free) represented approximately ____% of the aggregate capitalization of the Singaporean equity markets at August 31, 1997. The MSCI Spain Index ("MSCI Spain"). The MSCI Spain consists primarily of stocks that are traded on the Madrid Stock Exchange. On August 31, 1997, the MSCI Spain consisted of __ stocks. The three largest constituents of the MSCI Spain and the respective approximate percentages of the MSCI Spain represented thereby were ________ (____%), ______ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Spain. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Spain. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Spain, and the approximate percentages of the MSCI Spain represented thereby, were ________ (____%),________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Spain. The MSCI Spain represented approximately ____% of the aggregate capitalization of the Spanish equity markets at August 31, 1997. The MSCI Sweden Index ("MSCI Sweden"). The MSCI Sweden consists primarily of stocks that are traded on the Stockholm Stock Exchange. On August 31, 1997, the MSCI Sweden consisted of __ stocks. As of August 31, 1997, the three largest constituents of the MSCI Sweden and the respective approximate percentages of the MSCI Sweden represented thereby were ________ (____%), _______ (____%), and ________ (____%), for a total of approximately ____% of the MSCI Sweden. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Sweden. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Sweden, and the approximate percentages of the MSCI Sweden represented thereby, were ________ (____%), ________ (____%) and _______ (____%), for a total of approximately ____% of the MSCI Sweden. The MSCI Sweden represented approximately ____% of the aggregate capitalization of the Swedish equity markets at August 31, 1997. The MSCI Switzerland Index ("MSCI Switzerland"). The MSCI Switzerland consists primarily of stocks that are traded on the Zurich Stock Exchange. On August 31, 1997, the MSCI Switzerland consisted of __ stocks. The three largest constituents of the MSCI Switzerland and the respective approximate percentages of the MSCI Switzerland represented thereby were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Switzerland. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI Switzerland. As of August 31, 1997, the three most highly represented industry sectors in the MSCI Switzerland, and the approximate percentages of the MSCI Switzerland represented thereby, were ________ (____%), _______ (____%) and ________ (____%), for a total of approximately ____% of the MSCI Switzerland. The MSCI Switzerland represented approximately ____% of the aggregate capitalization of the Swiss equity markets at August 31, 1997. The MSCI United Kingdom Index ("MSCI UK"). The MSCI UK consists primarily of stocks that are traded on the London Stock Exchange. On August 31, 1997, the MSCI UK consisted of ___ stocks. The three largest constituents of the MSCI UK and 18 22 the respective approximate percentages of the MSCI UK represented thereby were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI UK. As of August 31, 1997, the ten largest constituents comprised approximately ____% of the market capitalization of the MSCI UK. As of August 31, 1997, the three most highly represented industry sectors in the MSCI UK, and the approximate percentages of the MSCI UK represented thereby, were ________ (____%), ________ (____%) and ________ (____%), for a total of approximately ____% of the MSCI UK. The MSCI UK represented approximately ____% of the aggregate capitalization of the United Kingdom equity markets at August 31, 1997. The graphs below present certain historical performance information, as calculated by MSCI, for the MSCI Indices that are the benchmark indices for each of the seventeen WEBS Index Series of the Fund. The MSCI Indices are unmanaged securities indices and do not bear transactional or operating costs and expenses, whereas the WEBS Index Series bear fees and expenses as described herein. See "Summary of Fund Expenses." Such fees and expenses reduce the return of each WEBS Index Series in comparison with its benchmark index. In addition, because each WEBS Index Series does not invest in all the securities in its benchmark index, the investment results do not necessarily correspond to those of its benchmark index. Moreover, the WEBS Index Series are subject to various limitations on their investment flexibility and these limits adversely affect their ability to meet their investment objective. See "Investment Policies" and "Implementation of Policies." The graphs measure total return based on the period's change in price, dividends paid on stocks in the index, and the effect of reinvesting dividends with adjustments for dividend withholding by foreign governments (except for the graph relating to the MSCI Mexico (Free), which reflects the reinvestment of dividends without adjustments for dividend withholding). The withholding tax rates applicable to the Australia, Austria and Germany WEBS Index Series vary from the rates utilized by MSCI in computing the benchmark indices for such WEBS Index Series. See the first paragraph of this section. The figures provided below for 1997 are for the period , 1996 to August 31, 1997. MSCI AUSTRALIA INDEX 1988 - 36.40% 1993 - 35.17% 1989 - 9.30% 1994 - 5.40% 1990 - (17.54%) 1995 - 11.19% 1991 - 33.64% 1996 - 1992 - (10.82%) 1997 - MSCI AUSTRIA INDEX 1988 - 0.57% 1993 - 28.09% 1989 - 103.91% 1994 - (6.28%) 1990 - 6.33% 1995 - 4.72% 1991 - (12.23%) 1996 - 1992 - (10.65%) 1997 - MSCI BELGIUM INDEX 1988 - 53.63% 1993 - 23.51% 1989 - 17.29% 1994 - 8.24% 1990 - (10.98%) 1995 - 25.88% 1991 - 13.77% 1996 - 1992 - (1.47%) 1997 - MSCI CANADA INDEX 1988 - 17.07% 1993 - 17.58% 1989 - 24.30% 1994 - (3.04%) 1990 - (13.00%) 1995 - 18.31% 1991 - 11.08% 1996 - 1992 - (12.15%) 1997 - MSCI FRANCE INDEX 1988 - 37.87% 1993 - 20.91% 1989 - 36.15% 1994 - (5.18%) 1990 - (13.83%) 1995 - 14.12% 1991 - 17.83% 1996 - 1992 - 2.81% 1997 - MSCI GERMANY INDEX 1988 - 20.60% 1993 - 35.64% 1989 - 46.26% 1994 - 4.66% 1990 - (9.36%) 1995 - 16.41% 1991 - 8.16% 1996 - 1992 - (10.27%) 1997 - MSCI HONG KONG INDEX 1988 - 28.12% 1993 - 116.70% 1989 - 8.39% 1994 - (28.90%) 1990 - 9.17% 1995 - 22.57% 1991 - 49.52% 1996 - 1992 - 32.29% 1997 - MSCI ITALY INDEX 1988 - 11.46% 1993 - 28.53% 1989 - 19.42% 1994 - 11.56% 1990 - (19.19%) 1995 - 1.05% 1991 - (1.82%) 1996 - 1992 - (22.22%) 1997 - 19 23 MSCI JAPAN INDEX 1988 - 35.39% 1993 - 25.48% 1989 - 1.71% 1994 - 21.44% 1990 - (36.10%) 1995 - 0.69% 1991 - 8.92% 1996 - 1992 - (21.45%) 1997 - MSCI MALAYSIA (FREE) INDEX 1988 - 26.54% 1993 - 110.00% 1989 - 55.76% 1994 - (19.94%) 1990 - (7.91%) 1995 - 5.16% 1991 - 4.95% 1996 - 1992 - 17.76% 1997 - MSCI MEXICO (FREE) INDEX 1988 - 71.98% 1993 - 49.35% 1989 - 89.20% 1994 - (40.55%) 1990 - 62.65% 1995 - (20.37%) 1991 - 126.04% 1996 - 1992 - 24.98% 1997 - MSCI NETHERLANDS INDEX 1988 - 14.19% 1993 - 35.28% 1989 - 35.79% 1994 - 11.70% 1990 - (3.19%) 1995 - 27.71% 1991 - 17.80% 1996 - 1992 - 2.30% 1997 - MSCI SINGAPORE (FREE) INDEX 1988 - 34.18% 1993 - 73.41% 1989 - 44.88% 1994 - 5.81% 1990 - (14.59%) 1995 - 12.19% 1991 - 43.61% 1996 - 1992 - 4.49% 1997 - MSCI SPAIN INDEX 1988 - 13.53% 1993 - 29.78% 1989 - 9.76% 1994 - (4.80)% 1990 - (13.85%) 1995 - 29.83% 1991 - 15.63% 1996 - 1992 - (21.87%) 1997 - MSCI SWEDEN INDEX 1988 - 48.33% 1993 - 36.99% 1989 - 31.79% 1994 - 18.34% 1990 - (20.99%) 1995 - 33.36% 1991 - 14.42% 1996 - 1992 - (14.41%) 1997 - MSCI SWITZERLAND INDEX 1988 - 6.18% 1993 - 45.79% 1989 - 26.21% 1994 - 3.54% 1990 - (6.23%) 1995 - 44.12% 1991 - 15.77% 1996 - 1992 - 17.23% 1997 - MSCI UNITED KINGDOM INDEX 1988 - 5.95% 1993 - 24.44% 1989 - 21.87% 1994 - (1.63%) 1990 - 10.29% 1995 - 21.27% 1991 - 16.02% 1996 - 1992 - (3.65%) 1997 - MANAGEMENT OF THE FUND Board of Directors. The Board has responsibility for the overall management of the Fund, including general supervision of the duties performed by the Adviser and other service providers. Additional information about the Board and the officers of the Fund appears in the Statement of Additional Information under the heading "Management of the Fund." Adviser. Barclays Global Fund Advisors is the Adviser to the Fund and, subject to the supervision of the Board of the Fund, is responsible for the investment management of each WEBS Index Series, which includes application of portfolio optimization techniques. The Adviser is located at 45 Fremont Street, San Francisco, California 94105. The Adviser is a California Corporation indirectly owned by Barclays Bank PLC and is registered as an investment adviser under the Investment Advisers Act of 1940. The Adviser and its parent, Barclays Global Investors, N.A., are responsible for managing or providing investment advice for assets aggregating in excess of $____ billion as of August 31, 1997. For its investment management services to each WEBS Index Series, the Adviser is paid management fees equal to each WEBS Index Series' allocable portion of: .27% per annum of the aggregate net assets of the Fund less than or equal to $1.7 billion, plus .15% per annum of the aggregate net assets of the Fund between $1.7 20 24 billion and $7 billion, plus .12% per annum of the aggregate net assets of the Fund between $7 billion and $10 billion, plus .08% per annum of the aggregate net assets of the Fund in excess of $10 billion. The management fees are accrued daily and paid by the Fund as soon as practical after the last day of each calendar quarter. From time to time, a WEBS Index Series, to the extent consistent with its investment objective, policies and restrictions, may invest in the securities of companies with which the Adviser has a lending relationship. Administrator. PFPC Inc. (the "Administrator"), an indirect wholly owned subsidiary of PNC Bank Corp., is the Administrator of the Fund, and is responsible for certain clerical, recordkeeping and bookkeeping services, except those performed by the Adviser, by MSTC in its capacity as Custodian, or by PNC Bank, N.A. in its capacity as Transfer Agent. The Administrator has no role in determining the investment policies of the Fund or which securities are to be purchased or sold by the Fund. For the administrative and fund accounting services the Administrator provides to the Fund, the Administrator is paid aggregate fees equal to each WEBS Index Series' allocable portion of: .22% per annum of the aggregate average daily net assets of the Fund up to $1.5 billion; plus .15% per annum of the aggregate average daily net assets of the Fund between $1.5 billion and $3 billion, plus .14% per annum of the aggregate average daily net assets of the Fund between $3 billion and $5 billion, plus .13% per annum of the aggregate average daily net assets of the Fund between $5 billion and $7.5 billion, plus .115% per annum of the aggregate average daily net assets of the Fund between $7.5 billion and $10 billion, plus .10% per annum of the aggregate average daily net assets of the Fund in excess of $10 billion (the "Standard Fee Schedule"). The Administrator pays Morgan Stanley Trust Company a fee of .05% of the average daily net assets of the Fund for sub-administration services as described under "Custodian, Lending Agent and Sub-Administrator" below. From time to time the Administrator may waive all or a portion of its fees. See "Investment Advisory, Management, Administrative and Distribution Services -- The Administrator" in the Statement of Additional Information. If the Administrator is terminated within the first three years of the Fund's operations, except if removed (i) for failing to substantially perform to the satisfaction of the Board its material obligations under the Agreement or (ii) in order to comply with federal or state law, the Fund shall pay any reasonable costs of time and material associated with the deconversion. Distributor. Funds Distributor, Inc. (the "Distributor") is the distributor of WEBS. Its address is 60 State Street, Suite 1300, Boston, MA 02109. Investor information can be obtained by calling 1-800-810-WEBS(9327). WEBS are sold by the Fund and distributed only in Creation Units, as described below under "Purchase and Issuance of WEBS in Creation Units." WEBS in less than Creation Units will not be distributed by the Distributor. The Distributor is a registered broker-dealer under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the National Association of Securities Dealers, Inc. (the "NASD"). The Fund has a distribution plan pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan"). Each WEBS Index Series operates the Rule 12b-1 Plan in accordance with its terms and the NASD Rules concerning maximum sales charges. Under the Rule 12b-1 Plan, the Distributor is paid an annual fee as compensation in connection with the offering and sale of shares of each WEBS Index Series. The fees to be paid to the Distributor under the Rule 12b-1 Plan are calculated and paid monthly with respect to each WEBS Index Series at a rate set from time to time by the Board of Directors, provided that the annual rate may not exceed .25% of the average daily net assets of such WEBS Index Series. The Board of Directors has determined to limit the annual fee payable under the 12b-1 Plan with respect to each WEBS Index Series so as not to exceed .20% of the average daily net assets of each WEBS Index Series until further notice. From time to time the Distributor may waive all or a portion of the fees. These fees may be used to cover the expenses of the Distributor primarily intended to result in the sale of shares of each WEBS Index Series including payments for any activities or expenses primarily intended to result in or required for the sale of the WEBS Index Series' shares, including promotional and marketing activities related to the sale of shares of the WEBS Index Series, expenses related to the preparation, printing and distribution of prospectuses and sales literature, certain communications to and with shareholders, advertisements, and payments made to representatives or others for selling shares of the WEBS Index Series or for providing ongoing distribution assistance, shareholder services and/or maintenance of shareholder accounts. The Distributor has entered into sales and investor services agreements with broker-dealers or other persons that are DTC Participants (as defined under "Book-Entry Only System" below) to provide distribution assistance, including broker-dealer and shareholder support and educational and promotional services. Under the terms of each sales and investor services agreement, the Distributor will pay such broker-dealers or other persons, out of 12b-1 fees received from the WEBS Index Series, at the annual rate of .08% of 1% of the average daily net asset value of WEBS held through DTC for the account of such DTC Participant. The Distributor may retain any amount of its fee that is not expended for the foregoing purposes. The amount of such fee is not dependent upon the distribution expenses actually incurred by the Distributor. The Distributor has no role in determining the investment policies of the Fund or which securities are to be purchased or sold by the Fund. See "Investment Advisory, Management, Administrative and Distribution Services" in the Statement of Additional Information. Custodian, Lending Agent and Sub-Administrator. Morgan Stanley Trust Company ("MSTC") serves as the Custodian for the cash and portfolio securities of each WEBS Index Series of the Fund, as Lending Agent for each WEBS Index Series and as Sub-Administrator. As Lending Agent, MSTC causes the delivery of loaned securities from the Fund to borrowers, arranges for the return of loaned securities to the Fund at the termination of the loans, requests deposit of collateral, monitors daily the value of the loaned securities and collateral, requests that borrowers add to the collateral when required by the loan agreements, and provides recordkeeping and accounting services necessary for the operation of the program. For its services as Lending Agent, the Fund will pay MSTC, in respect of each WEBS Index Series, 50% of the net investment income earned on the collateral for securities loaned. MSTC also provides certain sub-administrative services relating to the Fund pursuant to a Sub-Administration Agreement and receives a fee from the Administrator equal to .05% of the Fund's average daily net assets for providing such services. MSTC, as Custodian, Lending Agent and Sub-Administrator has no role in determining the investment policies of the Fund or which securities are to be purchased or sold by the Fund. The principal business address of MSTC is One Pierrepont Plaza, Brooklyn, New York 11201. Transfer Agent. PNC Bank, N.A. ("PNC"), an indirect wholly owned subsidiary of PNC Bank Corp., provides transfer agency services to the Fund. PNC, as transfer agent (the "Transfer Agent"), has no role in determining the investment policies of the Fund or which securities are to be purchased or sold by the Fund. The principal business address of PNC is Broad and Chestnut Streets, Philadelphia, Pennsylvania 19110. The Glass-Steagall Act and other applicable laws may limit the ability of a bank or other depositary institution to become an underwriter or distributor of securities. However, in the opinion of the Fund, these laws do not prohibit such depository institutions from providing services for investment companies such as the administrative, accounting and other services. In the event that a change in these laws prevented a bank from providing such services, it is expected that other services arrangements would be made and that shareholders would not be adversely affected. 21 25 In addition to the fees described above, the Fund is responsible for the payment of expenses that include, among other things, organizational expenses, compensation of the Directors of the Fund, reimbursement of out-of-pocket expenses incurred by the Administrator, exchange listing fees, brokerage and other costs (including costs incurred by a WEBS Index Series in connection with any rebalancing of its portfolio), legal and audit fees, and litigation and extraordinary expenses. EXCHANGE LISTING AND TRADING OF WEBS The WEBS of each WEBS Index Series have been listed for trading on the AMEX. WEBS trade on the AMEX at prices that differ to some degree from their net asset value. See "Investment Considerations and Risks" and "Determination of Net Asset Value." However, given that WEBS can be created or redeemed in Creation Unit aggregations, the Fund believes that large discounts or premiums to the net asset value of WEBS should not be sustainable. There can be no assurance that the requirements of the AMEX necessary to maintain the listing of WEBS will continue to be met or will remain unchanged or that an active trading market will develop or be maintained for the WEBS of any particular WEBS Index Series. The AMEX may remove the WEBS of a WEBS Index Series from listing if (1) following the initial twelve-month period beginning upon the commencement of trading of a WEBS Index Series, there are fewer than 50 beneficial holders of the WEBS of such WEBS Index Series for 30 or more consecutive trading days, (2) the value of the underlying index or portfolio of securities on which such WEBS Index Series is based is no longer calculated or available or (3) such other event occurs or condition exists that, in the opinion of the AMEX, makes further dealings on the AMEX inadvisable. In addition, the AMEX will remove the WEBS from listing and trading upon termination of the Fund. The AMEX disseminates during its trading day an indicative optimized portfolio value ("IOPV") for each WEBS Index Series. The IOPV on a per WEBS basis should not be viewed as a real time update of the net asset value per WEBS share of the Fund, which is calculated only once a day. See "Exchange Listing and Trading" in the Statement of Additional Information for additional details. INVESTMENT CONSIDERATIONS AND RISKS An investment in the WEBS of a WEBS Index Series involves risks similar to those of investing in a broadly-based portfolio of equity securities traded on exchanges in the relevant foreign securities market, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. Investing in WEBS generally involves certain risks and considerations not typically associated with investing in a fund that invests in the securities of U.S. issuers. These risks could include generally less liquid and less efficient securities markets; generally greater price volatility; exchange rate fluctuations and exchange controls; less publicly available information about issuers; the imposition of withholding or other taxes; restrictions on the expatriation of funds or other assets of a WEBS Index Series; higher transaction and custody costs; delays attendant in settlement procedures; difficulties in enforcing contractual obligations; lesser liquidity and the significantly smaller market capitalization of most non-U.S. securities markets; 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 and the risk of nationalization or expropriation of assets and risk of war. Certain WEBS Index Series' specific considerations are set forth in the Statement of Additional Information. Volatility of Foreign Equity Markets The U.S. dollar performance of foreign equity markets, particularly emerging markets, has generally been substantially more volatile than that of U.S. markets. For example, from August 1993-August 1997, the average price volatility of the Standard and Poor's 500 Index, a broad measure of the U.S. equity market, was ___%. In contrast, during the same period, the average price volatility of the respective MSCI Indices was as follows: the MSCI Australia (____%), the MSCI Austria (___%), the MSCI Belgium (____%), the MSCI Canada (____%), the MSCI France (____%), the MSCI Germany (____%), the MSCI Hong Kong (____%), the MSCI Italy (____%), the MSCI Japan (____%), the MSCI Malaysia (Free) (____%), the MSCI Mexico (Free) (____%), the MSCI Netherlands (____%), the MSCI Singapore (Free) (____%), the MSCI Spain (____%), the MSCI Sweden (____%), the MSCI Switzerland (____%), and the MSCI United Kingdom (____%). Short-term volatility in these markets can be significantly greater. Foreign Currency Fluctuations Because each WEBS Index Series' assets are generally invested in non-U.S. securities, and because a substantial portion of the revenues and income of each WEBS Index Series are received in a foreign currency, while WEBS Index Series dividends and other distributions are paid in U.S. dollars, the dollar value of a WEBS Index Series' net assets are adversely affected by reductions in the value of subject foreign currency relative to the dollar and are positively affected by increases in the value of such currency relative to the dollar. Also, government or monetary authorities have imposed and may in the future impose exchange controls that could adversely affect exchange rates. Any such currency fluctuations will affect the net asset value of a WEBS Index Series irrespective of the performance of its underlying portfolio. Other than to facilitate settlements in local markets or to protect against currency exposure in connection with its distributions to shareholders or borrowings, the Fund does not expect to engage in currency transactions for the purpose of hedging against the decline in value of any foreign currencies. Concentration and Lack of Diversification of Certain WEBS Index Series Each WEBS Index Series of the Fund (except for the Canada WEBS Index Series, the Japan WEBS Index Series and the United Kingdom WEBS Index Series) is classified as "non-diversified" for purposes of the 1940 Act, which means each of those WEBS Index Series is not limited by the 1940 Act with regard to the portion of its assets that may be invested in the securities of a single issuer. In addition, a number of WEBS Index Series concentrate their investments in particular industries. See "Investment Policies" herein. However, each WEBS Index Series, regardless of whether classified as 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 Internal Revenue Code, in order to relieve the WEBS Index Series of any liability for Federal income tax to the extent that its earnings are distributed to shareholders. See "Dividends and Capital Gains Distributions" and "Tax Matters" in this Prospectus. Compliance with the diversification requirements of the Internal Revenue Code severely limits the investment flexibility of certain WEBS Index Series and makes it less likely that such WEBS Index Series will meet their investment objectives. The stocks of particular issuers, or of issuers in particular industries, may dominate the benchmark indices of certain WEBS Index Series and, consequently, the investment portfolios of such WEBS Index Series, which may adversely affect the performance of such WEBS Index Series or subject such WEBS Index Series to greater price volatility than that experienced by more diversified investment companies. The WEBS of a WEBS Index Series may be more susceptible to any single economic, political or regulatory occurrence than the portfolio securities of an investment company that is more broadly invested than the subject WEBS Index Series in the equity securities of the relevant market. Information concerning the companies and industry sectors that represent the largest 22 26 components of the various benchmark indices is set forth above under "The Benchmark MSCI Indices Utilized by the WEBS Index Series." As indicated above, the WEBS have been listed for trading on the AMEX. There can be no assurance that active trading markets for the WEBS will develop or be maintained. The Distributor does not maintain a secondary market in WEBS. Trading in WEBS on the AMEX may be halted due to market conditions or for reasons that, in the view of the AMEX, make trading in WEBS inadvisable. In addition, trading in WEBS on the AMEX is subject to trading halts caused by extraordinary market volatility pursuant to AMEX "circuit breaker" rules that require trading in securities on the AMEX to be halted in the event of specified market moves. There can be no assurance that the requirements of the AMEX necessary to maintain the listing of any WEBS Index Series will continue to be met or will remain unchanged. See "Exchange Listing and Trading of WEBS." The net asset value of the WEBS of a WEBS Index Series fluctuate with changes in the market value of the portfolio securities of the WEBS Index Series and changes in the market rate of exchange between the U.S. dollar and the subject foreign currency. The market prices of WEBS fluctuate in accordance with changes in net asset value and supply and demand on the AMEX. The Fund cannot predict whether WEBS will trade below, at or above their net asset value. Price differences may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for WEBS will be closely related to, but not identical to, the same forces influencing the prices of the stocks of the subject MSCI Index trading individually or in the aggregate at any point in time. However, given that WEBS can be created and redeemed in Creation Unit aggregations (unlike shares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes at premiums to, their net asset value), the Fund believes that large discounts or premiums to the net asset value of WEBS should not be sustainable. Lending of Securities Although each WEBS Index Series receives collateral in connection with all loans of portfolio securities, and such collateral is marked to market, the WEBS Index Series would be exposed to the risk of loss should a borrower default on its obligation to return the borrowed securities (e.g., the loaned securities may have appreciated beyond the value of the collateral held by the Fund). In addition, each WEBS Index Series bears the risk of loss of any collateral that it invests in Short-Term Investments. Use of Certain Instruments The risk of loss associated with futures contracts is potentially unlimited due both to the low margin deposits required and the extremely high degree of leverage involved in futures pricing. As a result, a relatively small price movement in a futures contract may result in an immediate and substantial loss or gain. However, no WEBS Index Series will use futures contracts, options or swap agreements for speculative purposes or to leverage its net assets and each WEBS Index Series will comply with applicable SEC requirements regarding the segregation of assets in connection with futures positions. Accordingly, the primary risks associated with the use of futures contracts, options and swap agreements by a WEBS Index Series are: (i) imperfect correlation between the change in market value of the stocks included in the benchmark index or held by the WEBS Index Series and the prices of futures contracts, options and swap agreements; (ii) possible lack of a liquid secondary market for a futures contract or listed option and the resulting inability to close futures or listed option positions prior to their maturity date; and (iii) the risk of the counterparty or guaranteeing agent defaulting. Over-the-counter options and swap agreements are generally less liquid than exchange traded securities and the SEC staff considers most over-the-counter options to be illiquid. The Fund will treat such options as illiquid to the extent required by applicable SEC staff positions. Illiquid assets may not represent more than 15% of the net assets of a WEBS Index Series. Since there are generally no futures traded on the MSCI Indices, it may be necessary for a WEBS Index Series to utilize other futures contracts or combinations thereof to simulate the performance of the relevant MSCI Index. This process may magnify the "tracking error" of the WEBS Index Series' performance compared to that of the MSCI Index, due to the lower correlation of the selected futures with the MSCI Index. The Adviser will attempt to reduce this tracking error by investing in futures contracts whose behavior is expected to represent the market performance of the WEBS Index Series' underlying securities, although there can be no assurance that these selected futures will in fact correlate with the performance of the relevant MSCI Index. Certain foreign stock index futures contracts and options thereon are not currently available to U.S. persons such as the Fund under applicable law. See also "Special Considerations and Risks" in the Statement of Additional Information. DETERMINATION OF NET ASSET VALUE Net asset value per share for each WEBS Index Series of the Fund is computed by dividing the value of the net assets of such WEBS Index Series (i.e., the value of its total assets less total liabilities) by the total number of WEBS outstanding, rounded to the nearest cent. Expenses and fees, including the management, administration and distribution fees, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of each WEBS Index Series is determined as of the close of the regular trading session on the New York Stock Exchange, Inc. (ordinarily 4:00 p.m., New York City time) on each day that such exchange is open. In computing a WEBS Index Series' net asset value, the WEBS Index Series' portfolio securities 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 the over-the-counter market are valued at the latest quoted bid price. 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 the Adviser in accordance with procedures adopted by the Board of Directors of the Fund. Foreign currency values are converted into U.S. dollars using the same exchange rates utilized by MSCI in the calculation of the relevant MSCI Indices (currently, exchange rates as of 4:00 p.m. London time, except that the exchange rate for the MSCI Mexico (Free) Index is that as of 3:00 p.m. New York City time). 23 27 CREATION UNITS The Fund issues and redeems WEBS of each WEBS Index Series only in aggregations of WEBS specified for each WEBS Index Series. The following table sets forth the number of WEBS of a WEBS Index Series that constitute a Creation Unit for such WEBS Index Series and the value of such Creation Unit at August 31, 1997:
VALUE PER WEBS INDEX SERIES WEBS PER CREATION UNIT CREATION UNIT (IN DOLLARS) - ----------------- ---------------------- ------------- Australia WEBS Index Series......................................... Austria WEBS Index Series........................................... Belgium WEBS Index Series........................................... Canada WEBS Index Series............................................ France WEBS Index Series............................................ Germany WEBS Index Series........................................... Hong Kong WEBS Index Series......................................... Italy WEBS Index Series............................................. Japan WEBS Index Series............................................. Malaysia (Free) WEBS Index Series................................... Mexico (Free) WEBS Index Series..................................... Netherlands WEBS Index Series....................................... Singapore (Free) WEBS Index Series.................................. Spain WEBS Index Series............................................. Sweden WEBS Index Series............................................ Switzerland WEBS Index Series....................................... United Kingdom WEBS Index Series....................................
See "Purchase and Issuance of WEBS in Creation Units" and "Redemption of WEBS in Creation Units." The Board of Directors of the Fund reserves the right to declare a split in the number of WEBS outstanding of any WEBS Index Series of the Fund, and to make a corresponding change in the number of WEBS constituting a Creation Unit, in the event that the per WEBS price in the secondary market rises to an amount that exceeds the range deemed desirable by the Board. PURCHASE AND ISSUANCE OF WEBS IN CREATION UNITS THE FUND ISSUES AND SELLS WEBS OF A WEBS INDEX SERIES ONLY IN CREATION UNITS ON A CONTINUOUS BASIS THROUGH THE DISTRIBUTOR AT THEIR NET ASSET VALUE NEXT DETERMINED AFTER RECEIPT OF AN ORDER IN PROPER FORM, WITHOUT AN INITIAL SALES LOAD. The consideration for purchase of a Creation Unit of WEBS of a WEBS Index Series is the in-kind deposit of a designated portfolio of equity securities constituting an optimized representation of the corresponding MSCI Index (the "Deposit Securities") and an amount of cash computed as described below (the "Cash Component"). The Cash Component is a balancing amount to cover accrued dividends and to equalize any difference between the value of the Deposit Securities and the net asset value of a Creation Unit of WEBS as determined on the date on which WEBS are to be purchased and issued. Together, the Deposit Securities and the Cash Component constitute the "Portfolio Deposit" which represents the minimum initial and subsequent investment amount for shares of any WEBS Index Series from the Fund. Tendered securities in the Portfolio Deposit are valued in the same manner as the relevant WEBS Index Series values its portfolio securities. WEBS may also be issued and sold in Creation Units for cash in certain circumstances; however, the Fund does not ordinarily permit cash purchases of Creation Units and any WEBS Index Series that permits cash sales reserves the right to suspend such sales at any time. The Deposit Securities for each WEBS Index Series generally change with changes in the corresponding MSCI Index. In addition, the Adviser reserves the right to permit or require the substitution of an amount of cash to be added to the Cash Component to replace any security in the portfolio constituting the Deposit Securities which may not be available in sufficient quantity for delivery or for other similar reasons. The Deposit Securities must be delivered for receipt in an account of the Fund maintained at the applicable local subcustodian. A purchase transaction fee payable to the Fund is imposed to compensate the Fund for the transaction costs of each WEBS Index Series associated with issuance of Creation Units of WEBS. The purchase transaction fees for in-kind purchases and cash purchases (when available) are listed in the Shareholder Transaction Expenses table in "Summary of Fund Expenses." The Shareholder Transaction Expenses table is subject to revision from time to time. Investors are also responsible for payment of the costs of transferring the Deposit Securities to the Fund. The foregoing description of the issuance of Creation Units of WEBS is only a summary. Investors interested in purchasing Creations Units of WEBS from the Fund will need to refer to "Purchase and Issuance of WEBS in Creation Units" in the Statement of Additional Information for additional details. REDEMPTION OF WEBS IN CREATION UNITS WEBS OF A WEBS INDEX SERIES ARE REDEEMED BY THE FUND ONLY IN CREATION UNITS AT THEIR NET ASSET VALUE NEXT DETERMINED AFTER RECEIPT OF A REDEMPTION REQUEST IN PROPER FORM BY THE DISTRIBUTOR. WEBS IN AMOUNTS LESS THAN CREATION UNITS ARE NOT REDEEMABLE. The Fund generally redeems a Creation Unit of WEBS principally on an in-kind basis for Deposit Securities as announced by the Distributor, plus cash in an amount equal to the difference between the net asset value of the WEBS being redeemed, as next determined after receipt of a request in proper form, and the value of the Deposit Securities, less the redemption transaction fee described below. A WEBS Index Series may also redeem Creation Units for cash in certain circumstances; however, the Fund does not ordinarily permit cash redemptions and any WEBS Index Series that permits cash redemptions reserves the right to suspend such redemptions at any time. Investors may purchase WEBS in the secondary market and aggregate such purchases into a Creation Unit for redemption. There can be no assurance, however, that there always will be sufficient liquidity in the public trading market to permit assembly of a Creation Unit of WEBS. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of WEBS to constitute a redeemable Creation Unit. The approximate cost of a Creation Unit of each WEBS Index Series is indicated under the heading "Creation Units." 24 28 A redemption transaction fee payable to the Fund is imposed to offset transaction costs that may be incurred by a WEBS Index Series in connection with redemption of Creation Units of WEBS. The redemption transaction fee for redemptions in kind and for cash (when available) are listed in the Shareholder Transaction Expenses table in "Summary of Fund Expenses." The Shareholder Transaction Expenses table may be subject to revision from time to time. Investors also bear the costs of transferring the Portfolio Deposit from the Fund to their account or on their order. Because the portfolio securities of a WEBS Index Series may trade on the relevant exchange(s) on days that the AMEX is closed, shareholders may not be able to redeem their Creation Units of such WEBS Index Series, or to purchase or sell WEBS on the AMEX, on days when the net asset value of such WEBS Index Series could be significantly affected by events in the relevant foreign markets. The foregoing description of the redemption of Creation Units of WEBS is only a summary. Investors interested in redeeming Creation Units of WEBS need to refer to "Redemption of WEBS in Creation Units" in the Statement of Additional Information for additional details. DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS Dividends from net investment income, including net foreign currency gains, if any, are declared and paid at least annually and net realized securities gains, if any, are distributed at least annually. Dividends may be declared and paid more frequently than annually for certain WEBS Index Series to improve tracking error or to comply with the distribution requirements of the Internal Revenue Code. In addition, the Fund intends to distribute at least annually amounts representing the full dividend yield on the underlying portfolio securities of each WEBS Index Series net of expenses of such WEBS Index Series, as if such WEBS Index Series owned such underlying portfolio securities for the entire dividend period. As a result, some portion of each distribution may result in a return of capital. See "Tax Matters." Dividends and securities gains distributions are distributed in U.S. dollars and cannot be automatically reinvested in additional WEBS. The Fund will inform shareholders within 60 days after the close of the WEBS Index Series' taxable year of the amount and nature of all distributions made to them. TAX MATTERS A person other than a tax-exempt entity who exchanges securities for Creation Units of WEBS generally will recognize gain and generally should recognize loss equal to the difference between the market value of the Creation Units and the sum of his aggregate basis in the securities surrendered and the Cash Component paid. It is possible, however, that the Internal Revenue Service may assert that a loss realized upon an exchange of securities for Creation Units cannot be deducted currently under the rules governing "wash sales," and persons exchanging securities should consult their own tax advisors with respect to when such a loss might be deductible. Each WEBS Index Series of the Fund intends to qualify for and to elect treatment as a "regulated investment company" under Subchapter M of the Internal Revenue Code. As a regulated investment company, a WEBS Index Series is not subject to U.S. federal income tax on its income and gains that it distributes to shareholders, provided that it distributes annually at least 90% of its investment company taxable income. Investment company taxable income generally includes income from dividends and interest and gains and losses from currency transactions net of operating expenses plus the WEBS Index Series' net short-term capital gains in excess of its net long-term capital losses. Each WEBS Index Series distributes to its shareholders at least annually all of its investment company taxable income and any realized net long-term capital gains. Dividends paid out of a WEBS Index Series' investment company taxable income are taxable to a U.S. investor as ordinary income. Distributions of net long-term capital gains, if any, in excess of net short-term capital losses are taxable to a U.S. investor as long-term capital gains, regardless of how long the investor has held the WEBS. Dividends paid by a WEBS Index Series generally will not qualify for the deduction for dividends received by corporations. Distributions in excess of a WEBS Index Series' current and accumulated earnings and profits are treated as a tax-free return of capital to each of the WEBS Index Series' investors to the extent of the investor's basis in its WEBS, and as capital gain thereafter. Any dividend declared by a WEBS Index Series in October, November or December of any calendar year and payable to investors of record on a specified date in such a month shall be deemed to have been received by each investor on December 31 of such calendar year and to have been paid by the WEBS Index Series not later than such December 31 so long as the dividend is actually paid by the WEBS Index Series during January of the following calendar year. A distribution by a WEBS Index Series will reduce its net asset value per share and may be taxable to the investor as ordinary income or net capital gain as described above even though, from an investment standpoint, it may constitute a return of capital and this phenomenon may be more pronounced given the WEBS Index Series' policy of making distributions in excess of the sum of its investment company taxable income and its net long-term capital gains. Any gain or loss realized upon a sale or redemption of WEBS by a shareholder that is not a dealer in securities is generally treated as a long-term capital gain or loss if the WEBS have been held for more than eighteen months, and otherwise as a short-term capital gain or loss. However, if WEBS on which a long-term capital gain distribution has been received are subsequently sold or redeemed and such WEBS have been held for six months or less, any loss realized will be treated as a long-term capital loss to the extent that it offsets the long-term capital gain distribution. Moreover, any loss realized on a sale or exchange of WEBS will be deferred to the extent that the shares disposed of are replaced within a 61-day period beginning 30 days before and ending 30 days after the disposition of the shares, in which case the basis of the shares acquired will be adjusted upward to reflect the deferred loss. Each WEBS Index Series may be subject to foreign income taxes withheld at source. As more than 50% of the value of the total assets of each WEBS Index Series at the close of its taxable year will consist of stock or securities of foreign corporations, a WEBS Index Series will be eligible (and intends) to file an election with the Internal Revenue Service to "pass through" to its investors the amount of foreign income taxes (including withholding taxes) paid by the WEBS Index Series. Subject to certain limitations, the foreign income taxes passed through may qualify as a deduction in calculating U.S. taxable income or as a credit in calculating U.S. federal income tax. Each investor will be notified of the investor's portion of the foreign income taxes paid to each country and the portion of dividends that represents income derived from sources within each country. The Fund may be required to withhold for U.S. federal income tax purposes 31% of the dividends and distributions payable to investors who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the U.S. Internal Revenue Service that they are subject to backup withholding. Backup withholding is not an additional tax; amounts withheld may be credited against the investor's U.S. federal income tax liability. 25 29 An investor in a WEBS Index Series that is a foreign corporation or an individual who is a nonresident alien for U.S. tax purposes will be subject to significant adverse U.S. tax consequences. For example, dividends paid out of a WEBS Index Series' investment company taxable income will generally be subject to U.S. federal withholding tax at a rate of 30% (or lower treaty rate if the foreign investor is eligible for the benefits of an income tax treaty). Foreign investors are urged to consult their own tax advisors regarding the U.S. tax treatment, in their particular circumstances, of ownership of shares in a WEBS Index Series. For further information on taxes see "Taxes" in the Statement of Additional Information. BOOK-ENTRY ONLY SYSTEM DTC acts as securities depositary for the WEBS. WEBS are represented by global securities, which are registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. DTC has advised the Fund as follows: DTC 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. 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, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. 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 WEBS is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in WEBS (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 receive from or through the DTC Participant a written confirmation relating to their purchase of WEBS. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability of certain investors to acquire beneficial interests in WEBS. Beneficial Owners of WEBS are not entitled to have WEBS registered in their names, will not receive or are not entitled to receive physical delivery of certificates in definitive form and are not considered the registered holders thereof. Accordingly, each Beneficial Owner must rely on the procedures of DTC, the DTC Participant and any Indirect Participant through which such Beneficial Owner holds its interests, to exercise any rights of a holder of WEBS. WEBS distributions are made to DTC or its nominee, Cede & Co., as the registered holder of all WEBS. DTC or its nominee, upon receipt of any such distributions, will immediately credit DTC Participants' accounts with payments in amounts proportionate to their respective beneficial interests in WEBS as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of WEBS held through such DTC Participants are 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 a "street name," and are the responsibility of such DTC Participants. See "Book-Entry Only System" in the Statement of Additional Information for additional details. PERFORMANCE The performance of the WEBS Index Series may be quoted in advertisements, sales literature or reports to shareholders in terms of average annual total return, cumulative total return and yield. Quotations of average annual total return will be expressed in terms of average annual rate of return of a hypothetical investment in a WEBS Index Series over periods of 1, 5 and 10 years (or the life of the WEBS Index Series, if shorter). Such total return figures reflect the deduction of a proportional share of such WEBS Index Series' expenses on an annual basis, and assume that all dividends and distributions are reinvested when paid. Quotations of a cumulative total return are calculated for any specified period by assuming a hypothetical investment in a WEBS Index Series on the date of the commencement of the period and assume that all dividends and distributions are reinvested on ex date. However, currently there is no dividend reinvestment option available to shareholders of WEBS and such calculation is provided for informational purposes only. The net increase or decrease in the value of the investment over the period is 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 is not expressed in terms of an average rate of return. The yield of a WEBS Index Series refers to income generated by an investment in such WEBS Index Series over a specified 30-day (one month) period. Yields for the WEBS Index Series are expressed as annualized percentages. Quotations of average annual total return, cumulative total return or yield reflect only the performance of a hypothetical investment in a WEBS Index Series during the particular time period on which the calculations are based. Such quotations for a WEBS Index Series will vary based on changes in market conditions and the level of such WEBS Index Series' expenses, and no reported performance figure should be considered an indication of performance which may be expected in the future. GENERAL INFORMATION The Fund is organized as a Maryland corporation. The Articles of Incorporation, as amended, currently permit the Fund to issue 6 billion shares of common stock with a par value of $.001 per share. Fractional shares will not be issued. In addition to the seventeen WEBS Index Series described herein, the Board of Directors of the Fund may designate additional series of common stock and classify shares of a particular series into one or more classes of that series. Any such additional series may seek to track the investment results represented by an equity securities index compiled by MSCI or by another index compiler. The shares of each series are fully paid and non-assessable; have no preference as to conversion, exchange, dividends, retirement or other features; and have no pre-emptive rights. Each share has one vote with respect to matters upon which a shareholder vote is required; shareholders have no cumulative voting rights with respect to their shares. Shares of all series vote together as a single class except that if the matter being voted on affects only a particular WEBS Index Series it will be voted on only by that WEBS Index Series and if a matter 26 30 affects a particular WEBS Index Series differently from other WEBS Index Series, that WEBS Index Series will vote separately on such matter. Annual meetings of shareholders will not be held except as required by the 1940 Act and other applicable law. Absent an applicable exemption, beneficial owners of 10% of the WEBS of a WEBS Index Series are subject to the insider reporting, short-swing profit and short sale provisions under the Exchange Act. The Exchange Act provides that, with certain exceptions, any gain realized by any such beneficial owner from any purchase and sale or sale and purchase of WEBS within any period of less than six months is recoverable by the WEBS Index Series. Additionally, every such beneficial owner must file with the SEC a statement showing ownership and change in ownership of WEBS within ten days after the end of any calendar month in which there has been a change in such beneficial owner's ownership of WEBS. The acquisition of WEBS of each WEBS Index Series by investment companies is subject to the restrictions of Section 12(d)(1) of the 1940 Act and applicable state regulations. Ernst & Young LLP serves as independent auditors for the Fund and audits its financial statements annually. AVAILABLE INFORMATION This Prospectus does not contain all the information included in the Registration Statement filed with the SEC under the Securities Act of 1933 with respect to the securities offered hereby, certain portions of which have been omitted pursuant to the rules and regulations of the SEC. The Registration Statement, including the exhibits filed therewith and the Statement of Additional Information, may be examined at the offices of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. Such documents and other information concerning the Fund may also be inspected at the offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006. Statements contained in this Prospectus as to the contents of any agreement or other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such agreement or other document filed as an exhibit to the Registration Statement of which this Prospectus forms a part, each such statement being qualified in all respects by such reference. Shareholder inquiries may be directed to the Fund in writing, to c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809. 27 31 WEBS INDEX FUND, INC. STATEMENT OF ADDITIONAL INFORMATION OCTOBER __, 1997 This Statement of Additional Information is not a Prospectus, and should be read in conjunction with the Prospectus dated October __, 1997 (the "Prospectus") for WEBS Index Fund, Inc. (the "Fund"), as it may be revised from time to time. A copy of the Prospectus for the Fund may be obtained without charge by writing to the Fund or the Distributor. The Fund's address is WEBS Index Fund, Inc., c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809. Capitalized terms used herein but not defined have the same meaning as in the Prospectus, unless otherwise noted. 32 TABLE OF CONTENTS
PAGE ----- General Description of the Fund.................................................................. 1 Investment Policies and Restrictions ........................................................... 1 Special Considerations and Risks................................................................. 12 The MSCI Indices................................................................................. 21 Exchange Listing and Trading..................................................................... 36 Management of the Fund .......................................................................... 37 Investment Advisory, Management, Administrative and Distribution Services........................ 40 Brokerage Transactions .......................................................................... 43 Book Entry Only System .......................................................................... 44 Purchase and Issuance of WEBS in Creation Units.................................................. 45 Redemption of WEBS in Creation Units ........................................................... 48 Determining Net Asset Value...................................................................... 50 Dividends and Distributions...................................................................... 50 Taxes ........................................................................................... 50 Capital Stock and Shareholder Reports .......................................................... 51 Performance Information ........................................................................ 52 Counsel and Independent Auditors................................................................. 56 Financial Statements............................................................................. 56
Appendices APPENDIX A: MSCI Indices as of August 31, 1997 APPENDIX B: Holidays Applicable to Each WEBS Index Series APPENDIX C: Supplemental Educational Information on WEBS - The Case For International Index Investing - WEBS Investment Highlights - Frequently Asked Questions (Q & A) - MSCI Index Performance Charts --------------------------- THE MSCI INDICES ARE THE PROPERTY OF MORGAN STANLEY & CO. INCORPORATED ("MORGAN STANLEY"). MORGAN STANLEY CAPITAL INTERNATIONAL IS A SERVICE MARK OF MORGAN STANLEY AND HAS BEEN LICENSED FOR USE BY WEBS INDEX FUND, INC. ("LICENSEE"). THE MSCI INDICES ARE DETERMINED, COMPOSED AND CALCULATED BY CAPITAL INTERNATIONAL PERSPECTIVE S.A. ("CIPSA"), A SUBSIDIARY OF CAPITAL INTERNATIONAL S.A. WORLD EQUITY BENCHMARK SHARES ARE NOT SPONSORED, ENDORSED, OR PROMOTED BY MORGAN STANLEY. MORGAN STANLEY MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE WEBS OF ANY WEBS INDEX SERIES OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY, OR IN THE WEBS OF ANY WEBS INDEX SERIES PARTICULARLY, OR THE ABILITY OF THE INDICES IDENTIFIED HEREIN TO TRACK GENERAL STOCK MARKET PERFORMANCE. MORGAN STANLEY IS THE LICENSOR OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES OF MORGAN STANLEY, INCLUDING THE MORGAN STANLEY CAPITAL INTERNATIONAL SERVICE MARK ("MSCI") WHICH MARK IS ASCRIBED TO THE INDICES CREATED BY CIPSA AND LICENSED TO MORGAN STANLEY. THE MSCI INDICES IDENTIFIED HEREIN ARE DETERMINED, COMPOSED AND CALCULATED WITHOUT REGARD TO THE WEBS OF ANY WEBS INDEX SERIES OR THE ISSUER THEREOF. NEITHER MORGAN STANLEY NOR CIPSA HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUER OF THE WEBS OF ANY WEBS INDEX SERIES OR THE OWNERS OF THE WEBS OF ANY WEBS INDEX SERIES INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING, IN THE CASE OF CIPSA, OR DISSEMINATING, IN THE CASE OF MORGAN STANLEY, THE RESPECTIVE MSCI INDICES. NEITHER MORGAN STANLEY NOR CIPSA IS RESPONSIBLE FOR, NOR HAVE THEY PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES OF, OR QUANTITIES OF THE WEBS OF ANY WEBS INDEX SERIES TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE WEBS OF ANY WEBS INDEX SERIES ARE REDEEMABLE. NEITHER MORGAN STANLEY NOR CIPSA HAS ANY OBLIGATION OR LIABILITY TO OWNERS OF THE WEBS OF ANY WEBS INDEX SERIES IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE WEBS OF ANY WEBS INDEX SERIES. ALTHOUGH CIPSA SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDICES FROM SOURCES WHICH IT CONSIDERS RELIABLE, NEITHER MORGAN i 33 STANLEY NOR CIPSA GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE COMPONENT DATA OF ANY MSCI INDEX OBTAINED FROM INDEPENDENT SOURCES. NEITHER MORGAN STANLEY NOR CIPSA MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE MSCI INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER ANY LICENSE AGREEMENT OR FOR ANY OTHER USE. NEITHER MORGAN STANLEY NOR CIPSA MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND EACH HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE MSCI INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MORGAN STANLEY OR CIPSA 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. The information contained herein regarding MSCI, the MSCI Indices, local securities markets and The Depository Trust Company ("DTC") was obtained from publicly available sources. Unless otherwise specified, all references in this Statement of Additional Information to "dollars," "USD," "US$" or "$" are to United States Dollars, all references to "AUD," or "A$" are to Australian Dollars, all references to "ATS" are to Austrian Schillings, all references to "BEF" are to Belgian Francs, all references to "CAD" or "CA$" are to Canadian Dollars, all references to "FRF" or "FF" are to French Francs, all references to "DEM" or "DM" are to the German Deutsche Mark, all references to "HKD" or "HK$" are to Hong Kong Dollars, all references to "ITL" or "LL" are to Italian Lira, all references to "JPY" or "Y" are to Japanese Yen, all references to "MYR" are to Malaysian Ringgits, all references to "MXN" are to Mexican Pesos, all references to "NLG" are to Netherlands Guilders, all references to "SGD" are to Singapore Dollars, all references to "ESP" are to Spanish Pesetas, all references to "SEK" are to Swedish Krona, all references to "CHF" are to Swiss Francs, and all references to "GBP," "pound sterling" or "L" are to British Pounds Sterling. On August 31, 1997, the noon buying rates in New York City for cable transfers payable in the applicable currency, as certified for customs purposes by the Federal Reserve Bank of New York, were as follows for each US $1.00: AUD ____, ATS ____, BEF ____, CAD ____, FRF ____, DEM ____, HKD ____, ITL ____, JPY ____, MYR ____, MXN ____, NLG ____, SGD ____, ESP ____, SEK ____, CHF ____ and GBP ____. Some numbers in this Statement of Additional Information have been rounded. All US Dollar equivalents provided in this Statement of Additional Information are calculated at the exchange rate prevailing on the date to which the corresponding foreign currency amount refers. ii 34 GENERAL DESCRIPTION OF THE FUND WEBS Index Fund, Inc. (the "Fund") is a management investment company organized as a series fund. The Fund currently consists of seventeen series (each, a "WEBS Index Series"), each of which invests in a portfolio of common stocks (the "Portfolio Securities") consisting of some or all of the component securities of a specified foreign securities index, selected to reflect the performance thereof. The Fund was incorporated under the laws of the State of Maryland on August 31, 1994. The shares of each WEBS Index Series are referred to herein as "World Equity Benchmark Shares(sm)" or "WEBS(sm)". The seventeen WEBS Index Series offered by the Fund are the Australia WEBS Index Series, the Austria WEBS Index Series, the Belgium WEBS Index Series, the Canada WEBS Index Series, the France WEBS Index Series, the Germany WEBS Index Series, the Hong Kong WEBS Index Series, the Italy WEBS Index Series, the Japan WEBS Index Series, the Malaysia (Free) WEBS Index Series, the Mexico (Free) WEBS Index Series, the Netherlands WEBS Index Series, the Singapore (Free) WEBS Index Series, the Spain WEBS Index Series, the Sweden WEBS Index Series, the Switzerland WEBS Index Series and the United Kingdom WEBS Index Series. Each WEBS Index Series offers and issues WEBS at their net asset value only in aggregations of a specified number of shares (each, a "Creation Unit"), usually in exchange for a basket of Portfolio Securities (together with the deposit of a specified cash payment). Such Creation Units of WEBS are separable upon issue into identical shares which are listed and traded on the American Stock Exchange (the "AMEX"). WEBS are also redeemable only in Creation Units, also usually in exchange for Portfolio Securities and a specified cash payment. The Fund reserves the right to offer a "cash" option for sales and redemptions of WEBS (subject to applicable legal requirements), as well as the option to offer WEBS on a "cash only" basis. In each instance of such cash sales or redemptions, the Fund will impose transaction fees based on transaction expenses in the particular country that will be higher than the transaction fees associated with in-kind purchases 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. INVESTMENT POLICIES AND RESTRICTIONS The following information supplements and should be read in conjunction with the sections entitled "Investment Policies" and "Investment Limitations" in the Prospectus. Each of the seventeen WEBS Index Series has the policy to remain as fully invested as practicable in a pool of equity securities the performance of which will approximate the performance of the subject MSCI Index taken in its entirety. A WEBS Index Series will normally invest at least 95% of its total assets in stocks that are represented in the relevant MSCI Index and will at all times invest at least 90% of its total assets in such stocks except, that in order to permit the Adviser additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and other regulatory requirements and to manage future corporate actions and index changes in the smaller markets, each of the Austria, Belgium, Hong Kong, Mexico (Free), Netherlands, Spain, Sweden, and Switzerland WEBS Index Series will at all times invest at least 80% of its total assets in such stocks and at least 10% of the remaining 20% of its total assets in such stocks or in stocks included in the revelant market, but not in the relevant MSCI Index. A WEBS Index Series may invest its remaining assets in Short-Term Investments (defined below), in stocks that are in the relevant market but not the relevant MSCI Index, and/or in combinations of certain stock index futures contracts, options on such futures contracts, stock index options, stock index swaps, cash, local currency and forward currency exchange contracts that are intended to provide the WEBS Index Series with exposure to such stocks (the WEBS Index Series will not use such instruments to leverage their investment portfolios). "Short-Term Investments" are short-term high quality debt securities that include: obligations of the United States Government and its agencies or instrumentalities; commercial paper (rated Prime-1 by Moody's Investors Services, Inc. or A-1 by Standard & Poor's Rating Group), bank certificates of deposit and bankers' acceptances; repurchase agreements collateralized by the foregoing securities; participation interests in such securities; and shares of money market funds (subject to applicable limits under the Investment Company Act of 1940, as amended, (the "1940 Act")). A WEBS Index Series will not invest in cash reserves or Short-Term Investments, or utilize futures contracts, options on futures contracts, options or swap agreements as part of a temporary defensive strategy to protect against potential stock market declines. A WEBS Index Series may enter into forward currency exchange contracts and foreign currency futures contracts in order to facilitate settlements in local markets in connection with stock index futures, and to protect against currency exposure in connection with its distributions to shareholders, but not as part of a defensive strategy to protect against fluctuations in exchange rates. INVESTMENTS IN SUBJECT EQUITY MARKETS Brief descriptions of the equity markets in which the respective WEBS Index Series are invested are provided below. The Australian Equity Markets General Background. Trading shares has taken place in Australia since 1828, but did not become significant until 1 35 the latter half of the nineteenth century when there was strong demand for equity capital to support the growth of mining activities. A stock market was first formed in Melbourne in 1865. In 1885, the Melbourne market became the stock exchange of Melbourne, in which form it has remained until recently. Other stock exchanges were also established in Sydney (1871), Brisbane (1884), Adelaide (1887), Hobart (1891) and Perth (1891). In 1937, the six capital city stock exchanges established the Australian Associated Stock Exchanges (AASE) to represent them at a national level. In 1987, the regional exchanges merged to create the single entity -- The Australian Stock Exchange (ASX). Trading is done via a computer link-up called "SEATS." SEATS enables all exchanges to quote uniform prices. All the exchanges are members of the ASX and are subject to the Securities Industry Act, which regulates the major aspects of stock exchange operations. Although there are stock exchanges in all six states, the Melbourne and Sydney Stock Exchanges are the major centers, covering 90% of all trades. Reporting, Accounting and Auditing. Australian reporting, accounting and auditing standards differ substantially from U.S. standards. In general Australian corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Australian equity markets was approximately AUD ____ billion or US $____ billion. The Austrian Equity Markets General Background. Relative to international standards, the Vienna stock market is small in terms of total capitalization and yearly turnover. The Vienna Stock Exchange (VSE) is one of the oldest in the world and was founded in 1771 as a state institution to provide a market for state-issued bonds, as well as for exchange transactions. The Stock Exchange Act of 1875 (the "Act") established the VSE as an autonomous institution. The Act is still in force, placing control and administration of the exchange in the hands of the Borsekammer (Board of Governors), chosen from among the members of the exchange. The Borsekammer consists of 25 individuals with the title of Borserat (stock exchange councillor). Some are elected by members and some are designated by organizations of the securities industry for a period of five years. The councillors must be members of the exchange and they elect from amongst themselves a President and three Vice Presidents. Shares account for about 80% and investment fund certificates for about 20% of total listed securities on the VSE. Business of the exchange can be transacted only by members. Almost all the credit institutions in Vienna, some in the Austrian provinces and the joint stock banks are represented on the stock exchange, as well as the private banks, savings banks and other credit institutions. Certain securities which do not have an official listing may be dealt in on the floor of the stock exchange with permission of the management. This unlisted trading is the main activity of the free brokers (Frei Makeler), of whom there are three. Reporting, Accounting and Auditing. Austrian reporting, accounting and auditing standards differ from U.S. standards. In general, Austrian corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Austrian equity markets was approximately ATS ____ billion or US$____ billion. The Belgian Equity Markets General Background. The Brussels Stock Exchange (BSE) was founded by Napoleonic decree in 1801. Since January 1, 1991 the BSE has been officially organized as the "Societe de la Bourse de Valeurs Mobileres de Bruxelles" (SBVM) the shareholders of which are Belgian securities houses. The law of December 4, 1990 on financial operations and markets terminated the monopoly of the individual brokers. Now only securities houses are allowed to carry out stock exchange orders. Brokers, banks, brokerage firms and insurance companies can participate in the capital of a securities house. Its management is composed of a majority of qualified people bearing the title of stockbroker. The Banking and Finance Commission was granted the power to approve securities houses by this law. The Board of Directors of the SBVM, the Stock Exchange Committee organizes and supervises the different markets and ensures market transparency. The Stock Exchange Committee also admits or dismisses brokerage firms and ensures compliance with all regulations. The Stock Exchange Committee is also in charge of the admission to listing and suspension of listing. On the Brussels Stock Exchange equities are traded on three different markets: the Official Market, which includes a Cash and a Forward Market, the Second Market and an "Over the Counter Market." Reporting, Accounting and Auditing. Belgian reporting, accounting and auditing standards differ substantially from U.S. standards. In general Belgian corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Belgian equity markets was approximately BEF ____ billion or US$____ billion. 2 36 The Canadian Equity Markets General Background. The first Canadian stock exchange appeared in the 1870s. Today, Canada is the world's fourth largest public equity market by trading volume and the fifth largest by market capitalization. There are five stock exchanges across Canada, located in Toronto, Montreal, Vancouver, Calgary and Winnipeg. Of these, the Toronto Stock Exchange is the largest, accounting for almost 80% of Canadian trading volumes. Measured by the value of shares traded, the Toronto Stock Exchange is the second largest in North America and among the ten largest in the world. Reporting, Accounting and Auditing. As recognized by the Securities and Exchange Commission in one of the proposing releases relating to the Multijurisdictional Disclosure System, Canadian reporting, accounting and auditing practices are closer to U.S. standards than those of any other foreign jurisdiction. Every issuer that qualifies an offering of securities for distribution in Canada becomes subject to periodic disclosure requirements. Authoritative accounting and auditing standards, which are uniform across Canada, are developed by a national body, the Canadian Institute of Chartered Accountants ("CICA"). Although promulgated auditing standards in Canada differ from U.S. standards in some respects, generally accepted practices in Canada routinely encompass all significant auditing procedures required by U.S. standards. Further, CICA periodically evaluates new auditing standards adopted by the American Institute of Certified Public Accountants, CICA's U.S. counterpart, to determine whether similar guidelines may be appropriate for Canadian auditors. Canadian GAAP are similar to their U.S. counterparts, although there are some differences in measurement and disclosure. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Canadian markets was approximately CAD ____ billion or US$ ____ billion. The French Equity Markets General Background. Trading of securities in France is subject to the monopoly of the Societe de Bourse, which replaced the individual agents de change in 1991 in order to increase the cohesion of the French equity market. All purchases or sales of equity securities in listed companies on any one of the French exchanges must be executed through the Societe de Bourse. There are three different markets on which French securities may be listed: (1) the official list (La Cote Officielle), comprised of equity securities of large French and foreign companies and most bond issues; (2) the second market (Le Second Marche), designed for the trading of equity securities of smaller companies; and (3) the "Hors-Cote" Market. Securities may only be traded on the official list and the second market after they have been admitted for the listing by the Conseil des Bourses de Valeurs (the "CBV"). By contrast, the Hors-Cote Market has no prerequisites to listing, and shares of otherwise unlisted companies may be freely traded there, once they have been introduced on the market by the Societe de Bourse. Although the Hors-Cote Market is frequently referred to as an over-the-counter market, this term is inaccurate in that, like the official list and the second market, it is supervised by Societes des Bourses Francaises and regulated by the CBV. Although there are seven stock exchanges in France (located in Paris, Bordeaux, Lille, Lyon, Marseille, Nancy and Nantes), the Paris Stock Exchange handles more than 95% of transactions in the country. All bonds and shares, whether listed or unlisted, must be traded on one of the seven exchanges. Trading in most of the Paris exchange-listed stocks takes place through the computer order-driven trading system CAC, launched in 1988. French market capitalization constitutes approximately 30% of the French Gross Domestic Product. Securities are denominated in the official unit of currency, the French Franc. Unless otherwise provided by a double tax treaty, dividends on French shares are subject to a withholding tax of 25%. Reporting, Accounting and Auditing. Although French reporting, accounting and auditing standards are considered rather rigorous by European standards, they differ from U.S. standards in certain material respects. In general, French corporations are not required to provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the French equity markets was approximately FRF ____ billion or US$____ billion. The German Equity Markets General Background. The history of Frankfurt as a financial center can be traced back to the early Middle Ages. Frankfurt had the right to issue coins as early as 1180; the first exchange office was opened in 1402. Germany has been without a central stock exchange, the position formerly held by the Berlin exchange, since 1945. Today there are eight independent stock exchanges, of which Dusseldorf and Frankfurt account for over three-quarters of the total volume. Frankfurt is the main exchange in Germany. Exchange securities are denominated in German Marks, the official currency of Germany. Equities may be traded in Germany in one of three markets: (i) the official market, comprised of trading in shares which have been formally admitted to official listing by the admissions committee of the relevant stock exchange, based on disclosure in the listing application; (ii) the "semi-official" unlisted market, comprised of trading in shares not in the official listing; and (iii) the unofficial, over-the-counter market, which is governed by the provisions of the Civil Code 3 37 and the Merchant Code and not by the provisions of any stock exchange. There is no stamp duty in Germany, but a nonresident capital gains tax may apply in certain circumstances. Reporting, Accounting and Auditing. German reporting, accounting and auditing standards differ substantially from U.S. standards. In general, German corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Germany equity markets was approximately DEM ____ billion or US$____ billion. The Hong Kong Equity Markets General Background. Trading in equity securities in Hong Kong began in 1891 with the formation of the Association of Stockbrokers, which was changed in 1914 to the Hong Kong Stock Exchange. In 1921, a second stock exchange, The Hong Kong Stockbrokers' Association, was established. In 1947, these two exchanges were merged under the name The Hong Kong Stock Exchange Limited. Three additional exchanges, the Far East Exchange Limited (1969), The Kam Ngan Stock Exchange Limited (1971) and The Kowloon Stock Exchange (1972) also commenced trading activities. These four exchanges were unified in 1986 to form The Stock Exchange of Hong Kong Limited (the "SEHK"). The value of the SEHK constitutes more than 100% of Hong Kong's Gross Domestic Product. Trading on the SEHK is conducted in the post trading method, matching buyers and sellers through public outcry. Securities are denominated in the official unit of currency, the Hong Kong Dollar. Foreign investment in Hong Kong is generally unrestricted. All investors are subject to a small stamp duty and a stock exchange levy, but capital gains are tax-exempt. Reporting, Accounting and Auditing. Hong Kong has significantly upgraded the required presentation of financial information in the past decade. Nevertheless, reporting, accounting and auditing practices remain significantly less rigorous than U.S. standards. In general, Hong Kong corporations are not required to provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Hong Kong equity markets was approximately HKD ____ billion or US$____ billion. The Italian Equity Markets General Background. The first formal exchange was created in Italy in 1808 with the establishment of the Milan Stock Exchange. Since then nine other exchanges have been founded. Milan is the most important exchange, accounting for 90% of total equity volume and about 80% of turnover in fixed income securities. After the Milan Stock Exchange the other exchanges, in order of importance are: Rome, Turin, Genoa, Bologna, Florence, Naples, Palermo, Trieste and Venice. By law the only persons allowed to trade in the official posts of the stock exchange are the stockbrokers, who must act as brokers and not trade for their own account. Banks and intermediaries are allowed to enter the trading post as observers. In 1991, the Parliament passed legislation creating Societa di intermediazone mobiliare (SIMs). SIMs were created to regulate brokerage activities in the securities market and are allowed to trade on their own and for customers' accounts. In 1986, the Centro Elaboraizione Dati (C.E.D. Borsa), a subsidiary of the Milan Stock Exchange, developed a supporting service called Borsamat. The Borsamat records all trading floor orders, links all Italian exchanges, checks transaction details and issues confirmations. Italy has the world's largest government securities market after the United States and Japan. At the end of 1993, issues of treasury bills, notes and bonds outstanding totaled US$1,133 billion. Reporting, Accounting and Auditing. Italian reporting, accounting and auditing practices are regulated by Italy's National Control Commission. These practices bear some similarities to United States standards, but differ significantly in many important respects. In general, Italian corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely, less frequent and less consistent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Italian markets was approximately ITL ____ billion or US$____ billion. The Japanese Equity Markets General Background. The Japanese stock market has a history of over 100 years beginning with the establishment of the Tokyo Stock Exchange Company Ltd. in 1878. Stock exchanges are located in eight cities in Japan (Tokyo, Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo). There is also an over-the-counter market. There are three distinct sections on the main Japanese stock exchanges. The First Section trades in over 1,100 of the largest and most active stocks, which account for over 95% of total market capitalization. The Second Section consists of over 400 issues with lower turnover than the First Section, which are newly quoted on the exchange or which are not listed and would otherwise be traded over-the-counter. The Third Section consists of foreign stocks which are traded over-the-counter. The main activity 4 38 of the regular exchange members is the buying and selling of securities on the floor of an exchange, both for their customers and for their own account. Japan is second only to the United States in aggregate stock market capitalization. Securities are denominated in the official unit of currency, the Japanese Yen. Takeover activity is negligible in Tokyo, and although foreign investors play a significant role, the trend of the market is set by the domestic investor. The statutory at-source withholding is 20% on dividends. There also is a transaction tax on share trades and a small stamp duty. Reporting, Accounting and Auditing. Although some Japanese reporting, accounting and auditing practices are based substantially on U.S. principles, they are not identical to U.S. standards in some important respects, particularly with regard to unconsolidated subsidiaries and related structures. In general, Japanese corporations are not required to provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Japanese equity markets was approximately JPY ____ billion or US$____ billion. The Malaysian Equity Markets General Background. The securities industry in Malaysia dates back to the early 1930's. Kuala Lumpur and Singapore were a single exchange until 1973 when they separated and the Kuala Lumpur Stock Exchange (KLSE) was formed. The KLSE operated under a provisional set of rules until 1983 when a new Securities Industry Act came into force. As of April 30, 1993, 320 companies were listed on the KLSE main board. A Second Board, established in 1988, allows smaller companies to tap additional capital. Fifty-seven companies were listed on the Second Board as of April 30, 1993. Over the years, the KLSE's close links with the Stock Exchange of Singapore (SES) has rendered it very vulnerable to developments in Singapore. Consequently, the Government decided, as a matter of national policy, on a delisting of Malaysian incorporated companies from the SES. This was effected on January 1, 1990. A similar move was made by Singapore, resulting in the delisting of all Singapore companies on the KLSE on January 1, 1990. There are two main stock indices in Malaysia. The wider ranging KLSE Composite represents 80 counters. The New Straits Times Industrial Index is an average of 30 industrial stocks. Reporting, Accounting and Auditing. Malaysian reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Malaysian corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Malaysian equity markets was approximately MYR ____ billion or US$____ billion. The Mexican Equity Markets General Background. There is only one stock exchange in Mexico, the Bolsa Mexicana de Valores (BMV), which was established in 1894 and is located in Mexico City. The stock exchange is a private corporation whose shares are owned solely by its authorized members and operates under the stock market laws passed by the government. The National Banking and Securities Commission (CNV) supervises the stock exchange. The Mexican exchange operates primarily via the open outcry method. However, firm orders in writing can supersede this system, provided there is a perfect match of the details of a buy and sell order. Executions on the exchange can be done by members only. Membership of the stock exchange is restricted to "Casas de Bolsa" ("brokerage houses") and "Especialistas Bursatiles" (stock exchange specialists). Reporting, Accounting and Auditing. Mexican reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Mexican corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Mexican equity markets was approximately MXN ____ billion or US$ ____ billion. The Netherlands Equity Markets General Background. Trading securities on the AEX Stock Exchange (AEX) (formerly the "Amsterdam Stock Exchange") started at the beginning of the seventeenth century. The United East India Company was the first company in the world financed by an issue of shares, and such issue was effected through the exchange. The Netherlands claims the honor of having the oldest established stock exchange in existence. In 1611 a stock market began trading in the coffee houses along the Dam Square. A more formal establishment, the Amsterdam Stock Exchange Association, began trading industrial stocks in 1876 and until World War II, Amsterdam ranked after New York and London as the third most important stock market in the world. After the war, the AEX Stock Exchange only gradually began to resume its activities, as members felt threatened by what they saw as an impending socialist order which would leave little of the stock market intact. Since the end of the war, the Dutch market has remained relatively neglected, as local companies have found it more favorable to use 5 39 bank financing to meet their capital requirements. Trading in shares on the AEX may take place on the official market or on the parallel market, which is available to medium-sized and smaller companies that cannot yet meet the requirements demanded for the official market. Reporting, Accounting and Auditing. Dutch reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Dutch corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Dutch equity markets was approximately NLG ____ billion or US$____ billion. The Singaporean Equity Markets General Background. The Stock Exchange of Singapore (SES) was formed in 1973 with the separation of the joint stock exchange with Malaysia, which had been in existence since 1938. The linkage between the SES and the Kuala Lumpur Stock Exchange (KLSE) remained strong as many companies in Singapore and Malaysia jointly listed on both exchanges, until January 1, 1990 when the dual listing was terminated. SES has a tiered market, with the formation of the second securities market, SESDAQ (Stock Exchange of Singapore Dealing and Automated Quotation System) in 1987. SESDAQ was designed to provide an avenue for small and medium-sized companies to raise funds for expansion. In 1990, SES introduced an over-the-counter (OTC) market known as CLOB International, to allow investors access to international securities listed on foreign exchanges. SES also has a direct link with the National Association of Securities Dealers Automated Quotation (NASDAQ) system, which was set up in March 1988 to allow traders in the Asian time zone access to selected securities on the U.S. OTC markets. This is made possible through a daily exchange of trading prices and volumes of the stocks quoted on NASDAQ. The Singapore Stock Exchange is one of the most developed in Asia and has a strong international orientation. Reporting, Accounting and Auditing. Singaporean reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Singaporean corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Singaporean markets was approximately SGD ____ billion or US$____ billion. The Spanish Equity Markets General Background. The trading of shares in Spain dates back to 1831 when the Madrid Stock Exchange was founded. Since that time other exchanges have been established in Barcelona, Bilbao and Valencia, although the latter remains purely a local market. Madrid is by far the most active and the most international market exchange, accounting for nearly 50% of total market capitalization of both bonds and stocks. The next largest exchange is Barcelona, founded in 1915. Membership at each stock exchange in Spain is restricted to stockbrokers nominated by the Ministry of Finance. In order to practice their profession, a broker must belong to the Association of Brokers. In November 1986, the Madrid Stock Exchange opened the new second market, or unlisted securities market, as part of an effort to expand the range of Spanish companies whose shares are publicly quoted. The second market provides small and medium-sized companies with access to the trading market of the Madrid Stock Exchange. Reporting, Accounting and Auditing. Spanish reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Spanish corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Spanish equity markets was approximately ESP ____ billion or US$____ billion. The Swedish Equity Markets General Background. Organized trading of securities in Sweden can be traced back to 1776. Although the Stockholm Stock Exchange was founded in 1864, the real formation of a stock exchange in an international sense took place in 1901. The statutes of the stock exchange were modified in 1906 and, from the beginning of 1907, commercial banks were admitted as members. During the 1970's the Stockholm market was characterized by limited turnover and dull trading conditions. In 1980 the market started to climb and for several years Stockholm was one of the best performing stock markets in both price and volume growth. This regeneration of a market for risk capital was reflected in the large number of companies introduced in the early 1980's. The Stockholm Stock Exchange is structured on a membership basis, with the Bank Inspection Board being the supervising authority. The board consists of 11 directors and one chief executive. The directors of the board are elected by the Swedish government, and the Association of the Swedish Chamber of Commerce, the Federation of Swedish 6 40 Industries and the member companies of the Stock Exchange. There are three different markets for trading shares in Sweden. The dominant market is the A1 list, for the largest and most heavily traded companies. The second distinct market is the Over-the-Counter Market, which is more loosely regulated than the official market and caters to small and medium sized companies. The other market is the unofficial parallel market which deals in unlisted shares, both on and off the exchange floor. The shares most frequently traded on this market are those which have been delisted from the other markets and those which are only occasionally available for trading. There are also two independent markets for options -- the Swedish Options Market (OM) and the Swedish Options and Futures Exchange (SOFE). They offer calls, puts and forwards on Swedish stocks and stock market index. Reporting, Accounting and Auditing. Swedish reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Swedish corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Swedish equity markets was approximately SEK ____ billion or US$____ billion. The Swiss Equity Markets General Background. There are three principal stock exchanges in Switzerland, the largest of which is Zurich, followed by Geneva and Basle. The Geneva exchange is the oldest and was formally organized in 1850. The Basle and the Zurich exchanges were founded in 1876 and 1877, respectively. The Geneva Exchange is a corporation under public law and in Zurich and Basle the exchanges are institutions under public law. There are three different market segments for the trading of equities in Switzerland. The first is the official market, the second is the semi-official market, and the third is the unofficial market. On the official market, trading takes place among members of the exchange on the official trading floors. Trading in the semi-official market also takes place on the floors of the exchanges, but this market has traditionally been reserved for smaller companies not yet officially accepted on the exchange. Unofficial market trading is conducted by members and non-members alike. Typical trading on this market involves shares with small turnover. Both listed and unlisted securities can, however, be traded on this market. Reporting, Accounting and Auditing. Swiss reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Swiss corporations do not provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the Swiss equity markets was approximately CHF ____ billion or US$____ billion. The United Kingdom Equity Markets General Background. The United Kingdom is Europe's largest equity market in terms of aggregate market capitalization. Trading is fully computerized under the Stock Exchange Automated Quotation System. There are 14 stock exchanges in the United Kingdom and Ireland which comprise the Associated Stock Exchange. The most important exchange and the one that has the major share of the business is the London Stock Exchange. The London Stock Exchange has the largest volume of trading in international equities in the world. Reporting, Accounting and Auditing. Although UK reporting, accounting and auditing standards are among the most stringent outside the United States, such standards are not identical to U.S. standards in important respects. Some UK corporations are not required to provide all of the disclosure required by U.S. law and accounting practice, and such disclosure may, in certain cases, be less timely and less frequent than that required of U.S. corporations. Size of Equity Markets. As of August 31, 1997, the total market capitalization of the United Kingdom equity markets was approximately GBP ____ billion or US$____ billion. OTHER FUND INVESTMENTS Although the policy of each WEBS Index Series of the Fund is to remain substantially fully invested in equity securities, a WEBS Index Series may also invest in combinations of certain stock index futures contracts, options on such futures contracts, stock index options, stock index swaps, cash, local currency and forward currency exchange contracts that are intended to provide the WEBS Index Series with exposure to such equity securities. A WEBS Index Series may invest temporarily in cash, local currency, forward currency contracts and certain Short-Term Investments. Such investments may be used to invest uncommitted cash balances or, in limited circumstances, to assist in meeting shareholder redemptions of Creation Units of WEBS. 7 41 Although each WEBS Index Series generally seeks to invest for the long term, the WEBS Index Series retain the right to sell securities irrespective of how long they have been held. However, because of the "passive" investment management approach of the Fund, the portfolio turnover rate for each WEBS Index Series is expected to be under 50%, a generally lower turnover rate than for many other investment companies. A portfolio turnover rate of 50% would occur if one half of a WEBS Index Series' securities were sold within one year. (For purposes of calculating portfolio turnover rate, the Fund does not take into account "sales" of securities by means of in-kind redemptions, since such transactions do not impact a WEBS Index Series' portfolio composition or weighting.) Ordinarily, securities will be sold from a WEBS Index Series only to reflect certain administrative changes in an MSCI Index (including mergers or changes in the composition of the Index) or to accommodate cash flows out of the WEBS Index Series while seeking to keep the performance of the WEBS Index Series in line with that of its benchmark index. In addition, securities may be sold from a WEBS Index Series in certain circumstances to ensure the WEBS Index Series' compliance with the diversification and other requirements of the Internal Revenue Code and with other requirements, which would tend to raise the portfolio turnover rate of such WEBS Index Series. Purchases and sales of securities involve transaction costs borne by the respective WEBS Index Series. A WEBS Index Series may borrow money from a bank up to a limit of 33% of the market value of its assets, but only for temporary or emergency purposes. A WEBS Index Series may borrow money only to facilitate distributions to shareholders or meet redemption requests (in connection with Creation Units of WEBS that the Fund agrees to redeem for cash) prior to the settlement of securities already sold or in the process of being sold by such WEBS Index Series. To the extent that a WEBS Index Series borrows money prior to receiving distributions on its portfolio securities or prior to selling securities in connection with a redemption, it may be leveraged; at such times, the WEBS Index Series may appreciate or depreciate in value more rapidly than its benchmark index. A WEBS Index Series will not make cash purchases of securities when the amount of money borrowed exceeds 5% of the market value of its total assets. LENDING PORTFOLIO SECURITIES The Fund may lend portfolio securities to brokers, dealers and other financial institutions needing to borrow securities to complete transactions and for other purposes. Because the government securities or other assets that are pledged as collateral to the Fund in connection with these loans generate income, securities lending enables a WEBS Index Series to earn additional income that may partially offset the expenses of such WEBS Index Series, and thereby reduce the effect that expenses have on such WEBS Index Series' ability to provide investment results that substantially correspond to the price and yield performance of its respective MSCI Index. These loans may not exceed 33% of a WEBS Index Series' total assets. The documentation for these loans provide that the WEBS Index Series will receive collateral equal to at least 100% of the current market value of the loaned securities, as marked to market each day that the net asset value of the WEBS Index Series is determined, consisting of government securities or other assets permitted by applicable regulations and interpretations. A WEBS Index Series pays reasonable administrative and custodial fees in connection with the loan of securities. The WEBS Index Series invests collateral in Short-Term Investments. Morgan Stanley Trust Company ("MSTC") serves as Lending Agent of the Fund and, in such capacity, shares equally with the respective WEBS Index Series any net income earned on invested collateral. A WEBS Index Series' share of income from the loan collateral is included in the WEBS Index Series' gross investment income. The Fund will comply with the conditions for lending established by the Securities and Exchange Commission (the "SEC"). The SEC currently requires that the following conditions be met whenever portfolio securities are loaned: (1) the WEBS Index Series must receive at least 100% collateral from the borrower; (2) the borrower must increase such collateral whenever the market value of the securities lent rises above the level of the collateral; (3) the WEBS Index Series must be able to terminate the loan at any time; (4) the WEBS Index Series must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities, and any increase in market value; (5) the WEBS Index Series may pay only reasonable custodian fees in connection with the loan and will pay no finder's fees; and (6) while voting rights on the loaned securities may pass to the borrower, the Fund's Board of Directors (the "Board" or the "Directors") must terminate the loan and regain the right to vote the securities if a material event adversely affecting the investment occurs. Although each WEBS Index Series will receive collateral in connection with all loans of portfolio securities, and such collateral will be marked to market, the WEBS Index Series will be exposed to the risk of loss should a borrower default on its obligation to return the borrowed securities (e.g., the loaned securities may have appreciated beyond the value of the collateral held by the Fund). In addition, each WEBS Index Series bears the risk of loss of any cash collateral that it invests in Short-Term Investments. CURRENCY TRANSACTIONS The investment policy of each WEBS Index Series is to remain as fully invested as practicable in the equity securities of the relevant market. Hence, no WEBS Index Series of the Fund expects to engage in currency transactions for the purpose of hedging against declines in the value of the WEBS Index Series' currency. A WEBS Index Series may enter into foreign currency forward and foreign currency futures contracts to facilitate local securities settlement or to protect against currency exposure in connection with its distributions to shareholders, but may not enter into such contracts for speculative purposes or as a way of protecting against anticipated adverse changes in exchange rates between foreign currencies and the U.S. dollar. 8 42 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 currency at a specified price 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. REPURCHASE AGREEMENTS Each WEBS Index Series may invest in repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances and to invest securities lending cash collateral. A repurchase agreement is an agreement under which a WEBS Index Series acquires a money market instrument (generally a security issued by the U.S. Government or an agency thereof, a banker's acceptance or a certificate of deposit) from a seller, subject to resale to the seller at an agreed upon price and date (normally, the next business day). A repurchase agreement may be considered a loan collateralized by securities. The resale price reflects an agreed upon interest rate effective for the period the instrument is held by a WEBS Index Series and is unrelated to the interest rate on the underlying instrument. In these transactions, the securities acquired by a WEBS Index Series (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and are held by the Fund's custodian bank until repurchased. In addition, the Fund's Board of Directors monitors the Fund's repurchase agreement transactions generally and has established guidelines and standards for review of the creditworthiness of any bank, broker or dealer counterparty to a repurchase agreement with a WEBS Index Series. No more than an aggregate of 15% of the WEBS Index Series' net assets will be invested in repurchase agreements having maturities longer than seven days and securities subject to legal or contractual restrictions on resale, or for which there are no readily available market quotations. A WEBS Index Series will enter into repurchase agreements only with Federal Reserve member banks with minimum assets of at least $2 billion or registered securities dealers. The use of repurchase agreements involves certain risks. For example, if the other party to the agreement defaults on its obligation to repurchase the underlying security at a time when the value of the security has declined, the Fund may incur a loss upon disposition of the security. If the other party to the agreement becomes insolvent and subject to liquidation or reorganization under the Bankruptcy Code or other laws, a court may determine that the underlying security is collateral for a loan by a WEBS Index Series not within the control of the WEBS Index Series and therefore the WEBS Index Series may not be able to substantiate its interest in the underlying security and may be deemed an unsecured creditor of the other party to the agreement. While the Fund's management acknowledges these risks, it is expected that they can be controlled through careful monitoring procedures. FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS Each WEBS Index Series may utilize futures contracts, options and swap agreements to the extent described in the Prospectus. Futures contracts generally provide for the future sale by one party and purchase by another party of a specified commodity at a specified future time and at a specified price. Stock index futures contracts are settled by the payment by one party to the other of a cash amount based on the difference between the level of the stock index specified in the contract and at maturity of the contract. Futures contracts are standardized as to maturity date and underlying commodity and are traded on futures exchanges. At the present time, there are no liquid futures contracts traded on most of the benchmark indices of the WEBS Index Series. In such circumstances a WEBS Index Series may use futures contracts, and options on futures contracts, based on other local market indices or may utilize futures contracts, and options on such contracts, on other indices or combinations of indices that the Adviser believes to be representative of the relevant benchmark index. Although futures contracts (other than cash settled futures contracts including most stock index futures contracts) by their terms call for actual delivery or acceptance of the underlying commodity, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out an open futures position is done by taking an opposite position ("buying" a contract which has previously been "sold," or "selling" a contract previously "purchased") in an identical contract to terminate the position. Brokerage commissions are incurred when a futures contract position is opened or closed. Futures traders are required to make a good faith margin deposit in cash or government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying commodity or payment of the cash settlement amount) if it is not terminated prior to the specified delivery date. Relatively low initial margin requirements are established by the futures exchanges and may be changed. Brokers may establish deposit requirements which are higher than the exchange minimums. Futures contracts are customarily purchased and sold on margin deposits which may range upward from less than 5% of the value of the contract being traded. After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy margin requirements, payment of additional "variation" margin will be required. Conversely, change in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as 9 43 the contract remains open. The Fund expects to earn interest income on its margin deposits. Each WEBS Index Series may use futures contracts and options thereon, together with positions in cash and Short-Term Investments, to simulate full investment in the underlying index. As noted above, liquid futures contracts are not currently available for the benchmark indices of many WEBS Index Series. In addition, the Fund is not permitted to utilize certain stock index futures under applicable law. Under such circumstances, the Adviser may seek to utilize other instruments that it believes to be correlated to the underlying index. RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS A WEBS Index Series will not enter into futures contract transactions for purposes other than hedging to the extent that, immediately thereafter, the sum of its initial margin deposits on open contracts exceeds 5% of the market value of a WEBS Index Series' total assets. Assets committed to initial margin deposits for futures and options on futures are held in a segregated account at the Fund's custodian bank. Each WEBS Index Series will take steps to prevent its futures positions from "leveraging" its portfolio. When it has a long futures position, it will maintain in a segregated account with its custodian bank, cash or high quality debt securities having a value equal to the purchase price of the contract (less any margin deposited in connection with the position). When it has a short futures position, it will maintain in a segregated account with its custodian bank assets substantially identical to those underlying the contract or cash and high quality debt securities (or a combination of the foregoing) having a value equal to its obligations under the contract (less the value of any margin deposits in connection with the position). SWAP AGREEMENTS Swap agreements are contracts between parties in which one party agrees to make payments to the other party based on the change in market value or level of a specified index or asset. In return, the other party agrees to make payments to the first party based on the return of a different specified index or asset. Although swap agreements entail the risk that a party will default on its payment obligations thereunder, each WEBS Index Series seeks to reduce this risk by entering into agreements that involve payments no less frequently than quarterly. The net amount of the excess, if any, of a WEBS Index Series' obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of cash or high quality debt securities having an aggregate value at least equal to the accrued excess is maintained in a segregated account at the Fund's custodian bank. FUTURE DEVELOPMENTS Each WEBS Index Series may take advantage of opportunities in the area of options, and futures contracts, options on futures contracts, warrants, swaps and any other investments which are not presently contemplated for use by such WEBS Index Series or which are not currently available but which may be developed, to the extent such opportunities are both consistent with a WEBS Index Series' investment objective and legally permissible for the WEBS Index Series. Before entering into such transactions or making any such investment, the WEBS Index Series will provide appropriate disclosure. INVESTMENT RESTRICTIONS The Fund has adopted the following investment restrictions as fundamental policies with respect to each WEBS Index Series. These restrictions cannot be changed with respect to a WEBS Index Series without the approval of the holders of a majority of such WEBS Index Series' outstanding voting securities. For purposes of the 1940 Act, a majority of the outstanding voting securities of a WEBS Index Series means the vote, at an annual or a special meeting of the security holders of the Fund, of the lesser of (1) 67% or more of the voting securities of the WEBS Index Series present at such meeting, if the holders of more than 50% of the outstanding voting securities of such WEBS Index Series are present or represented by proxy, or (2) more than 50% of the outstanding voting securities of the WEBS Index Series. A WEBS Index Series may not: 1. Change its investment objective; 2. Lend any funds or other assets except through the purchase of all or a portion of an issue of securities or obligations of the type in which it is permitted to invest (including participation interests in such securities or obligations) and except that a WEBS Index Series may lend its portfolio securities in an amount not to exceed 33% of the value of its total assets; 3. Issue senior securities or borrow money, except borrowings from banks for temporary or emergency purposes in an amount up to 33% of the value of the WEBS Index Series' total assets (including the amount borrowed), valued at the lesser of cost or market, less liabilities (not including the amount borrowed) valued at the time the borrowing is made, and the WEBS Index Series will not purchase securities while borrowings in excess of 5% of the WEBS Index Series' total assets are outstanding, provided, that for purposes of this restriction, short-term credits necessary for the clearance of transactions are not considered borrowings; 10 44 4. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to secure permitted borrowings. (The deposit of underlying securities and other assets in escrow and collateral arrangements with respect to initial or variation margin for currency transactions and futures contracts will not be deemed to be pledges of the WEBS Index Series' assets); 5. Purchase a security (other than obligations of the United States Government, its agencies or instrumentalities) if as a result 25% or more of its total assets would be invested in a single issuer; 6. Purchase, hold or deal in real estate, or oil, gas or mineral interests or leases, but a WEBS Index Series may purchase and sell securities that are issued by companies that invest or deal in such assets; 7. Act as an underwriter of securities of other issuers, except to the extent the WEBS Index Series may be deemed an underwriter in connection with the sale of securities in its portfolio; 8. Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, except that a WEBS Index Series may make margin deposits in connection with transactions in currencies, options, futures and options on futures; 9. Sell securities short; or 10. Invest in commodities or commodity contracts, except that a WEBS Index Series may buy and sell currencies and forward contracts with respect thereto, and may transact in futures contracts on securities, stock indices and currencies and options on such futures contracts and make margin deposits in connection with such contracts. In addition to the investment restrictions adopted as fundamental policies as set forth above, each WEBS Index Series observes the following restrictions, which may be changed by the Board without a shareholder vote. A WEBS Index Series will not: 1. Invest in the securities of a company for the purpose of exercising management or control, or in any event purchase and hold more than 10% of the securities of a single issuer, provided that the Fund may vote the investment securities owned by each WEBS Index Series in accordance with its views; or 2. Hold illiquid assets in excess of 15% of its net assets. An illiquid asset is any asset which may not be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the WEBS Index Series has valued the investment. For purposes of the percentage limitation on each WEBS Index Series' investments in illiquid securities, with respect to each WEBS Index Series, foreign equity securities, though not registered under the Securities Act of 1933 (the "Securities Act"), are not deemed illiquid if they are otherwise readily marketable. Such securities ordinarily are considered to be"readily marketable" if they are traded on an exchange or other organized market and are not legally restricted from sale by the WEBS Index Series. The Adviser monitors the liquidity of restricted securities in each WEBS Index Series' portfolio under the supervision of the Fund's Board. In reaching liquidity decisions, the Adviser considers, inter alia, the following factors: 1. the frequency of trades and quotes for the security; 2. the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; 3. dealer undertakings to make a market in the security; and 4. 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 a percentage limitation is adhered to at the time of investment or contract, a later increase or decrease in percentage resulting from any change in value or total or net assets will not result in a violation of such restriction, except that the percentage limitations with respect to the borrowing of money and illiquid securities will be observed continuously. 11 45 SPECIAL CONSIDERATIONS AND RISKS A discussion of the risks associated with an investment in the Fund is contained in the Prospectus under the heading "Investment Considerations and Risks." The discussion below supplements, and should be read in conjunction with, such section of the Prospectus. NON-U.S. EQUITY PORTFOLIOS An investment in WEBS involves risks similar to those of investing in a broadly-based portfolio of equity securities traded on exchanges in the respective countries covered by the individual WEBS Index Series. These risks include market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. Investing in securities issued by companies domiciled in countries other than the domicile of the investor and denominated in currencies other than an investor's local currency entails certain considerations and risks not typically encountered by the investor in making investments in its home country and in that country's currency. These considerations include favorable or unfavorable changes in interest rates, currency exchange rates, exchange control regulations and the costs that may be incurred in connection with conversions between various currencies. Investing in a WEBS Index Series whose portfolio contains non-U.S. issuers involves certain risks and considerations not typically associated with investing in the securities of U.S. issuers. These risks include generally less liquid and less efficient securities markets; generally greater price volatility; less publicly available information about issuers; the imposition of withholding or other taxes; restrictions on the expatriation of funds or other assets of a WEBS Index Series; higher transaction and custody costs; delays attendant in settlement procedures; difficulties in enforcing contractual obligations; lesser liquidity and significantly smaller market capitalization of most non-U.S. securities markets; lesser levels of regulation of the securities markets; more substantial government involvement in the economy; higher rates of inflation; greater social, economic, and political uncertainty; and the risk of nationalization or expropriation of assets and risk of war. CURRENCY TRANSACTIONS 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 and 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 gaps, interest rate risk and potential interference by foreign governments through regulation of local exchange markets, foreign investment, or particular transactions in foreign currency. If the Adviser 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 WEBS Index Series' return with the performance of the corresponding MSCI Index and may lower the WEBS Index Series' return. The WEBS Index Series could experience losses if the values 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 WEBS Index Series will incur transaction costs, including trading commissions, in connection with certain of its foreign currency transactions. FUTURES TRANSACTIONS Positions in futures contracts and options thereon may be closed out only on an exchange which provides a secondary market for such futures. However, there can be no assurance that a liquid secondary market will exist for any particular futures contract or option at any specific time. Thus, it may not be possible to close a futures or options position. In the event of adverse price movements, a WEBS Index Series would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a WEBS Index Series 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 WEBS Index Series may be required to make delivery of the instruments underlying futures contracts it holds. A WEBS Index Series will minimize the risk that it will be unable to close out a futures or options contract by only entering into futures and options for which there appears to be a liquid secondary market. The risk of loss in trading futures contracts in some strategies is potentially unlimited, due both to the low margin deposits required, and the extremely high degree of leverage involved in futures pricing. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss (or gain) to the investor. For example, if at the time of purchase, 10% of the value of a futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit if the contract were closed out. Thus, entering into long or short futures positions may result in losses well in excess of the amount initially paid. However, given the limited purposes for which futures contracts are used, and the fact that steps will be taken to eliminate the leverage of any futures positions, a WEBS Index Series would presumably have sustained comparable losses if, instead of the futures contracts, it had invested in the underlying financial instrument and sold it after the decline. 12 46 Utilization of futures transactions by a WEBS Index Series involves the risk of imperfect or no correlation to the benchmark index where the index underlying the futures contracts being used differs from the benchmark index. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom a WEBS Index Series has an open position in the futures contract or related option. Most futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that 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. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of future positions and subjecting some futures traders to substantial losses. FEDERAL TAX TREATMENT OF FUTURES CONTRACTS Each WEBS Index Series is required for federal income tax purposes to recognize as income for each taxable year its net unrealized gains and losses on certain futures contracts as of the end of the year as well as those actually realized during the year. In most cases, any gain or loss recognized with respect to the futures contract is considered to be 60% long-term capital gain or loss and 40% short-term capital gain or loss, without regard to the holding period of the contract. Furthermore, sales of futures contracts which hedge against a change in the value of securities held by a WEBS Index Series may affect the holding period of such securities and, consequently, the nature of the gain or loss on such securities upon disposition. A WEBS Index Series may be required to defer the recognition of losses on futures contracts to the extent of any unrecognized gains on related positions held by the WEBS Index Series. In order for a WEBS Index Series to continue to qualify for federal income tax treatment as a regulated investment company, 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 WEBS Index Series' business of investing in securities. It is anticipated that any net gain realized from the closing out of futures contracts will be considered gain from the sale of securities and therefore will be qualifying income for purposes of the 90% requirement. Each WEBS Index Series distributes to shareholders annually any net capital gains which have been recognized for federal income tax purposes (including unrealized gains at the end of the WEBS Index Series' fiscal year) on futures transactions. Such distributions are combined with distributions of capital gains realized on the WEBS Index Series' other investments and shareholders are advised on the nature of the distributions. CONTINUOUS OFFERING The method by which Creation Units of WEBS are created and traded may raise certain issues under applicable securities laws. Because new Creation Units of WEBS are issued and sold by the Fund 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 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 Units after placing an order with the Distributor, breaks them down into constituent WEBS, and sells such WEBS directly to customers, or if it chooses to couple the creation of a supply of new WEBS with an active selling effort involving solicitation of secondary market demand for WEBS. A determination of whether one is an underwriter for the 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. In any event, broker-dealer firms should also note that dealers who are not "underwriters" but are effecting transactions in WEBS, whether or not participating in the distribution of WEBS, 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 WEBS are reminded that under 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 exchange is satisfied by the fact that the WEBS Index Series' prospectus is available at the exchange (i.e., the AMEX) upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange and not with respect to "upstairs" transactions. 13 47 REGIONAL AND COUNTRY-SPECIFIC ECONOMIC CONSIDERATIONS [TO BE UPDATED] Europe In 1986, the member states of the European Community (the "Member States") signed the "Single European Act," an agreement to establish a free market. Although developing a unified common European market has promoted the free flow of goods and services, in 1993 tight monetary policies and high inflation caused Europe's economies to ebb into recession. The 1995 General Agreement on Trade and Tariffs (GATT) has attempted to resist protectionism and Europe's economies improved, fueled by increased exports. This recovery was aided by the U.S. dollar's recovery in the spring of 1995. While interest rates have continued to decline, some countries' tight monetary conditions remain an obstacle to stronger growth and a threat to exchange market stability. The Maastricht Treaty on economic and monetary union (the "EMU") is intended to provide its members with a stable monetary framework. The EMU is likely to take place in 1999 with only a limited number of countries; however, the community will be challenged in the future to allow more countries in the monetary union while maintaining its stability. Austria. Austria's small population and limited domestic market are insufficient to support single large industrial sectors. Also, raw materials are limited and the terrain supports only a small agricultural sector. With its skilled labor force, however, Austria has focused on special niche industries for export, with high value added through technological applications. In addition, a vibrant services sector, based initially on tourism, has emerged and accounts for 64% of Gross Domestic Product ("GDP"). As a result of the second world war, much of the Austrian industrial sector was converted to public ownership. Austria had established the Austrian Industrial Administration Company ("OIAG") to function as a holding company for these nationalized industries. With the global recession and the troublesome state of public finance in Austria, the government, attempting to reduce the drain of the OIAG on the country's budget, reduced the OIAG's labor force and reorganized the OIAG into seven separate holding companies. The reorganization of the OIAG, along with public asset sales, helped to reduce the budget deficit from 5.1% of GDP in 1986 to 3.3% of GDP in 1992. Losses in 1993, however, caused the government to begin selling the group to the private sector. Along with the steady trend toward privatizations, the importance of foreign capital has increased. Belgium. Rising new industries in Belgium include light engineering, chemicals and food processing and services, with the service industry sector accounting for approximately 70% of GDP. Although the agricultural sector is small, accounting for only 2% of GDP, its importance is reflected in Belgium's thriving food processing business. Some of Belgium's traditional industries have experienced a steep decline over the past two decades, such as coal, steel, textiles and heavy engineering, but this decline has, in part, been offset by the rising new industries. Company ownership is held by a few large private sector groups through a web of holding and operating companies. Belgium's open trade policy together with a successful strategy of competitive disinflation and lower domestic demand growth has led to substantial current account surpluses. Exports are running at approximately 77% of GDP and imports at 74%. High unemployment and a large government deficit continue to occupy the government's attention. Through a series of expenditure reductions and tax increases, the government was able to reduce the deficit to 5.9% of GDP in 1990, but this trend reversed itself in 1991. The rise in the deficit was fueled by economic slowdown followed by a recession in 1993, while social security and interest payments continued to rise. By 1993, the recessive economy coupled with rising social security and interest payments caused the deficit to increase to 7.2% of GDP. With the debt to GDP ratio standing at 134.3% in 1995 and the Maastricht criteria to be fulfilled, Belgium has implemented a series of tough fiscal restrictions during the last four years. As a result, the budget deficit has fallen from 7.2% of GDP in 1993 to around 3% in 1996 and the debt to GDP ratio has also started to decline. France. France is a leading industrial and agricultural country. Its large service sector, accounting for approximately two-thirds of GDP, includes tourism, transportation and computer consultancy. The once dominant iron and steel and textiles and clothing industries have given way to the fast growing aerospace, chemicals and pharmaceuticals, plastics and telecommunications industries. The automobile industry, however, is still the most important industry in France, accounting for one-twelfth of the labor force and one-sixth of exports. The two economic concerns that have plagued France for the past decade are a large budget deficit and high unemployment (currently approximately 12%). In May 1993, the government, in an effort to correct these problems, imposed excise duties and implemented government expenditure cuts. Soon thereafter, the government imposed additional measures to foster employment creation and conducted the largest government bond issue to date. In addition, in 1993, the government restarted privatizing state-owned enterprises. 14 48 In 1995, the government attempted to strike a balance between reducing the budget deficit and stimulating growth. In May 1995, the government imposed tax increases to reduce the budget deficit consisting of a 2% increase in value-added tax and a 10% surcharge on corporate income tax. These measures, while termed temporary, will remain in effect until at least 1997. In 1996, the government started to implement a far reaching reform of the social security system, despite a strong popular opposition which resulted in a protracted strike. The reform aims to curb healthcare spending through tighter control from the Parliament and supervisory bodies. The economic challenges facing the government for the next few years include reducing the budget deficit to a level acceptable under the EMU, downsizing and restructuring the public sector, curbing high unemployment and going further in controlling social security spending. Germany. Germany, the third largest economy in the world, has faced substantial economic challenges from the reunification of East and West Germany. The former East Germany, which had been insulated from any real competition, was under-invested in housing and infrastructure and, generally, was not geared to handle full economic and political union with West Germany. In addition, while the West German government intended to finance the costs of reunification with increased taxes, the costs proved to be much greater than anticipated due to the high cost of social security transfers, extensive environmental damage and a generally worse economic condition than expected. As a result, in 1993, the public sector deficit rose from 0% to 7.5% and the Bundesbank (central bank) sharply raised interest rates, which, in turn, caused the economy to recess. In 1994, Germany began to recover from recession, but rising interest rates restricted market advances. Eastern Germany has also experienced an upturn in its economy with GDP rates running in excess of 7%, which has enhanced cost competitiveness. Much of Germany's fiscal health and prosperity over the next few years will depend on the continued growth of capitalism in eastern Germany. In addition, to comply with the Maastricht Treaty, Germany must cut government debt from a projected 62% of GDP next year to less than 60%. The failure, either political or economic, of Germany's ability to cut spending while also funding the restoration of the East to fiscal health could negatively impact the German stock market. Italy. Italy is a net importer of agricultural products and imports most of its energy products. Aside from tourism and design, Italy is not very competitive in the service sector. Through networks of small and medium-sized companies, Italy's strengths lie in its manufacturing sector, particularly machine tools and consumer goods. In the early 1990s, industry began to struggle to compete as a result of wage increases and an exchange rate policy designed to limit the effect of government borrowing on the inflation rate. Since the collapse of the lira in September 1992, however, exports have recovered. The Bank of Italy, operating autonomously, has historically followed a tough monetary policy in an effort to prevent government borrowing from causing inflation. Beginning in 1992, the government implemented a fiscal policy that reduced government borrowings through tax measures and spending cuts. After a 1995 budget that included some temporary revenue raising measures and cuts to the pension system, health service, local government and defense, the government delivered to parliament an ambitious draft budget law in 1996. Indeed, this legislation sought to bring forward the 3%-of-GDP deficit target from 1998 to 1997 through a combination of higher taxes and one-off measures. In 1992, Italy also began a privatization program by transferring major state holdings to joint-stock companies as an intermediate step to total or, at least partial, floatation on the stock exchange. Although the privatization program was somewhat curbed in 1994, privatization was partly resumed in 1995-1996. The Netherlands. The Netherlands boasts one of the highest levels of GDP per capita in the world. Although its most important sector is industrial, the Netherlands also benefits from agricultural and natural gas resources. Foreign trade is vital to the Netherlands, accounting for approximately 50% of GDP. The recovery of exports by the end of the 1980s was fueled by government policies on wage moderation, although such policies resulted in increased unemployment. In addition, the reunification of Germany resulted in a surge in demand for exports. Public spending has exceeded 50% of GDP, including transfer payments. The public-sector deficit has been a political and economic problem and has received heightened government attention. While the deficit has been reduced recently, further reduction remains a key government objective. Spain. Spain's entry into the European Community in 1986 was followed by a period of rapid economic growth. Economic growth did not continue, however, and the government's restrictive monetary policy and the overvalued peseta 15 49 contributed to a downturn in investment and a rise in unemployment in the early 1990s. Currently, the government faces the challenges of addressing the domestic concerns of controlling inflation, reducing a large government deficit and effecting labor reform against the competing interests of maintaining a monetary policy suitable for Spain's participation in the EMU. In June 1989, Spain joined the Exchange Rate Mechanism of the European Monetary System with the aim of maintaining a stable currency. The resulting huge inflows of foreign capital caused the Spanish economy to lose some of its competitiveness. Despite the devaluation of the peseta and the easing of monetary policy in 1993, Spain slipped into its worst recession in 30 years. Since then, economic growth has begun to recover, reaching 2.1% in 1994 and 3.0% in 1995. Although the government has in the past displayed an inability to control spending, it may be making some progress in this area. The budget law that is currently undergoing parliamentary ratification would freeze public-sector wages, cut public works spending and reduce government purchases of goods and services. In June of 1994, Spain experienced a general strike by the trade unions. The strike, while unsuccessful, has led to reforms in the labor market to ease rigid regulations that govern permanent job contracts. Sweden. Sweden has a highly developed and successful industrial sector. The chief industries, most of which are under private ownership, include textiles, furniture, electronics, dairy, metals, ship building, clothing, engineering, chemicals, food processing, fishing, paper, oil and gas, automobiles and shipping. Productivity, as measured by GDP per capita, is well above the European average, although two-thirds of GDP passes through the public sector. Sweden recently suffered a severe recession with a total fall in GDP of 5% from 1990 to 1993. However, economic recovery in 1994 resulted in a 2% increase in GDP. The result of the recession and the slow growth of GDP thereafter has led to a drop in the standard of living in Sweden. The government has traditionally afforded its citizens generous benefits for unemployment, sick leave, child care, elder care and general public welfare, along with state-provided medical care. This extensive social welfare system, however, has proved to be extremely costly during recent decades, resulting in growing government deficits. In addition, Sweden has a history of supporting an inefficient agricultural sector with subsidies ranging up to 75% (the recent average for Europe has been approximately 35%-45%). Also, unemployment has remained fairly high and, because the income scale tends to be flat, little income advantage results from career advancement. Almost half of personal disposable income received by Swedes was the result of transfer payments, a system for redistributing wealth. Sweden, which joined the European Community on January 1, 1995, has been under strong pressure to bring its public finance under control. Fiscal consolidation, which will entail a tightening of policy over a period of four years, began in 1995. The implementation of these measures is on track and it is probable that Sweden will achieve a balanced budget in 1998. The resulting improvement in investor and business confidence has boosted Swedish economic prospects and, despite the continued fiscal tightening, such economic prospects are some of the best in Europe for the remainder of the decade. Switzerland. Switzerland's lack of raw materials has caused it to base economic growth on its highly skilled labor market and its technological expertise in manufacturing. Switzerland's strengths lie in chemicals and pharmaceuticals, watches and precision instruments, engineering, food, financial services and tourism. In addition, its small domestic market has caused substantial reliance on exports, which accounted for 36% of GDP in 1994. With a heavy dependence on foreign labor to supplement its labor force, Switzerland has historically experienced low unemployment levels. From 1990 through the first half of 1995, however, unemployment rose substantially, peaking at 5% in 1994. In addition, high labor costs tend to reduce price competitiveness, although this has been partially offset by low inflation and moves to higher value-added products and services. United Kingdom. Following a long recession that ended in 1992, the United Kingdom saw 2% growth in GDP in 1993 amidst the global recession. The reduced demand from foreign markets stemming from the global recession of 1993-94 hurt the United Kingdom's economy. In addition, foreign investment is crucial to the continued economic recovery, but the United Kingdom faces heavy competition for foreign investment from its European neighbors. Anti-union sentiment exists in the United Kingdom and the failed attempt to tie the pound to the European Currency Unit has resulted in higher inflation. Accordingly, the United Kingdom has not been as active a participant in formulating European Community policies as it might have been. REAL GDP ANNUAL RATE OF GROWTH (ANNUAL % CHANGE) 16 50
1996 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- Austria ........................................................... 1.8 3.0 0.4 2.0 2.8 Belgium ........................................................... 3.0 2.6 -1.6 1.8 2.2 France ........................................................... 2.2 2.8 -1.3 1.2 0.8 Germany ........................................................... 1.9 2.9 -1.1 2.2 5.0 Italy ........................................................... 3.0 2.2 -1.2 0.7 1.2 Netherlands......................................................... 2.4 2.7 0.2 2.0 2.3 Spain ........................................................... 3.0 2.1 -1.2 0.7 2.3 Sweden ........................................................... 3.0 2.6 -2.2 -1.4 -1.1 Switzerland......................................................... 0.7 1.2 -0.8 -0.3 --- United Kingdom...................................................... 2.5 3.9 2.1 -0.5 -2.0
Source: World Economic Outlook, October 1996 (International Monetary Fund) Japan, the Pacific Basin, and Southeast Asia Many Asian countries may be subject to a greater degree of social, political and economic instability than is the case in the United States and Western European countries. Such instability may result from (i) authoritarian governments or military involvement in political and economic decision-making; (ii) popular unrest associated with demands for improved political, economic, and social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring countries; and (v) ethnic, religious, and racial disaffection. The economies of most of the Asian countries continue to depend heavily upon international trade and are accordingly affected by protective trade barriers and the economic conditions of their trading partners, principally the United States, Japan, China and the European Community. The enactment by the United States or other principal trading partners of protectionist trade legislation, reduction of foreign investment in the local economies and general declines in the international securities markets could have a significant adverse effect upon the economies and securities markets of the Asian countries. The success of market reforms and a surge in infrastructure spending have fueled rapid growth in many developing countries in Asia. Rapidly rising household incomes have fostered large middle classes and new waves of consumer spending. Increases in infrastructure spending and consumer spending have made domestic demand the growth engine for these countries. Thus, their growth now depends less upon exports. While exports may no longer be the sole source of growth for developing economies, improved competitiveness in export markets has contributed to growth in many of these nations. The increased productivity of many Asian countries has enabled them to achieve, or continue, their status as top exporters while improving their national living standards. Australia. Australia has a prosperous Western-style capitalist economy, with a per capita GDP comparable to levels in industrialized Western European countries. Economic growth accelerated markedly in 1994 as robust domestic spending boosted activity. Australia is rich in natural resources and is the world's largest exporter of beef and wool, the second-largest exporter of mutton, and among the top wheat exporters. Australia is also a major exporter of minerals, metals and fossil fuels. Due to the nature of Australia's exports, a downturn in world commodity prices may have a big impact on its economy. The government is in the process of developing policies to promote foreign investment, expand research and development, increase funding for national landcare and reform public housing policy. Also, the government is supportive of continuing privatization of state-owned enterprises. While economic data suggests an easing from the unsustainable rates of growth reached during 1994, the outlook is for continued, but moderate economic growth. While GDP grew by 3.2% in 1995, debt is expected to continue to rise. Notwithstanding the intensification of the severe drought in eastern Australia, economic growth was strong in 1994-95 with improvements made in reducing unemployment. The drought also contributed to inflation by causing food prices to rise in 1995. In addition, the government's increased taxes on tobacco and motor vehicles contributed to an inflation rate that reached 5.1% in 1995. Hong Kong. Hong Kong's return to Chinese dominion in 1997 has not initially had a positive effect on its economic growth, which was vigorous in the 1980s. Although China has committed by treaty to preserve Hong Kong's economic and social freedoms, the continuation of the current form of the economic system in Hong Kong will depend on the actions of the Chinese government. Business confidence in Hong Kong, therefore, can be significantly affected by such developments, which in turn can affect markets and business performance. In preparation for 1997, Hong Kong continued to develop trade with China, where it is the largest foreign investor, while also maintaining its long-standing export relationship with the United States. Spending on infrastructure improvements is a significant priority of the colonial government while the private sector continues to diversify abroad based on its position as an established international trade center in the Far East. It is important to note that a substantial portion of the companies listed on the Hong Kong Stock Exchange are involved in real 17 51 estate related business. Much speculation centers around what China will do now that it has come back into possession of Hong Kong. There can be no assurance that the transition to Chinese rule will not have serious adverse effects on the value of Hong Kong stocks, and thus on the value of WEBS of the Hong Kong WEBS Index Series. The Hong Kong market's growth over the past decade has not come without much volatility, and there is no doubt that volatility will continue to characterize the market, not only because of political uncertainties but because the market has traditionally been dominated by the actions of a few large trading blocks. Japan. Japan's economy, the second-largest in the world, has grown substantially over the last three decades. However, in 1995, the Japanese economy expanded by just 0.9% and its budget showed a deficit of 5.9% of GDP. The boom in Japan's equity and property markets during the expansion of the late 1980's supported high rates of investment and consumer spending on durable goods, but both of these components of demand have now retreated sharply following the decline in asset prices. Profits have fallen sharply, unemployment has reached a historical high and consumer confidence is low. The banking sector continues to suffer from non-performing loans. Numerous discount-rate cuts since its 6% peak in 1991, a succession of fiscal stimulus packages, support plans for the debt-burdened financial system and spending for reconstruction following the Kobe earthquake may help to contain the recessionary forces, but substantial uncertainties remain. In addition to a cyclical downturn, Japan is suffering through structural adjustments. Like the Europeans, the Japanese have seen a deterioration of their competitiveness due to high wages, a strong currency and structural rigidities. Finally, Japan is reforming its political process and deregulating its economy. This has brought about turmoil, uncertainty and a crisis of confidence. While the Japanese governmental system itself seems stable, the dynamics of the country's politics have been unpredictable in recent years. The economic crisis of 1990-92 brought the downfall of the conservative Liberal Democratic Party, which had ruled since 1955. Since then, the country has seen a series of unstable multi-party coalitions and several prime ministers come and go, because of politics as well as personal scandals. While there appears to be no reason for anticipating civic unrest, it is impossible to know when the political instability will end and what trade and fiscal policies might be pursued by the government that emerges. Japan's heavy dependence on international trade has been adversely affected by trade tariffs and other protectionist measures as well as the economic condition of its trading partners. While Japan subsidizes its agricultural industry, only 19% of its land is suitable for cultivation and it is only 50% self-sufficient in food production. Accordingly, it is highly dependent on large imports of wheat, sorghum and soybeans. In addition, industry, its most important economic sector, depends on imported raw materials and fuels, including iron ore, copper, oil and many forest products. Japan's high volume of exports, such as automobiles, machine tools and semiconductors, have caused trade tensions, particularly with the United States. Some trade agreements, however, have been implemented to reduce these tensions. The relaxing of official and de facto barriers to imports, or hardships created by any pressures brought by trading partners, could adversely affect Japan's economy. A substantial rise in world oil or commodity prices could also have a negative affect. The strength of the yen itself may prove an impediment to strong continued exports and economic recovery, because it makes Japanese goods sold in other countries more expensive and reduces the value of foreign earnings repatriated to Japan. Because the Japanese economy is so dependent on exports, any fall-off in exports may be seen as a sign of economic weakness, which may adversely affect the market. Geologically, Japan is located in a volatile area of the world, and has historically been vulnerable to earthquakes, volcanoes and other natural disasters. As demonstrated by the Kobe earthquake in January of 1995, in which 5,000 people were killed and billions of dollars of damage was sustained, these natural disasters can be significant enough to affect the country's economy. Malaysia. Over the last two decades, Malaysia has experienced rapid industrialization, transforming a once commodity driven economy to one dominated by the manufacturing sector. Although commodities remain important to the Malaysian economy, where tin, rubber, palm oil, timber, oil and gas have played a leading role, the electronics sector is now, by far, the fastest growing and most important sector. In fact, Malaysia has become the world's third-largest producer of semiconductor devices (after the U.S. and Japan) and the world's largest exporter of semiconductor devices. The high rates of investment that have been required to sustain Malaysia's rapid growth have been met with high rates of domestic savings and significant inflows of foreign direct investment. This combination has been instrumental in maintaining fast growth while simultaneously limiting inflationary pressures. Although free repatriation of profits is allowed, Malaysia has experienced a high rate of reinvestment of profits on foreign direct investment. The Bank Negara Malaysia (the central bank) manages the exchange value of the currency against a basket of currencies. The ringgit has been relatively stable, which has translated into low and stable inflation. In 1993 speculative capital inflows became difficult to manage and the central bank imposed capital controls including segregation of 18 52 non-resident funds and strict limits on banks' activities across frontiers. As a result, share prices on the national exchange fell and the value of the ringgit dropped. Although these monetary policies were subsequently rescinded, the threat of such future action may deter capital inflows. While inflation has been kept in check, in part through government intervention to control prices, inflationary pressures still exist. Rapid economic growth has led to shortages, some inefficiencies and rising imports. The government, however, has been reluctant to take certain deflationary steps because of the fear of endangering the private investment needed for economic growth. The future direction of Malaysian manufacturing, and the economy as a whole, depends on the performance of manufactured exports. Foreign direct investment is the source of Malaysia's export dynamism. Malaysia is developing its human capital base and its infrastructure in order to continue to attract foreign investment. But this strategy has led to an increased import-intensity of growth. It also makes Malaysia vulnerable to potentially volatile foreign capital flows and downturns in demand in its export markets. Malaysia's continued success depends on reducing the import content of exports through increased technology transfer to develop linkages between exporters and domestic input supplies. Singapore. Singapore has become a high-income, highly industrialized country though rapid growth in its manufacturing sector due in large part to significant foreign investment. Of particular importance is the electronics industry where Singapore is the leading producer of disk drives. The financial and business services sector has also experienced recent growth, while mining and agriculture are of minimal importance. The oil refining and chemicals industry has long been important and a significant pharmaceuticals sector has emerged. Since 1987, annual growth has been high, ultimately reaching 10% in 1993 and 1994 and 9% in 1995. This sustained annual growth can be attributed to high investment and exports. Personal consumption growth has been low, making Singapore the highest saving country in the world. The government has followed an interventionist economic policy with respect to its individual industries. To instill faith in its interventionist policies, the government has sought to maintain economic stability. The taxes are relatively high, but rates are stable. Monetary policy has aimed at keeping inflation low by using the exchange rate as the main instrument. Labor market pressure has been controlled by setting limits on the percentage of foreign labor employed and applying levies on employers of foreign labor. In addition, the government, recognizing that land use is a constraint on growth, has sought to make existing land use more efficient. The government directly holds stakes in individual companies across the board from high-tech defense contractors to low-tech service businesses. The government also holds indirect stakes in firms through a number of agencies. Such government ownership interests may discourage the development of private firms due to fears that the government entities may be given certain advantages not available to private entities. Some privatization of state-owned businesses is ongoing, however, such as the telephone business and certain other utilities. Singapore is heavily dependent on foreign trade with the total value of trade goods and services reaching 278% of GDP in 1994. The country has also seen a large volume of re-export trade. The industrial base is dominated by foreign multinationals, with only a few large domestic firms. While foreign investment is a key to the continued prosperity of Singapore, the main concern about future prospects is that productivity growth has not been consistent over the years. But with one of the highest investment rates in the world, sustaining rapid output growth increasingly will depend on boosting productivity growth. REAL GDP ANNUAL RATE OF GROWTH (ANNUAL % CHANGE)
1996 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- Australia........................................................... 3.2 5.4 3.5 2.3 -1.1 Hong Kong........................................................... n.a 5.4 6.4 6.3 5.1 Japan ........................................................... 0.9 0.5 0.1 1.1 4.0 Malaysia ........................................................... n.a 9.2 8.3 7.8 8.6 Singapore........................................................... 9.0 10.1 10.1 6.0 6.7
Source: World Economic Outlook, October 1996 (International Monetary Fund) Canada Due to its vast geographic area, ranking second in the world only to Russia, Canada has successfully developed into a modern industrial country supplemented by significant agricultural activities and natural resource exploitation, such as oil, gas and timber. With exports amounting to approximately 25% of Canadian production, Canada is highly dependent on the U.S. market as a source of demand for manufacturing, agricultural, energy and other raw material products. Nearly 80% of Canada's external trade is with the U.S. and close ties exist between U.S. and Canadian manufacturers (indeed, two-thirds of foreign direct investment into Canada is from the U.S.). Both the Free Trade Agreement with the U.S. and the North American Free Trade Agreement increased the ties between the two nations, guaranteeing Canada's access to its largest 19 53 export market. In early 1990, due to reduced domestic demand and the beginnings of a downturn in the U.S., the economy ebbed into recession. The recession hit the manufacturing sector the hardest, but continued investment in machinery and equipment indicated that important restructuring steps were underway with a view toward improving productivity. As a result of the recession, tax receipts dwindled and government deficits mushroomed, arriving at approximately 5% of GDP per annum. In addition, Canada's poor export performance during the recession hinted at reduced competitiveness internationally. Since that time, Canada has made some progress in restructuring its industries. At the same time, it has grappled with its fiscal deficits and has crafted a plan to bring its federal budget into balance by the end of the century. Moreover, the provinces have also reined in their fiscal excesses: seven of the ten had balanced budgets in 1996. The fiscal restructuring across all levels of government led to significant public sector job losses; although these were offset for the most part by private sector job gains, overall employment growth remained subpar. As a result, Canada's unemployment rate has remained above 9% since 1990. With the fiscal drag on the economy having reached its maximum in 1996, the continued strength in investment in machinery and equipment, along with a competitively-valued Canadian dollar, suggest that Canada may have brighter prospects in the short run. Risks remain however. Continued economic sluggishness may diminish Canada's fiscal resolve and bring about a call for tax cuts. Given Canada's high level of public sector debt outstanding, this would make it difficult for Canada to maintain over the long run, advances made in its competitiveness. Another significant problem faced by the Canadian economy is the ongoing uncertainty caused by the separatist movement in Quebec, Canada's second largest and second most populous province. After a very narrow defeat in the October, 1995 referendum campaign, Quebec's separatist government vowed to hold another referendum within a year of its reelection. The next provincial election in Quebec must take place by summer, 1999. CANADIAN REAL GDP ANNUAL RATE OF GROWTH (ANNUAL % CHANGE) 1996 1995 2.3 1994 4.1 1993 2.2 1992 0.8 1991 -1.8 Source: World Economic Outlook, October 1996 (International Monetary Fund) Mexico During the period from 1982 through 1994, Mexico pursued far-reaching and comprehensive adjustment policies designed to reform its economy and achieve a return to sustained economic growth. These policies included fiscal discipline, tax reform, trade liberalization, opening the economy to foreign investment, reform of certain public sector prices to conform to market conditions, deregulation, privatization of certain non-strategic public sector enterprises and an exchange rate and monetary policy aimed at slowing the rate of inflation in Mexico to levels approximating those of its major trading partners. While successful in reducing inflation from 159.2% in 1987 to 7.1% in 1994 and achieving real GDP growth averaging 3.0% over the 1990-1994 period, the Mexican economy had certain weaknesses by 1994 that made it unable to withstand the severe internal and external political and economic shocks that occurred in 1994, which resulted in the destabilization of the Mexican economy at the end of 1994, a crisis of confidence on the part of foreign portfolio investors and the economic and financial crisis facing the Mexican government since the beginning of 1995. Weaknesses of the economy that became apparent in 1994 included a reduced level of domestic savings and a government exchange rate policy that over time resulted in the progressive overvaluation of the peso. During 1994, internal and external events combined to complicate the management of the Mexican economy. Progressive increases in interest rates in the United States, and prospects of further increases, made Mexican investments relatively less attractive to foreign portfolio investors. In addition, a series of internal disruptions and political events, including the insurgents' attack in the southern state of Chiapas, the assassinations of certain political leaders and the resulting uncertainty regarding the fairness of elections and the kidnaping of several prominent businessmen, caused some investors to believe that the Mexican political system was less stable than had been believed. In December 1994, a sharp and rapid devaluation of the peso ensued. The devaluation contributed to a rise in inflation, which totaled 55.2% in 1995. The devaluation also raised concerns about Mexico's ability to repay its short-term obligations and the stability of the Mexican banking system. These concerns led to sharply higher interest rates and reduced opportunities for refinancing or refunding debt issues in 1995. In 1995, the government amortized US$ 29 billion of 20 54 short-term dollar-linked debt, of which two thirds was actually paid in dollars. In 1995, the government, through various initiatives and programs, endeavored to restore stability to Mexico's financial and foreign exchange markets, lower inflation rates, enhance international competitiveness, protect the solvency of the banking system and stimulate economic recovery and job creation. The government was successful in reducing inflation and the volatility of the exchange rate and reducing nominal interest rates. Furthermore, Mexico's GDP, which declined 6.2% according to official government estimates, is officially projected to grow by 3.7% in 1996 and inflation is expected to total 26.2%, according to estimates from Mexico's Ministry of Finance. Mexico's balance of payments deficit, which equaled US$29.4 billion in 1994, fell to US$654 million in 1995 and is expected to equal US$1,014 million in 1996, all according to official government estimates. However, it is unclear whether these initiatives will continue to be successful in dealing with Mexico's severe economic problems. MEXICO REAL GDP RATE OF GROWTH (ANNUAL % CHANGE) 1996 1995 n.a. 1994 3.5 1993 0.6 1992 2.8 1991 3.6 Source: World Economic Outlook, October 1996 (International Monetary Fund) THE MSCI INDICES IN GENERAL The Indices were founded in 1969 by Capital International S.A. as the first international performance benchmarks constructed to facilitate accurate comparison of world markets. Morgan Stanley acquired rights to the Indices in 1986. The MSCI Indices have covered the world's developed markets since 1969, and in 1988, MSCI commenced coverage of the emerging markets. Although local stock exchanges have traditionally calculated their own indices, these are generally not comparable with one another, due to differences in the representation of the local market, mathematical formulas, base dates and methods of adjusting for capital changes. MSCI applies the same criteria and calculation methodology across all markets for all indices, developed and emerging. MSCI Indices are notable for the depth and breadth of their coverage. MSCI generally seeks to have 60% of the capitalization of a country's stock market reflected in the MSCI Index for such country. Thus, the MSCI Indices balance the inclusiveness of an "all share" index against the replicability of a "blue chip" index. WEIGHTING All single-country MSCI Indices are market capitalization weighted, i.e., companies are included in the indices at their full market value (total number of shares issued and paid up, multiplied by price). MSCI believes full market capitalization weighting is preferable to other weighting schemes for both theoretical and practical reasons. MSCI calculates two indices in some countries in order to address the issue of restrictions on foreign ownership in such countries. The additional indices are called "free" indices, and they exclude companies and share classes not purchasable by foreigners. Free indices are currently calculated for China, Indonesia, Malaysia, Mexico, the Philippines, Singapore and Thailand, and for those regional and international indices which include such markets. Indonesia, Malaysia, Singapore and Thailand currently impose foreign ownership limits on domestic stock, and when the foreign ownership limit is reached, foreigners may only trade with other foreigners, frequently at a price that is higher than the price available to domestic investors. The Free Indices for such countries are designed to reflect the actual investment conditions for international investors by using the foreign prices for stocks where relevant. The Free Indices for Indonesia, Malaysia, Singapore and Thailand will use foreign prices only when a foreign ownership limit is reached on a constituent stock and a determination is made that there is sufficient long-term liquidity at the foreign price. To compensate for the distorting inflation of a company's weight that may occur as a result of using the higher foreign prices for its shares, a compensating factor called a Free Market Capitalization Factor ("FMCF") may be applied to the total number of shares of a "foreign priced" constituent stock in the respective Index. A FMCF is the approximate ratio of domestic price to foreign price and is applied in an effort to align the free market capitalization weight with the domestic market capitalization weight. 21 55 Regional Weights. Market capitalization weighting, combined with a consistent target of 60% of market capitalization, helps ensure that each country's weight in regional and international indices approximates its weight in the total universe of developing and emerging markets. Maintaining consistent policy among MSCI developed and emerging market indices is also critical to the calculation of certain combined developed and emerging market indices published by MSCI. SELECTION CRITERIA The Universe of Securities. The constituents of a country index are selected from the full range of securities available in the market, excluding issues which are either small or highly illiquid. Non-domiciled companies and investment trusts are also excluded from consideration. After the index constituents are chosen, they are reclassified using MSCI's schema of 38 industries and 8 economic sectors in order to facilitate cross-country comparisons. The Optimization Process. The process of choosing index constituents from the universe of available securities is consistent among indices. Determining the constituents of an index is an optimization process which involves maximizing float and liquidity, reflecting accurately the market's size and industry profiles and minimizing cross-ownership. The optimization variables and their targets are: Market Coverage Target 60% of market Industry Representation Mirror the Local Market Liquidity Maximize Float Maximize Cross-Ownership Avoid/Minimize Size Sample with Size Characteristics of Universe
Coverage. To reflect accurately country-wide performance as well as the performance of industry groups, MSCI aims to capture 60% of total market capitalization at both the country and industry level. To reflect local market performance, an index should contain a percentage of the market's overall capitalization sufficient to achieve a high level of tracking. The greater the coverage, however, the greater the risk of including securities which are illiquid or have restricted float. MSCI's 60% coverage target reflects a balance of these considerations. Industry Representation. Within the overall target of 60% market coverage, MSCI aims to capture 60% of the capitalization of each industry group, as defined by local practice. MSCI believes this target assures that the index reflects the industry characteristics of the overall market and permits the construction of accurate industry indices. MSCI may exceed the 60% of market capitalization target in the index for a particular country because, e.g., one or two large companies dominate an industry. Similarly, MSCI may underweight an industry in an index if, e.g., the companies in such industry lack good liquidity and float, or because of extensive cross-ownership. Liquidity. Liquidity is measured by trading value, as reported by the local exchanges. Trading value is monitored over time in order to determine "normal" levels exclusive of short-term peaks and troughs. A stock's liquidity is significant not only in absolute terms (i.e., a determination of the market's most actively traded stocks), but also relative to its market capitalization and to average liquidity for the country as a whole. Float. Float, or the percentage of shares freely tradeable, is one measure of potential short-term supply. Low float raises the risk of insufficient liquidity. MSCI monitors float for every security in its coverage, and low float may exclude a stock from consideration. However, float can be difficult to determine. In some markets good sources are generally not available. In other markets, information on smaller and less prominent issues can be subject to error and time lags. Government ownership and cross-ownership positions can change over time, and are not always made public. Float also tends to be defined differently depending on the source. MSCI seeks to maximize float. As with liquidity, float is an important determinant, but not a hard-and-fast screen for inclusion of a stock in, or exclusion of a stock from, a particular index. Cross-ownership. Cross-ownership occurs when one company has an ownership position in another. In situations where cross-ownership is substantial, including both companies in an index may skew industry weights, distort country-level valuations and over-represent buyable opportunities. An integral part of MSCI's country research is identifying cross-ownerships in order to avoid or minimize them. Cross-ownership cannot always be avoided, especially in markets where it is prevalent. When MSCI makes exceptions, it strives to select situations where the constituents operate in different economic sectors, or where the subsidiary company makes only a minor contribution to the parent company's results. Size. MSCI attempts to meet its 60% coverage target by including a representative sample of large, medium and small capitalization stocks, in order to capture the sometimes disparate performance of these sectors. In the emerging markets, the liquidity of smaller issues can be a constraint. At the same time, properly representing the lower capitalization end of the market risks overwhelming the index with names. Within these constraints, MSCI strives to include smaller capitalization 22 56 stocks, provided they exhibit sufficient liquidity. CALCULATION METHODOLOGY All MSCI Indices are calculated daily using Laspeyres' concept of a weighted arithmetic average together with the concept of "chain-linking," a classical method of calculating stock market indices. The Laspeyres method weights stocks in an index by their beginning-of-period market capitalization. Share prices are "swept clean" daily and adjusted for any rights issues, stock dividends or splits. Most MSCI Indices are currently calculated in local currency and in U.S. dollars, without dividends, with gross dividends reinvested and with net dividends reinvested. With the exception of the Mexico (Free) WEBS Index Series, the Fund's WEBS Index Series utilize MSCI Indices calculated with net dividends reinvested. "Net dividends" means dividends after reduction for taxes withheld at source at the rate applicable to holders of the underlying stock that are resident in Luxembourg. With respect to the Australia, Austria and Germany WEBS Index Series, such withholding rate currently differs from that applicable to United States residents. So-called "un-franked" dividends from Australian companies are withheld at a 30% rate to Luxembourg residents and a 15% rate to the Australia WEBS Index Series (there is no difference in the treatment of "franked" dividends). Austrian companies impose a 15% dividend withholding on Luxembourg residents and an 11% rate on the Austria WEBS Index Series. German companies impose a 15% dividend withholding on Luxembourg residents and a 10% rate on the German WEBS Index Series. The Mexico (Free) WEBS Index Series' benchmark Index, the MSCI Mexico (Free) Index, reflects the reinvestment of gross dividends. "Gross dividends" means dividends before reduction for taxes withheld at source. DIVIDEND TREATMENT In respect of developed markets, MSCI Indices with dividends reinvested constitute an estimate of total return arrived at by reinvesting one twelfth of the year end yield at every month end. In respect of emerging markets, MSCI has constructed its indices with dividends reinvested as follows: - In the period between the ex date and the date of dividend reinvestment, a dividend receivable is a component of the index return. - Dividends are deemed received on the payment date. - To determine the payment date, a fixed time lag is assumed to exist between the ex date and the payment date. This time lag varies by country, and is determined in accordance with general practice within that market. - Reinvestment of dividends occurs at the end of the month in which the payment date falls. PRICE AND EXCHANGE RATES Prices. Prices used to calculate the MSCI Indices are the official exchange closing prices. All prices are taken from the dominant exchange in each market. In countries where there are foreign ownership limits, MSCI uses the price quoted on the official exchange, regardless of whether the limit has been reached. Exchange Rates. MSCI uses WM/Reuters Closing Spot Rates for all developed and emerging markets except those in Latin America. The WM/Reuters Closing Spot Rates were established by a committee of investment managers and data providers, including MSCI, whose object was to standardize exchange rates used by the investment community. Exchange rates are taken daily at 4 p.m. London time by the WM Company and are sourced whenever possible from multi-contributor quotes on Reuters. Representative rates are selected for each currency based on a number of "snapshots" of the latest contributed quotations taken from the Reuters service at short intervals around 4 PM. WM/Reuters provides closing bid and offer rates. MSCI uses these to calculate the mid-point to 5 decimal places. MSCI continues to monitor exchange rates independently and may, under exceptional circumstances, elect to use an alternative exchange rate if the WM/Reuters rate is believed not to be representative for a given currency on a particular day. Because of the high volatility of currencies in some Latin American countries, MSCI continues to use its own timing and sources for these markets. The exchange rate for the MSCI Mexico (Free) Index is that prevailing as of 3:00 p.m. New York City time. CHANGES TO THE INDICES In changing the constituents of the indices, MSCI attempts to balance representativeness versus undue turnover. An index must represent the current state of an evolving marketplace, yet at the same time minimize turnover, which is costly as well as inconvenient for managers. 23 57 There are two broad categories of changes to the MSCI Indices. The first consists of market-driven changes such as mergers, acquisitions, bankruptcies, etc. These are announced and implemented as they occur. The second category consists of structural changes to reflect the evolution of a market, for example due to changes in industry composition or regulations. In the emerging markets, index restructurings generally take place every one year to eighteen months. Structural changes may occur only on four dates throughout the year: the first business day of March, June, September and December. They are preannounced at least two weeks in advance. Additions. Restructuring an index involves a balancing of additions and deletions. To maintain continuity and minimize turnover, MSCI is reluctant to delete index constituents, and its approach to additions is correspondingly stringent. As markets grow because of privatizations, investor interest, or the relaxation of regulations, index additions (with or without corresponding deletions) may be needed to bring industry representations up to the 60% target. Companies are considered not only based on their broad industry, but also based on their sub-sector, in order to achieve, if possible, a broader range of economic activity. Beyond industry representativeness, new constituents are selected based on the criteria discussed above, i.e. float, liquidity, cross-ownership, etc. New Issues. In general, new issues are not eligible for immediate inclusion in the MSCI Indices because their liquidity remains unproven. Usually, new issues undergo a "seasoning" period of one year to eighteen months between index restructurings until a trading pattern and volume are established. After that time, they are eligible for inclusion, subject to the criteria discussed above (industry representation, float, cross-ownership, etc.). In the emerging markets, however, it is not uncommon that a large new issue, usually a privatization, comes to market and substantially changes the country's industry profile. In exceptional circumstances, where the issue's size, visibility and investor interest assure high liquidity, and where excluding it would distort the characteristics of the market, MSCI may decide to include it immediately in the indices. In other cases, MSCI may decide not to include a large new issue even in the normal process of restructuring, and in spite of its substantial size and liquidity. Deletions. MSCI's primary concern when considering deletions is the continuity of the indices. Of secondary concern are the turnover costs associated with deletions. The indices must represent the full investment cycle, including bear as well as bull markets. Out-of-favor stocks may exhibit declining price, market capitalization or liquidity, and yet continue to be good representatives of their industry. Companies may be deleted because they have diversified away from their industry classification, because the industry has evolved in a different direction from the company's thrust, or because a better industry representative exists (either a new issue or an existing company). In addition, in order not to exceed the 60% target coverage of industries and countries, adding new index companies may entail corresponding deletions. Usually such deletions take place within the same industry, but there are occasional exceptions. Each of the MSCI Indices utilized as the benchmark for a WEBS Index Series of the Fund is calculated reflecting dividends reinvested. With the exception of the Mexico (Free) WEBS Index Series, the Fund's WEBS Index Series utilize MSCI Indices calculated with net dividends reinvested. MSCI refers to each of its Indices calculated reflecting net dividends reinvested as the "MSCI [relevant country] Index (with net dividends reinvested)." THE MSCI AUSTRALIA INDEX On August 31, 1997, the MSCI Australia Index (with net dividends reinvested) (the "MSCI Australia") consisted of __ stocks with an aggregate market capitalization of approximately AUD____ billion or US$____ billion. In percentage terms, the MSCI Australia represented approximately ____% of the total market capitalization of Australia on August 31, 1997. The ten largest constituents of the MSCI Australia and the respective approximate percentages of the MSCI Australia represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 24 58 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____of the market capitalization of the MSCI Australia; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Australia; and the largest 20 constituents comprised approximately ____% of the market capitalization of the MSCI Australia. The ten most highly represented industry sectors in the MSCI Australia, and the approximate percentages of the MSCI Australia represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Australia Index as of August 31, 1997. THE MSCI AUSTRIA INDEX On August 31, 1997, the MSCI Austria Index (with net dividends reinvested) (the "MSCI Austria") consisted of __ stocks with an aggregate market capitalization of approximately ATS____ billion or US$____ billion. In percentage terms, the MSCI Austria represented approximately ____% of the total market capitalization of Austria on August 31, 1997. The ten largest constituents of the MSCI Austria and the respective approximate percentages of the MSCI Austria represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Austria; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Austria; and the largest 20 constituents comprised approximately ____% of the market capitalization of the MSCI Austria. The ten most highly represented industry sectors in the MSCI Austria, and the approximate percentages of the MSCI Austria represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Austria Index as of August 31, 1997. 25 59 THE MSCI BELGIUM INDEX On August 31, 1997, the MSCI Belgium Index (with net dividends reinvested) (the "MSCI Belgium") consisted of __ stocks with an aggregate market capitalization of approximately BEF____ billion or US$____ billion. In percentage terms, the MSCI Belgium represented approximately ____% of the total market capitalization of Belgium on August 31, 1997. On August 31, 1997, the ten largest constituents of the MSCI Belgium and the respective approximate percentages of the MSCI Belgium represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Belgium; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Belgium; and the largest 15 constituents comprised approximately ____% of the market capitalization of the MSCI Belgium. The ten most highly represented industry sectors in the MSCI Belgium, and the approximate percentages of the MSCI Belgium represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Belgium Index as of August 31, 1997. THE MSCI CANADA INDEX On August 31, 1997, the MSCI Canada Index (with net dividends reinvested) (the "MSCI Canada") consisted of __ stocks with an aggregate market capitalization of approximately CAD____ billion or US$____ billion. In percentage terms, the MSCI Canada represented approximately ____% of the total market capitalization in Canada on August 31, 1997. The ten largest constituents of the MSCI Canada and the respective approximate percentages of the MSCI Canada represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ = __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% 26 60 As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Canada; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Canada; and the largest 20 constituents comprised approximately ____% of the market capitalization of the MSCI Canada. The ten most highly represented industry sectors in the MSCI Canada, and the approximate percentages of the MSCI Canada represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Canada Index as of August 31, 1997. THE MSCI FRANCE INDEX On August 31, 1997, the MSCI France Index (with net dividends reinvested) (the "MSCI France") consisted of __ stocks with an aggregate market capitalization of approximately FRF____ billion or US$____ billion. In percentage terms, the MSCI France represented approximately ____% of the total market capitalization in France on August 31, 1997. The ten largest constituents of the MSCI France and the respective approximate percentages of the MSCI France represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI France; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI France; and the largest 20 constituents comprised approximately ____% of the market capitalization of MSCI France. The ten most highly represented industry sectors in the MSCI France, and the approximate percentages of the MSCI France represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% 27 61 Appendix A hereto contains a complete list of the securities in the MSCI France Index as of August 31, 1997. THE MSCI GERMANY INDEX On August 31, 1997, the MSCI Germany Index (with net dividends reinvested) (the "MSCI Germany") consisted of __ stocks with an aggregate market capitalization of approximately DEM____ billion or US$____ billion. In percentage terms, the MSCI Germany represented approximately ____% of the total market capitalization in Germany on August 31, 1997. The ten largest constituents of the MSCI Germany and the respective approximate percentages of the MSCI Germany represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Germany; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Germany; and the largest 20 constituents comprised approximately ____% of the market capitalization of MSCI Germany. The ten most highly represented industry sectors in the MSCI Germany, and the approximate percentages of the MSCI Germany represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Germany Index as of August 31, 1997. THE MSCI HONG KONG INDEX On August 31, 1997, the MSCI Hong Kong Index (with net dividends reinvested) (the "MSCI Hong Kong") consisted of __ stocks with an aggregate market capitalization of approximately HKD____ billion or US$____ billion. In percentage terms, the MSCI Hong Kong represented approximately ____% of the total market capitalization in Hong Kong on August 31, 1997. The ten largest constituents of the MSCI Hong Kong and the respective approximate percentages of the MSCI Hong Kong represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 28 62 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Hong Kong; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Hong Kong; and the largest 20 constituents comprised approximately ____% of the market capitalization of MSCI Hong Kong. The ten most highly represented industry sectors in the MSCI Hong Kong, and the approximate percentages of the MSCI Hong Kong represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Hong Kong Index as of August 31, 1997. THE MSCI ITALY INDEX On August 31, 1997, the MSCI Italy Index (with net dividends reinvested) (the "MSCI Italy") consisted of __ stocks with an aggregate market capitalization of approximately ITL____ billion or US$____ billion. In percentage terms, the MSCI Italy represented approximately ____% of the total market capitalization of Italy on August 31, 1997. The ten largest constituents of the MSCI Italy and the respective approximate percentages of the MSCI Italy represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Italy; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Italy; and the largest 20 constituents comprised approximately ____% of the market capitalization of MSCI Italy. The ten most highly represented industry sectors in the MSCI Italy, and the approximate percentages of the MSCI Italy represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% 29 63 Appendix A hereto contains a complete list of the securities constituting the MSCI Italy Index as of August 31, 1997. THE MSCI JAPAN INDEX On August 31, 1997 the MSCI Japan Index (with net dividends reinvested) (the "MSCI Japan") consisted of ___ stocks with an aggregate market capitalization of approximately JPY____ billion or US$____ billion. In percentage terms, the MSCI Japan represented approximately ____% of the total market capitalization in Japan on August 31, 1997. The ten largest constituents of the MSCI Japan and the respective approximate percentages of the MSCI Japan represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Japan; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Japan; and the largest 20 constituents comprised approximately ____% of the market capitalization of the MSCI Japan. The ten most highly represented industry sectors in the MSCI Japan, and the approximate percentages of the MSCI Japan represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities constituting the MSCI Japan Index as of August 31, 1997. THE MSCI MALAYSIA (FREE) INDEX On August 31, 1997, the MSCI Malaysia (Free) Index (with net dividends reinvested) (the "MSCI Malaysia (Free)") consisted of __ stocks with an aggregate market capitalization of approximately MYR____ billion or US$____ billion. In percentage terms, the MSCI Malaysia (Free) represented approximately ____% of the total market capitalization of Malaysia on August 31, 1997. The ten largest constituents of the MSCI Malaysia (Free) and the respective approximate percentages of the MSCI Malaysia (Free) represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 30 64 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Malaysia (Free); the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Malaysia (Free) and the largest 20 constituents comprised approximately ____% of the market capitalization of the MSCI Malaysia (Free). The ten most highly represented industry sectors in the MSCI Malaysia (Free), and the approximate percentages of the MSCI Malaysia (Free) represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities constituting the MSCI Malaysia (Free) Index as of August 31, 1997. THE MSCI MEXICO (FREE) INDEX On August 31, 1997, the MSCI Mexico (Free) Index (with gross dividends reinvested) (the "MSCI Mexico (Free)") consisted of __ stocks with an aggregate market capitalization of approximately MXN____ billion or US$____ billion. In percentage terms, the MSCI Mexico (Free) represented approximately ____% of the total market capitalization of Mexico on August 31, 1997. On August 31,1997, the ten largest constituents of the MSCI Mexico (Free) and the respective approximate percentages of the MSCI Mexico (Free) represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Mexico (Free); the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Mexico (Free); and the largest 20 constituents comprised approximately ____% of the market capitalization of the MSCI Mexico (Free). The ten most highly represented industry sectors in the MSCI Mexico (Free), and the approximate percentages of the MSCI Mexico (Free) represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 31 65 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities constituting the MSCI Mexico (Free) Index as of August 31, 1997. THE MSCI NETHERLANDS INDEX On August 31, 1997, the MSCI Netherlands Index (with net dividends reinvested) (the "MSCI Netherlands") consisted of __ stocks with an aggregate market capitalization of approximately NLG ____ billion or US$____ billion. In percentage terms, the MSCI Netherlands represented approximately ____% of the total market capitalization of the Netherlands on August 31, 1997. The ten largest constituents of the MSCI Netherlands and the respective approximate percentages of the MSCI Netherlands represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Netherlands; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Netherlands; and the largest 20 constituents comprised approximately ____% of the market capitalization of MSCI Netherlands. The ten most highly represented industry sectors in the MSCI Netherlands, and the approximate percentages of the MSCI Netherlands represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Netherlands as of August 31, 1997. THE MSCI SINGAPORE (FREE) INDEX The MSCI Singapore (Free) Index (with net dividends reinvested) (the "MSCI Singapore (Free)") is a "free" index in that it excludes companies and share classes that are not purchasable by foreigners. On August 31, 1997, the MSCI Singapore (Free) consisted of __ stocks with an aggregate market capitalization of approximately SGD____ billion or US$____ billion. In percentage terms, the MSCI Singapore (Free) represented approximately ____% of the total market capitalization of Singapore on August 31, 1997 The ten largest constituents of the MSCI Singapore (Free) and the respective approximate percentages of the MSCI Singapore (Free) represented by such constituents as of August 31, 1997 were in order: 32 66 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Singapore (Free); the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Singapore (Free); and the largest 20 constituents comprised approximately ____% of the market capitalization of the MSCI Singapore (Free). The ten most highly represented industry sectors in the MSCI Singapore (Free), and the approximate percentages of the MSCI Singapore (Free) represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Singapore (Free) as of August 31, 1997. THE MSCI SPAIN INDEX On August 31, 1997, the MSCI Spain Index (with net dividends reinvested) (the "MSCI Spain") consisted of __ stocks with an aggregate market capitalization of approximately ESP____ billion or US$____ billion. In percentage terms, the MSCI Spain represented approximately ____% of the total market capitalization of Spain on August 31, 1997. The ten largest constituents of the MSCI Spain and the respective approximate percentages of the MSCI Spain represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Spain; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Spain; and the largest 20 constituents comprised approximately ____% of the market capitalization of MSCI Spain. The ten most highly represented industry sectors in the MSCI Spain and the approximate percentages of the MSCI Spain represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 33 67 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Spain as of August 31, 1997. THE MSCI SWEDEN INDEX On August 31, 1997, the MSCI Sweden Index (with net dividends reinvested) (the "MSCI Sweden") consisted of __ stocks with an aggregate market capitalization of approximately SEK____ billion or US$___ billion. In percentage terms, the MSCI Sweden represented approximately ____% of the total market capitalization of Sweden on August 31, 1997. The ten largest constituents of the MSCI Sweden and the respective approximate percentages of the MSCI Sweden represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Sweden; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Sweden; and the largest 20 constituents comprised approximately ____% of the market capitalization of the MSCI Sweden. The ten most highly represented industry sectors in the MSCI Sweden, and the approximate percentages of the MSCI Sweden represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Sweden as of August 31, 1997. THE MSCI SWITZERLAND INDEX On August 31, 1997, the MSCI Switzerland Index (with net dividends reinvested) (the "MSCI Switzerland") consisted of __ stocks with an aggregate market capitalization of approximately CHF____ billion or US$____ billion. In percentage terms, the MSCI Switzerland represented approximately ____% of the total market capitalization in Switzerland on August 31, 1997. The ten largest constituents of the MSCI Switzerland and the respective approximate percentages of the MSCI Switzerland represented by such constituents as of August 31, 1997 were, in order: 34 68 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI Switzerland; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI Switzerland; and the largest 20 constituents comprised approximately ____% of the market capitalization of the MSCI Switzerland. The ten most highly represented industry sectors in the MSCI Switzerland, and the approximate percentages of the MSCI Switzerland represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI Switzerland as of August 31, 1997. THE MSCI UNITED KINGDOM INDEX On August 31, 1997 , the MSCI United Kingdom Index (with net dividends reinvested) (the "MSCI UK") consisted of __ stocks with an aggregate market capitalization of approximately GPB____ billion or US$____ billion. In percentage terms, the MSCI UK represented approximately ____% of the aggregate capitalization of the United Kingdom markets on August 31, 1997. The ten largest constituents of the MSCI UK and the respective approximate percentages of the MSCI UK represented by such constituents as of August 31, 1997 were, in order: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% As of August 31, 1997, the largest five constituents together comprised approximately ____% of the market capitalization of the MSCI UK; the largest ten constituents comprised approximately ____% of the market capitalization of the MSCI UK; and the largest 20 constituents comprised approximately ____% of the market capitalization of MSCI UK. The ten most highly represented industry sectors in the MSCI UK, and the approximate percentages of the MSCI UK represented thereby as of August 31, 1997 were: 1. _________............................................................ __% 2. _________............................................................ __% 3. _________............................................................ __% 35 69 4. _________............................................................ __% 5. _________............................................................ __% 6. _________............................................................ __% 7. _________............................................................ __% 8. _________............................................................ __% 9. _________............................................................ __% 10. _________............................................................ __% Appendix A hereto contains a complete list of the securities in the MSCI UK as of August 31, 1997. REGIONAL INDEX REPLICATIONS The MSCI single-country indices effectively serve as components of various MSCI regional and international (i.e., multi-country) indices. For example the MSCI EAFE Index -- covering European, Australasian and the Far Eastern markets - - is comprised of a weighted allocation of the MSCI Indices for Japan (____%), the United Kingdom (____%), Germany (____%), France (____%), Switzerland (____%), Netherlands (____%), Hong Kong (____%), Singapore (____%), Belgium (____%), Malaysia (____%), Australia (____%), Spain (____%), Italy (____%), Sweden (____%), Denmark (____%), Finland (____%), Norway (____%), New Zealand (____%), Austria (____%) and Ireland (____%). The weightings shown parenthetically are based on the EAFE Index as of August 31, 1997. Investors may purchase WEBS of different WEBS Index Series of the Fund in various proportions for the purpose of achieving regional or international market exposure approximating that of certain of the MSCI regional and international indices. For example, assuming the estimated values per Creation Unit listed in the Fund's prospectus under the heading "Creation Units," an investor might approximate the representation and weighting of the MSCI EAFE Index by investing in the numbers of WEBS specified for the following 15 WEBS Index Series, in order to achieve the basket weightings listed below: Number of % of Value WEBS Index Series WEBS of Basket ----------------- ---- --------- Japan _____ __% United Kingdom _____ __% Germany _____ __% France _____ __% Switzerland _____ __% Netherlands _____ __% Hong Kong _____ __% Australia _____ __% Malaysia (Free) _____ __% Italy _____ __% Sweden _____ __% Spain _____ __% Singapore (Free) _____ __% Belgium _____ __% Austria _____ __% The total cost of the above basket of WEBS, again using the values per Creation Unit in the Prospectus, would be $______. It should be noted that the WEBS basket set forth above does not include representation of five countries included in the MSCI EAFE Index, representing ___% of the value of such index on August 31, 1997. EXCHANGE LISTING AND TRADING The WEBS of each WEBS Index Series have been listed for trading on the AMEX. The AMEX has approved modifications to its Rules to permit the listing of WEBS. The non-redeemable WEBS trade on the AMEX at prices that may differ to some degree from their net asset value. See "Special Considerations and Risks" and "Determining Net Asset Value". There can be no assurance that the requirements of the AMEX necessary to maintain the listing of WEBS of any Index Series will continue to be met. The AMEX may remove the WEBS of a WEBS Index Series from listing if (1) following the initial twelve-month period beginning upon the commencement of trading of a WEBS Index Series, there are fewer than 50 beneficial holders of the WEBS for 30 or more consecutive trading days, (2) the value of the underlying index or portfolio of securities on which such WEBS Index Series is based is no longer calculated or available or (3) such other event shall occur or condition exist that, in the opinion of the AMEX, makes further dealings on the AMEX inadvisable. In addition, the AMEX will remove the shares from listing and trading upon termination of the Fund. 36 70 As in the case of other stocks traded on the AMEX, the brokers' commission on transactions will be based on negotiated commission rates at customary levels for retail customers and rates which range between $.015 to $.12 per share for institutions and high net worth individuals. In order to provide current WEBS pricing information, the AMEX disseminates through the facilities of the Consolidated Tape Association an updated "indicative optimized portfolio value" ("IOPV") for each WEBS Index Series as calculated by Bloomberg, L.P ("Bloomberg"). The Fund is not involved in or responsible for any aspect of the calculation or dissemination of the IOPVs, and makes no warranty as to the accuracy of the IOPVs. IOPVs are disseminated on a per WEBS Index Series basis every 15 seconds during regular AMEX trading hours of 9:30 a.m. to 4:00 p.m. New York time. The IOPV has an equity securities value component and a cash component. The equity securities values included in the IOPV are the values of the Deposit Securities for each WEBS Index Series. While the IOPV reflects the current market value of the Deposit Securities required to be deposited in connection with the purchase of a Creation Unit of WEBS, it does not necessarily reflect the precise composition of the current portfolio of securities held by the Fund for each WEBS Index Series at a particular point in time, because the current portfolio of a WEBS Index Series may include securities that are not a part of the current Deposit Securities. Therefore, the IOPV on a per WEBS Index Series basis disseminated during AMEX trading hours should not be viewed as a real time update of the net asset value per WEBS share of the Fund, which is calculated only once a day. It is possible that the value of the portfolio of securities held by the Fund for a particular WEBS Index Series may diverge from the applicable IOPV during any trading day. In such case, the IOPV would not precisely reflect the value of a WEBS Index Series' portfolio. The equity securities included in the IOPV reflect the same market capitalization weighting as the Deposit Securities of the particular WEBS Index Series. In addition to the equity component described in the preceding paragraph, the IOPV for each WEBS Index Series includes a cash component consisting of estimated accrued dividend and other income, less expenses. Each IOPV also reflects changes in currency exchange rates between the U.S. dollar and the applicable home foreign currency. For the WEBS Index Series of Australia, Japan, Malaysia (Free), Hong Kong and Singapore (Free), there is no overlap in trading hours between the foreign market and the AMEX. Therefore, for each of these WEBS Index Series, Bloomberg utilizes closing prices (in applicable foreign currency prices) in the foreign market for securities in the WEBS Index Series portfolio, and converts the price to U.S. dollars. This value is updated every 15 seconds during AMEX trading hours to reflect changes in currency exchange rates between the U.S. dollar and the applicable foreign currency. For WEBS Index Series which have trading hours overlapping regular AMEX trading hours, Bloomberg updates the applicable IOPV every 15 seconds to reflect price changes in the principal foreign market, and converts such prices into U.S. dollars based on the current currency exchange rate. When the foreign market is closed but the AMEX is open, the IOPV is updated every 15 seconds to reflect changes in currency exchange rates after the foreign market closes. MANAGEMENT OF THE FUND DIRECTORS AND OFFICERS OF THE FUND The Board has responsibility for the overall management and operations of the Fund, including general supervision of the duties performed by the Adviser and other service providers. The Board currently consists of five Directors. PRINCIPAL OCCUPATIONS NAME AND ADDRESS POSITION WITH THE FUND DURING PAST FIVE YEARS ---------------- ---------------------- ----------------------
37 71 Nathan Most* Director, President and Senior Vice President (retired) (from 1992 P.O. BOX 193 Chairman of the Board to 1996) and Vice President (from 1980 to BURLINGAME, CA 94011-0193 1992) of the American Stock Exchange, Inc.; AGE 83 President and CEO (retired) (from 1982 to 1996) of AMEX Commodities Corporation. JOHN B. CARROLL Director Vice President of Investment Management PRESIDENT (since 1984) of GTE Corporation; Trustee and GTE INVESTMENT MANAGEMENT CORP. Member of the Executive Committee (since ONE STAMFORD FORUM 1991) of The Common Fund, a non-profit STAMFORD, CT 06904 organization; Member of the Investment AGE 61 Committee (since 1988) of the TWA Pilots Annuity Trust Fund; Vice Chairman and Executive Committee Member (since 1992) of the Committee on Investment of Employee Benefit Assets of the Financial Executive Institute; and Member (since 1986) of the Pension Advisory Committee of the New York Stock Exchange.
PRINCIPAL OCCUPATIONS NAME AND ADDRESS POSITION WITH THE FUND DURING PAST FIVE YEARS ---------------- ---------------------- ---------------------- Timothy A. Hultquist Director Advisory Director (since 1995) and Managing Advisory Director Director (from 1985 to 1995) of Morgan Stanley & Mrogan Stanley & Co., Incorporated Co., Incorporated; Chairman (since 1994) and 1251 Avenue of the Americas Trustee (since 1985) of the Board of Trustees of 23rd Floor Macalester College; Trustee (since 1995) of the New York, NY 10020 Russell Sage Foundation; Member (since 1994) of Age 47 Wilmer Eye Institute Advisory Counsel at Johns Hopkins University Hospital; President (since 1992) of the Hultquist Foundation. Lloyd N. Morrisett Director President (since 1969) of The John and Mary President R. Markle Foundation; Member (since 1968) of The Markle Foundation the Council on Foreign Relations; Member 75 Rockefeller Plaza (since 1970) of the American Association for Suite 1800 the Advancement of Science; Chairman (since New York, NY 10099 1970) of the Children's Television Workshop; Age 67 Director (since 1976) of Haskins Laboratories, Inc.; Director (since 1990) of The Multimedia Corporation; Director (since 1992) of Classroom, Inc.; Director (since 1994) of Infonautics Corporation; Member of Board of Overseers (since 1995) of Dartmouth School of Medicine; Director (since 1995) of Smith College-Center for the Study of Social and Political Change. Trustee (from 1973 to 1983, from 1985 to 1995, and since 1996) of RAND.
- ---------- ** "Interested" director, as defined in the 1940 Act, by reason of his position as President of the Fund. 38 72 W. Allen Reed Director President and CEO and Director (since 1994) President of General Motors Investment Management General Motors Investment Management Corporation; Vice President and Treasurer Corp. (from 1991 to 1994) of Hughes Electronics; 767 Fifth Avenue President (from 1984 to 1991) of Hughes New York, NY 10153 Investment Management Company; Director Age 50 (since 1995) of Taubman Centers, Inc. (a real estate investment trust); Director (since 1992) of FLIR Systems (an imaging technology company); Director (since 1994) of General Motors Acceptance Corporation; Director (since 1994) of General Motors Insurance Corporation; Director (since 1995) of Equity Fund of Latin America; Director (since 1995) of the Commonwealth Equity Fund; Member (since 1994) of the Pension Managers Advisory Committee of the New York Stock Exchange; Member (since 1995) of the New York State Retirement System Advisory Board; Chairman (since 1995) of the Investment Advisory Committee of Howard Hughes Medical Institute.
39 73
PRINCIPAL OCCUPATIONS NAME AND ADDRESS POSITION WITH THE FUND DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------------------------------------------------ Stephen M. Wynne Treasurer Executive Vice President and Chief Accounting Executive Vice President Officer (since 1993) and Senior Vice President PFPC Inc. and Chief Accounting Officer (from 1991 to 400 Bellevue Parkway 1993) of PFPC Inc.; Executive Vice President Wilmington, DE 19809 (since 1995) of PFPC International; Vice Age 42 President and Chief Accounting Officer (since 1987) of PNC Institutional Management Corp. R. Sheldon Johnson Secretary Managing Director, Global Equity Derivatives, Managing Director Morgan Stanley & Co. Incorporated (since 1988). Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Age 50 Stephen C. Beach Assistant Treasurer Senior Vice President - Product and Client Senior Vice President Development (since 1995) and Managing Counsel PFPC Inc. (from 1990 to 1994) of PFPC Inc. 400 Bellevue Parkway Wilmington, DE 19809 Age 43 JoAnne M. Bennick Assistant Treasurer Vice President and Director of Quality Assurance Vice President (since 1993) of PFPC Inc.; Audit Manager (from PFPC Inc. 1990 to 1993) and Audit Associate (from 1985 to 103 Bellevue Parkway 1990) of Coopers & Lybrand. Wilmington, DE 19809 Age 38 Gary M. Gardner Assistant Secretary Chief Counsel (since 1994) of PFPC Inc.; Chief Counsel Associate General Counsel (from 1992 to 1994) PFPC Inc. of The Boston Company, Inc.; General Counsel 400 Bellevue Parkway (from 1986 to 1992) of SunAmerica Asset Wilmington, DE 19809 Management Inc. Age 46 Kathleen L. Thren Assistant Secretary Counsel of PNC Bank, N.A. (since 1996); Counsel Attorney (from 1993 to 1996) of Drinker Biddle PFPC Inc. & Reath; Attorney (from 1991 to 1993) of 400 Bellevue Parkway L'Abbate & Balkan. Wilmington, DE 19809 Age 32
- --------- 40 74 REMUNERATION OF DIRECTORS AND OFFICERS The following table sets forth the remuneration of Directors and officers of the Fund for the fiscal year ended August 31, 1997.
Pension or Retirement Estimated Annual Total Compensation from Aggregate Compensation Benefits Accrued as Part of Benefits Upon Registrant and Fund NAME OF PERSON, POSITION from Registrant Fund Expenses Retirement Complex Paid to Director - ------------------------------------------------------------------------------------------------------------------------------------ Nathan Most, Director, $________ $________ $________ $________ President and Chairman of the Board John B. Carroll, Director $________ $________ $________ $________ Timothy A. Hultquist, $________ $________ $________ $________ Director Lloyd N. Morrisett, Director $________ $________ $________ $________ W. Allen Reed, Director $________ $________ $________ $________
No officer of the Fund is entitled to any compensation, and no officer or Director is entitled to any pension or retirement benefits, from the Fund. INVESTMENT ADVISORY, MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES The following information supplements and should be read in conjunction with the sections in the Prospectus entitled "Management of the Fund." THE INVESTMENT ADVISER Barclays Global Fund Advisors (the "Adviser") acts as investment adviser to the Fund and, subject to the supervision of the Board, is responsible for the investment management of each WEBS Index Series. The Adviser is a California corporation indirectly owned by Barclays Bank PLC, and is registered as an investment adviser under the Investment Advisers Act of 1940. The Adviser and its parent, Barclays Global Investors, N.A., are responsible for managing or providing investment advice for assets aggregating in excess of $___ billion as of August 31, 1997. The Adviser serves as investment adviser to each WEBS Index Series pursuant to an Investment Management Agreement (the "Management Agreement") between the Fund and the Adviser. Under the Management Agreement, the Adviser, subject to the supervision of the Fund's Board and in conformity with the stated investment policies of each WEBS Index Series, manages the investment of each WEBS Index Series' assets. The Adviser may enter into subadvisory agreements with additional investment advisers to act as subadvisers with respect to particular WEBS Index Series. The Adviser will pay subadvisers, if any, out of the fees received by the Adviser. The Adviser is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of each WEBS Index Series. For its investment management services to each WEBS Index Series the Adviser is paid management fees equal to each WEBS Index Series' allocable portion of: .27% per annum of the aggregate net assets of the Fund less than or equal to $1.7 billion, plus .15% per annum of the aggregate net assets of the Fund between $1.7 billion and $7 billion, plus .12% per annum of the aggregate net assets of the Fund between $7 billion and $10 billion, plus .08% per annum of the aggregate net assets of the Fund in excess of $10 billion. The management fees are accrued daily and paid by the Fund as soon as practical after the last day of each calendar quarter. The Fund's management fees, like those paid by most index funds, are lower than those paid by many actively managed funds. One reason for the difference in fee levels is that passive management requires fewer investment, research and trading decisions, thereby justifying lower fees. Pursuant to the Management Agreement, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by the Fund, and the Fund has agreed to indemnify the Adviser for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties. The Management Agreement continues in effect for two years from its effective date, and thereafter is subject to annual approval by (1) the Fund's Board or (2) vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, provided that in either event the continuance also is approved by a majority of the Fund's Board who are not interested persons (as defined in the 1940 Act) of the Fund by vote cast in person at a meeting called for the purpose of voting on such approval. The Management Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board or by vote of the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding voting securities. The Management Agreement is also terminable upon 60 days' notice by the Adviser and will terminate automatically in the event of its assignment (as defined in the 1940 Act). 41 75 For the period from commencement of operations (March 11, 1996) to August 31, 1996 and the fiscal year ended August 31, 1997, respectively, the Fund paid fees to the Adviser for its advisory service as follows: Australia WEBS Index Series $10,350 and $________; Austria WEBS Index Series $9,748 and $________; Belgium WEBS Index Series $2,045 and $________; Canada WEBS Index Series $13,800 and $________; France WEBS Index Series $14,503 and $________; Germany WEBS Index Series $16,309 and $________; Hong Kong WEBS Index Series $7,597 and $________; Italy WEBS Index Series $25,345 and $________; Japan WEBS Index Series $105,230 and $________; Malaysia (Free) WEBS Index Series $7,550 and $________; Mexico (Free) WEBS Index Series $5,552 and $________; Netherlands WEBS Index Series $5,510 and $________; Singapore (Free) WEBS Index Series $8,578 and $________; Spain WEBS Index Series $6,162 and $________; Sweden WEBS Index Series $4,522 and $________; Switzerland WEBS Index Series $8,392 and $________; and United Kingdom WEBS Index Series $14,599 and $________. THE ADMINISTRATOR PFPC Inc. (the "Administrator"), an indirect wholly owned subsidiary of PNC Bank Corp., acts as administration and accounting agent of the Fund pursuant to an Administration and Accounting Services Agreement with the Fund and is responsible for certain clerical, recordkeeping and bookkeeping services, except those to be performed by the Adviser, by Morgan Stanley Trust Company ("MSTC") in its capacity as Custodian, or by PNC Bank, N.A. ("PNC") in its capacity as Transfer Agent. The Administrator has no role in determining the investment policies of the Fund or which securities are to be purchased or sold by the Fund. The principal business address of the Administrator is 400 Bellevue Parkway, Wilmington, DE 19809. For the administrative and fund accounting services the Administrator provides to the Fund, PFPC is paid aggregate fees equal to each WEBS Index Series' allocable portion of: .22% per annum of the aggregate average daily net assets of the Fund up to $1.5 billion; plus .15% per annum of the aggregate average daily net assets of the Fund between $1.5 billion and $3 billion, plus .14% per annum of the aggregate average daily net assets of the Fund between $3 billion and $5 billion, plus .13% per annum of the aggregate average daily net assets of the Fund between $5 billion and $7.5 billion, plus .115% per annum of the aggregate average daily net assets of the Fund between $7.5 billion and $10 billion, plus .10% per annum of the aggregate average daily net assets of the Fund in excess of $10 billion. The Administrator pays Morgan Stanley Trust Company a fee of .05% of the average daily net assets of the Fund for sub-administration services as described under "Custodian, Lending Agent and Sub-Administrator" below. The Administrator may from time to time waive all or a portion of its fees. If the Administrator is terminated within the first three years of the Fund's operations, except if removed (i) for failing to substantially perform to the satisfaction of the Board its material obligations under the Agreement or (ii) in order to comply with federal or state law, the Fund shall pay any reasonable costs of time and material associated with the deconversion. Pursuant to the Administration and Accounting Services Agreement, the Administrator is liable for damages arising of its failure to perform its duties due to willful misfeasance, bad faith, gross negligence or reckless disregard of such duties. The Fund will indemnify the Administrator for certain liabilities, including certain liabilities arising under federal securities laws, except for liabilities arising out of the Administrator's willful misfeasance, bad faith, gross negligence or reckless disregard of its duties. For the period from commencement of operations to August 31, 1996 and for the fiscal year ended August 31, 1997, respectively, the Fund paid fees to the Administrator for its administrative services as follows: Australia WEBS Index Series $6,524 and $________; Austria WEBS Index Series $6,123 and $________; Belgium WEBS Index Series $1,289 and $________; Canada WEBS Index Series $8,682 and $________; France WEBS Index Series $9,081 and $________; Germany WEBS Index Series $10,284 and $________; Hong Kong WEBS Index Series $4,793 and $________; Italy WEBS Index Series $15,927 and $________; Japan WEBS Index Series $66,484 and $________; Malaysia (Free) WEBS Index Series $4,761 and $________; Mexico (Free) WEBS Index Series $3,503 and $________; Netherlands WEBS Index Series $3,475 and $________; Singapore (Free) WEBS Index Series $5,412; and $________ Spain WEBS Index Series $3,858 and $________; Sweden WEBS Index Series $2,878 and $________; Switzerland WEBS Index Series $5,251 and $________; and United Kingdom WEBS Index Series $9,200 and $________. THE DISTRIBUTOR Funds Distributor, Inc. (the "Distributor") is the principal underwriter and distributor of WEBS. Its address is 60 State Street, Suite 1300, Boston, MA 02109, and investor information can be obtained by calling 1-800-810-WEBS(9327). The Distributor has entered into an agreement with the Fund which will continue for two years from its effective date, and which is renewable annually thereafter (the "Distribution Agreement"), pursuant to which it distributes Fund shares. WEBS will be continuously offered for sale by the Fund through the Distributor only in Creation Units, as described below under "Purchase and Issuance of WEBS in Creation Units." WEBS in less than Creation Units are not distributed by the Distributor. The Distributor also acts as agent for the Fund. The Distributor will deliver a prospectus to persons purchasing WEBS in Creation Units 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. Funds Distributor, Inc., as Distributor, has no role in determining the 42 76 investment policies of the Fund or which securities are to be purchased or sold by the Fund. To compensate the Distributor for the distribution-related services it provides, and broker-dealers authorized by the Distributor for distribution services they provide, the Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Fund's Plan, for each WEBS Index Series the Distributor is entitled to receive a distribution fee, accrued daily and paid monthly, calculated with respect to each WEBS Index Series at a rate set from time to time by the Board of Directors, provided that the annual rate may not exceed .25% of the average daily net assets of such WEBS Index Series. The Board of Directors has determined to limit the annual fee payable under the Rule 12b-1 Plan with respect to each WEBS Index Series so as not to exceed .20% of the average daily net assets of each WEBS Index Series until further notice. From time to time the Distributor may waive all or a portion of these fees. The Plan is designed to enable the Distributor to be compensated by the Fund for distribution services provided by it with respect to each WEBS Index Series. Payments under the Plan are not tied exclusively to the distribution expenses actually incurred by the Distributor. The Board, including a majority of the Directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan ("Independent Directors"), evaluate the appropriateness of the Plan and its payment terms on a continuing basis and in doing so consider all relevant factors, including expenses borne by the Distributor in the current year and in prior years and amounts received under the Plan. Under its terms, the Plan remains in effect from year to year, provided such continuance is approved annually by vote of the Board, including a majority of the Independent Directors. The Plan may not be amended to increase materially the amount to be spent for the services provided by the Distributor without approval by the shareholders of the WEBS Index Series of the Fund to which the Plan applies, and all material amendments of the Plan also require Board approval. The Plan may be terminated at any time, without penalty, by vote of a majority of the Independent Directors, or, with respect to any WEBS Index Series of the Fund, by a vote of a majority of the outstanding voting securities of such WEBS Index Series of the Fund (as such vote is defined in the 1940 Act). If a Plan is terminated (or not renewed) with respect to any one or more WEBS Index Series of the Fund, it may continue in effect with respect to any WEBS Index Series of the Fund as to which it has not been terminated (or has been renewed). Pursuant to the Distribution Agreement, the Distributor will provide the Board periodic reports of any amounts expended under the Plan and the purpose for which such expenditures were made. The Distributor may also enter into sales and investor services agreements with broker-dealers or other persons that are DTC Participants (as defined below) to provide distribution assistance, including broker-dealer and shareholder support and educational and promotional services. Under the terms of each sales and investor services agreement, the Distributor will pay such broker-dealers or other persons, out of Rule 12b-1 fees received from the WEBS Index Series, at the annual rate of .08 of 1% of the average daily net asset value of WEBS held through DTC for the account of such DTC Participant. For the period from commencement of operations to August 31, 1996 and for the fiscal year ended August 31, 1997, respectively, the Distributor received the following amounts pursuant to the Plan with respect to each WEBS Index Series: Australia WEBS Index Series, $9,583.13 and $________; Austria WEBS Index Series, $9,026.04 and $________; Belgium WEBS Index Series, $1,893.69 and $________; Canada WEBS Index Series, $12,780.00 and $________; France WEBS Index Series, $13,429.09 and $________; Germany WEBS Index Series, $15,100.34 and $________; Hong Kong WEBS Index Series, $7,034.13 and $________; Italy WEBS Index Series, $23,467.69 and $________; Japan WEBS Index Series, $97,435.42 and $________; Malaysia (Free)WEBS Index Series, $6,990.22 and $________; Mexico (Free) WEBS Index Series, $5,140.57 and $________; Netherlands WEBS Index Series, $5,102.06 and $________; Singapore Index (Free) WEBS Index Series, $7,942.98 and $________; Spain WEBS Index Series, $5,706.09 and $________; Sweden WEBS Index Series, $4,187.36 and $________; Switzerland WEBS Index Series, $7,770.29 and $________; and United Kingdom WEBS Index Series, $13,517.57 and $________. In the aggregate, the Distributor received $246,106.67 and $________ for the period from commencement of operations to March 31, 1996 and for the fiscal year ended March 31, 1997, respectively, from the WEBS Index Series pursuant to the Plan, retaining $19,688.53 and $________, respectively, and paying out the remainder to unaffiliated third parties. The retained amounts represent .02% and ____% , respectively, of the average daily net assets of the WEBS Index Series, which the Distributor receives for monitoring the purchase and redemption of Creation Units, as described below under the "Purchase and Issuance of WEBS in Creation Units" and "Redemption of WEBS in Creation Units." During the period from commencement of operations to August 31, 1996 and during the fiscal year ended August 31, 1997, the Distributor paid $184,745.53 and $________; $26,779.36 and $________; and $14,893.25 and $________, respectively, for (1) postage and other expenses of distributing prospectuses, statements of additional information and other marketing materials, (2) advertising-related expenses and (3) compensation to broker-dealers for distribution assistance, respectively, which amounts were allocated to each WEBS Index Series based on its average daily net assets for the period. The Distribution Agreement provides that it may be terminated 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 in the 1940 Act) of the outstanding voting securities of the relevant WEBS Index Series, on at least 60 days' written notice to the Distributor. The Distribution Agreement is also terminable upon 60 days' notice by the 43 77 Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act). THE CUSTODIAN, LENDING AGENT AND SUB-ADMINISTRATOR MSTC serves as the Custodian for the cash and portfolio securities of each WEBS Index Series of the Fund pursuant to a Custodian Agreement between MSTC and the Fund and as Lending Agent for each WEBS Index Series. As Lending Agent, MSTC causes the delivery of loaned securities from the Fund to borrowers, arranges for the return of loaned securities to the Fund at the termination of the loans, requests deposit of collateral, monitors daily the value of the loaned securities and collateral, requests that borrowers add to the collateral when required by the loan agreements, and provides recordkeeping and accounting services necessary for the operation of the program. MSTC also provides certain sub-administrative services relating to the Fund pursuant to a Sub-Administration Agreement and receives a fee from the Administrator equal to .05% of the Fund's average daily net assets for providing such services. MSTC, as Custodian, Lending Agent and Sub-Administrator has no role in determining the investment policies of the Fund or which securities are to be purchased or sold by the Fund. The principal business address of MSTC is One Pierrepont Plaza, Brooklyn, New York, 11201. For its custody services to each WEBS Index Series, MSTC will be paid per annum fees based on the aggregate net assets of the WEBS Index Series as follows: Australia WEBS Index Series (.10%); Austria WEBS Index Series (.10%); Belgium WEBS Index Series (.10%); Canada WEBS Index Series (.07%); France WEBS Index Series (.11%); Germany WEBS Index Series (.10%); Hong Kong WEBS Index Series (.12%); Italy WEBS Index Series (.09%); Japan WEBS Index Series (.07%); Malaysia (Free) WEBS Index Series (.13%); Mexico (Free) WEBS Index Series (.25%); Netherlands WEBS Index Series (.10%); Singapore (Free) WEBS Index Series (.10%); Spain WEBS Index Series (.10%); Sweden WEBS Index Series (.10%); Switzerland WEBS Index Series (.10%); and United Kingdom WEBS Index Series (.08%). As remuneration for its services in connection with lending portfolio securities of the WEBS Index Series, MSTC is paid by the Fund, in respect of each WEBS Index Series, 50% of the net investment income earned on the collateral for securities loaned. TRANSFER AGENT PNC (the "Transfer Agent"), an indirect wholly owned subsidiary of PNC Bank Corp., provides transfer agency services pursuant to an agreement with the Fund. The Transfer Agent has no role in determining the investment policies of the Fund or which securities are to be purchased or sold by the Fund. The principal business address of the Transfer Agent is Broad and Chestnut Streets, Philadelphia, Pennsylvania 19110. ADDITIONAL EXPENSES In addition to the fees described above, the Fund is responsible for the payment of expenses that include, among other things, organizational expenses, compensation of the Directors of the Fund, reimbursement of out-of-pocket expenses incurred by the Administrator, exchange listing fees, license fees, brokerage costs, legal and audit fees, and litigation and extraordinary expenses. For the use of the relevant MSCI Index, each WEBS Index Series pays a license fee to Morgan Stanley equal to .03% per annum of the aggregate net assets of the WEBS Index Series. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio securities, the Adviser looks for prompt execution of the order at a favorable price. Generally, the Adviser works with recognized dealers in these securities, except when a better price and execution of the order can be obtained elsewhere. The Fund will not deal with affiliates in principal transactions unless permitted by exemptive order or applicable rule or regulation. Since the investment objective of each WEBS Index Series is investment performance that corresponds to that of an index, the Adviser does not intend to select brokers and dealers for the purpose of receiving research services in addition to a favorable price and prompt execution either from that broker or an unaffiliated third party. Subject to allocating brokerage to receive a favorable price and prompt execution, the Adviser may select brokers who are willing to provide payments to third party service suppliers to a WEBS Index Series, to reduce expenses of the WEBS Index Series. The Adviser assumes general supervision over placing orders on behalf of the Fund for the purchase or sale of portfolio securities. If purchases or sales of portfolio securities of the Fund and one or more other investment companies or clients supervised by the Adviser 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 the Adviser, taking into account the sizes of such other investment companies and clients and the amount of securities to be purchased or sold. In some cases this procedure could have a detrimental effect on the price or volume of the security so far as the Fund is 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 Fund. 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 44 78 comparatively greater brokerage expenses. The portfolio turnover rate for each WEBS Index Series is expected to be under 50%. See "Implementation of Policies" in the Prospectus. The overall reasonableness of brokerage commissions is evaluated by the Adviser based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services. BOOK ENTRY ONLY SYSTEM DTC acts as securities depositary for the WEBS. WEBS of each WEBS Index Series are represented by global securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. Except as provided below, certificates will not be issued for WEBS. DTC has advised the Fund as follows: it is a limited-purpose trust company organized under the laws of the State of New York, 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 Exchange Act. DTC 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, Inc., the AMEX and the National Association of Securities Dealers, Inc. 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"). DTC agrees with and represents to its Participants that it will administer its book-entry system in accordance with its rules and by-laws and requirements of law. Beneficial ownership of WEBS is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in WEBS (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 WEBS. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability of certain investors to acquire beneficial interests in WEBS. Beneficial Owners of WEBS are not entitled to have WEBS registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and are not considered the registered holder thereof. Accordingly, each Beneficial Owner must rely on the procedures of DTC, the DTC Participant and any Indirect Participant through which such Beneficial Owner holds its interests, to exercise any rights of a holder of WEBS. The Fund understands that under existing industry practice, in the event the Fund requests any action of holders of WEBS, or a Beneficial Owner desires to take any action that DTC, as the record owner of all outstanding WEBS, is entitled to take, DTC would authorize the DTC Participants to take such action and that the DTC Participants would authorize the Indirect Participants and Beneficial Owners acting through such DTC Participants to take such action and would otherwise act upon the instructions of Beneficial Owners owning through them. As described above, the Fund recognizes DTC or its nominee as the owner of all WEBS for all purposes. Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Fund and DTC, DTC is required to make available to the Fund upon request and for a fee to be charged to the Fund a listing of the WEBS holdings of each DTC Participant. The Fund shall inquire of each such DTC Participant as to the number of Beneficial Owners holding WEBS, directly or indirectly, through such DTC Participant. The Fund 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 Fund shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements. WEBS distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all WEBS. 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 WEBS as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of WEBS 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 Fund has no responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such WEBS, 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. 45 79 DTC may determine to discontinue providing its service with respect to WEBS at any time by giving reasonable notice to the Fund and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Fund shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing ownership of WEBS, unless the Fund makes other arrangements with respect thereto satisfactory to the AMEX (or such other exchange on which WEBS may be listed). PURCHASE AND ISSUANCE OF WEBS IN CREATION UNITS The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Purchase and Issuance of WEBS in Creation Units." GENERAL The Fund issues and sells WEBS only in Creation Units on a continuous basis through the Distributor, without an initial sales load, at their net asset value next determined after receipt, on any Business Day (as defined herein), of an order in proper form. A "Business Day" with respect to each WEBS Index Series is any day on which (i) the New York Stock Exchange ("NYSE") and (ii) the stock exchange(s) and Fund subcustodian(s) relevant to such WEBS Index Series are open for business. As of the date of the Prospectus, the NYSE observes the following holidays: New Year's Day, President's Day (Washington's Birthday), Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The stock exchange and/or subcustodian holidays relevant to each WEBS Index Series are set forth in Appendix B to this Statement of Additional Information. PORTFOLIO DEPOSIT The consideration for purchase of a Creation Unit of WEBS of a WEBS Index Series generally consists of the in-kind deposit of a designated portfolio of equity securities (the "Deposit Securities") constituting an optimized representation of the WEBS Index Series' benchmark foreign securities index and an amount of cash computed as described below (the "Cash Component"). Together, the Deposit Securities and the Cash Component constitute the "Portfolio Deposit," which represents the minimum initial and subsequent investment amount for shares of any WEBS Index Series of the Fund. The Cash Component is an amount equal to the Dividend Equivalent Payment (as defined below), plus or minus, as the case may be, a Balancing Amount (as defined below). The "Dividend Equivalent Payment" enables the Fund to make a complete distribution of dividends on the next dividend payment date, and is an amount equal, on a per Creation Unit basis, to the dividends on all the Portfolio Securities with ex-dividend dates within the accumulation period for such distribution (the "Accumulation Period"), net of expenses and liabilities for such period, as if all of the Portfolio Securities had been held by the Fund for the entire Accumulation Period. The "Balancing Amount" is an amount equal to the difference between (x) the net asset value (per Creation Unit) of the WEBS Index Series and (y) the sum of (i) the Dividend Equivalent Payment and (ii) the market value (per Creation Unit) of the securities deposited with the Fund (the sum of (i) and (ii) is referred to as the "Deposit Amount"). The Balancing Amount serves the function of compensating for any differences between the net asset value per Creation Unit and the Deposit Amount. The Adviser makes available through the Distributor on each Business Day, immediately prior to the opening of business on the AMEX (currently 9:30 a.m., New York time), the list of the names and the required number of shares of each Deposit Security to be included in the current Portfolio Deposit (based on information at the end of the previous Business Day) for each WEBS Index Series. Such Portfolio Deposit is applicable, subject to any adjustments as described below, in order to effect purchases of Creation Units of WEBS of a given WEBS Index Series until such time as the next-announced Portfolio Deposit composition is made available. The identity and number of shares of the Deposit Securities required for a Portfolio Deposit for each WEBS Index Series changes as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the WEBS Index Series. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the securities constituting the relevant securities index. In addition, the Fund 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 for other similar reasons. The adjustments described above will reflect changes, known to the Adviser on the date of announcement to be in effect by the time of delivery of the Portfolio Deposit, in the composition of the subject index being tracked by the relevant WEBS Index Series, or resulting from stock splits and other corporate actions. In addition to the list of names and numbers of securities constituting the current Deposit Securities of a Portfolio Deposit, the Distributor also makes available (i) on each Business Day, the Dividend Equivalent Payment effective through and including the previous Business Day, per outstanding WEBS of each WEBS Index Series, and (ii) on a continuous basis throughout the day, the sum of the Dividend Equivalent Payment effective through and including the close of the previous trading session in the relevant foreign market, plus the current value of the requisite Deposit Securities as in effect on such 46 80 day. ROLE OF THE AUTHORIZED PARTICIPANT Creation Units of WEBS may be purchased only by or through a DTC Participant that has entered into an Authorized Participant Agreement with the Fund and the Distributor ("Authorized Participant"). Such Authorized Participant will agree pursuant to the terms of such Authorized Participant Agreement on behalf of itself or any investor on whose behalf it will act, as the case may be, to certain conditions, including that such Authorized Participant will make available in advance of each purchase of WEBS an amount of cash sufficient to pay the Cash Component, once the net asset value of a Creation Unit is next determined after receipt of the purchase order in proper form, together with the transaction fee described below. The Authorized Participant may require the investor to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the Cash Component. Investors who are not Authorized Participants must make appropriate arrangements with an Authorized Participant. Investors should be aware that their particular broker may not be a DTC Participant or may not have executed an Authorized Participant Agreement, and that therefore orders to purchase Creation Units of Fund shares may have to be placed by the investor's broker through an Authorized Participant. As a result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The Fund does not expect to enter into an Authorized Participant Agreement with more than a small number of DTC Participants that have international capabilities. A list of the Authorized Participants may be obtained from the Distributor. PURCHASE ORDER To initiate an order for a Creation Unit of WEBS, the Authorized Participant must give notice to the Distributor of its intent to submit an order to purchase WEBS not later than 4:00 p.m., New York time on the relevant Business Day. The Distributor shall cause the Adviser and the Custodian to be informed of such advice. The Custodian will then provide such information to the appropriate subcustodian. For each WEBS Index Series, the Custodian shall cause the subcustodian of the WEBS Index Series 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 Portfolio Deposit (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), with any appropriate adjustments as advised by the Fund. DEPOSIT SECURITIES MUST BE DELIVERED TO AN ACCOUNT MAINTAINED AT THE APPLICABLE LOCAL SUBCUSTODIAN. Following the notice of intention, an irrevocable order to purchase Creation Units, in the form required by the Fund, 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., New York time) on the relevant Business Day. (The required form of an order to purchase is available on request from the Distributor.) Those placing orders to purchase Creation Units through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order to the Distributor by the cut-off time on such Business Day. Orders must be transmitted by the Authorized Participant to the Distributor by facsimile or electronic transmission as provided in the Authorized Participant Agreement. The Authorized Participant must also make available on or before the contractual settlement date, by means satisfactory to the Fund, immediately available or same day funds estimated by the Fund 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 of WEBS. Those placing orders should ascertain the applicable deadline for cash transfers by contacting the operations department of the broker or depositary institution effectuating 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 an Authorized Participant may require orders for purchases of WEBS placed with it to be in the form required by the individual Authorized Participant, which form will not be the same as the form of purchase order specified by the Fund, which the Authorized Participant must deliver to the Distributor. ACCEPTANCE OF PURCHASE ORDER Subject to the conditions that (i) a properly completed irrevocable purchase order has been submitted by the Authorized Participant (either on its own or another investor's behalf) not later than the closing time of the regular trading session on the AMEX, and (ii) arrangements satisfactory to the Fund are in place for payment of the Cash Component and any other cash amounts which may be due, the Fund will accept the order, subject to its right (and the right of the Distributor and the Adviser) to reject any order until acceptance. Once the Fund has accepted an order, upon next determination of the net asset value of the shares, the Fund will confirm the issuance, against receipt of payment, of a Creation Unit of WEBS of the WEBS Index Series at such net asset value. The 47 81 Distributor will then transmit a confirmation of acceptance to the Authorized Participant that placed the order. The Fund reserves the absolute right to reject a purchase order transmitted to it by the Distributor in respect of any WEBS Index Series if (a) the purchaser or group of purchasers, upon obtaining the shares ordered, would own 80% or more of the currently outstanding shares of any WEBS Index Series; (b) the Deposit Securities delivered are not as specified by the Adviser, as described above; (c) acceptance of the Deposit Securities would have certain adverse tax consequences to the WEBS Index Series; (d) the acceptance of the Portfolio Deposit would, in the opinion of counsel, be unlawful; (e) the acceptance of the Portfolio Deposit would otherwise, in the discretion of the Fund or the Adviser, have an adverse effect on the Fund or the rights of beneficial owners; or (f) in the event that circumstances outside the control of the Fund, the Distributor and the Adviser make it for all practical purposes impossible to process purchase orders. The Fund shall notify a prospective purchaser of its rejection of the order of such person. The Fund and the 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. ISSUANCE OF A CREATION UNIT A Creation Unit of WEBS of a WEBS Index Series will not be issued until the transfer of good title to the Fund of the Deposit Securities and the payment of the Cash Component have been completed. When the subcustodian has confirmed to the Custodian that the required securities included in the Portfolio Deposit (or the cash value thereof) have been delivered to the account of the relevant subcustodian, the Custodian shall notify the Distributor and the Adviser, and the Fund will issue and cause the delivery of the Creation Unit of WEBS. The Authorized Participant Agreement provides that in the event that a Portfolio Deposit is incomplete on the settlement date for a Creation Unit of WEBS because certain Deposit Securities are missing, the Fund may, in its sole discretion, issue the Creation Unit of WEBS notwithstanding such deficiency 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 or Short-Term Investments having a value at least equal to 105% of the value of the missing Deposit Securities. The Authorized 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 Fund of purchasing such securities and the value of the collateral. 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 Fund, and the Fund's determination shall be final and binding. CASH PURCHASE METHOD Although the Fund does not ordinarily permit cash purchases of Creation Units, when cash purchases of Creation Units of WEBS are available or specified for a WEBS Index Series, they will be effected in essentially the same manner as in-kind purchases thereof. In the case of a cash purchase, the investor 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 the Fund's brokerage and other transaction costs associated with using the cash to purchase the requisite Deposit Securities, the investor will be required to 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 WEBS are described below. PURCHASE TRANSACTION FEE A purchase transaction fee payable to the Fund is imposed to compensate the Fund for the transfer and other transaction costs of a WEBS Index Series. THE PURCHASE TRANSACTION FEE FOR IN-KIND AND CASH PURCHASES AND THE ADDITIONAL VARIABLE CHARGE FOR CASH PURCHASES (WHEN CASH PURCHASES ARE AVAILABLE OR SPECIFIED) ARE LISTED FOR THE RELEVANT WEBS INDEX SERIES IN THE SHAREHOLDER TRANSACTION EXPENSES TABLE IN "SUMMARY OF FUND EXPENSES" IN THE PROSPECTUS. Where the Fund 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 WEBS in Creation Units are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Fund. See "Summary of Fund Expenses" in the Prospectus. EXAMPLE A hypothetical example of the costs of creating a Creation Unit of WEBS of the Japan WEBS Index Series is set forth below for illustrative purposes only. The exchange rate reflected in the table is Y____ per US$1. 48 82
Unit Creation Daily NAV Unit Creation Calculation Calculation Calculation in United in United in Japanese Yen States Dollars States Dollars --------------- -------------- -------------- Execution......................................... ____ ____ ____ Commissions....................................... ____ ____ ____ Stamp Taxes....................................... ____ ____ ____ Risk Premium...................................... ____ ____ ____ Accrued Income.................................... ____ ____ ____ Creation Charge................................... ____ ____ ____ WEBS Unit Value................................... ____ ____ ____ Per WEBS.......................................... ____ ____ ____ Shares............................................ ____ ____ ____
See "Management of the Fund," in the Prospectus, and "Investment Advisory, Management, Administrative and Distribution Services" herein, for additional information concerning the distribution arrangements for WEBS. REDEMPTION OF WEBS IN CREATION UNITS The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Redemption of WEBS in Creation Units." WEBS may be redeemed only in Creation Units at their net asset value next determined after receipt of a redemption request in proper form by the Distributor and only on a day on which the AMEX is open for trading. THE FUND WILL NOT REDEEM WEBS IN AMOUNTS LESS THAN CREATION UNITS. Beneficial Owners also may sell WEBS in the secondary market, but must accumulate enough WEBS to constitute a Creation Unit in order to have such shares redeemed by the Fund. 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 of WEBS. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of WEBS to constitute a redeemable Creation Unit. See "Investment Considerations and Risks" in the Prospectus. With respect to each WEBS Index Series, the Adviser makes available through the Distributor immediately prior to the opening of business on the AMEX (currently 9:30 am, New York time) on each day that the AMEX is open for business the Portfolio Securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day. Unless cash redemptions are available or specified for a WEBS Index Series, the redemption proceeds for a Creation Unit generally consist of Deposit Securities as announced by the Distributor on the Business Day of the request for redemption, plus cash in an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Deposit Securities, less the redemption transaction fee described below. The redemption transaction fee described below is deducted from such redemption proceeds. In the case of a resident Australian or New Zealand holder, notwithstanding the foregoing, such holder is only entitled to receive cash upon its redemption of Creation Units of WEBS. A redemption transaction fee payable to the Fund is imposed to offset transfer and other transaction costs that may be incurred by the relevant WEBS Index Series. THE REDEMPTION TRANSACTION FEE FOR REDEMPTIONS IN KIND AND FOR CASH AND THE ADDITIONAL VARIABLE CHARGE FOR CASH REDEMPTIONS (WHEN CASH REDEMPTIONS ARE AVAILABLE OR SPECIFIED) ARE LISTED FOR THE RELEVANT WEBS INDEX SERIES IN THE SHAREHOLDER TRANSACTION EXPENSES TABLE IN "SUMMARY OF FUND EXPENSES" IN THE PROSPECTUS. Investors will also bear the costs of transferring the Portfolio Deposit from the Fund 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. Redemption requests in respect of Creation Units of any WEBS Index Series must be submitted to the Distributor by or through an Authorized Participant on a day that the AMEX is open for business. Investors other than through Authorized Participants are responsible for making arrangements for a redemption request to be made through an Authorized Participant. The Distributor will provide a list of current Authorized Participants upon request. The Authorized Participant must transmit the request for redemption, in the form required by the Fund, to the Distributor in accordance with procedures set forth in the Authorized Participant Agreement. Investors should be aware that their particular broker may not have executed an Authorized Participant Agreement, and that, therefore, requests to redeem Creation Units may have to be placed by the investor's broker through an Authorized Participant who has executed an Authorized Participant Agreement. At any given time there will be only a limited number of broker-dealers that have executed an Authorized Participant Agreement. Investors making a redemption request should be aware that such request be in the form specified by such Authorized Participant. Investors making a request to redeem Creation Units should allow sufficient time to permit proper submission of the request by an Authorized Participant and transfer of the WEBS to the Fund's Transfer Agent; such investors should allow for the additional time that may be required to effect redemptions through their banks, brokers or other financial intermediaries if such intermediaries are not Authorized Participants. 49 83 A redemption request is considered to be in "proper form" if (i) an Authorized Participant has transferred or caused to be transferred to the Fund's Transfer Agent the Creation Unit of WEBS being redeemed through the book-entry system of DTC so as to be effective by the AMEX closing time on a day on which the AMEX is open for business and (ii) a duly completed request form is received by the Distributor from the Authorized Participant on behalf of itself or another redeeming investor by the AMEX closing time on such day. If the Transfer Agent does not receive the investor's WEBS through DTC's facilities by the AMEX closing time on the same day that the redemption request is received, the redemption request shall be rejected and may be resubmitted the next day that the AMEX is open for business. Investors should be aware that the deadline for such transfers of shares through the DTC system may be significantly earlier than the close of business on the AMEX. Those making redemption requests should ascertain the deadline applicable to transfers of shares through the DTC system by contacting the operations department of the broker or depositary institution effecting the transfer of the WEBS. Upon receiving a redemption request, the Distributor shall notify the Fund and the Fund's Transfer Agent of such redemption request. The tender of an investor's WEBS for redemption and the distribution of the cash redemption payment in respect of Creation Units redeemed will be effected through DTC and the relevant Authorized Participant to the beneficial owner thereof as recorded on the book-entry system of DTC or the DTC Participant through which such investor holds WEBS, as the case may be, or by such other means specified by the Authorized Participant submitting the redemption request. See "Book-Entry System Only." IN CONNECTION WITH TAKING DELIVERY OF SHARES OF DEPOSIT SECURITIES UPON REDEMPTION OF WEBS, A REDEEMING BENEFICIAL OWNER OR AUTHORIZED PARTICIPANT ACTING 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 PORTFOLIO SECURITIES ARE CUSTOMARILY TRADED, TO WHICH ACCOUNT SUCH PORTFOLIO SECURITIES WILL BE DELIVERED. Deliveries of redemption proceeds by the WEBS Index Series relating to those countries 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 request is received in proper form. For each country relating to a WEBS Index Series, Appendix B hereto identifies the instances where more than seven days would be needed to deliver redemption proceeds. PURSUANT TO AN ORDER OF THE SEC, IN RESPECT OF EACH WEBS INDEX SERIES, THE FUND WILL MAKE DELIVERY OF IN-KIND REDEMPTION PROCEEDS WITHIN THE NUMBER OF DAYS STATED IN APPENDIX B TO BE THE MAXIMUM NUMBER OF DAYS NECESSARY TO DELIVER REDEMPTION PROCEEDS. If neither the redeeming Beneficial Owner nor the Authorized Participant acting on behalf of such redeeming Beneficial Owner has appropriate arrangements to take delivery of the Portfolio Securities in the applicable foreign jurisdiction and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Portfolio Securities in such jurisdiction, the Fund may in its discretion exercise its option to redeem such shares in cash, and the redeeming Beneficial Owner will be required to receive its redemption proceeds in cash. In such case, the investor will receive a cash payment equal to the net asset value of its shares based on the net asset value of WEBS of the relevant WEBS Index Series next determined after the redemption request is received in proper form (minus a redemption transaction fee and additional variable charge for cash redemptions specified above, to offset the Fund's brokerage and other transaction costs associated with the disposition of Portfolio Securities of the WEBS Index Series). Redemptions of WEBS for Deposit Securities will be subject to compliance with applicable United States federal and state securities laws and each WEBS Index Series (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the WEBS Index Series could not lawfully deliver specific Deposit Securities upon redemptions or could not do so without first registering the Deposit Securities under such laws. Although the Fund does not ordinarily permit cash redemptions of Creation Units (except that, as noted above, resident Australian and New Zealand holders may redeem solely for cash), in the event that cash redemptions are permitted or required by the Fund, proceeds will be paid to the Authorized Participant redeeming shares on behalf of the redeeming investor as soon as practicable after the date of redemption (within seven calendar days thereafter, except for the instances listed in Appendix B hereto where more than seven calendar days would be needed). Because the Portfolio Securities of a WEBS Index Series may trade on the relevant exchange(s) on days that the AMEX is closed or are otherwise not Business Days for such WEBS Index Series, stockholders may not be able to redeem their shares of such WEBS Index Series, or to purchase or sell WEBS on the AMEX, on days when the net asset value of such WEBS Index Series could be significantly affected by events in the relevant foreign markets. The right of redemption may be suspended or the date of payment postponed with respect to any WEBS Index Series (1) for any period during which the New York Stock Exchange is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the New York Stock Exchange is suspended or restricted; (3) for any period during which an emergency exists as a result of which disposal of the shares of the WEBS Index Series' portfolio securities or determination of its net asset value is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC. 50 84 DETERMINING NET ASSET VALUE The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Determination of Net Asset Value." Net asset value per share for each WEBS Index Series of the Fund is computed by dividing the value of the net assets of such WEBS Index Series (i.e., the value of its total assets less total liabilities) by the total number of WEBS outstanding, rounded to the nearest cent. Expenses and fees, including the management, administration and distribution fees, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of each WEBS Index Series is determined as of the close of the regular trading session on the New York Stock Exchange, Inc. (ordinarily 4:00 p.m., New York City time) on each day that such exchange is open. In computing a WEBS Index Series' net asset value, the WEBS Index Series' portfolio securities 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 the Adviser in accordance with procedures adopted by the Board. Foreign currency values are converted into US dollars using the same exchange rates utilized by Morgan Stanley Capital International in the calculation of the relevant MSCI Indices (currently, exchange rates as of 4:00 p.m. London time, except that the exchange rate for the MSCI Mexico (Free) Index is that as of 3:00 p.m. New York City time). The AMEX also disseminates during its trading day an indicative optimized portfolio value ("IOPV") for each WEBS Index Series. DIVIDENDS AND DISTRIBUTIONS The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Dividends and Capital Gains Distributions." Dividends from net investment income are declared and paid at least annually by each WEBS Index Series. Distributions of net realized securities gains, if any, generally are declared and paid once a year, but the Fund may make distributions on a more frequent basis for certain WEBS Index Series to improve tracking error or to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the 1940 Act. In addition, the Fund intends to distribute at least annually amounts representing the full dividend yield on the underlying portfolio securities of each WEBS Index Series, net of expenses of such WEBS Index Series, as if such WEBS Index Series owned such underlying portfolio securities for the entire dividend period. As a result, some portion of each distribution may result in a return of capital. See "Tax Matters." Dividends and other distributions on WEBS are distributed, as described below, on a pro rata basis to Beneficial Owners of such WEBS. Dividend payments are made through DTC and the Authorized Participants to Beneficial Owners then of record with proceeds received from the Fund. The Fund makes additional distributions to the minimum extent necessary (i) to distribute the entire annual investment company taxable income of the Fund, plus any net capital gains and (ii) to avoid imposition of the excise tax imposed by Section 4982 of the Internal Revenue Code. Management of the Fund reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve the status of each WEBS Index Series as a regulated investment company ("RIC") or to avoid imposition of income or excise taxes on undistributed income. TAXES The following information supplements and should be read in conjunction with the sections in the Prospectus entitled "Dividends and Capital Gains Distributions" and "Tax Matters." The Fund on behalf of each WEBS Index Series has the right to reject an order for a purchase of WEBS if the purchaser (or group of purchasers) would, upon obtaining the WEBS so ordered, own 80% or more of the outstanding WEBS of a given WEBS Index Series and if, pursuant to section 351 of the Internal Revenue Code, the respective WEBS Index Series would have a basis in the securities different from the market value of such securities on the date of deposit. The Fund also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination. See "Purchase and Issuance of WEBS in Creation Units." Each WEBS Index Series intends to qualify for and to elect treatment as a separate RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as a RIC, a company must annually distribute at least 90 percent 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: (1) at least 90 percent 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 (2) at the close of each 51 85 quarter of the company's taxable year, (a) at least 50 percent 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 percent 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)(4)(B) of the Internal Revenue 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). Each WEBS Index Series may be subject to foreign income taxes withheld at source. Each WEBS Index Series will elect to "pass through" to its investors the amount of foreign income taxes paid by the WEBS Index Series, 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 WEBS Index Series' 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 WEBS Index Series' 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 WEBS Index Series and (ii) the portion of any dividend paid by the WEBS Index Series which represents income derived from foreign sources; the WEBS Index Series' 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 WEBS Index Series 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 WEBS Index Series' foreign income taxes. If any WEBS Index Series owns shares in certain foreign investment entities, referred to as "passive foreign investment companies," the WEBS Index Series will be subject to one of the following special tax regimes: (i) the WEBS Index Series 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 WEBS Index Series as a dividend to its shareholders; (ii) if the WEBS Index Series were able and elected to treat a passive foreign investment company as a "qualified electing fund," the WEBS Index Series would be required each year to include in income, and distribute to shareholders in accordance with the distribution requirements set forth above, the WEBS Index Series' 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 WEBS Index Series or (iii) the WEBS Index Series is entitled to mark-to-market annually the shares of the passive foreign investment company, and is required to distribute to shareholders any such mark-to-market gains in accordance with the distribution requirements set forth above. A WEBS Index Series will be subject to a 4 percent excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year at least 98 percent of its ordinary income for the calendar year plus 98 percent of its capital gain net income for the twelve months ended October 31 of such year. Each WEBS Index Series intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of this 4 percent excise tax. An investor in a WEBS Index Series that is a foreign corporation or an individual who is a nonresident alien for U.S. tax purposes will be subject to significant adverse U.S. tax consequences. For example, dividends paid out of a WEBS Index Series' investment company taxable income will generally be subject to U.S. federal withholding tax at a rate of 30% (or lower treaty rate if the foreign investor is eligible for the benefits of an income tax treaty). Foreign investors are urged to consult their own tax advisors regarding the U.S. tax treatment, in their particular circumstances, of ownership of shares in a WEBS Index Series. The foregoing discussion is a summary only and is not intended as a substitute for careful tax planning. Purchasers of shares of the Fund should consult their own tax advisors as to the tax consequences of investing in such shares, including under state, local and other tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue 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. CAPITAL STOCK AND SHAREHOLDER REPORTS The Fund currently is comprised of seventeen series of shares of common stock, par value $.001 per share, referred to herein as WEBS: the Australia WEBS Index Series, the Austria WEBS Index Series, the Belgium WEBS Index Series, the Canada WEBS Index Series, the France WEBS Index Series, the Germany WEBS Index Series, the Hong Kong WEBS Index Series, the Italy WEBS Index Series, the Japan WEBS Index Series, the Malaysia (Free) WEBS Index Series, the Mexico (Free) WEBS Index Series, the Netherlands WEBS Index Series, the Singapore (Free) WEBS Index Series, the Spain WEBS Index Series, the Sweden WEBS Index Series, the Switzerland WEBS Index Series, and the United Kingdom WEBS 52 86 Index Series. Each WEBS Index Series has been issued a separate class of capital stock. The Board may designate additional series of common stock and classify shares of a particular series into one or more classes of that series. Each WEBS issued by the Fund has a pro rata interest in the assets of the corresponding WEBS Index Series. The Fund is currently authorized to issue 6 billion shares of common stock. The following number of shares is currently authorized for each WEBS Index Series: the Australia WEBS Index Series, 127.8 million shares; the Austria WEBS Index Series, 19.8 million shares; the Belgium WEBS Index Series, 136.2 million shares; the Canada WEBS Index Series, 340.2 million shares; the France WEBS Index Series, 340.2 million shares; the Germany WEBS Index Series, 382.2 million shares; the Hong Kong WEBS Index Series, 191.4 million shares; the Italy WEBS Index Series, 63.6 million shares; the Japan WEBS Index Series, 2,124.6 million shares; the Malaysia (Free) WEBS Index Series, 127.8 million shares; the Mexico (Free) WEBS Index Series, 255 million shares; the Netherlands WEBS Index Series, 255 million shares, the Singapore (Free) WEBS Index Series, 191.4 million shares; the Spain WEBS Index Series, 127.8 million shares; the Sweden WEBS Index Series, 63.6 million shares; the Switzerland WEBS Index Series, 318.625 million shares; and the United Kingdom WEBS Index Series, 934.2 million shares. Fractional shares will not be issued. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each share is entitled to participate equally in dividends and distributions declared by the Board with respect to the relevant WEBS Index Series, and in the net distributable assets of such WEBS Index Series on liquidation. Shareholders are entitled to require the Fund to redeem Creation Units of their shares. Each WEBS has one vote with respect to matters upon which a stockholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder and the Maryland General Corporation Law; stockholders have no cumulative voting rights with respect to their shares. Shares of all series vote together as a single class except that if the matter being voted on affects only a particular WEBS Index Series it will be voted on only by that WEBS Index Series and if a matter affects a particular WEBS Index Series differently from other WEBS Index Series, that WEBS Index Series will vote separately on such matter. Under Maryland law, the Fund is not required to hold an annual meeting of stockholders unless required to do so under the 1940 Act. The policy of the Fund is not to hold an annual meeting of stockholders unless required to do so under the 1940 Act. All shares of the Fund (regardless of WEBS Index Series) have noncumulative voting rights for the election of Directors. Under Maryland law, Directors of the Fund may be removed by vote of the stockholders. As of September 30, 1997, the name, address and percentage of ownership of each DTC Participant that owned of record 5% or more of the outstanding shares of each WEBS Index Series were as follows: [TO BE UPDATED] The Fund does not have information concerning the beneficial ownership of the WEBS held in the names of such DTC Participants. The Fund issues through the Authorized Participants to its stockholders semi-annual reports containing unaudited financial statements and annual reports containing financial statements audited by independent auditors approved by the Fund's Directors and by the stockholders when meetings are held and such other information as may be required by applicable laws, rules and regulations. Beneficial Owners also receive annually notification as to the tax status of the Fund's distributions. Stockholder inquiries may be made by writing to the Fund, c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809. PERFORMANCE INFORMATION The performance of the WEBS Index Series may be quoted in advertisements, sales literature or reports to shareholders in terms of average annual total return, cumulative total return and yield. Quotations of average annual total return are expressed in terms of the average annual rate of return of a hypothetical investment in a WEBS Index Series over periods of 1, 5 and 10 years (or the life of a WEBS Index Series, if shorter). Such total return figures will reflect the deduction of a proportional share of such WEBS Index Series' expenses on an annual basis, and will assume that all dividends and distributions are reinvested when paid. 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). The average annual return for the period from commencement of operations to August 31, 1996 and for the fiscal year ended August 31, 1997, respectively, for each of the WEBS Index Series was: Australia WEBS Index Series _____ and _____; Austria WEBS Index Series _____ and ______; Belgium WEBS Index Series _____ and _____; Canada WEBS Index Series _____ and _____; France WEBS Index Series _____ and _____; Germany WEBS Index Series _____ and _____; Hong Kong WEBS Index Series _____ and _____; Italy WEBS Index Series _____ and _____; Japan WEBS Index Series _____ and _____; Malaysia (Free) WEBS Index Series _____ and _____; Mexico (Free) WEBS Index Series _____ and _____; Netherlands WEBS Index Series _____ and _____; 53 87 Singapore (Free) WEBS Index Series _____ and _____; Spain WEBS Index Series _____ and _____; Sweden WEBS Index Series _____ and _____; Switzerland WEBS Index Series _____ and _____; and United Kingdom WEBS Index Series _____ and _____. Quotations of a cumulative total return will be calculated for any specified period by assuming a hypothetical investment in a WEBS Index Series on the date of the commencement of the period and will assume that all dividends and distributions are reinvested on ex date. However, currently there is no dividend reinvestment option available to shareholders of WEBS 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 is not expressed in terms of an average rate of return. The cumulative total return for the period from commencement of operations to August 31, 1996 and for the fiscal year ended August 31, 1997, respectively, for each of the WEBS Index Series was: Australia WEBS Index Series _____ and _____; Austria WEBS Index Series _____ and ______; Belgium WEBS Index Series _____ and _____; Canada WEBS Index Series _____ and _____; France WEBS Index Series _____ and _____; Germany WEBS Index Series _____ and _____; Hong Kong WEBS Index Series _____ and _____; Italy WEBS Index Series _____ and _____; Japan WEBS Index Series _____ and _____; Malaysia (Free) WEBS Index Series _____ and _____; Mexico (Free) WEBS Index Series _____ and _____; Netherlands WEBS Index Series _____ and _____; Singapore (Free) WEBS Index Series _____ and _____; Spain WEBS Index Series _____ and _____; Sweden WEBS Index Series _____ and _____; Switzerland WEBS Index Series _____ and _____; and United Kingdom WEBS Index Series _____ and _____. The yield of a WEBS Index Series is the net annualized yield based on a specified 30-day (or one month) period assuming a semiannual compounding of income. Included in net investment income is the amortization of market premium or accretion of market and original issue discount. Yield is calculated by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: YIELD = 2[(a-b/cd + 1)(6)-1] (where a = dividends and interest earned during the period, b = expenses accrued for the period (net of reimbursements), c = the average daily number of shares outstanding during the period that were entitled to receive dividends and d = the maximum offering price per share on the last day of the period). The yield for the period from commencement of operations to August 31, 1996 and for the fiscal year ended August 31, 1997, respectively, for each of the WEBS Index Series was: Australia WEBS Index Series _____ and _____; Austria WEBS Index Series _____ and ______; Belgium WEBS Index Series _____ and _____; Canada WEBS Index Series _____ and _____; France WEBS Index Series _____ and _____; Germany WEBS Index Series _____ and _____; Hong Kong WEBS Index Series _____ and _____; Italy WEBS Index Series _____ and _____; Japan WEBS Index Series _____ and _____; Malaysia (Free) WEBS Index Series _____ and _____; Mexico (Free) WEBS Index Series _____ and _____; Netherlands WEBS Index Series _____ and _____; Singapore (Free) WEBS Index Series _____ and _____; Spain WEBS Index Series _____ and _____; Sweden WEBS Index Series _____ and _____; Switzerland WEBS Index Series _____ and _____; and United Kingdom WEBS Index Series _____ and _____. Quotations of cumulative total return, average annual total return or yield reflect only the performance of a hypothetical investment in a WEBS Index Series during the particular time period on which the calculations are based. Such quotations for a WEBS Index Series will vary based on changes in market conditions and the level of such WEBS Index Series' expenses, and no reported performance figure should be considered an indication of performance which may be expected in the future. The cumulative and average total returns and yields do not take into account federal or state income taxes which may be payable; total returns and yields would, of course, be lower if such charges were taken into account. A comparison of the quoted non-standard performance offered for various investments is valid only if performance is calculated in the same manner. Since there are different methods for calculating performance, investors should consider the effects of the methods used to calculate performance when comparing performance of the Fund with performance quoted with respect to other investment companies or types of investments. Because some or all of the 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 the Fund's investment performance. Historical information on the value of the dollar versus foreign currencies may be used from time to time in advertisements concerning the Fund. 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 the 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. From time to time, in advertising and marketing literature, the 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 54 88 Technologies, Inc., Morningstar, Inc., Value Line Mutual Fund Survey and other independent organizations. When these organizations' tracking results are used, the 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, the 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: 55 89 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 For examples of how these sources of information have been used, please see Appendix C to this Statement of Additional Information, "Supplemental Educational Information on WEBS." In addition, the Fund from time to time may compare the results of each WEBS Index Series to the following national benchmarks:
COUNTRY NATIONAL INDEX ------- -------------- Australia All Ordinares Austria Vienna Stock Exchange Belgium Brussels Stock Exchange Canada Toronto 300 France CAC40 Germany DAX Hong Kong Hang Seng Italy BCI Japan Nikkei 225 Malaysia KLSE Mexico IPC Netherlands CBS All Share Singapore SES All Spain Madrid Stock Exchange Sweden Aff. General Switzerland Swiss Bank U.K. FTSE100
From time to time, the Fund may use in marketing materials a graph entitled "The Efficient Frontier," which illustrates the historical risks and returns of selected unmanaged indices which track the performance of various combinations of United States and international securities for a certain time period, such as twenty years. A twenty year graph, for example, shall use twenty year annualized international returns represented by the MSCI Europe, Australasia and Far East (EAFE) Index and twenty year annualized United States returns represented by the S&P 500 Index. Risk is measured by the standard deviation in overall performance within each index. Data presented in the graph shall be provided by Ibbotson Associates, Inc. Performance of an index is historical and does not represent performance of the Fund, and is not a guarantee of future results. For an example of the use of an "Efficient Frontier" graph, please see "The Case for International Index Investing" at Appendix C of this Statement of Additional Information. Evaluation of Fund performance or other relevant statistical information made by independent sources may also be used in advertisements and sales literature concerning the Fund, including reprints of, or selections from, editorials or articles about the Fund. Sources for Fund performance information and articles about the Fund include, but are not limited to, the following: American Association of Individual Investors' Journal, a monthly publication of the AAII that includes articles on investment analysis techniques. Barron's, a Dow Jones and Company, Inc. business and financial weekly that periodically reviews investment company performance data. Business Week, a national business weekly that periodically reports the performance rankings and ratings of a variety of investment companies investing abroad. CDA Investment Technologies, an organization that provides performance and ranking information through 56 90 examining the dollar results of hypothetical mutual fund investments and comparing these results against appropriate indices. Forbes, a national business publication that from time to time reports the performance of specific investment companies. Fortune, a national business publication that periodically rates the performance of a variety of investment companies. The Frank Russell Company, a West-Coast investment management firm that periodically evaluates international stock markets and compares foreign equity market performance to U.S. stock market performance. Ibbotson Associates, Inc., a company specializing in investment research and data. Investment Company Data, Inc., an independent organization that provides performance ranking information for broad classes of mutual funds. Investor's Business Daily, a daily newspaper that features financial, economic, and business news. Kiplinger's Personal Finance Magazine, a monthly investment advisory publication that periodically features the performance of a variety of securities. Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly publication of industry-wide mutual fund averages by type of fund. Money, a monthly magazine that from time to time features both specific funds and the mutual fund industry as a whole. Morgan Stanley International, an integrated investment banking firm that compiles statistical information. The New York Times, a nationally distributed newspaper that regularly covers financial news. Smart Money, a national personal finance magazine published monthly by Dow Jones & Company, Inc. and The Hearst Corporation that focuses on ideas for investing, spending and saving. Value Line Mutual Fund Survey, an independent organization that provides biweekly performance and other information on mutual funds. The Wall Street Journal, a Dow Jones and Company, Inc. newspaper that regularly covers financial news. Wiesenberger Investment Companies Services, an annual compendium of information about mutual funds and other investment companies, including comparative data on funds' backgrounds, management policies, salient features, management results, income and dividend records and price ranges. Worth, a national publication distributed ten times per year by Capital Publishing Company, a subsidiary of Fidelity Investments that focuses on personal financial journalism. COUNSEL AND INDEPENDENT AUDITORS Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, are counsel to the Fund and have passed upon the validity of the Fund's shares. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, serve as the independent auditors of the Fund. FINANCIAL STATEMENTS The audited financial statements and notes thereto in the Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1997 (the "1997 Annual Report") are incorporated in this Statement of Additional Information by reference. No other parts of the 1997 Annual Report are incorporated by reference herein. The financial statements included in the 1997 Annual Report have been audited by the Fund's independent auditors, Ernst & Young LLP, whose report thereon is incorporated herein by reference. Additional copies of the 1997 Annual Report may be obtained 57 91 at no charge by telephoning the Distributor at 1-800-810-WEBS(9327). EDUCATIONAL MATERIALS Attached as Appendix C to this Statement of Additional Information are certain supplemental educational materials concerning WEBS. 58 92 APPENDIX A-1 MSCI AUSTRALIA INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-1 93 APPENDIX A-2 MSCI AUSTRIA INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-2 94 APPENDIX A-3 MSCI BELGIUM INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-3 95 APPENDIX A-4 MSCI CANADA INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-4 96 APPENDIX A-5 MSCI FRANCE INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-5 97 APPENDIX A-6 MSCI GERMANY INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-6 98 APPENDIX A-7 MSCI HONG KONG INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-7 99 APPENDIX A-8 MSCI ITALY INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-8 100 APPENDIX A-9 MSCI JAPAN INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-9 101 APPENDIX A-10 MSCI MALAYSIA (FREE) INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-10 102 APPENDIX A-11 MSCI MEXICO (FREE) INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-11 103 APPENDIX A-12 MSCI NETHERLANDS INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-12 104 APPENDIX A-13 MSCI SINGAPORE (FREE) INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-13 105 APPENDIX A-14 MSCI SPAIN INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-14 106 APPENDIX A-15 MSCI SWEDEN INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-15 107 APPENDIX A-16 MSCI SWITZERLAND INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-16 108 APPENDIX A-17 MSCI UNITED KINGDOM INDEX AS OF AUGUST 31, 1997
INDEX MARKET WEIGHT IN CAPITALIZATION MSCI INDEX CONSTITUENT NAME INDUSTRY SECTOR (MILLIONS OF US$) (%)
A-17 109 APPENDIX B The Fund intends to effect deliveries of Portfolio Securities on a basis of "T" plus three New York business days (i.e., days on which the New York Stock Exchange is open) in the relevant foreign market of each WEBS Index Series, except as discussed below. The ability of the Fund to effect in-kind redemptions within three New York business days of receipt of a redemption request is subject, among other things, to the condition that, within the time period from the date of the request to the date of delivery of the securities, there are no days that are local market holidays but "good" New York business days. For every occurrence of one or more intervening holidays in the local market that are not holidays observed in New York, the redemption settlement cycle will be extended by the number of such intervening local holidays. In addition to holidays, other unforeseeable closings in a foreign market due to emergencies may also prevent the Fund from delivering securities within three New York business days. The securities delivery cycles currently practicable for transferring Portfolio Securities to redeeming investors, coupled with local market holiday schedules, will require a delivery process longer than seven calendar days for some WEBS Index Series, in certain circumstances, during the fourth quarter of 1997 and calendar year 1998. The holidays applicable to each WEBS Index Series during such periods are listed below, as are instances where more than seven days will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption proceeds in any given year is not expected to exceed the maximum number of days listed below for each WEBS Index Series. The proclamation of new holidays, the treatment by market participants of certain days as "informal holidays" (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery practices, could affect the information set forth herein at some time in the future. THE AUSTRALIA WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Australian holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Labour Day (1) - October 6, 1997 Melbourne Cup Day (2) - November 4, 1997 Christmas Day - December 25, 1997 Boxing Day - December 26, 1997 New Year's Day - Australia Day - Labour Day (2) - Good Friday - Easter Monday - ANZAC Day - Queens Birthday - Bank Holiday (1) - Labour Day (1) - Melbourne Cup Day (2) - Christmas Day - Boxing Day - REDEMPTION. The Fund is not aware of a redemption request over any Australian holiday that would result in a settlement period that will exceed 7 calendar days in the fourth quarter of 1997 and calendar year 1998. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. NSW only. 2. Victoria only. 110 THE AUSTRIA WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Austrian holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Immaculate Conception - December 8, 1997 Christmas Eve - December 24, 1997 Christmas Day - December 25, 1997 St. Stephen's Day - December 26, 1997 New Year's Day - Epiphany - Good Friday (1) - Easter Monday - Labour Day - Ascension Day - Whit Monday - Corpus Christi - Assumption Day - Immaculate Conception - Christmas Eve - Christmas Day - St. Stephen's Day - REDEMPTION. A redemption request over the following Austrian holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the fourth quarter of 1997 and calendar year 1998):
REDEMPTION REDEMPTION DATE HOLIDAY REQUEST DATE (R) SETTLEMENT DATE SETTLEMENT PERIOD ---- ------- ---------------- --------------- ----------------- 12/24/97 Christmas Eve 12/19/97 12/29/97 R+10 12/25/97 Christmas Day 12/22/97 12/30/97 R+8 12/26/97 St. Stephen's Day 12/23/97 12/31/97 R+8
In the fourth quarter of 1997 and calendar year 1998, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the Austria WEBS Index Series. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Exchange only. 111 THE BELGIUM WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Belgian holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Bank Holiday -November 3, 1997 Remembrance Day -November 11, 1997 Christmas Day -December 25, 1997 Bridging Day -December 26, 1997 New Years Eve (Exchange only) -December 31, 1997 New Years Day - Good Friday (1) - Easter Monday - Labour Day - Ascension Day - Bank Holiday - Whit Monday - National Day - Assumption Day - Bank Holiday - Remembrance Day - Christmas Day - Bridging Day - New Years Eve (Exchange only) - REDEMPTION. A redemption request over the following Belgian holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the fourth quarter of 1997 and calendar year 1998):
REDEMPTION REDEMPTION DATE HOLIDAY REQUEST DATE (R) SETTLEMENT DATE SETTLEMENT PERIOD ---- ------- ---------------- --------------- ----------------- 12/25/97 Christmas Day 12/24/97 1/2/98 R+9 12/26/97 Bridging Day 12/31/97 New Year's Eve 1/1/98 New Year's Day
In the fourth quarter of 1997 and calendar year 1998, R+9 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the Belgium WEBS Index Series. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Exchange only. 112 THE CANADA WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Canadian holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Thanksgiving Day - October 13, 1997 Remembrance Day - November 11, 1997 Christmas Day - December 25, 1997 Boxing Day - December 26, 1997 New Year's Day - Good Friday - Victoria Day - St. Jean Baptiste (1) - Canada Day - Civic Day (1) - Labour Day - Thanksgiving Day - Remembrance Day - Christmas Day - Boxing Day - REDEMPTION. The Fund is not aware of a redemption request over any Canadian holiday that would result in a settlement period that will exceed 7 calendar days in the fourth quarter of 1997 and calendar year 1998. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Except banks and Exchange in Quebec only. 113 THE FRANCE WEBS INDEX SERIES REGULAR HOLIDAYS. The regular French holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Eve of Armistice Day - November 10, 1997 Armistice Day - November 11 1997 Christmas Day - December 25, 1997 New Year's Day - Good Friday - Easter Monday - Labour Day - Victory Day - Whit Monday - Bastille Day - Assumption Day - Eve of Armistice Day - Armistice Day - Christmas Day - REDEMPTION. The Fund is not aware of a redemption request over any French holiday that would result in a settlement period that will exceed 7 calendar days in the fourth quarter of 1997 and calendar year 1998. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 114 THE GERMANY WEBS INDEX SERIES REGULAR HOLIDAYS. The regular German holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: National Holiday -October 3, 1997 Reformation Day (1) -October 31, 1997 All Saints Day -November 1, 1997 Christmas Eve -December 24, 1997 Christmas Day -December 25, 1997 St. Stephen's Day -December 26, 1997 New Year's Eve -December 31, 1997 New Year's Day - Epiphany (2) - Monday before Lent (2) - Shrove Tuesday (3) - Good Friday - Easter Monday - Labour Day - Ascension Day - Whit Monday - Local Holiday (4) - Corpus Christi (2) - Assumption Day (2) - National Holiday - Reformation Day (1) - All Saints Day - Christmas Eve - Christmas Day - St. Stephen's Day - New Year's Eve - REDEMPTION. A redemption request over the following German holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the fourth quarter of 1997 and calendar year 1998):
REDEMPTION REDEMPTION DATE HOLIDAY REQUEST DATE (R) SETTLEMENT DATE SETTLEMENT PERIOD ---- ------- ---------------- --------------- ----------------- 12/24/97 Christmas Eve 12/19/97 12/29/97 R+10 12/25/97 Christmas Day 12/22/97 12/30/97 R+8 12/26/97 St. Stephen's Day 12/23/97 1/2/98 R+10 12/31/97 New Year's Eve 1/1/98 New Year's Day
In the fourth quarter of 1997 and calendar year 1998, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the Germany WEBS Index Series. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Banks only. 1. Parts of Germany. 2. Shortened trading hours. 3. Frankfurt only. 115 THE HONG KONG WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Hong Kong holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: National Day - October 1, 1997 National Day - October 2, 1997 Chung Yeung Festival - October 10, 1997 Christmas Day - December 25, 1997 Christmas Holiday - December 26, 1997 New Year's Day - Lunar New Year's Day - Lunar New Year's Day - Lunar New Year's Day - Good Friday - Easter Monday - Tuen Ng Festival - Queen's Birthday Observed - SAR Establishment Day - SAR Establishment Day - Sino-Japanese War Victory Day - Chinese Mid-Autumn Festival - National Day - National Day - Chung Yeung Festival - Christmas Day - Christmas Holiday - REDEMPTION. The Fund is not aware of a redemption request over any Hong Kong holiday that would result in a settlement period that will exceed 7 calendar days in the fourth quarter of 1997 and calendar year 1998. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 116 THE ITALY WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Italian holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Immaculate Conception -December 8, 1997 Christmas Eve (1) -December 24, 1997 Christmas Day -December 25, 1997 St. Stephen's Day -December 26, 1997 New Year's Day - Epiphany - Easter Monday - Liberation Day - Labour Day - Assumption Day - Immaculate Conception - Christmas Eve (1) - Christmas Day - St. Stephen's Day - REDEMPTION. A redemption request over the following Italian holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the fourth quarter of 1997 and calendar year 1998):
REDEMPTION REDEMPTION DATE HOLIDAY REQUEST DATE (R) SETTLEMENT DATE SETTLEMENT PERIOD ---- ------- ---------------- --------------- ----------------- 12/24/97 Christmas Eve 12/19/97 12/29/97 R+10 12/25/97 Christmas Day 12/22/97 12/30/97 R+8 12/26/97 St. Stephen's Day 12/23/97 12/31/97 R+8
In the fourth quarter of 1997 and calendar year 1998, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the Italy WEBS Index Series. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Exchange only. 117 THE JAPAN WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Japanese holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Sports Day -October 10, 1997 Culture Day -November 3, 1997 Labour Thanksgiving Day Observed -November 24, 1997 Emperor's Birthday -December 23, 1997 Exchange Holiday -December 31, 1997 New Year's Day - Bank Holiday - Bank Holiday - Adult's Day - National Foundation Day - Vernal Equinox Day - Greenery Day - Children's Day - Ocean Day Observed - Respect of the Aged Day - Autumnal Equinox Day - Sports Day - Culture Day - Labour Thanksgiving Day Observed - Emperor's Birthday - Exchange Holiday - REDEMPTION. A redemption request over the following Japanese holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the fourth quarter of 1997 and calendar year 1998):
REDEMPTION REDEMPTION DATE HOLIDAY REQUEST DATE (R) SETTLEMENT DATE SETTLEMENT PERIOD ---- ------- ---------------- --------------- ----------------- 12/31/97 Exchange Holiday 12/26/97 1/5/98 R+10 1/1/98 New Year's Day 12/29/97 1/6/98 R+8 1/2/98 First Weekday after 12/30/97 1/7/98 R+8 New Year's Day
In the fourth quarter of 1997 and calendar year 1998, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the Japan WEBS Index Series. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 118 THE MALAYSIA (FREE) WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Malaysian holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Deepavali (1) -October 30, 1997 Christmas Day -December 25, 1997 New Year's Day - Federal Territory Day - Chinese New Year - Chinese New Year - Hari Raya Puasa (1) - Hari Raya Puasa (1) - Hari Raya Haji (1) - Labour Day - Awal Muharam - Wesak Day - Birthday of His Majesty - Prophet Mohammed's Birthday - National Day - Deepavali (1) - Christmas Day - REDEMPTION. The Fund is not aware of a redemption request over any Malaysian holiday that would result in a settlement period that will exceed 7 calendar days in the fourth quarter of 1997 and calendar year 1998. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Subject to change. 119 THE MEXICO (FREE) WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Mexican holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: All Saint's Day -November 2, 1997 Revolution Day -November 20, 1997 Our Lady of Guadalupe Day -December 12, 1997 Christmas Eve (1) -December 24, 1997 Christmas Day -December 25, 1997 Banking's Year End -December 30, 1997 Year End -December 31, 1997 New Year's Day - Constitution Day - Benito Juarez Day - Holy Wednesday (1) - Holy Thursday - Good Friday - Workers Day - Puebla's Battle - Mother's Day (1) - State of the Union Address Day - All Saint's Day - Revolution Day - Our Lady of Guadalupe Day - Christmas Eve (1) - Christmas Day - Banking's Year End - Year End - REDEMPTION. A redemption request over the following Mexican holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the fourth quarter of 1997 and calendar year 1998):
REDEMPTION REDEMPTION DATE HOLIDAY REQUEST DATE (R) SETTLEMENT DATE SETTLEMENT PERIOD ---- ------- ---------------- --------------- ----------------- 12/25/97 Christmas Day 12/26/97 1/5/98 R+10 12/30/97 Banking's Year End 12/29/97 1/6/98 R+8 12/31/97 Year End
In the fourth quarter of 1997 and calendar year 1998, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the Mexico (Free) WEBS Index Series. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Half day. 120 THE NETHERLANDS WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Netherlands holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Christmas Day -December 25, 1997 Boxing Day -December 26, 1997 Holiday -December 31, 1997 New Year's Day - Good Friday - Easter Monday - Queen's Birthday - Ascension Day - Whit Monday - Christmas Day - Boxing Day - Holiday - REDEMPTION. A redemption request over the following Netherlands holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the fourth quarter of 1997 and calendar year 1998):
REDEMPTION REDEMPTION DATE HOLIDAY REQUEST DATE (R) SETTLEMENT DATE SETTLEMENT PERIOD ---- ------- ---------------- --------------- ----------------- 12/25/97 Christmas Day 12/24/97 1/2/98 R+9 12/26/97 Boxing Day 12/31/97 Holiday 1/1/98 New Year's Day
In the fourth quarter of 1997 and calendar year 1998, R+9 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the Netherlands WEBS Index Series. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 121 THE SINGAPORE (FREE) WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Singaporean holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Deepavali - October 31, 1997 Christmas Day - December 25, 1997 New Year's Day - Chinese New Year - Chinese New Year - Chinese New Year - Chinese New Year (1) - Good Friday - Hari Raya Haji - Labour Day - Vesak Day - National Day - Deepavali - Christmas Day - REDEMPTION. The Fund is not aware of a redemption request over any Singaporean holiday that would result in a settlement period that will exceed 7 calendar days in the fourth quarter of 1997 and calendar year 1998. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Observance of Sunday's holiday. 122 THE SPAIN WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Spanish holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Immaculate Concepcion - December 8, 1997 Christmas Eve (1) - December 24, 1997 Christmas Day - December 25, 1997 New Year's Day - Epiphany - Holy Thursday - Good Friday - Labour Day - Madrid Day - San Isidro - St. James' Day - Assumption Day - Immaculate Concepcion - Christmas Eve (1) - Christmas Day - REDEMPTION. The Fund is not aware of a redemption request over any Spanish holiday that would result in a settlement period that will exceed 7 calendar days in the fourth quarter of 1997 and calendar year 1998. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Exchange only. 123 THE SWEDEN WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Swedish holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Christmas Eve - December 24, 1997 Christmas Day - December 25, 1997 Boxing Day - December 26, 1997 New Year's Eve - December 31, 1997 New Year's Day - Epiphany - Good Friday - Easter Monday - Labour Day - Ascension Day - Whit Monday - Midsummer Eve - Christmas Eve - Christmas Day - Boxing Day - New Year's Eve - REDEMPTION. A redemption request over the following Swedish holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the fourth quarter of 1997 and calendar year 1998):
REDEMPTION REDEMPTION DATE HOLIDAY REQUEST DATE (R) SETTLEMENT DATE SETTLEMENT PERIOD ---- ------- ---------------- --------------- ----------------- 12/24/97 Christmas Eve 12/19/97 12/29/97 R+10 12/25/97 Christmas Day 12/22/97 12/30/97 R+8 12/26/97 Boxing Day 12/23/97 1/2/98 R+10 12/31/97 New Year's Eve 1/1/98 New Year's Day
In the fourth quarter of 1997 and calendar year 1998, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the Sweden WEBS Index Series. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 124 THE SWITZERLAND WEBS INDEX SERIES REGULAR HOLIDAYS. The regular Swiss (Zurich) holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Christmas Eve (1) - December 24, 1997 Christmas Day - December 25, 1997 St. Stephen's Day - December 26, 1997 New Year's Day - Berchtoldstag - Good Friday - Easter Monday - Labour Day - Ascension Day - Whit Monday - National Day - Knabenschiessen (1) - Christmas Eve (1) - Christmas Day - St. Stephen's Day - REDEMPTION. A redemption request over the following Swiss holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the fourth quarter of 1997 and calendar year 1998):
REDEMPTION REDEMPTION DATE HOLIDAY REQUEST DATE (R) SETTLEMENT DATE SETTLEMENT PERIOD ---- ------- ---------------- --------------- ----------------- 12/24/97 Christmas Eve 12/19/97 12/29/97 R+10 12/25/97 Christmas Day 12/22/97 12/30/97 R+8 12/26/97 St. Stephen's Day 12/23/97 12/31/97 R+8
In the fourth quarter of 1997 and calendar year 1998, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the Switzerland WEBS Index Series. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 1. Banks close at 12PM. 125 THE UNITED KINGDOM WEBS INDEX SERIES REGULAR HOLIDAYS. The regular United Kingdom holidays affecting the relevant securities markets (and their respective dates in the fourth quarter of 1997 and calendar year 1998) are as follows: Christmas Day - December 25, 1997 Boxing day - December 26, 1997 New Year's Day - Good Friday - Easter Monday - May Day - Spring Bank Holiday - August Bank Holiday - Christmas Day - Boxing day - REDEMPTION. The Fund is not aware of a redemption request over any United Kingdom holiday that would result in a settlement period that will exceed 7 calendar days in the fourth quarter of 1997 and calendar year 1998. [TO BE REVISED AFTER INCLUSION OF 1998 HOLIDAYS.] 126 WORLD EQUITY BENCHMARK SHARES A simple trade. A sophisticated investment. [ WEBS LOGO ] THE CASE FOR INTERNATIONAL INDEX INVESTING The emergence of the world marketplace, with growing interdependence between the economies of the United States and other developed and emerging countries, is a well-publicized story. But taking advantage of these investment opportunities can present investors with a wide, often confusing array of choices. WORLD EQUITY BENCHMARK SHARES (WEBS) offer U.S. individual and institutional investors a flexible, relatively low-cost entry into international markets. WHY INVEST INTERNATIONALLY? Investors have long recognized that the U.S. economy and markets represent only a portion of the world's investment opportunities. As the chart at right shows, non-U.S. equities currently represent 60 percent of the world's market capitalization. Staying at home means passing up 60% of the world's market! Percent of total world market capitalization at year end. [PIE CHART]
1975 1985 1995 U.S. equities 56% 49% 40% Non-U.S. equities 44% 51% 60%
Source: Morgan Stanley Capital International With this growth in opportunity has come increased interest from American investors. - Over $115 billion have been invested in international securities -- both equities and fixed-income -- in the three years ended December 31, 1995 by U.S. pension funds and other tax-exempt institutions.(1) - International markets often move in different directions from the U.S. -- making them attractive as portfolio hedges. - For portfolio diversification, many financial advisers recommend a 10 to 40 percent international component, depending on the investor's objectives and risk tolerances. INDEX INVESTING: INSTITUTIONS ACTIVELY SEEK 'PASSIVE' MANAGEMENT FOR MARKET RETURNS Broad based market indices, such as the S&P 500 in the U.S., or the Morgan Stanley Capital International Indices for international markets, are the yardsticks used by most investors to judge portfolio performance. While the two basic investment management styles differ in their approach, both measure success using these and other yardsticks: - Active management -- selecting and trading a portfolio of stocks based on which industries and companies will likely maximize performance. This approach may or may not outperform the relevant market index. - Passive management -- the indexed approach -- investing in a group of stocks that are intended to track the performance of a broad index. Indexing seeks to closely track a market's overall performance, not outperform it. Over $600 billion of U.S. tax-exempt institutional assets are now invested in indexed portfolios,(2) which seek only to track an index, not outperform it. Investing internationally, however, is nothing if not challenging. Choosing which country or region offers the best opportunities at a given time can be perplexing. Since past performance can't guarantee future results, selecting the right active investment manager can be difficult, and purchasing individual international equities can be complicated and expensive; using an indexed approach reduces or eliminates the impact of these factors. Since 1990, all indexed mutual fund assets have increased more than 800%. Assets in billions [BAR GRAPH] 1990 $ 4.5 1991 $ 8.8 1992 $13.6 1993 $19.9 1994 $23.3 1995 $40.5
Source: Financial Research Corporation Consider these significant benefits of indexing: - Returns for actively managed portfolios as compared to their benchmark indices can fluctuate from year to year. As reported by Morningstar, 78% of actively managed mutual funds did not outperform the market over the last 10 years. - Indexed portfolios follow a consistent strategy -- to replicate the market as nearly as possible -- even if management personnel changes. An index investor does not have to worry that a successful portfolio manager will suddenly leave, or that a new manager will make major changes in strategy that can affect an actively managed portfolio's performance. - Indexing generally means lower costs for the investor, due to a relatively lower portfolio turnover rate and lower advisory fees than is the case for active management. (1) Source: Institutional Investor, April 1996. (2) Source: Pension & Investments, February 19, 1996. 127 For more information call 1 800 810-WEBS Visit our Internet site for information and daily prices and valuations http://websontheweb.com Real-time IOPVs available on The BLOOMBERG(R) WEBS WEBS c/o Funds Distributor Inc. 60 State Street Suite 1300 Boston, MA 02109 The investment return and principal value of a WEBS investment will fluctuate so that an investor's shares when sold, or Creation Unit(s) when redeemed, may be worth more or less than their original cost. There are special risks of international investing, including currency and political risks. For more information on WEBS, including a prospectus which details charges and expenses, please call 1-800-810-WEBS. Please read the prospectus carefully before you invest or send money. Distributed by: Funds Distributor Inc. INDEXING IS A SIMPLE WAY TO ENTER THE WORLD MARKETPLACE Investing overseas involves special risks -- such as exposure to currency fluctuations, foreign economic and political changes and markets that are generally more volatile, speculative and inefficient than U.S. markets. So, many institutional investors believe indexing is a common-sense approach to international investing, where picking a manager or individual securities may be more difficult. - U.S. pension funds, some of the country's most conservative investors, placed $13 billion, almost half, of their 1995 international equity investments into indexing.(1) - International indexed assets grew 15 percent in 1995, almost three times the growth rate of indexed assets overall, even after adjusting for market performance. Nearly 20 percent of equity indexed products in the U.S. were international at year end.(2) - International indexing simplifies an investor's choices. Rather than picking specific managers or securities, the choice is which countries -- or regions -- offer the best opportunities. WEBS OFFER INTERNATIONAL FLEXIBILITY WITH INDEXED SIMPLICITY WEBS offer U.S. investors a simple, relatively inexpensive way to invest in overseas markets or regions through indexed investing and provide investment strategies previously available only to institutional investors. Adding international stocks to a U.S. portfolio may enhance returns while lowering volatility [GRAPH] 16.05 19.97 100% International Stocks 16.02 18.58 16 17.5 15.97 16.61 15.95 15.91 15.92 15.43 15.9 15.2 60% U.S. Stocks, 40% International Stocks 15.87 15.22 15.85 15.5 15.82 16.02 15.8 16.76 100% U.S. Stocks
The efficient frontier chart above shows that over the last twenty years, a portfolio of 60% U.S. stocks (S&P 500 Index) and 40% international stocks (EAFE Index) achieved enhanced returns and reduced volatility. U.S. Stocks are represented by the S&P 500 Index, a market -- value -- weighted benchmark of U.S. common stock performance. International stocks are represented by Morgan Stanley Capital International Europe, Australasia, Far East (EAFE) Index, a market -- weighted benchmark of international stock performance. The S&P 500 and EAFE Indices are unmanaged indices that, unlike WEBS, do not incur expenses. This information is presented for illustrative purposes only and is not indicative of any specific investment. Actual investments may not be made in an index. Source: Ibbotson Associates - WEBS are 17 country-specific series of securities listed and traded on the American Stock Exchange. Investing in WEBS provides immediate access to international markets, with daily liquidity in U.S. dollars. - Each WEBS Index Series invests in an optimized portfolio of ordinary foreign shares and seeks to track the performance of a specific Morgan Stanley Capital International (MSCI) Index. - Adding WEBS to a domestic equity portfolio may enhance return, lower volatility and reduce risk. - With share prices which ranged between $10-$20 as of 8/31/96, and relatively low operating expenses, WEBS give investors a relatively low-cost entry into international investing.* - WEBS are flexible. Available for 17 countries, WEBS allow an investor to build an international portfolio of equity index investments.
Country AMEX Symbol IOPV* Country AMEX Symbol IOPV* Australia EWA WBJ Malaysia EWM INM Austria EWO INY Mexico (Free) EWW INW Belgium EWK INK Netherlands EWN INN Canada EWC WPB Singapore (Free) EWS INR France EWQ WBF Spain EWP INP Germany EWG ING Sweden EWD WBQ Hong Kong EWH INH Switzerland EWL INL Italy EWI INE United Kingdom EWU INU Japan EWJ INJ
*"Indicative Optimized Portfolio Values" (IOPV's) are calculated using real-time prices and FX rates and are updated every 15 seconds by BLOOMBERG(R). See the Statement of Additional Information for a further description of IOPV. In Mexico and Singapore, certain stocks have restrictions on foreign ownership. MSCI created (Free) Indices in those countries which only include investable stocks for foreigners. (1) Source: Institutional Investor, April, 1996. (2) Source: Pension & Investments, February 19, 1996. * There is no guarantee that WEBS will maintain a $10-$20 price range. 1/97 RETCASEIII -- C 128 WORLD EQUITY BENCHMARK SHARES A SIMPLE TRADE. A SOPHISTICATED INVESTMENT. INVESTMENT HIGHLIGHTS [ WEBS LOGO ] WORLD EQUITY BENCHMARK SHARES What are WEBS? - WEBS are 17 country-specific series of securities that are listed and traded on the American Stock Exchange (AMEX). - Each WEBS Index Series represents an investment in an optimized portfolio of ordinary foreign shares that seeks to provide investment results that track the price and yield performance of a specific Morgan Stanley Capital International (MSCI) country index. Investor profile: - WEBS are appropriate for individuals and institutions who want easy access to one or more international stock markets through indexed investing. What is the purpose of WEBS? - WEBS are designed to give US investors exposure to specific international equity markets through a diversified portfolio of stocks for each foreign country selected. - These sophisticated investments are purchased through a simple stock trade and are free from the complexities, but not the risks, of foreign investing. WEBS are not: - Closed-end mutual funds. - ADRs or UITs. - Derivatives. WEBS do not: - Use leverage to increase their net assets. - Attempt to outperform an international market through stock selection. WEBS series initially issued for 17 countries:
Country AMEX Symbol IOPV Australia EWA WBJ Austria EWO INY Belgium EWK INK Canada EWC WPB France EWQ WBF Germany EWG WDG Hong Kong EWH INH Italy EWI INE Japan EWJ INJ
Country AMEX Symbol IOPV Malaysia (Free) EWM INM Mexico (Free) EWW INW Netherlands EWN INN Singapore (Free) EWS INR Spain EWP INP Sweden EWD WBQ Switzerland EWL INL United Kingdom EWU INU
"Indicative Optimized Portfolio Values" (IOPV's) are calculated using real-time prices and FX rates and are updated every 15 seconds by BLOOMBERG(R). See the Statement of Additional Information of WEBS Index Fund, Inc. for more information on IOPV. In Malaysia, Mexico and Singapore certain stocks have restrictions on foreign ownership. MSCI created (Free) Indices in those countries which only include stocks in which foreigners may invest. Fund adviser: - - Barclays Global Fund Advisors, one of the world's largest institutional index money managers, will construct an optimized portfolio of foreign ordinary shares that seeks to perform like those of a specific MSCI Index. WEBS benefits: - - WEBS provide investors immediate access to international markets. - - At $10-20 per share, it is a relatively low cost, simplified approach to foreign investing.* - - WEBS seek to produce investment results that correspond generally to the price and yield performance of a particular MSCI index. - - Each WEBS Index Series holds a diversified portfolio of foreign stocks of a country that is selected and monitored by a globally recognized institutional money manager. - - Pricing is anticipated to be near NAV, due to WEBS' unique structure. - - Daily liquidity on the AMEX in US dollars. - - Increase potential to enhance returns and reduce portfolio risk through international diversification. *As of fiscal year-end 8/31/96 the WEBS Index Series had maintained a price range of $10-$20 per share. There is no guarantee that prices will remain within this range. 129 For more information call 1 800 810-WEBS Visit our Internet site for information and daily prices and valuations http://websontheweb.com Real-time IOPVs available on The BLOOMBERG(R) WEBS(GO) WEBS c/o Funds Distributor Inc. 60 State Street Suite 1300 Boston, MA 02109 The investment return and principal value of a WEBS investment will fluctuate so that an investor's shares when sold, or Creation Unit(s) when redeemed, may be worth more or less than their original cost. There are special risks of international investing, including currency and political risks. Please call your financial advisor or 1 800 810-WEBS to obtain more complete information about WEBS, including a prospectus which details charges and expenses. Please read the prospectus carefully before you invest or send money. Distributed by: Funds Distributor Inc. Creation Units: - - They are large aggregations of a specified number of WEBS shares that are created and redeemed through an "Authorized Participant" (Broker/Dealer). - - Each Creation Unit is backed by an in-kind deposit of a portfolio of foreign shares selected by the Adviser for each country offered, plus a specified amount of cash. - - The process of creating or redeeming shares in Creation Units at their net asset value should enable WEBS to trade close to their NAV. - - The Fund will not redeem or create WEBS in amounts less than Creation Units. However, WEBS may be bought and sold on the AMEX in any amount. Investment risks: - - There may be premiums/discounts to NAV from time to time, but large variances are not expected to be sustained due to the Creation/Redemption process. - - WEBS are subject to foreign currency risk since they do not hedge currencies. - - Investment returns in international markets may be more volatile than that of the US Market. WEBS involve normal foreign investment risks, such as market fluctuations, due to changes in the economic and political developments in the countries with which they are associated. WEBS features: - - Simple, liquid, indexed way to invest in a foreign country with a domestic trade. - - All 17 WEBS are traded in US dollars on the AMEX and settle T+3. - - WEBS are marginable. - - Can be sold short, even on a downtick. - - WEBS are fully invested in stocks -- generally, at least 95%. - - Anticipated low portfolio turnover, since WEBS are "passively" managed. - - WEBS are tax efficient; capital gains should be modest and are due mostly to corporate actions and rebalancing. - - Dividends and capital gains, if any, distributed in US dollars, at least annually. - - NAV daily at 4:00 pm NY time based on local market closing prices. Exchange rates at 4:00 pm London time. Except Mexican WEBS, FX rate 3:00 pm NY time. - - Real-time IOPV updated every 15 seconds by BLOOMBERG(R) and available on all quote systems. WEBS possible applications: - - Obtain index exposure to a single country or a specific region. - - Combine WEBS to create a customized portfolio of multiple or regional international markets. - - Replicate MSCI EAFE Index through the purchase of a portfolio of WEBS. - - Alternative or complement to traditional closed-end and open-end funds. - - Gain access to the foreign countries that do not have country specific funds available in the United States. - - Use as the international component in an asset allocation account. WEBS world class partners: Issuer: WEBS Index Fund, Inc. Adviser: Barclays Global Fund Advisors Indices: Morgan Stanley Capital International Distributor: Funds Distributor Inc. Exchange: American Stock Exchange Custodian: Morgan Stanley Trust Company Transfer Agent & Administrator: PFPC Inc. Specialists: Spear Leeds & Kellog, and AIM Securities 130 CONTENTS: Questions investors may have about WEBS 1 Introduction 2 Features 4 Benefits 5 Structure 6 Pricing 8 Creation and Redemption 9 Performance 10 Dividends and Capital Gains 12 Who to Contact 131 INTRODUCTION WEBS enable institutional and individual investors to gain exposure to selected international equity markets. They represent a convenient and relatively economical means of diversifying a portfolio and gaining passive index management in certain foreign countries. Introduced for trading on the American Stock Exchange (AMEX) in March, 1996, WEBS are issued in a number of country-specific Index Series by WEBS Index Fund, Inc. (the "Fund"), an investment company registered under the Investment Company Act of 1940. The companies and institutions involved include Barclays Global Fund Advisors (the "Adviser"), Funds Distributor, Inc. (the "Distributor"), Morgan Stanley Trust Company (the "Custodian"), Morgan Stanley Capital International ("MSCI"), PFPC Inc. (the "Administrator") and the American Stock Exchange, Inc. (the "AMEX"). Here are answers to some of the most frequently asked questions about WEBS. 132 2 FEATURES Q What are "WEBS?" A WEBS, an acronym for "World Equity Benchmark Shares," are shares issued in series by the Fund (each series being a "WEBS Index Series"). Q Who should invest in WEBS? A WEBS are designed for investors who seek a relatively low-cost "passive" approach for investing in a portfolio of equity securities of companies located in a particular foreign country. Q What is the objective of each WEBS Index Series? A The Fund is an index fund. The investment objective of each of the WEBS Index Series is to seek to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the aggregate in particular markets, as represented by a particular foreign equity securities index compiled by MSCI. Q Which countries are represented by WEBS Index Series? A There are 17 WEBS Index Series of the Fund:
AMEX AMEX AMEX TRADING TRADING TRADING COUNTRY SYMBOL COUNTRY SYMBOL COUNTRY SYMBOL ------- ------- ------- ------- ------- ------- Australia ewa Hong Kong ewh Singapore (Free) ews Austria ewo Italy ewi Spain ewp Belgium ewk Japan ewj Sweden ewd Canada ewc Malaysia ewm Switzerland ewl France ewq Mexico (Free) eww United Kingdom ewu Germany ewg Netherlands ewn
More WEBS Index Series may be added in the future. Q When were WEBS introduced? A WEBS were introduced for trading on the AMEX in March, 1996. Q What are the MSCI Indices? A The MSCI Indices used by the WEBS Index Series as benchmarks are market capitalization weighted indices that seek to track the performance of a particular country's publicly traded equity securities. They generally reflect approximately 60% of the capitalization of a country's stock market. The MSCI Indices balance the inclusiveness of an "all share" index against the replicability of a "blue chip" index. MSCI Indices have covered the world's developed markets since 1969, and the emerging markets since 1988. They are notable for the depth and breadth of their coverage. Q Can WEBS provide international and regional exposure? A Yes. Shares in different WEBS Index Series can be purchased in different weightings to achieve desired international exposure, specifically or regionally, including most of the components of the MSCI EAFE Index (Europe, Australasia and Far East Index). 133 Q How are WEBS different from mutual fund shares? A There are a number of important differences. WEBS shares trade continuously on a secondary market, the AMEX, during regular AMEX trading hours, like any other publicly traded U.S. stocks listed on this Exchange. In contrast, mutual fund shares do not trade in the secondary market, and are normally bought and sold from the issuing mutual fund at prices determined only at the end of the day. WEBS may be bought and sold on the AMEX in any amount, but may be purchased from, and redeemed by, the Fund only in very large "Creation Unit" aggregations. Mutual fund shares are normally available from the issuing fund in much smaller amounts, and are redeemable in units of as little as one share. Q How are WEBS different from closed-end funds? A Closed-end funds, including other country or region-specific funds, which also trade on U.S. exchanges, frequently trade at discounts or premiums to their net asset value (NAV). This is because the price of their shares reflects the forces of supply and demand. Although as of August 31, 1996 the WEBS had traded at an average end-of-day premium of .04 over their NAV, the Fund cannot predict whether the WEBS of its various WEBS Index Series will trade at, above or below their NAVs in the future. However, given the fact that WEBS can be created or redeemed on any business day by institutional investors in Creation Unit aggregations (see Creation and Redemption section, page 7), the Fund believes that large discounts or premiums to the NAV of WEBS are unlikely to be sustainable. Q Are WEBS leveraged derivatives? A No. Each WEBS Index Series may not use derivatives for the purpose of leveraging its investment portfolio, but they may be used to "equitize" a cash position, and for other limited purposes. A WEBS Index Series may also borrow money from banks for temporary or emergency purposes. Q What is the expected price range for WEBS? A The initial price per WEBS share of each Index Series has ranged between $10 and $20, although there can be no assurance of this price range in the future. Q What is a round lot of WEBS? A A round lot of shares of a WEBS Index Series is 100 WEBS. BENEFITS Q How can WEBS simplify the process of international investing? A WEBS offer a number of advantages compared to the alternative of investing directly in a foreign market: - WEBS give investors broad market exposure for a specific country, in one trade. - WEBS give investors a way to gain exposure internationally yet trade locally, on the AMEX. - WEBS' index investing approach frees investors from the process of stock selection and the many complexities associated with direct foreign stock ownership. - WEBS trade and settle in U.S. Dollars three business days after the trade date. 134 Q How easily can I buy and sell WEBS? A Investors can trade WEBS during normal market hours, just like any other U.S. stock. Q Can I use WEBS for targeted portfolio exposure? A Yes. WEBS are well suited for this purpose. You can choose a specific country and its equity market from a range of available WEBS Index Series that covers 15 countries in Europe, Australasia and the Far East, as well as Canada and Mexico. More WEBS Index Series may be added in the future. Q How broad is the exposure in a given foreign equity market? A MSCI generally seeks to have 60% of the capitalization of a country's stock market reflected in the MSCI index for such country. Each WEBS Index Series seeks to provide investment results that correspond generally to the price and yield performance of the relevant index. STRUCTURE Q Who issues WEBS? A WEBS Index Fund, Inc., an investment company registered under the Investment Company Act of 1940, as amended, and organized as a series fund. Q Who owns the Fund? A Investors in WEBS become equity shareholders in the Fund. Q Who manages the investment portfolios of the WEBS Index Series? A Barclays Global Fund Advisors is responsible for the investment management of each WEBS Index Series. Their responsibilities include portfolio construction, monitoring and rebalancing designed to help track the performance of the relevant MSCI Index for each WEBS Index Series. Q Where are these portfolio securities held? A Morgan Stanley Trust Company is the global custodian and lending agent for the portfolio securities and cash of each of the WEBS Index Series. Portfolio securities will be held in the various foreign countries, through the Custodian's network of local sub-custodians. PRICING Q How is Net Asset Value (NAV) determined? A Net Asset Value (NAV) per WEBS for each WEBS Index Series is computed by dividing the value of the net assets of such WEBS Index Series by the total number of WEBS of such Index Series outstanding, rounded to the nearest cent. Expenses and fees, including the management, administration and distribution fees, are accrued daily and taken into account for purposes of determining NAV. The NAV for each WEBS Index Series is determined as of the close of the regular trading session on the New York Stock Exchange, Inc. (NYSE), ordinarily 4 p.m. New York time, on each day such Exchange is open. 135 In computing a WEBS Index Series' NAV, the WEBS Index Series' portfolio securities 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 the over-the-counter market are valued at the latest quoted bid price. 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 the Adviser, in accordance with procedures adopted by the Fund's board of directors. The values of portfolio securities are converted into U.S. Dollars at the same foreign exchange rate used by MSCI in computing the relevant MSCI Index on any particular day. This is currently the rate at 4:00 p.m., London time, except for the Mexico (Free) WEBS Index, where the rate used is that as of 3:00 p.m. New York time. Q Will the NAV fluctuate? A The NAV of each WEBS Index Series will fluctuate with changes in the market value of its underlying portfolio securities, with changes in the exchange rates between the U.S. Dollar and the relevant foreign currency, and with the WEBS Index Series' income and expenses. Q Do I maintain the foreign currency exposure of the benchmark MSCI Index? A Although WEBS trade in U.S. Dollars, investors still have foreign currency exposure with respect to the underlying securities of a WEBS Index Series. The Fund will not hedge such foreign currency exposure. Q Do I have any other performance exposure? A Yes. WEBS investors have full exposure to the price movements of the underlying securities, and to the movement of the foreign currencies against the U.S. Dollar. Q Are there any sales loads? A No. The Fund does not impose any initial or deferred sales charge, and is thus a "no-load" fund. Investors will pay normal brokerage commissions when buying and selling WEBS on the AMEX, just as they do when transacting in any other AMEX-listed security. Q How do the management fees payable by the Fund compare to those paid by actively managed funds? A The Fund is an index fund. Management fees for passively managed index funds are typically lower than for actively managed funds. The reason for this is that passive management will require fewer investment, research and trading decisions, thereby justifying lower fees. Q Where can I get immediate, up-to-date price information? A Pricing of WEBS on the AMEX is continuous during normal trading hours. Investors can obtain this information using the AMEX's pricing symbols for WEBS, through any information service that reports AMEX prices. The closing prices will be published in major newspapers on the following business day. 136 CREATION AND REDEMPTION: FOR INSTITUTIONAL INVESTORS Q How are WEBS created or redeemed? A WEBS may be created and redeemed only in Creation Units, which range in value depending on the WEBS Index Series. A detailed description of the creation and redemption process appears in the Prospectus and Statement of Additional Information. Q What is a "Creation Unit?" A A specified number of WEBS, which varies depending on the WEBS Index Series. To purchase a Creation Unit, an investor generally deposits a portfolio of securities designated by the Adviser, plus an amount of cash specified by the Administrator. Q What is the difference between a Creation Unit and a WEBS? A A Creation Unit is simply a specified number of WEBS shares. Q Who can create them? A Any investor who makes an in-kind deposit through an Authorized Participant of a designated portfolio of equity securities specified for a WEBS Index Series, plus a cash amount, and a fee to cover creation and other transaction costs. Q How are they issued? A The Fund issues and sells Creation Units of WEBS of each WEBS Index Series on a continuous basis through the Distributor at their NAV next determined after receipt of an order in proper form. WEBS may also be sold in Creation Units for cash, in the sole discretion of the Fund. Q Can WEBS be redeemed for their underlying portfolio securities? A Yes. WEBS are redeemable, but only when aggregated in a Creation Unit. Q How are Creation Units redeemed? A A Creation Unit will be redeemed by the Fund at its NAV. On redemption, the Fund will deliver the portfolio securities, plus cash in an amount equal to the difference between the NAV of the WEBS shares and the value of the deposit securities, less a redemption transaction fee. Redemption requests must be submitted to the Distributor through an Authorized Participant. A Creation Unit may also be redeemed for cash, in the sole discretion of the Fund. Q When can Creation Units be redeemed? A Authorized Participants can instruct the Distributor (at 1-800-810-WEBS) to redeem Creation Units, between the hours of 9.30 a.m. and 4 p.m. New York time, when the AMEX is open for business. Q Are there costs involved in creating and redeeming Creation Units? A Yes. A redeeming investor must pay a fee to the Fund to offset transfer and other transaction costs that may be incurred by the relevant WEBS Index Series. Investors will also bear the costs of transferring the deposited securities to or from the Fund to their account. 137 INDEXED PERFORMANCE Q What is the performance objective of each WEBS Index Series? A Each WEBS Index Series intends to remain as fully invested as practicable in a pool of equity securities, the performance of which will, in the Adviser's judgement, approximate the performance of the relevant MSCI Index taken in its entirety. For more information, see "Investment Policies" in the Prospectus. Q Will each WEBS Index Series fully replicate the relevant MSCI Index? A A WEBS Index Series generally will not hold all the stocks that comprise the relevant MSCI Index, due in part to the costs involved and, in certain instances, to the potential illiquidity of certain securities. Instead, each Index Series will attempt to hold a representative sample of the securities in the MSCI Index, which will be selected by the Adviser using quantitative analytical models, in a technique known as "portfolio sampling." Certain WEBS Index Series may also hold securities that are not in the relevant MSCI Index where this is considered necessary or appropriate in light of applicable invesment restrictions. Q What is portfolio sampling? A Under this technique, each stock is considered for inclusion in the Index Series based on its contribution to certain capitalization, industry and fundamental investment characteristics. The Adviser will try to construct each WEBS Index Series portfolio so that, in the aggregate, its capitalization, industry and fundamental investment characteristics are expected to perform like those of the relevant MSCI Index. Q How closely will the performance of WEBS track the Index performance? A Due to the use of the portfolio sampling technique, a WEBS Index Series is not expected to track its benchmark index with the same degree of accuracy as it would if it invested in every stock in the relevant Index. The expected tracking error of a WEBS Index Series relative to the performance of its benchmark index is expected to be less than 5%. The tracking error will generally be greater for WEBS Index Series that have benchmark indices with fewer rather than greater numbers of component stocks. Q What if the performance of the underlying equity portfolio exceeds or underperforms the relevant Index? A Over time, the portfolio composition of a WEBS Index Series may be rebalanced, to reflect changes in the subject MSCI Index, or with a view to bringing the performance and characteristics of the WEBS Index Series more in line with that of the relevant MSCI Index. Any such rebalancing would require the WEBS Index Series to incur transaction costs and other expenses. Q Do the WEBS Index Series track the performance of the MSCI Indices with or without dividends reinvested? A The MSCI Indices utilized by the WEBS Index Series reflect the reinvestment of net dividends (except for the Mexico (Free) WEBS Index Series, which uses an MSCI Index that reflects reinvestment of gross dividends). 138 INCOME VIA DIVIDENDS AND CAPITAL GAINS Q When are dividends and capital gains paid on WEBS? A Dividends and capital gain distributions will be payable at least annually, and will be distributed to investors in U.S. Dollars. Dividends may be more frequent than annually for certain WEBS Index Series. Q Can WEBS dividends be reinvested? A Dividends may not be automatically reinvested in WEBS shares of a WEBS Index Series at this time, although investors may always purchase additional WEBS in the secondary market with distributions received on their existing WEBS. Q What is included in WEBS' accrued income? A Net investment income from dividends, interest income, securities lending income and net gains from currency transactions, less WEBS Index Series operating expenses, plus net short-term capital gains. Q Is income commingled among WEBS Index Series? A No. However, the WEBS Index Series share certain expenses incurred at the Fund level. Q Is there any withholding tax on income? A Dividends on the portfolio stocks held in each WEBS Index Series may be subject to foreign income taxes withheld at source. There should not be any further withholding tax on distributions to WEBS investors who are U.S. investors and who complete all required U.S. tax forms. Foreign investors will be subject to U.S. withholding tax on WEBS' ordinary income dividends at a 30% rate or lower, pursuant to the relevant tax treaty. Each WEBS Index Series will flow through such withholding taxes to its shareholders, who can choose to either deduct or credit them against their U.S. income tax liability. Q How are dividends and capital gains treated for Federal income tax purposes? A Tax treatment is comparable to an investment in a mutual fund that invests in foreign securities. Dividends paid out of a WEBS Index Series' net investment income and distributions of net realized short-term capital gains are taxable to a U.S. investor as ordinary income. Distributions of net long-term capital gains, if any, in excess of net short-term capital losses, are taxable to a U.S. investor as long-term capital gains, regardless of how long the investor has held their WEBS. Dividends and distributions paid by a WEBS Index Series will not qualify for the deduction for dividends received by corporations. Distributions in excess of a WEBS Index Series' current and accumulated earnings and profits will be treated as a tax-free return of capital to each WEBS Index Series investor, to the extent of the investor's basis in their WEBS, and as capital gain thereafter. Gains or losses realized upon a sale by a holder of WEBS or redemption by a Creation Unit holder who is not a securities dealer, will generally be treated as a long-term capital gain or loss if the WEBS or Creation Unit have been held for more than one year; and otherwise as a short-term capital gain or loss. 139 Q Do investors receive the gross amount of all their WEBS Index Series' dividends and capital gains? A No. Expenses are deducted daily against each WEBS Index Series' income flows. Q Where can I find the record date for a WEBS Index Series? A They will be announced in accordance with applicable AMEX requirements. WHO TO CONTACT If you have further questions or need more WEBS product information, call 1-800-810-WEBS toll free. Or, write to: WEBS c/o Funds Distributor, Inc. 60 State Street Suite 1300 Boston, MA 02109 - To buy WEBS shares on the AMEX, contact your broker. - To create WEBS Creation Units, contact an Authorized Participant. The names of the current Authorized Participants are available from the Distributor at 1-800-810-WEBS. - To redeem WEBS Creation Units, contact Funds Distributor, Inc. at the above toll-free number. - To get current WEBS prices, consult your broker, or any service that carries current trading information for AMEX-listed securities. - For information concerning requirements for purchasing or redeeming Creation Unit aggregations of WEBS, call 1-800-810-WEBS. Funds Distributor, Inc., Distributor For more information on WEBS, including a prospectus which details charges and expenses, please call 1-800-810-WEBS. Please read the prospectus carefully before you invest. The investment returns and principal value of a WEBS investment will fluctuate, so that an investor's shares when sold, or Creation Unit(s) when redeemed, will be worth more or less than their original cost. There are special risks of international investing, including currency and political risks. 12 Design: Studio Morris NYC / LA Writing: Colin Goedecke NYC FFQ&A 140 [ LOGO ] World quality Benchmark Shares Average Annual Performance of MSCI Indices and the S&P 500 - - periods ending 6/30/97 In US Dollars - (Reinvestment of Net Dividends, except for Mexico (Free) and S&P 500.)*
Total Cumulative Return $10,000 Investment YTD 1 yr 3 yr 5 yr 10 yr 6/30/87-6/30/97 ----- ----- ----- ----- ----- ------------------------ Australia 6.21 16.19 13.09 11.79 8.62 $22,861 Austria -2.70 -2.39 -3.12 -0.20 8.88 $23,414 Belgium 11.41 20.82 17.68 14.80 12.63 $32,850 Canada 11.54 31.14 22.03 12.45 7.62 $20,842 France 9.17 19.07 15.43 9.81 10.57 $27,313 Germany 16.74 26.84 17.84 12.59 10.34 $26,750 Hong Kong 9.76 29.63 18.83 19.72 19.85 $61,148 Italy 11.22 11.02 5.50 8.21 1.93 $12,107 Japan 9.07 -8.87 -4.64 9.13 0.83 $10,862 Malaysia (Free)** -11.64 -4.53 4.49 15.92 17.24 $45,313 Mexico (Free)** 30.71 34.10 -3.45 5.41 34.24 $164,013 Netherlands 20.02 37.28 29.49 22.76 16.02 $44,190 Singapore (Free) -6.68 -6.57 6.36 13.93 17.96 $48,026 Spain 20.72 48.49 28.43 16.38 11.92 $30,837 Sweden 14.59 37.06 32.80 22.95 16.36 $45,503 Switzerland 31.33 29.10 25.58 25.04 15.98 $44,038 United Kingdom 9.22 35.58 22.04 13.61 11.25 $29,040 - ------------------------------------------------------------------------------- EAFE 11.21 12.84 9.12 12.83 6.58 $18,913 - ------------------------------------------------------------------------------- EAFE EX Japan 12.15 26.94 19.37 14.76 11.45 $29,567 - ------------------------------------------------------------------------------- Europe 14.26 29.99 20.98 14.87 11.42 $29,487 - ------------------------------------------------------------------------------- S&P 500 20.62 34.71 28.86 19.78 14.66 $39,275
MSCI: Morgan Stanley Capital International EAFE: Europe, Australasia and Far East. * Assumes reinvestment of net dividends except for the Mexico (Free) and the S&P 500 Indices. Net dividends means dividends after reduction for taxes withheld at source. The Mexico (Free) and S&P 500 Indices reflect gross dividends since Mexican and U.S. companies do not withhold tax from U.S. investors. The dividend withholding rate used by MSCI is that relevant for residents of Luxembourg, and such rate is higher than the rate applicable to U.S. residents in the case of the following WEBS Index Series: Australia (30% vs. 15%), Austria (15% vs. 11%) and Germany (15% vs. 10%). ** Return calculated since 12/31/87 (inception of indices). On June 2, 1997 the Malaysia WEBS Index Series commenced using the MSCI Malaysia (Free) Index as its benchmark index. Past performance is no guarantee of future results, nor do index results represent any past or expected future performance of WEBS. It is not possible to invest in an index. Indices are unmanaged, and do not bear expenses, unlike WEBS. Foreign markets may be volatile and performance is subject to market fluctuations, political risks and currency risks. Funds Distributor Inc., Distributor For more information on WEBS, including a prospectus which details charges and expenses, please call 800-810-WEBS Source: Morgan Stanley Capital International and Standard and Poor's Corporation. Please read the prospectus carefully before you invest. 07/97 141 [ LOGO ] Annual Market Performance and Ranking for 17 MSCI Indices and World S&P 500 - periods ending 12/31 Equity Benchmark In US Dollars - (Reinvestment of Net Dividends, except for Mexico Shares (Free) and S&P 500.)*
1996 1995 1994 1993 1. Spain 40.05% Switzerland 44.12% Japan 21.44% Hong Kong 116.70% 2. Sweden 37.21% S&P 500 37.58% Sweden 18.34% Malaysia (Free) 110.00% 3. Hong Kong 33.08% Sweden 33.36% Netherlands 11.70% Singapore (Free) 73.41% 4, Canada 28.54% Spain 29.83% Italy 11.56% Mexico (Free) 49.35% 5. Netherlands 27.51% Netherlands 27.71% Belgium 8.24% Switzerland 45.79% 6. United Kingdom 27.42% Belgium 25.88% Singapore (Free) 5.81% Sweden 36.99% 7. S&P 500 22.96% Hong Kong 22.57% Australia 5.40% Germany 35.64% 8. France 21.20% United Kingdom 21.27% Germany 4.66% Netherlands 35.28% 9. Malaysia (Free) 19.60% Canada 18.31% Switzerland 3.54% Australia 35.17% 10. Mexico (Free) 18.70% Germany 16.41% S&P 500 1.32% Spain 29.78% 11. Australia 16.49% France 14.12% United Kingdom -1.63% Italy 28.53% 12. Germany 13.58% Singapore (Free) 12.19% Canada -3.04% Austria 28.09% 13. Italy 12.59% Australia 11.19% Spain -4.80% Japan 25.48% 14. Belgium 12.03% Malaysia (Free) 5.16% France -5.18% United Kingdom 24.44% 15. Austria 4.51% Italy 1.05% Austria -6.28% Belgium 23.51% 16. Switzerland 2.28% Japan 0.69% Malaysia (Free) -19.94% France 20.91% 17. Singapore (Free) -8.13% Austria -4.72% Hong Kong -28.90% Canada 17.58% 18. Japan -15.50% Mexico (Free) -20.37% Mexico (Free) -40.55% S&P 500 10.08% 1992 1991 1990 1. Hong Kong 32.29% Mexico (Free) 126.05% Mexico (Free) 62.65% 2. Mexico (Free) 24.98% Hong Kong 49.52% United Kingdom 10.29% 3. Malaysia (Free) 17.76% Singapore (Free) 43.61% Hong Kong 9.17% 4. Switzerland 17.23% Australia 33.64% Austria 6.33% 5. S&P 500 7.62% S&P 500 30.47% S&P 500 -3.10% 6. Singapore (Free) 4.49% France 17.83% Netherlands -3.19% 7. France 2.81% Netherlands 17.80% Switzerland -6.23% 8. Netherlands 2.30% United Kingdom 16.02% Malaysia (Free) -7.91% 9. Belgium -1.47% Switzerland 15.77% Germany -9.36% 10. United Kingdom -3.65% Spain 15.63% Belgium -10.98% 11. Germany -10.27% Sweden 14.42% Canada -13.00% 12. Austria -10.65% Belgium 13.77% France -13.83% 13. Australia -10.82% Canada 11.08% Spain -13.85% 14. Canada -12.15% Japan 8.92% Singapore (Free) -14.59% 15. Sweden -14.41% Germany 8.16% Australia -17.54% 16. Japan -21.45% Malaysia (Free) 4.95% Italy -19.19% 17. Spain -21.87% Italy -1.82% Sweden -20.99% 18. Italy -22.22% Austria -12.23% Japan -36.10%
MSCI: Morgan Stanley Capital International * Assumes reinvestment of net dividends except for the Mexico (Free) and the S&P 500 Indices. Net dividends means dividends after reduction for taxes withheld at source. The Mexico (Free) and S&P 500 Indices reflect gross dividends since Mexican and U.S. companies do not withhold tax from U.S. investors. U.S. Market represented by the S&P 500 Index. The dividend withholding rate used by MSCI is that relevant for residents of Luxembourg, and such rate is higher than the rate applicable to U.S. residents in the case of the following WEBS Index Series: Australia (30% vs. 15%), Austria (15% vs. 11%) and Germany (15% vs. 10%). Past performance is no guarantee of future results, nor do index results represent any past or expected future performance of WEBS. It is not possible to invest in an index. Indices are unmanaged, and do not bear expenses, unlike WEBS. Foreign markets may be volatile and performance is subject to market fluctuations, political risks and currency risks. Annual total return in U.S. $ for each country index is based on the change for the period of 1/1 through 12/31 in the market and currency value of the individual stocks comprising each index, assuming reinvestment of any dividends. On June 2, 1997 the Malaysia WEBS Index Series commenced using the MSCI Malaysia (Free) Index as its benchmark index. Funds Distributor Inc., Distributor For more information on WEBS, including a prospectus which details charges and expenses, please call 800-810-WEBS. Sources: Lipper Analytical Services, Morgan Stanley Capital International, and Standard and Poor's Corporation Please read the prospectus carefully before you invest. 07/97 142 [ WEBS LOGO ] World Equity Benchmark Shares MSCI Indices vs. S&P 500 - periods ending 6/30/97 In US Dollars - (Reinvestment of Net Dividends except for Mexico (Free) and the S&P 500)*
Ten Year Growth of $10,000 Seven Year Growth of $10,000 Five Year Growth of $10,000 6/30/87 - 6/30/97 6/30/90 - 6/30/97 6/30/92 - 6/30/97 Mexico (Free)** $164,013 Hong Kong $ 49,852 Switzerland $ 30,566 Hong Kong $ 61,148 Netherlands $ 34,613 Sweden $ 28,096 Singapore (Free) $ 48,026 Mexico (Free) $ 34,040 Netherlands $ 27,879 Sweden $ 45,503 Switzerland $ 32,975 S&P 500 $ 24,656 Malaysia (Free)** $ 45,313 S&P 500 $ 30,032 Hong Kong $ 24,594 Netherlands $ 44,190 Sweden $ 23,530 Spain $ 21,350 Switzerland $ 44,038 United Kingdom $ 23,510 Malaysia (Free) $ 20,931 S&P 500 $ 39,275 Singapore (Free) $ 23,194 Belgium $ 19,939 Belgium $ 32,850 Malaysia (Free) $ 21,566 Singapore (Free) $ 19,195 Spain $ 30,837 Belgium $ 21,528 United Kingdom $ 18,927 United Kingdom $ 29,040 Australia $ 20,132 Germany $ 18,093 France $ 27,313 Spain $ 20,105 Canada $ 17,980 Germany $ 26,750 Canada $ 18,103 Australia $ 17,459 Austria $ 23,414 Germany $ 17,740 France $ 15,966 Australia $ 22,861 France $ 17,243 Japan $ 15,478 Canada $ 20,842 Japan $ 10,314 Italy $ 14,837 Italy $ 12,107 Italy $ 10,214 Mexico (Free) $ 13,014 Japan $ 10,862 Austria $ 7,198 Austria $ 9,900
MSCI: Morgan Stanley Capital International *Assumes reinvestment of net dividends except for the Mexico (Free) and the S&P 500 Indices. Net dividends means dividends after reduction for taxes withheld at source. The Mexico (Free) and S&P 500 Indices reflect gross dividends since Mexican and U.S. companies do not withhold tax from U.S. investors. The dividend withholding rate used by MSCI is that relevant for residents of Luxembourg, and such rate is higher than the rate applicable to U.S. residents in the case of the following WEBS Index Series: Australia (30% vs. 15%), Austria (15% vs. 11%) and Germany (15% vs. 10%). **Return calculated since 12/31/87 (inception of indices). On June 2, 1997 the Malaysia WEBS Index Series commenced using the MSCI Malaysia (Free) Index as its benchmark index. Past performance is no guarantee of future results, nor do index results represent any past or expected future performance of WEBS. It is not possible to invest in an index. Indices are unmanaged and do not bear expenses, unlike WEBS. Foreign markets may be volatile and performance is subject to market fluctuations, political risks and currency risks. Funds Distributor Inc., Distributor. For more information on WEBS, including a prospectus which details charges and expenses, please call 800-810-WEBS. Sources: Morgan Stanley Capital International and Standard and Poor's Corporation. Please read the prospectus carefully before you invest. 07/97 143 [ WEBS LOGO ] World Equity Benchmark Shares MSCI Indices and S&P 500 Total Cumulative Return -- $10,000 Investment for the ten years ended 6/30/97 In US Dollars (Reinvestment of Net Dividends except for Mexico (Free) and the S&P 500)* [BAR GRAPH]
Average Annual Return Total Cumulative Return Mexico (Free)** 34.24% $164,013 Hong Kong 19.85% $ 61,148 Singapore (Free) 17.96% $ 48,026 Sweden 16.36% $ 45,503 Malaysia (Free)** 17.24% $ 45,313 Netherlands 16.02% $ 44,190 Switzerland 15.98% $ 44,038 S&P 500 14.66% $ 39,275 Belgium 12.63% $ 32,850 Spain 11.92% $ 30,837 United Kingdom 11.25% $ 29,040 France 10.57% $ 27,313 Germany 10.34% $ 26,750 Austria 8.88% $ 23,414 Australia 8.62% $ 22,861 Canada 7.62% $ 20,842 Italy 1.93% $ 12,107 Japan 0.83% $ 10,862
MSCI: Morgan Stanley Capital International *Assumes reinvestment of net dividends except for the Mexico (Free) and the S&P 500 Indices. Net dividends means dividends after reduction for taxes withheld at source. The Mexico (Free) and S&P 500 Indices reflect gross dividends since Mexican and U.S. companies do not withhold tax from U.S. investors. The dividend withholding rate used by MSCI is that relevant for residents of Luxembourg, and such rate is higher than the rate applicable to U.S. residents in the case of the following WEBS Index Series: Australia (30% vs. 15%), Austria (15% vs. 11%) and Germany (15% vs. 10%). **Return calculated since 12/31/87 (inception of indices). On June 2, 1997 the Malaysia WEBS Index Series commenced using the MSCI Malaysia (Free) Index as its benchmark index. Past performance is no guarantee of future results, nor do index results represent any past or expected future performance of WEBS. It is not possible to invest in an index. Indices are unmanaged and do not bear expenses, unlike WEBS. Foreign markets may be volatile and performance is subject to market fluctuations, political risks and currency risks. Funds Distributor Inc., Distributor. For more information on WEBS, including a prospectus which details charges and expenses, please call 800-810-WEBS. Sources: Morgan Stanley Capital International and Standard and Poor's Corporation. Please read the prospectus carefully before you invest. 07/97 144 PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements: (1) Included in Parts A and/or B of the Registration Statement are the following audited financial statements: None. (b) Exhibits: *(1) -- Articles of Amendment and Restatement of the Fund *(1)(A) -- Articles of Amendment to the Charter of Foreign Fund, Inc. *(2) -- Amended Bylaws of the Fund (2)(A) -- Amendment No. 1 to the Amended Bylaws of the Fund (3) -- Not applicable *(4) -- Form of global certificate evidencing shares of the Common Stock, $.001 par value, of each Index Series of the Fund *(5) -- Investment Management Agreement between the Fund and BZW Barclays Global Fund Advisors *(6) -- Distribution Agreement between the Fund and Funds Distributor, Inc. (6)(A) -- Amendment of Distribution Agreement between the Fund and Funds Distributor, Inc. *(6)(B) -- Form of Authorized Participant Agreement *(6)(B)(1) -- Authorized Participant Agreement for Merrill Lynch (6)(C) -- Form of Sales and Investor Services Agreement (6)(C)(1) -- Second Form of Sales and Investor Services Agreement. (7) -- Not applicable *(8) -- Custodian Agreement between the Fund and Morgan Stanley Trust Company dated as of March 5, 1996 (8)(A) -- Amendment of Custodian Agreement between the Fund and Morgan Stanley Trust Company *(8)(B) -- Lending Agreement dated as of March 5, 1996 between Morgan Stanley Trust Company and the Fund *(9) -- Administration and Accounting Services Agreement between the Fund and PFPC Inc. (9)(A) -- Amendment of Administration and Accounting Services Agreement between the Fund and PFPC Inc. *(9)(B) -- Transfer Agency Services Agreement between the Fund and PNC Bank, National Association. (9)(C) -- Amendment of Transfer Agency Services Agreement between the Fund and PNC Bank, National Association. *(9)(D) -- License Agreement between the Fund and Morgan Stanley Capital International (9)(E) -- Amendment of License Agreement between the Fund and Morgan Stanley Capital International and *(9)(F) -- Addendum dated January 14, 1997 to the Administration and Accounting Services Agreement between the Fund and PFPC Inc. (9)(G) -- Form of Sub-Administration Agreement between the Fund, PFPC Inc. and Morgan Stanley & Co. Incorporated. *(10) -- Opinion and consent of Sullivan & Cromwell **(11) -- Opinion and consent of Ernst & Young, LLP 145 *(13) -- Subscription Agreement(s) between the Fund and Funds Distributor, Inc. with respect to the Fund's initial capitalization *(13)(A) -- Letter of Representations among the Depository Trust Company, the Fund and Morgan Stanley Trust Company (14) -- Not applicable *(15) -- Form of 12b-1 Plan (16) -- Schedule of Performance Computations **(17) -- Financial Data Schedules - ------------------------ * Previously filed. ** To be filed by amendment. ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT Not applicable. ITEM 26. NUMBER OF HOLDERS OF SECURITIES As of August 15, 1997, The Depository Trust Company was the record holder of each of the initial seventeen WEBS Index Series of the Fund. ITEM 27. INDEMNIFICATION Incorporated by reference to Post-Effective Amendment No. 7 to this Registration Statement, filed January 15, 1997. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. See "Management of the Fund" in the Statement of Additional Information. Information as to the directors and officers of the Adviser is included in its form ADV filed with the Commission and is incorporated herein by reference thereto. ITEM 29. PRINCIPAL UNDERWRITERS (a) Funds Distributor Inc. is the Fund's principal underwriter. Funds Distributor Inc. also acts as a principal underwriter, depositor, or investment adviser for the following other investment companies: BJB Investment Funds Burridge Funds The Brinson Funds Fremont Mutual Funds, Inc. Harris Insight Funds Trust HT Insight Funds, Inc., d/b/a Harris Insight Funds The JPM Advisor Funds The JPM Institutional Funds The JPM Pierpont Funds The JPM Series Trust The JPM Series Trust II LKCM Fund Monetta Fund, Inc. Monetta Trust The Montgomery Funds The Montgomery Funds II The Munder Framlington Funds Trust The Munder Funds, Inc. The Munder Funds Trust Orbitex Group of Funds 146 The Panagora Institutional Funds RCM Capital Funds, Inc. RCM Equity Funds, Inc. The Skyline Funds St. Clair Funds, Inc. Waterhouse Investors Cash Management Fund, Inc. (b) The following is a list of the executive officers, directors and partners of Funds Distributor, Inc. Director, President and Chief - Marie E. Connolly Executive Officer Executive Vice President - Richard W. Ingram Executive Vice President - Donald R. Roberson Senior Vice President, General - John E. Pelletier Counsel, Secretary and Clerk Senior Vice President - Michael S. Petrucelli Director, Senior Vice President - Joseph F. Tower, III Treasurer and Chief Financial Officer Senior Vice President - Paula R. David Senior Vice President - Bernard A. Whalen Director - William J. Nutt (c) Not applicable. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules thereunder will be maintained at the offices of PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809. ITEM 31. MANAGEMENT SERVICES Not applicable. ITEM 32. UNDERTAKINGS The Fund hereby undertakes to call a meeting of the shareholders for the purpose of voting upon the question of removal of any Director when requested in writing to do so by the holders of at least 10% of the Fund's outstanding shares of common stock and, in connection with such meeting, to comply with the provisions of Section 16(c) of the 1940 Act relating to shareholder communications. 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 Fund pursuant to the foregoing provisions, or otherwise, the Fund has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Fund of 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 Fund 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 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. 147 SIGNATURES Pursuant to the requirements of the Investment Company Act of 1940, the Registrant has duly caused this Post- Effective Amendment No. 8 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and State of New York, on the 21st day of August, 1997. WEBS INDEX FUND, INC. By: /S/ Nathan Most* ----------------------------- Nathan Most President Pursuant to the requirements of the Securities Act of 1933, this Post- Effective Amendment No. 8 to the Registration Statement has been signed below by the following persons, in the capacities indicated, on the 21st day of August, 1997. SIGNATURE TITLE /S/ Nathan Most* President and Director - -------------------------- (Nathan Most) /S/ John B. Carroll* Director - -------------------------- (John B. Carroll) /S/ Timothy A. Hultquist* Director - -------------------------- (Timothy A. Hultquist) /S/ Lloyd N. Morrisett* Director - -------------------------- (Lloyd N. Morrisett) /S/ W. Allen Reed* Director - -------------------------- (W. Allen Reed) /S/ Stephen M. Wynne Treasurer (principal - -------------------------- financial and accounting (Stephen M. Wynne) officer) *By: /S/ Gary M. Gardner Attorney-In-Fact ------------------------------- (Gary M. Gardner) 148 EXHIBIT INDEX (2)(A) -- Amendment No. 1 to the Amended Bylaws of the Fund. (6)(A) -- Amendment of Distribution Agreement between the Fund and Funds Distributor, Inc. (6)(C) -- Form of Sales and Investor Services Agreement. (6)(C)(1) -- Second Form of Sales and Investor Services Agreement. (8)(A) -- Amendment of Custodian Agreement between the Fund and Morgan Stanley Trust Company. (9)(A) -- Amendment of Administration and Accounting Services Agreement between the Fund and PFPC Inc. (9)(C) -- Amendment of Transfer Agency Services Agreement between the Fund and PNC Bank, National Association. (9)(E) -- Amendment of License Agreement between the Fund and Morgan Stanley Capital International. (9)(G) -- Form of Sub-Administration Agreement between the Fund, PFPC Inc. and Morgan Stanley & Co. Incorporated. (16) -- Schedule of Performance Computations. EX-99.B(2)(A) 2 AMENDMENT NO.1 TO THE AMENDED BYLAWS OF THE FUND 1 EXHIBIT 99.B(2)(A) AMENDMENT NO. 1 TO THE AMENDED BYLAWS OF WEBS INDEX FUND, INC. (THE "COMPANY") Pursuant to the terms of the Amended ByLaws of Company, as approved at the March 5, 1996 meeting of the Board of Directors, the Amended ByLaws are hereby further amended to replace the name "Foreign Fund, Inc." with the name "WEBS Index Fund, Inc." EX-99.B(6)(A) 3 AMENDMENT OF DISTRIBUTION AGREEMENT 1 EXHIBIT 99.B(6)(A) AMENDMENT OF DISTRIBUTION AGREEMENT BETWEEN FOREIGN FUND, INC. (THE "COMPANY") AND FUNDS DISTRIBUTOR, INC. Pursuant to the terms of the Distribution Agreement dated March 9, 1996 (the "Agreement") between the above named parties, the Agreement is hereby amended to delete the name of Foreign Fund, Inc. as a party to the Agreement and replace the name of such party with WEBS Index Fund, Inc. effective January 2, 1997. Additionally, the name of each Series of the Company is hereby changed in the Agreement as noted below: OLD SERIES NAME: NEW SERIES NAME: Australia Index Series Australia WEBS Index Series Austria Index Series Austria WEBS Index Series Belgium Index Series Belgium WEBS Index Series Canada Index Series Canada WEBS Index Series France Index Series France WEBS Index Series Germany Index Series Germany WEBS Index Series Hong Kong Index Series Hong Kong WEBS Index Series Italy Index Series Italy WEBS Index Series Japan Index Series Japan WEBS Index Series Malaysia Index Series Malaysia WEBS Index Series Mexico (Free) Index Series Mexico (Free) WEBS Index Series Netherlands Index Series Netherlands WEBS Index Series Singapore (Free) Index Series Singapore (Free) WEBS Index Series Spain Index Series Spain WEBS Index Series Sweden Index Series Sweden WEBS Index Series Switzerland Index Series Switzerland WEBS Index Series United Kingdom Index Series United Kingdom WEBS Index Series 2 This Amendment is effective January 2, 1997. WEBS Index Fund, Inc. By: /S/ Nathan Most --------------- Its: President Agreed and Accepted: Funds Distributor, Inc. By: /S/ Marie E. Connolly --------------------- Its: President and CEO EX-99.B(6)(C) 4 FORM OF SALES AND INVESTOR SERVICES AGREEMENT 1 EXHIBIT 99.B(6)(C) WEBS INDEX FUND, INC. SALES AND INVESTOR SERVICES AGREEMENT Date: Name Company Dear Ladies and Gentleman: WEBS Index Fund, Inc. (the "Fund") is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), organized as a series fund and formed as a corporation under the laws of the State of Maryland. The Fund will consist initially of seventeen series (each, an "Index Series"), and will issue shares of common stock, par value $.001 per share, of each Index Series (such shares are referred to herein as "World Equity Benchmark Shares(SM)" or "WEBS(SM)"). The Fund will only sell and redeem WEBS in aggregations of a specified number of WEBS (each, a "Creation Unit") depending on the Index Series as set forth in the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time. Pursuant to a Distribution Agreement between the Fund and us (the "Distribution Agreement"), we will act as distributor (the "Distributor") and principal underwriter of Creation Units of WEBS of the various Index Series as exclusive agent on behalf of the Fund. Capitalized terms not defined herein shall have the meanings attributed to them in the current Prospectus and Statement of Additional Information of the Fund. Creation Units of WEBS of each Index Series will generally be sold at net asset value, without a sales charge, in exchange for Deposit Securities and a balancing cash payment, all as described in the Fund's Prospectus and Statement of Additional Information. Only Authorized Participants may directly place orders for Creation Units of WEBS. As Distributor and principal underwriter of the Fund, we wish to enter into this Sales and Investor Services Agreement (this "Agreement") with you concerning (i) your solicitation of purchase orders for Creation Units of WEBS, (ii) your provision of broker-dealer and shareholder support services to your clients ("Clients") who may from time to time beneficially own WEBS of any Index Series and (iii) your educational and 2 promotional activities in the secondary market for WEBS listed and traded on the American Stock Exchange (the "AMEX"). You understand and acknowledge that the proposed method by which Creation Units of WEBS will be created and traded may raise certain issues under applicable securities laws. For example, because new Creation Units of WEBS may be issued and sold by the Fund on an ongoing basis, at any point a "distribution," as such term is used in the Securities Act of 1933, as amended (the "1933 Act"), may occur. You understand and acknowledge that some activities on your part may, depending on the circumstances, result in your being deemed a participant in a distribution in a manner which could render you a statutory underwriter and subject you to the prospectus delivery and liability provisions of the 1933 Act. You also understand and acknowledge that when you are not an "underwriter" but are effecting transactions in WEBS, whether or not participating in the distribution of WEBS, you are generally required to deliver a prospectus. This Agreement is a related agreement as contemplated by Rule 12b-1 under the 1940 Act with respect to the Rule 12b-1 plan of the Fund ("12b-1 Plan"). Both you and we and the Fund expect that your services and educational and promotional activities in connection with WEBS pursuant to this Agreement will tend to increase investor interest in and the use and trading of WEBS in the secondary market and thus further sales of WEBS of the Fund's Index Series. In consideration of the mutual covenants contained herein, it is hereby agreed that our respective rights and obligations shall be as follows: 1. Role of Distributor. Pursuant to and in accordance with the provisions of the Distribution Agreement, we will make arrangements for securities dealers that can make the representations set forth in Section 4 of this Agreement to solicit orders to purchase Creation Units of WEBS of each Index Series. You are hereby invited to become one of the securities dealers referred to herein as a "Soliciting Dealer". This will confirm our mutual agreement as to the terms and conditions applicable to your participation as a Soliciting Dealer, such agreement to be effective upon your confirmation hereof. You understand that we are seeking to enter into this Agreement in counterparts with you and other firms which also may act as Soliciting Dealers. All purchases of Creation Units of WEBS from the Fund shall be effected by us, through an Authorized Participant, in our capacity as principal underwriter and distributor acting as agent on behalf of the Fund. If you are not an Authorized Participant, you understand that the Distributor shall have no distribution or underwriting obligation to you hereunder with regard to the purchase and sale of WEBS (including Creation Unit aggregations). 3 2. Role of Soliciting Dealers. (a) As a Soliciting Dealer, you shall offer and solicit purchase orders for Creation Units of WEBS. As, when and if you generate a customer request for the purchase of Creation Units of WEBS of any Index Series and you determine to transmit such request to us, you shall comply with the procedures for the purchase of Creation Units of WEBS set forth in the then current Prospectus and Statement of Additional Information of the Fund. You shall be responsible for opening, approving and monitoring customer accounts and for the review and supervision of these accounts, all in accordance with the rules of the Securities and Exchange Commission ("SEC") and the National Association of Securities Dealers, Inc. (the "NASD"). You understand that all orders for the purchase of Creation Units of WEBS of each Index Series must be placed with us and may be placed only through an Authorized Participant that has entered into an Authorized Participant Agreement with us and the Fund. During any period that you are an Authorized Participant, you may submit purchase orders to us in such capacity. Your duties and obligations as an Authorized Participant are determined by the terms and conditions of the Authorized Participant Agreement and not pursuant hereto. The procedures relating to orders and the handling thereof will be subject to the terms of the Authorized Participant Agreement, the then current Prospectus and Statement of Additional Information of the Fund and instructions in writing received by you from us or the Fund's transfer agent from time to time. No conditional orders will be accepted. No Creation Units of WEBS shall be issued except upon receipt of the consideration therefor. If payment for any purchase order is not received in accordance with the terms of the then current Prospectus and Statement of Additional Information, we reserve the right, without notice, to cancel the sale and to hold you responsible for any loss sustained as a result thereof. If you are not an Authorized Participant, each Creation Unit transaction shall be promptly confirmed to you by the Authorized Participant effecting such transaction in writing on a fully disclosed basis. You understand and agree that to the extent that such Creation Unit transaction was effected by you on behalf of your customer, you will promptly confirm such transaction to your customer. You agree that upon receipt of confirmations from an Authorized Participant you will examine them and promptly notify us of any errors or discrepancies which you discover and shall promptly bring to our attention, the Authorized Participant's attention and the Fund's attention any errors in such confirmations claimed by your customers. (b) You agree to offer WEBS in Creation Unit size aggregations to the public at the then current public offering price per Creation Unit of WEBS (i.e., the next determined net asset value per WEBS) as set forth in the Fund's then current Prospectus and Statement of Additional Information, as the same may be amended or supplemented. All orders are subject to acceptance or rejection by us or the Fund in our or its sole discretion. 4 (c) You agree to provide broker/dealer and shareholder support services to Clients in connection with the outstanding and issued WEBS, including one or more of the following: (i) distributing prospectuses and shareholder reports to current shareholders; (ii) as applicable, complying with federal and state securities laws pertaining to transactions in WEBS; (iii) processing dividend payments on behalf of Clients; (iv) providing information periodically to Clients showing their positions in WEBS; (v) providing and maintaining elective services such as check writing on the Client's account and wire transfer services; (vi) acting as nominee for Clients holding WEBS; (vii) maintaining account records for Clients; (viii) issuing confirmations of transactions; (ix) providing subaccounting with respect to WEBS beneficially owned by Clients or the information necessary for subaccounting; (x) if required by law, forwarding shareholder communications from us or on behalf of the Fund (such as proxies, shareholder reports, annual and semi-annual financial statements and dividend, distribution and tax notices); (xi) providing services primarily intended to result in the sale of WEBS; (xii) assisting shareholders who wish to aggregate sufficient WEBS of an Index Series to constitute a Creation Unit for redemption; and (xiii) such other services analogous to the foregoing as you customarily provide to clients with respect to holdings of shares of open-end investment companies or exchange-listed stocks or as we or the Fund may reasonably request to the extent you are permitted to do so under applicable statutes, rules and regulations. (d) You agree to provide educational and promotional services related to the secondary market trading of WEBS, including the following: (i) facilitating access for investor relations representatives for WEBS to designated branches or offices as set forth in Annex I for the purpose of broker education, including through sales meetings, one-on-one broker contact and broker luncheons; (ii) making your country allocation research available widely through your internal systems and reformatting such allocation research to make specific recommendations of WEBS of appropriate Index Series; (iii) working with us and the Fund to facilitate the flow of WEBS data through your internal information systems, which information shall include all available WEBS data (i.e., real-time AMEX pricing on WEBS, spot foreign exchange rates, the per WEBS value of the most recently published Portfolio Deposit and Cash Component of each Index Series, adjusted to account for foreign exchange rates (the "Adjusted Basket Value"), and, eventually, data on the underlying Morgan Stanley Capital International benchmark indices for the Index Series) and other research and news; and (iv) support of senior management for use of WEBS as a trading and hedging tool. (e) You also agree to provide such office space and equipment, telephone facilities and personnel (which may be any part of the space, equipment and facilities currently used in your business, or any personnel employed by you) as may be reasonably necessary or beneficial in order to provide the services listed in clauses 2(c) and 2(d) above to Clients and as is otherwise provided in this Section 2. 5 (f) Subject to the requirements of applicable law and regulations, nothing in this Agreement shall be construed to prohibit or restrict you from purchasing or selling for your own account Creation Unit aggregations of WEBS, whether as agent or principal. 3. Information. (a) We will furnish you, without charge, the Fund's current Prospectus and Statement of Additional Information and copies of sales materials relating to the offer and sale of Creation Units of WEBS approved and filed with the NASD by us ("Fund Sales Materials") in such quantities as are reasonably requested by you and made available to us by the Fund for use in connection with the offer and sale of Creation Units of WEBS. Such Fund Sales Materials may include materials suitable for institutional marketing efforts, including conferences, road shows and institutional advertisements and/or "tombstones" related to the initial public offering of Creation Units of WEBS. Under this Agreement you will not act for us, the Fund or BZW Barclays Global Fund Advisors (the "Investment Adviser"), nor make any representation on our behalf or the Fund's behalf, or as authorized by us, the Fund or the Investment Adviser, and in offering and selling Creation Units of WEBS hereunder you may rely only upon, the Fund's then current prospectus and statement of additional information and the Fund Sales Materials, provided that you are authorized to prepare and use at your own cost and expense other brochures, advertisements (in print or other format) or similar materials in connection with your solicitation of purchases of Creation Units of WEBS which may constitute "sales literature" within the meaning of Section 24(b) of the 1940 Act ("Other Soliciting Materials"), but only if such Other Soliciting Materials (i) are prepared in compliance with all applicable NASD and SEC rules and regulations, (ii) are provided to us a reasonable time prior to their intended use and (iii) are not used until approved by us and the Fund and filed by us with the NASD. You understand that the Fund will not be advertised or marketed as an open-end investment company or mutual fund, i.e., as a mutual fund, which offers redeemable securities. Any advertising materials, including the Fund Prospectus, will prominently disclose that WEBS that are not in Creation Unit aggregations are not redeemable units of beneficial interest in the Fund. In addition, any advertising material that addresses redemptions of WEBS, including the Fund prospectus, will disclose that the owners of WEBS may acquire and tender WEBS for redemption to the Fund in Creation Unit aggregations only. Not withstanding the foregoing, you may without our written approval prepare and circulate in the regular course of your business research reports that include information, opinions or recommendations relating to WEBS (i) for public dissemination, provided that such research reports compare the relative merits and benefits of WEBS with other products and are not used for purposes of marketing WEBS and (ii) for your internal use. 6 (b) We intend to establish a world-wide internet site to provide certain on-line MSCI analytical data ("MSCI WEBS Analytics"). If and when available, you will be provided access to our site and the use of MSCI WEBS Analytics. 4. Representations. (a) You represent to us as follows, and agree to abide by all of the rules and regulations of the NASD, including, without limitation, the following provisions of its Rules of Fair Practice, except as otherwise permitted by the NASD as set forth in writing, a copy of which shall be provided to you by us: (i) you will not withhold placing customers' orders for any Creation Units of WEBS so as to profit yourself as a result of such withholding; (ii) you are familiar with Rule 15c2-8 under the Securities Exchange Act of 1934, as amended (the "1934 Act"), Section 4(3) of the 1933 Act, and Section 24(d) of the 1940 Act relating to the distribution and delivery of preliminary and final prospectuses and agree that you will comply therewith; (iii) you are a member in good standing of the NASD or, if you are not such a member, you are a foreign bank, dealer or institution not eligible for membership in the NASD which agrees to make no sale within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein, and in making other sales to comply, as though you were a member of NASD, with the provisions of Sections 8, 24 and 36 of Article III of the Rules of Fair Practice of the NASD and with Section 25 thereof as that Section applies to a non-NASD member broker or dealer in a foreign country. (b) You agree that your expulsion from the NASD will automatically terminate this Agreement. (c) You agree to comply with any rules of the American Stock Exchange, Inc. or such other secondary market or markets as has or have been approved by an order of the SEC for the trading of WEBS. A copy of the conditions of the SEC order in accordance with which WEBS are offered are attached hereto as Annex II. (d) You hereby represent, covenant and warrant that with respect to purchase and sales of WEBS of any Index Series, you are a DTC participant. Any change in the foregoing status shall terminate this Agreement and you shall give prompt written notice to the Distributor and the Fund of such change. 7 (e) We represent to you that we are a member in good standing of the NASD and agree to abide by all of the NASD's rules and regulations. 5. Independent Contractor. For all purposes of this Agreement, you will be deemed to be an independent contractor, and will have no authority to act as agent, partner, joint venture participant or in any similar capacity for us in any matter or in any respect. You and your officers and employees will, upon request, be available during normal business hours to consult with us or our designees concerning the performance of your responsibilities under this Agreement. 6. Compensation; Expenses. In consideration of the services and facilities provided by you hereunder, subject to the terms and conditions of the 12b-1 Plan, in our capacity as the Distributor implementing the 12b-1 Plan, we will pay to you and you agree to accept as full payment therefor, the fees set forth in Annex III attached hereto. You understand and agree that no amount shall be paid or payable to you hereunder except from amounts paid to us by the Fund for disbursements to you under this Agreement and pursuant to and in accordance with the 12b-1 Plan. You understand and agree that the Distributor is obligated to make such payments to you only after the Fund has paid such 12b-1 payments to the Distributor. 7. Reports. As requested from time to time, you will provide to us and the Fund's Board of Directors, and we and the Fund's Directors will review a written report of the amounts so expended and the purposes for which such expenditures were made. In addition, you will furnish us or our designees with such information as we or they may reasonably request (including, without limitation, periodic certifications confirming the provision to Clients by you or your agents of the services described herein), and will otherwise cooperate with us and our designees (including, without limitation, any auditors designated by us or the Fund), in connection with preparation of reports to the Fund's Board of Directors concerning this Agreement and the monies paid or payable by us in connection the services you have agreed to provide hereunder, as well as any other reports or filings that may be required by law. In addition, you shall provide to us on a monthly basis information which breaks out all sales by state and by branch. 8. Rule 12b-1 Related Agreement. By your written acceptance of this Agreement, you represent, warrant and agree that you understand that this Agreement is a Rule 12b-1 related agreement under the 1940 Act, subject to the provisions of such Rule, as well as any other applicable rules or regulations of the SEC, and agree to conform to the applicable compliance standards adopted by us for sale of WEBS, as in effect from time to time. 8 9. Compliance. (a) You agree that your activities pursuant to this Agreement will be at all times in conformity in all material respects with all applicable federal and state laws, rules and regulations, including without limitation, the 1933 Act, the 1934 Act, the 1940 Act and the Rules of Fair Practice of the NASD (as provided in Section 4 hereof). In connection with offers to sell and sales of WEBS of each Index Series, you agree to deliver or cause to be delivered to each person to whom any such offer of sale is made, at or prior to the time of such offer or sale, a copy of the then current prospectus and the statement of additional information of the Fund. (b) We agree to inform you, as the Fund provides or causes to be provided to us such information, as to the states in which we believe WEBS of the respective Index Series have been qualified for sale under, or are exempt from the requirements of, the respective securities laws thereof, but we shall have no obligation or responsibility to make WEBS of any Index Series available for sale in any jurisdiction. 10. Beneficial Ownership. The Soliciting Dealer represents and warrants to the Distributor and the Fund that (based upon the number of outstanding WEBS 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 WEBS of the relevant Index Series 80 percent or more of the currently outstanding WEBS 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. 11. Indemnification. The Soliciting Dealer hereby agrees to indemnify and hold harmless the Distributor and the Fund, 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) a breach of any representation, warranty or covenant made by the Soliciting Dealer in this Agreement; or (ii) failure of the Soliciting Dealer to perform any obligations set forth in the Agreement; or (iii) any failure on the part of the Soliciting Dealer to comply with applicable laws. The Soliciting Dealer 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 Soliciting Dealer in the event that the Soliciting Dealer fails to honor any obligations pursuant to this Agreement that benefit the Fund. The Distributor hereby agrees to indemnify and hold harmless the Soliciting Dealer, its respective subsidiaries, affiliates, directors, officers, employees and agents, and each person, if any, who controls such persons within the meaning of Section 9 15 of the 1933 Act (each, a "Soliciting Dealer Indemnified Party") from and against any loss, liability, cost and expense (including attorney's fees) incurred by such Soliciting Dealer Indemnified Party as a result of (i) a breach of any representation, warranty or covenant made by the Distributor in this Agreement; or (ii) failure of the Distributor to perform any obligations set forth in the Agreement; or (iii) any failure on the part of the Distributor to comply with applicable laws. This paragraph shall survive the termination of this Agreement. THE DISTRIBUTOR SHALL NOT BE LIABLE TO THE SOLICITING DEALER FOR ANY DAMAGES ARISING OUT OF MISTAKES OR ERRORS IN DATA PROVIDED TO THE DISTRIBUTOR, OR ARISING OUT OF INTERRUPTIONS OR DELAYS OR COMMUNICATIONS WITH THE INDEMNIFIED PARTIES WHO ARE SERVICE PROVIDERS TO THE FUND. 12. Term; Termination; Amendment. (a) Unless sooner terminated, this Agreement will continue for one year following the date of its adoption as provided in Section 15, and thereafter will continue automatically for successive annual periods provided such continuance is specifically approved at least annually by the Fund in the manner described in Section 15 hereof. This Agreement is terminable, without penalty, at any time by the Fund with respect to any Index Series (which termination may be by a vote of a majority of the Disinterested Directors as defined in Section 15 hereof or by vote of the holders of a majority of the voting securities (as such term is defined in the 1940 Act) of such Index Series) or by you upon 60 days' notice in writing to the other party hereto. This Agreement will also terminate automatically in the event of its assignment (within the meaning of the 1940 Act) or upon the termination of the Distribution Agreement or Rule 12b-1 Plan between the Fund and us. The Distributor, with the prior written consent of the Fund, may amend this agreement by mailing a copy of the amendment to the Soliciting Dealer, which amendment will become part of this Agreement if the Soliciting Dealer does not object in writing within 10 business days after its receipt. This Agreement may also be amended in writing by the parties hereto. (b) In the event that the Board of Directors of the Fund establishes any series of WEBS listed and traded on the AMEX or any other national securities exchange in addition to the Index Series then subject to this Agreement, adopts a 12b-1 Plan with respect to such additional series and approves this Agreement with respect to such additional series in accordance with Rule 12b-1, such additional series shall be made subject to this Agreement and shall become an "Additional Series" hereunder effective immediately upon such adoption and approval. 13. Suspension. All sales will be made subject to receipt of WEBS from the Fund. We and the Fund reserve the right, in our sole discretion, without notice, to suspend sales or withdraw the offering of sales of Creation Units of WEBS of any Index 10 Series entirely, including the sale of such WEBS to you for the account of any client or clients. 14. No Other Agreement. This Agreement shall supersede any prior agreements between us regarding the sale of Creation Units of WEBS. 15. Board Approval. This Agreement and the 12b-1 Plan is subject to approval by vote of (i) the Fund's Board of Directors and (ii) of a majority of those Directors who are not "interested persons" (as defined in the 1940 Act) of the Fund and have no direct or indirect financial interest in the operation of the 12b-1 Plan adopted by the Fund regarding the provision of support services to the beneficial owners of WEBS of the respective Index Series or in any agreement related thereto ("Disinterested Directors") cast in person at a meeting called for the purpose of voting on such approval. 16. Miscellaneous. (a) Notice. Notice shall have been duly given if delivered by hand, mail or facsimile transmission to you, at your address or facsimile number set forth below and (b) if to us, to Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, MA 02109, facsimile no. (617) 557-0709, Attention: President, with a copy to General Counsel, or in each case such other addresses as may be notified to the other party. (b) Successors. Subject to Section 8 hereof, this Agreement will inure to the benefit of and be binding upon the parties hereto and their respective legal successors and the Fund, and no other person will have any right or obligation hereunder. (c) Governing Law. This Agreement 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. 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. 17. 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. 11 Please confirm your agreement by signing and returning to us the enclosed duplicate copies of this Agreement. Upon our acceptance hereof, this Agreement shall constitute a valid and binding contract between us. After our acceptance, we will deliver to you one fully executed copy of this Agreement. Very truly yours, FUNDS DISTRIBUTOR INC. By_________________________________ Name: Title: Confirmed: , 19__ _________________________________ Name of Soliciting Dealer By___________________________ Name: Title: 12 Annex I DESIGNATED BRANCHES OR OFFICES OF SOLICITING DEALER 13 Annex II CONDITIONS OF SEC ORDER 1. The Fund will not be advertised or marketed as an open-end investment company, i.e., as a mutual fund, which offers redeemable securities. The Fund's or any Index Series' prospectus will prominently disclose that WEBS are not redeemable shares and will disclose that the owners of WEBS may acquire and tender those shares for redemption to the Fund in Creation Unit aggregations only. Any advertising material where features of obtaining, buying or selling Creation Units are described or where there is reference to redeemability will prominently disclose that WEBS are not redeemable and that owners of WEBS may acquire and tender those shares for redemption to the Fund in Creation Unit aggregations only. 2. The Fund will provide copies of its annual and semi-annual shareholders reports to DTC Participants for distribution to beneficial holders of individual WEBS. 3. The Fund's registration statement will not be declared effective until the Commission has approved such proposed rule change pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 as may be necessary to enable a national securities exchange to list the individual WEBS. In addition, as long as the Fund operates in reliance on the requested order, the individual WEBS will be listed on a national securities exchange. 14 Annex III Annual Fees At the annual rate of .08% of 1% of the average daily net assets of WEBS held in your name at DTC computed daily and payable on a quarterly basis. Additional Terms and Conditions For purposes of determining the fees payable under this Annex III, the average aggregate daily net assets of the Index Series will be computed in the manner specified in the Fund's Registration Statement (as the same is in effect from time to time) in connection with the computation of the net asset value of WEBS for purposes of purchases and redemptions. Except as specifically provided in this Annex III, you shall bear all of your own costs and expenses in connection with your acting as a Soliciting Dealer, it being understood that we and the Fund shall bear our and the Fund's respective costs and expenses. You shall not be required to bear any of the costs or expenses assumed by us or any other Soliciting Dealer except as provided for herein or as you may have agreed with another Soliciting Dealer. The Soliciting Dealer shall provide the Distributor with its DTC account information in the form and manner as prescribed by the Distributor by the 5th business day after the end of each calendar month. The Soliciting Dealer understands and acknowledges that the Distributor shall, on a test basis, independently verify the DTC account information provided by the Soliciting Dealer, with the costs of such independent verification borne by the Soliciting Dealer. Any discrepancies will be interpreted by the Distributor and the Distributor's interpretation of such data shall be final. EX-99.B(6)(C)(1) 5 SECOND FORM OF SALES AND INVESTOR SERVICES AGRMNT 1 EXHIBIT 99.B(6)(C)(1) WEBS INDEX FUND, INC. SALES AND INVESTOR SERVICES AGREEMENT Date: Name Company Dear Ladies and Gentleman: WEBS Index Fund, Inc. (the "Fund") is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), organized as a series fund and incorporated under the laws of the State of Maryland. The Fund will consist initially of seventeen index series (each, a "WEBS Index Series"), and will issue shares of common stock, par value $.001 per share, of each WEBS Index Series (such shares are referred to herein as "World Equity Benchmark Shares(SM)" or "WEBS(SM)"). The Fund issues and redeems WEBS of a WEBS Index Series only in aggregations of a specified number of WEBS (each, a "Creation Unit") and only to or through Authorized Participants, all as set forth in the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time. Pursuant to a Distribution Agreement between the Fund and us (the "Distribution Agreement"), we act as distributor (the "Distributor") and principal underwriter of Creation Units of WEBS of the various WEBS Index Series as exclusive agent on behalf of the Fund. Capitalized terms not defined herein shall have the meanings attributed to them in the current Prospectus and Statement of Additional Information of the Fund. As Distributor and principal underwriter of the Fund, we wish to enter into this Sales and Investor Services Agreement (this "Agreement") with you concerning (i) your solicitation of purchase orders for Creation Units of WEBS and (ii) your provision of broker-dealer and shareholder support services to your clients ("Clients") who may from time to time beneficially own WEBS of any WEBS Index Series. You understand and acknowledge that the proposed method by which Creation Units of WEBS will be created and traded may raise certain issues under applicable securities laws. For example, because new Creation Units of WEBS may be issued and sold by the Fund on an ongoing basis, at any point a "distribution," as such term is used in the Securities Act of 1933, as amended (the "1933 Act"), may occur. You understand 2 and acknowledge that some activities on your part, as further described in the Fund's Statement of Additional Information under "SPECIAL CONSIDERATIONS AND RISKS: Continuous Offering," may, depending on the circumstances, result in your being deemed a participant in a distribution in a manner which could render you a statutory underwriter and subject you to the Prospectus delivery and liability provisions of the 1933 Act. You also understand and acknowledge that when you are not an "underwriter" but are effecting transactions in WEBS, whether or not participating in the distribution of WEBS, you are generally required to deliver a Prospectus. This Agreement is a related agreement as contemplated by Rule 12b-1 under the 1940 Act with respect to the Rule 12b-1 plan of the Fund ("12b-1 Plan"). Both we and the Fund expect that your services and educational and promotional activities in connection with WEBS pursuant to this Agreement will tend to increase investor interest in and the use and trading of WEBS in the secondary market and thus further sales of WEBS of the Fund's WEBS Index Series. In consideration of the mutual covenants contained herein, it is hereby agreed that our respective rights and obligations shall be as follows: 1. Role of Distributor. Pursuant to and in accordance with the provisions of the Distribution Agreement, we will make arrangements with securities dealers that will solicit orders for the purchase of Creation Units of WEBS pursuant to the representations set forth in Section 4 of this Agreement. You are hereby invited to become one of the securities dealers referred to herein as a "Soliciting Dealer." This will confirm our mutual agreement as to the terms and conditions applicable to your participation as a Soliciting Dealer, such agreement to be effective upon your confirmation hereof. You understand that we are seeking to enter into this Agreement in counterparts with you and other firms which also may act as Soliciting Dealers. All purchases of Creation Units of WEBS from the Fund shall be effected by us, through an Authorized Participant, in our capacity as principal underwriter and distributor acting as agent on behalf of the Fund. You understand that the Distributor shall have no distribution or underwriting obligation to you hereunder with regard to the purchase and sale of WEBS (including Creation Unit aggregations). 2. Role of Soliciting Dealers. (a) As a Soliciting Dealer, you shall offer and solicit purchase orders for Creation Units of WEBS. When and if you generate a customer request for the purchase of Creation Units of WEBS and you transmit such request to us, you shall comply with the procedures for the purchase of Creation Units of WEBS set forth in the then current Prospectus and Statement of Additional Information of the Fund. You shall be responsible for opening, approving and monitoring customer accounts and for the review 2 3 and supervision of these accounts, all in accordance with the rules of the Securities and Exchange Commission ("SEC") and the National Association of Securities Dealers, Inc. (the "NASD"). You understand that all orders for the purchase of Creation Units of WEBS must be placed with us and may be placed only through an Authorized Participant that has entered into an Authorized Participant Agreement with us and the Fund. Each Creation Unit transaction shall be promptly confirmed to you by the Authorized Participant effecting such transaction in writing on a fully disclosed basis. You understand and agree that to the extent that such Creation Unit transaction was effected by you on behalf of your customer, you will promptly confirm such transaction to your customer. You agree that upon receipt of confirmations from an Authorized Participant you will examine them and promptly notify us of any errors or discrepancies which you discover and shall promptly bring to our attention, the Authorized Participant's attention and the Fund's attention any errors in such confirmations claimed by your customers. (b) You agree to offer WEBS in Creation Unit size aggregations to the public at the then current public offering price per Creation Unit of WEBS (i.e., the next determined net asset value per WEBS) as set forth in the Fund's then current Prospectus and Statement of Additional Information, as the same may be amended or supplemented. All orders are subject to acceptance or rejection by us or the Fund in our or its sole discretion. A further discussion regarding the acceptance or rejection of an order by us or the Fund is contained in the Fund's Statement of Additional Information under "PURCHASE AND ISSUANCE OF WEBS IN CREATION UNITS: Acceptance of a Purchase Order." (c) You agree to provide broker/dealer and shareholder support services to Clients in connection with the outstanding and issued WEBS, including one or more of the following: (i) distributing Prospectuses and shareholder reports to current shareholders; (ii) as applicable, complying with federal and state securities laws pertaining to transactions in WEBS; (iii) processing dividend payments on behalf of Clients; (iv) providing information periodically to Clients showing their positions in WEBS; (v) providing and maintaining elective services such as check writing on the Client's account and wire transfer services; (vi) acting as nominee for Clients holding WEBS; (vii) maintaining account records for Clients; (viii) issuing confirmations of transactions; (ix) providing subaccounting with respect to WEBS beneficially owned by Clients or the information necessary for subaccounting; (x) if required by law, forwarding shareholder communications from us or on behalf of the Fund (such as proxies, shareholder reports, annual and semi-annual financial statements and dividend, distribution and tax notices); (xi) providing services primarily intended to result in the sale of WEBS; (xii) assisting shareholders who wish to aggregate sufficient WEBS of a WEBS Index Series to constitute a Creation Unit for redemption; and (xiii) such other services analogous to the foregoing as you customarily provide to clients with respect to holdings of shares of open-end investment companies or exchange-listed stocks or as we or the Fund may 3 4 reasonably request to the extent you are permitted to do so under applicable statutes, rules and regulations. (d) In order to promote the sale of WEBS you agree to: (i) provide usual and ordinary educational and marketing services related to the sale of WEBS to your customers; and (ii) provide WEBS marketing representatives with reasonable access to your offices or branches so as to allow such representatives to provide broker education through sales meetings and other broker contact. (e) Subject to the requirements of applicable law and regulations, nothing in this Agreement shall be construed to prohibit or restrict you from purchasing or selling for your own account Creation Unit aggregations of WEBS, whether as agent or principal. 3. Information (a) We will furnish you, without charge, the Fund's current Prospectus and Statement of Additional Information and copies of sales materials relating to the offer and sale of Creation Units of WEBS approved and filed with the NASD by us ("Fund Sales Materials") in such quantities as are reasonably requested by you and made available to us by the Fund for use in connection with the offer and sale of Creation Units of WEBS. Such Fund Sales Materials may include materials suitable for institutional marketing efforts, including conferences, road shows and institutional advertisements and/or "tombstones" related to the initial public offering of Creation Units of WEBS. (b) Under this Agreement you will neither act for us, the Fund or Barclays Global Fund Advisors (the "Investment Adviser"), nor make any representation on our behalf or the Fund's behalf, or as authorized by us, the Fund or the Investment Adviser. (c) In offering and selling Creation Units of WEBS hereunder you may rely only upon the Fund's then current Prospectus and Statement of Additional Information and the Fund Sales Materials. (d) If you receive the proper authorization from us or the Fund, you may prepare and use at your own cost and expense other brochures, advertisements (in print or other format) or similar materials in connection with your solicitation of purchases of Creation Units of WEBS, which may constitute "sales literature" within the meaning of Section 24(b) of the 1940 Act ("Other Soliciting Materials"), but only if such Other Soliciting Materials are (i) prepared in compliance with all applicable NASD and SEC rules and regulations and the requirements set forth in Annex I hereof, (ii) provided to us a reasonable time prior to their intended use and (iii) not used until approved by us and the Fund and filed by us with the NASD. 4 5 (e) Not withstanding the foregoing, you may without our written approval prepare and circulate in the regular course of your business research reports that include information, opinions or recommendations relating to WEBS (i) for public dissemination, provided that such research reports compare the relative merits and benefits of WEBS with other products and are not used for purposes of marketing WEBS and (ii) for your internal use. 4. Representations. (a) You represent to us as follows, and agree to abide by all of the rules and regulations of the NASD, including, without limitation, the following provisions of its Rules except as otherwise permitted by the NASD as set forth in writing, a copy of which shall be provided to you by us: (i) you will not withhold placing customers' orders for any Creation Units of WEBS so as to profit yourself as a result of such withholding; (ii) you are familiar with Rule 15c2-8 under the Securities Exchange Act of 1934, as amended (the "1934 Act"), Section 4(3) of the 1933 Act, and Section 24(d) of the 1940 Act relating to the distribution and delivery of Prospectuses and agree that you will comply therewith; (iii) you are a member in good standing of the NASD or, if you are not such a member, you are a foreign bank, dealer or institution not eligible for membership in the NASD which agrees to make no sale within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein, and in making other sales to comply, as though you were a member of NASD, with the provisions of Sections 8, 24 and 36 of Article III of the Rules of the NASD and with Section 25 thereof as that Section applies to a non-NASD member broker or dealer in a foreign country. (b) You agree that your expulsion from the NASD will automatically terminate this Agreement. (c) You agree to comply with any rules of the American Stock Exchange, Inc. (the "AMEX") or such other secondary market or markets as has or have been approved by an order of the SEC for the trading of WEBS. A copy of the conditions of the SEC order in accordance with which WEBS are offered are attached hereto as Annex I. (d) You hereby represent, covenant and warrant that with respect to purchase and sales of WEBS of any WEBS Index Series, you are a DTC participant. Any change in 5 6 the foregoing status shall terminate this Agreement and you shall give prompt written notice to the Distributor and the Fund of such change. (e) We represent to you that we are a member in good standing of the NASD and agree to abide by all of the NASD's rules and regulations. 5. Independent Contractor. For all purposes of this Agreement, you will be deemed to be an independent contractor, and will have no authority to act as agent, partner, joint venture participant or in any similar capacity for us in any matter or in any respect. You and your officers and employees will, upon request, be available during normal business hours to consult with us or our designees concerning the performance of your responsibilities under this Agreement. 6. Compensation; Expenses. In consideration of the services and facilities provided by you hereunder, subject to the terms and conditions of the 12b-1 Plan, in our capacity as the Distributor implementing the 12b-1 Plan, we will pay to you and you agree to accept as full payment therefor, the fees set forth in Annex II attached hereto. You understand and agree that no amount shall be paid or payable to you hereunder except from amounts paid to us by the Fund for disbursements to you under this Agreement and pursuant to and in accordance with the 12b-1 Plan. You understand and agree that the Distributor is obligated to make such payments to you only after the Fund has paid such 12b-1 payments to the Distributor. 7. Reports. Pursuant to Rule 12b-1, as requested from time to time, you will provide to us and the Fund's Board of Directors, and we and the Fund's Directors will review a written report of the amounts so expended and the purposes for which such expenditures were made. In addition, you will furnish us or our designees with such information as we or they may reasonably request (including, without limitation, periodic certifications confirming the provision to Clients by you or your agents of the services described herein), and will otherwise cooperate with us and our designees (including, without limitation, any auditors designated by us or the Fund), in connection with preparation of reports to the Fund's Board of Directors concerning this Agreement and the monies paid or payable by us in connection with the services you have agreed to provide hereunder, as well as any other reports or filings that may be required by law. In addition, you shall provide to us on a monthly basis information which breaks out all sales by state and by branch. 8. Rule 12b-1 Related Agreement. By your written acceptance of this Agreement, you represent, warrant and agree that you understand that this Agreement is a Rule 12b-1 related agreement under the 1940 Act, subject to the provisions of such Rule, as well as any other applicable rules or regulations of the SEC, and agree to conform to 6 7 the applicable compliance standards adopted by us for sale of WEBS, as in effect from time to time. 9. Compliance. (a) You agree that your activities pursuant to this Agreement will be at all times in conformity in all material respects with all applicable federal and state laws, rules and regulations, including without limitation, the 1933 Act, the 1934 Act, the 1940 Act and the Rules of the NASD (as provided in Section 4 hereof). In connection with offers to sell and sales of WEBS of each WEBS Index Series, you agree to deliver or cause to be delivered to each person to whom any such offer of sale is made, at or prior to the time of such offer or sale, a copy of the then current Prospectus and the Statement of Additional Information of the Fund. (b) We agree to inform you, as the Fund provides or causes to be provided to us such information, as to the states in which we believe WEBS of the respective WEBS Index Series have been qualified for sale under, or are exempt from the requirements of, the respective securities laws thereof, but we shall have no obligation or responsibility to make WEBS of any WEBS Index Series available for sale in any jurisdiction. 10. Beneficial Ownership. The Soliciting Dealer represents and warrants to the Distributor and the Fund that (based upon the number of outstanding WEBS of such WEBS 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 WEBS of the relevant WEBS Index Series 80 percent or more of the currently outstanding WEBS of such relevant WEBS Index Series, so as to cause the Fund to have a basis in the portfolio securities deposited with the Fund with respect to such WEBS 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. 11. Indemnification. (a) The Soliciting Dealer hereby agrees to indemnify and hold harmless the Distributor and the Fund, 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) a breach of any representation, warranty or covenant made by the Soliciting Dealer in this Agreement; (ii) failure of the Soliciting Dealer to perform any obligations set forth in the Agreement; or (iii) any failure on the part of the Soliciting Dealer to comply with applicable laws. The Soliciting Dealer and the Distributor understand and agree that the Fund as a third party beneficiary to this 7 8 Agreement is entitled and intends to proceed directly against the Soliciting Dealer in the event that the Soliciting Dealer fails to honor any obligations pursuant to this Agreement that benefit the Fund. (b) The Distributor hereby agrees to indemnify and hold harmless the Soliciting Dealer, 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, a "Soliciting Dealer Indemnified Party") from and against any loss, liability, cost and expense (including attorneys' fees) incurred by such Soliciting Dealer Indemnified Party as a result of (i) a breach of any representation, warranty or covenant made by the Distributor in this Agreement; (ii) failure of the Distributor to perform any obligations set forth in the Agreement; or (iii) any failure on the part of the Distributor to comply with applicable laws. (c) The provisions of this Section 11 shall survive the termination of this Agreement. THE DISTRIBUTOR SHALL NOT BE LIABLE TO THE SOLICITING DEALER FOR ANY DAMAGES ARISING OUT OF MISTAKES OR ERRORS IN DATA PROVIDED TO THE DISTRIBUTOR, OR ARISING OUT OF INTERRUPTIONS OR DELAYS OR COMMUNICATIONS WITH THE INDEMNIFIED PARTIES WHO ARE SERVICE PROVIDERS TO THE FUND. 12. Term; Termination; Amendment. (a) Unless sooner terminated, this Agreement will continue for one year following the date of its adoption as provided in Section 15, and thereafter will continue automatically for successive annual periods provided such continuance is specifically approved at least annually by the Fund in the manner described in Section 15 hereof. This Agreement is terminable, without penalty, at any time by the Fund with respect to any WEBS Index Series (which termination may be by a vote of a majority of the Disinterested Directors as defined in Section 15 hereof or by vote of the holders of a majority of the voting securities (as such term is defined in the 1940 Act) of such WEBS Index Series) or by you upon 60 days' notice in writing to the other party hereto. This Agreement will also terminate automatically in the event of its assignment (within the meaning of the 1940 Act) or upon the termination of the Distribution Agreement or Rule 12b-1 Plan between the Fund and us. The Distributor, with the prior written consent of the Fund, may amend this agreement by mailing a copy of the amendment to the Soliciting Dealer, which amendment will become part of this Agreement if the Soliciting Dealer does not object in writing within 10 business days after its receipt. This Agreement may also be amended in writing by the parties hereto. (b) In the event that the Board of Directors of the Fund establishes any series of WEBS listed and traded on the AMEX or any other national securities exchange in 8 9 addition to the WEBS Index Series then subject to this Agreement, adopts a 12b-1 Plan with respect to such additional series and approves this Agreement with respect to such additional series in accordance with Rule 12b-1, such additional series shall be made subject to this Agreement and shall become an "Additional Series" hereunder effective immediately upon such adoption and approval. 13. Suspension. All sales will be made subject to receipt of WEBS from the Fund. We and the Fund reserve the right, in our sole discretion, without notice, to suspend sales or withdraw the offering of sales of Creation Units of WEBS of any WEBS Index Series entirely, including the sale of such WEBS to you for the account of any client or clients. 14. No Other Agreement. This Agreement shall supersede any prior agreements between us regarding the sale of Creation Units of WEBS. 15. Board Approval. This Agreement and the 12b-1 Plan is subject to approval by vote of (i) the Fund's Board of Directors and (ii) of a majority of those Directors who are not "interested persons" (as defined in the 1940 Act) of the Fund and have no direct or indirect financial interest in the operation of the 12b-1 Plan adopted by the Fund regarding the provision of support services to the beneficial owners of WEBS of the respective WEBS Index Series or in any agreement related thereto cast in person at a meeting called for the purpose of voting on such approval. 16. Miscellaneous. (a) Notice. Notice shall have been duly given if delivered by hand, mail or facsimile transmission to you, at your address or facsimile number set forth below and (b) if to us, to Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, MA 02109, facsimile no. (617) 557-0709, Attention: President, with a copy to General Counsel, or in each case such other addresses as may be notified to the other party. (b) Successors. Subject to Section 8 hereof, this Agreement will inure to the benefit of and be binding upon the parties hereto and their respective legal successors and the Fund, and no other person will have any right or obligation hereunder. (c) Governing Law. This Agreement 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. 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. 9 10 17. 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. 10 11 Please confirm your agreement by signing and returning to us the enclosed duplicate copies of this Agreement. Upon our acceptance hereof, this Agreement shall constitute a valid and binding contract between us. After our acceptance, we will deliver to you one fully executed copy of this Agreement. Very truly yours, FUNDS DISTRIBUTOR INC. By_________________________________ Name: Title: Confirmed: , 19__ _________________________________ Name of Soliciting Dealer By___________________________ Name: Title: 11 12 Annex I CONDITIONS OF SEC ORDER 1. The Fund will not be advertised or marketed as an open-end investment company, i.e., as a mutual fund, which offers redeemable securities. The Fund's Prospectus will prominently disclose that WEBS are not redeemable shares and will disclose that the owners of WEBS may acquire and tender those shares for redemption to the Fund in Creation Unit aggregations only. Any advertising material where features of obtaining, buying or selling Creation Units are described or where there is reference to redeemability will prominently disclose that WEBS are not redeemable and that owners of WEBS may acquire and tender those shares for redemption to the Fund in Creation Unit aggregations only. 2. The Fund will provide copies of its annual and semi-annual shareholders reports to DTC Participants for distribution to beneficial holders of individual WEBS. 3. The Fund's registration statement will not be declared effective until the Commission has approved such proposed rule change pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 as may be necessary to enable a national securities exchange to list the individual WEBS. In addition, as long as the Fund operates in reliance on the requested order, the individual WEBS will be listed on a national securities exchange. 12 13 Annex II Annual Fees At the annual rate of .08% of 1% of the average daily net assets of WEBS held in your name at DTC computed daily and payable on a quarterly basis. Additional Terms and Conditions For purposes of determining the fees payable under this Annex II, the average aggregate daily net assets of the WEBS Index Series will be computed in the manner specified in the Fund's Registration Statement (as the same is in effect from time to time) in connection with the computation of the net asset value of WEBS for purposes of purchases and redemptions. Except as specifically provided in this Annex II, you shall bear all of your own costs and expenses in connection with your acting as a Soliciting Dealer, it being understood that we and the Fund shall bear our and the Fund's respective costs and expenses. You shall not be required to bear any of the costs or expenses assumed by us or any other Soliciting Dealer except as provided for herein or as you may have agreed with another Soliciting Dealer. The Soliciting Dealer shall provide the Distributor with its DTC account information in the form and manner as prescribed by the Distributor by the 5th business day after the end of each calendar month. The Soliciting Dealer understands and acknowledges that the Distributor shall, on a test basis, independently verify the DTC account information provided by the Soliciting Dealer, with the costs of such independent verification borne by the Soliciting Dealer. Any discrepancies will be interpreted by the Distributor and the Distributor's interpretation of such data shall be final. 13 EX-99.B(8)(A) 6 AMENDMENT OF CUSTODIAN AGREEMENT 1 EXHIBIT 99.B(8)(A) AMENDMENT OF CUSTODY AGREEMENT BETWEEN FOREIGN FUND, INC. (THE "COMPANY") AND MORGAN STANLEY TRUST COMPANY Pursuant to the terms of the Custody Agreement dated March 5, 1996 (the "Agreement") and the Addendum dated as of March 5, 1996 (the "Addendum") between the above named parties, the Agreement and Addendum are hereby amended to delete the name of Foreign Fund, Inc. as a party to the Agreement and Addendum and replace the name of such party with WEBS Index Fund, Inc. effective January 2, 1997. Additionally, the name of each Series of the Company is hereby changed in the Agreement and Addendum as noted below: OLD SERIES NAME: NEW SERIES NAME: Australia Index Series Australia WEBS Index Series Austria Index Series Austria WEBS Index Series Belgium Index Series Belgium WEBS Index Series Canada Index Series Canada WEBS Index Series France Index Series France WEBS Index Series Germany Index Series Germany WEBS Index Series Hong Kong Index Series Hong Kong WEBS Index Series Italy Index Series Italy WEBS Index Series Japan Index Series Japan WEBS Index Series Malaysia Index Series Malaysia WEBS Index Series Mexico (Free) Index Series Mexico (Free) WEBS Index Series Netherlands Index Series Netherlands WEBS Index Series Singapore (Free) Index Series Singapore (Free) WEBS Index Series Spain Index Series Spain WEBS Index Series Sweden Index Series Sweden WEBS Index Series Switzerland Index Series Switzerland WEBS Index Series United Kingdom Index Series United Kingdom WEBS Index Series 2 This Amendment is effective January 2, 1997. WEBS Index Fund, Inc. By: /S/ Gary M. Gardner ------------------- Its: Asst. Secretary Agreed and Accepted: Morgan Stanley Trust Company By: /S/ J. Federico --------------- Its: Principal EX-99.B(9)(A) 7 AMEND. OF ADMINISTRATION & ACCOUNTING SRVC AGRMNT 1 EXHIBIT 99.B(9)(A) AMENDMENT OF ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT BETWEEN FOREIGN FUND, INC. (THE "COMPANY") AND PFPC INC. Pursuant to the terms of the Administration and Accounting Services Agreement dated March 11, 1996 (the "Agreement") between the above named parties, the Agreement is hereby amended to delete the name of Foreign Fund, Inc. as a party to the Agreement and replace the name of such party with WEBS Index Fund, Inc. effective January 2, 1997. Additionally, the name of each Series of the Company is hereby changed in the Agreement as noted below: OLD SERIES NAME: NEW SERIES NAME: Australia Index Series Australia WEBS Index Series Austria Index Series Austria WEBS Index Series Belgium Index Series Belgium WEBS Index Series Canada Index Series Canada WEBS Index Series France Index Series France WEBS Index Series Germany Index Series Germany WEBS Index Series Hong Kong Index Series Hong Kong WEBS Index Series Italy Index Series Italy WEBS Index Series Japan Index Series Japan WEBS Index Series Malaysia Index Series Malaysia WEBS Index Series Mexico (Free) Index Series Mexico (Free) WEBS Index Series Netherlands Index Series Netherlands WEBS Index Series Singapore (Free) Index Series Singapore (Free) WEBS Index Series Spain Index Series Spain WEBS Index Series Sweden Index Series Sweden WEBS Index Series Switzerland Index Series Switzerland WEBS Index Series United Kingdom Index Series United Kingdom WEBS Index Series 2 This Amendment is effective January 2, 1997. WEBS Index Fund, Inc. By: /S/ Nathan Most --------------- Its: President Agreed and Accepted: PFPC Inc. By: /S/ Stephen M. Wynne -------------------- Its: Exec. Vice President EX-99.B(9)(C) 8 AMENDMENT OF TRANSFER AGENCY SERVICES AGREEMENT 1 EXHIBIT 99.B(9)(C) AMENDMENT OF TRANSFER AGENCY SERVICES AGREEMENT BETWEEN FOREIGN FUND, INC. (THE "COMPANY") AND PNC BANK, NATIONAL ASSOCIATION Pursuant to the terms of the Transfer Agency Services Agreement dated March 11, 1996 (the "Agreement") between the above named parties, the Agreement is hereby amended to delete the name of Foreign Fund, Inc. as a party to the Agreement and replace the name of such party with WEBS Index Fund, Inc. effective January 2, 1997. Additionally, the names of each Series of the Company are hereby changed in the Agreement as noted below: OLD SERIES NAME: NEW SERIES NAME: Australia Index Series Australia WEBS Index Series Austria Index Series Austria WEBS Index Series Belgium Index Series Belgium WEBS Index Series Canada Index Series Canada WEBS Index Series France Index Series France WEBS Index Series Germany Index Series Germany WEBS Index Series Hong Kong Index Series Hong Kong WEBS Index Series Italy Index Series Italy WEBS Index Series Japan Index Series Japan WEBS Index Series Malaysia Index Series Malaysia WEBS Index Series Mexico (Free) Index Series Mexico (Free) WEBS Index Series Netherlands Index Series Netherlands WEBS Index Series Singapore (Free) Index Series Singapore (Free) WEBS Index Series Spain Index Series Spain WEBS Index Series Sweden Index Series Sweden WEBS Index Series Switzerland Index Series Switzerland WEBS Index Series United Kingdom Index Series United Kingdom WEBS Index Series 2 This Amendment is effective January 2, 1997. WEBS Index Fund, Inc. By: /S/ Nathan Most --------------- Its: President Agreed and Accepted: PNC Bank, National Association By: /S/ Robert J. Perlsweig ----------------------- Its: Executive Vice President EX-99.B(9)(E) 9 AMENDMENT OF LICENSE AGREEMENT 1 EXHIBIT 99.B(9)(E) AMENDMENT OF INDEX LICENSE AGREEMENT BETWEEN FOREIGN FUND, INC. (THE "COMPANY") AND MORGAN STANLEY CAPITAL INTERNATIONAL Pursuant to the terms of the Index License Agreement dated March 1, 1996 (the "Agreement") between the above named parties, the Agreement is hereby amended to delete the name of Foreign Fund, Inc. as a party to the Agreement and replace the name of such party with WEBS Index Fund, Inc. effective January 2, 1997. Additionally, the name of each Series of the Company is hereby changed in the Agreement as noted below: OLD SERIES NAME: NEW SERIES NAME: Australia Index Series Australia WEBS Index Series Austria Index Series Austria WEBS Index Series Belgium Index Series Belgium WEBS Index Series Canada Index Series Canada WEBS Index Series France Index Series France WEBS Index Series Germany Index Series Germany WEBS Index Series Hong Kong Index Series Hong Kong WEBS Index Series Italy Index Series Italy WEBS Index Series Japan Index Series Japan WEBS Index Series Malaysia Index Series Malaysia WEBS Index Series Mexico (Free) Index Series Mexico (Free) WEBS Index Series Netherlands Index Series Netherlands WEBS Index Series Singapore (Free) Index Series Singapore (Free) WEBS Index Series Spain Index Series Spain WEBS Index Series Sweden Index Series Sweden WEBS Index Series Switzerland Index Series Switzerland WEBS Index Series United Kingdom Index Series United Kingdom WEBS Index Series 2 This Amendment is effective January 2, 1997. WEBS Index Fund, Inc. By: /S/ Gary M. Gardner ------------------- Its: Asst. Secretary Agreed and Accepted: Morgan Stanley Capital International By: /S/ Mark Sladkus ---------------- Its: Principal EX-99.B(9)(G) 10 FORM OF SUB-ADMINISTRATION AGREEMENT 1 EXHIBIT 99.B(9)(G) FORM SUB-ADMINISTRATION AGREEMENT THIS AGREEMENT is made as of __________, 1997 by and between WEBS INDEX FUND, INC., a Maryland corporation (the "Fund"), PFPC INC., a Delaware corporation and an indirect wholly owned subsidiary of PNC Bank Corp. ("PFPC") and MORGAN STANLEY TRUST COMPANY, a New York State chartered trust company ("MSTC"). W I T N E S S E T H : WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, pursuant to an Administration and Accounting Services Agreement dated March 11, 1996, PFPC has been appointed Administrator to the Fund's WEBS Index Series listed on Exhibit A attached hereto and made a part hereof, as such Exhibit A may be amended from time to time (each, a "WEBS Index Series"); and WHEREAS, the Fund and PFPC wish MSTC (directly or through affiliated companies) to provide certain administrative services to the Fund's WEBS Index Series listed on Exhibit A, and MSTC wishes to furnish such services, as Sub-Administrator to the Fund. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and intending to be legally bound hereby the parties hereto agree as follows: 1. DEFINITIONS. AS USED IN THIS AGREEMENT: (a) "1933 Act" means the Securities Act of 1933, as amended. (b) "1934 Act" means the Securities Exchange Act of 1934, as amended. (c) "Authorized Person" means any officer of the Fund and any other person duly authorized by PFPC to give Oral Instructions and Written Instructions on behalf of PFPC and listed on the Authorized Persons Appendix attached hereto and made a part hereof or any amendment thereto as may be received by MSTC. An Authorized Person's scope of authority may be limited by PFPC by setting forth such limitation in the Authorized Persons Appendix. (d) "CEA" means the Commodity Exchange Act, as amended. (e) "Oral Instructions" mean oral instructions received by MSTC from an Authorized Person or from a person reasonably believed by MSTC to be an Authorized Person. 2 (f) "SEC" means the Securities and Exchange Commission. (g) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act and the CEA. (h) "Shares" mean the shares of beneficial interest of any series or class of the Fund. (i) "Written Instructions" mean written instructions signed by an Authorized Person and received by MSTC. The instructions may be delivered by hand, mail, tested telegram, cable, telex or facsimile sending device. 2. APPOINTMENT. The Fund and PFPC hereby appoint MSTC to provide certain sub- administrative services to the Fund and to each WEBS Index Series of the Fund in accordance with the terms set forth in this Agreement. MSTC accepts such appointment and agrees to furnish such services. 3. DELIVERY OF DOCUMENTS. The Fund and PFPC have provided or, where applicable, will provide MSTC with the following: (a) certified or authenticated copies of the resolutions of the Fund's Board of Directors, approving the appointment of MSTC (directly or through its affiliates) to provide sub-administrative services to the Fund and to each WEBS Index Series of the Fund and approving this Agreement; (b) a copy of Fund's most recent effective registration statement; (c) a copy of the Fund's advisory agreement; (d) a copy of the distribution agreement with respect to each series of Shares representing an interest in the Fund; (e) a copy of any shareholder servicing agreement made in respect of one or more WEBS Index Series of the Fund; and (f) copies (certified or authenticated, where applicable) of any and all amendments or supplements to the foregoing. 4. COMPLIANCE WITH RULES AND REGULATIONS. MSTC undertakes to comply with all applicable requirements of the Securities Laws, and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by MSTC hereunder. Except as specifically set forth herein, MSTC assumes no responsibility for such compliance by the Fund or PFPC. 2 3 5. INSTRUCTIONS. (a) Unless otherwise provided in this Agreement, MSTC shall act only upon Oral Instructions and Written Instructions. (b) MSTC shall be entitled to rely upon any Oral Instructions and Written Instructions it receives from an Authorized Person (or from a person reasonably believed by MSTC to be an Authorized Person) pursuant to this Agreement. MSTC may assume that any Oral Instruction or Written Instruction received hereunder is not in any way inconsistent with the provisions of organizational documents or this Agreement or of any vote, resolution or proceeding of the Fund's Board of Directors or of the Fund's shareholders, unless and until MSTC receives Written Instructions to the contrary. (c) PFPC agrees to forward to MSTC Written Instructions confirming Oral Instructions so that MSTC receives the Written Instructions within a reasonable period of time. The fact that such confirming Written Instructions are not received by MSTC shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions. Where Oral Instructions or Written Instructions reasonably appear to have been received from an Authorized Person, MSTC shall incur no liability to the Fund or PFPC in acting upon such Oral Instructions or Written Instructions provided that MSTC's actions comply with such Oral Instructions or Written Instructions and the other provisions of this Agreement. 6. RIGHT TO RECEIVE ADVICE. (a) Advice of PFPC. If MSTC is in doubt as to any action it should or should not take, MSTC may request directions or advice, including Oral Instructions or Written Instructions, from PFPC. (b) Advice of Counsel. If MSTC shall be in doubt as to any question of law pertaining to any action it should or should not take, MSTC may request advice at its own cost from such counsel of its own choosing (who may be counsel for PFPC, the Fund, the Fund's investment adviser or MSTC, at the option of MSTC). (c) Conflicting Advice. In the event of a conflict between directions, advice, Oral Instructions or Written Instructions MSTC receives from PFPC and the advice MSTC receives from counsel, MSTC may rely upon and follow the advice of counsel. In the event MSTC so relies on the advice of counsel, MSTC remains liable for any action or omission on the part of MSTC which constitutes willful misfeasance, bad faith, gross negligence or reckless disregard by MSTC of any duties, obligations or responsibilities set forth in this Agreement. (d) Protection of MSTC. MSTC shall be protected in any action it takes or does not take in reliance upon directions, advice, Oral Instructions or Written Instructions it receives from PFPC and which MSTC believes, in good faith, to be consistent with those directions, advice, Oral Instructions or Written Instructions subject to the limitations set forth in paragraph 3 4 6(c). Nothing in this section shall be construed so as to impose an obligation upon MSTC (i) to seek such directions, advice, Oral Instructions or Written Instructions, or (ii) to act in accordance with such directions, advice, Oral Instructions or Written Instructions unless, under the terms of other provisions of this Agreement, the same is a condition of MSTC's properly taking or not taking such action. Nothing in this subsection shall excuse MSTC when an action or omission on the part of MSTC constitutes willful misfeasance, bad faith, gross negligence or reckless disregard by MSTC of any duties, obligations or responsibilities set forth in this Agreement. 7. RECORDS; VISITS. The records pertaining to the Fund and the WEBS Index Series which are in the possession or under the control of MSTC shall be the property of PFPC or the Fund as PFPC may direct. PFPC, and its Authorized Persons shall have access to such records at all times during MSTC's normal business hours. Upon the reasonable request of PFPC, copies of any such records shall be provided by MSTC to the Fund, PFPC or to an Authorized Person, at PFPC's expense. 8. CONFIDENTIALITY. MSTC agrees on its own behalf and that of its employees to keep confidential all records of PFPC and the Fund and information relating to the Fund and its shareholders (past, present and future), unless the release of such records or information is otherwise consented to, in writing, by PFPC or the Fund. PFPC agrees that such consent shall not be unreasonably withheld and may not be withheld where MSTC may be exposed to civil or criminal contempt proceedings or when required to divulge such information or records to duly constituted authorities. Notwithstanding the foregoing, it is understood and agreed that MSTC and its affiliates may promptly supply any records or information upon the request of any regulatory authority that has jurisdiction over MSTC or its affiliates. 9. COMPENSATION. As compensation for services rendered by MSTC during the term of this Agreement, PFPC will pay to MSTC a fee of .05% per annum of the aggregate net assets of the Fund. 10. INDEMNIFICATION. PFPC agrees to indemnify and hold harmless MSTC and its affiliates from all taxes, charges, expenses, assessments, claims and liabilities (including, without limitation, liabilities arising under the Securities Laws and any state or foreign securities and blue sky laws, and amendments thereto), and expenses, including (without limitation) attorneys' fees and disbursements arising directly or indirectly from any action or omission to act which MSTC takes (i) at the request or on the direction of or in reliance on the advice of PFPC or (ii) upon Oral Instructions or Written Instructions. Neither MSTC nor any of its affiliates', shall be indemnified against any liability (or any expenses incident to such liability) arising out of MSTC's or its affiliates' own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligations under this Agreement. 4 5 11. RESPONSIBILITY OF MSTC. (a) MSTC shall be under no duty to take any action on behalf of PFPC or the Fund except as specifically set forth herein or as may be specifically agreed to by MSTC in writing. MSTC shall be obligated to exercise care and diligence in the performance of its duties hereunder, to act in good faith and to use its best efforts, within reasonable limits, in performing services provided for under this Agreement. MSTC shall be liable for any damages arising out of MSTC's failure to perform its duties under this Agreement only to the extent such damages arise out of MSTC's willful misfeasance, bad faith, gross negligence or reckless disregard of such duties. (b) Without limiting the generality of the foregoing or of any other provision of this Agreement, (i) MSTC shall not be liable for losses beyond its control, provided that MSTC has acted in accordance with the standard of care set forth above; and (ii) MSTC shall not be liable for (A) the validity or invalidity or authority or lack thereof of any Oral Instruction or Written Instruction, notice or other instrument which conforms to the applicable requirements of this Agreement, and which MSTC reasonably believes to be genuine; or (B) delays or errors or loss of data occurring by reason of circumstances beyond MSTC's control, including acts of civil or military authority, national emergencies, labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply. (c) Notwithstanding anything in this Agreement to the contrary, neither MSTC nor its affiliates shall be liable to PFPC, the Fund or any WEBS Index Series for any consequential, special or indirect losses or damages which PFPC, the Fund or any WEBS Index Series may incur or suffer by or as a consequence of MSTC's or any affiliates' performance of the services provided hereunder, whether or not the likelihood of such losses or damages was known by MSTC or its affiliates. 12. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. MSTC will perform the following administration services with respect to the Fund. i. Assisting in developing solutions to legal, administration and operations related issues with respect to WEBS. ii. In conjunction with PFPC supervising the Fund's relationships with counsel and auditors. iii. Assisting in developing Board agendas and developing and making Board presentations. iv. Responding to questions of existing investors, including assisting in investor understanding of tracking variances. v. Assisting with new product development initiatives from a trading, operations and legal perspective. 5 6 vi. Providing review of information provided by Morgan Stanley Capital International for reasonableness of disclosure in fund materials. vii. Assisting in the coordination of the Fund's relationship with the American Stock Exchange and its specialists. viii. Providing space for Board meetings and non-marketing related business meetings concerning WEBS. ix. Reviewing and commenting upon prospectus and statement of additional information drafts and draft reports and other communications to shareholders. x. Other services of an administrative and operational nature as reasonably requested by PFPC and agreed to by MSTC. It is understood and agreed that in no event shall MSTC or any of its affiliates provide legal or investment advice to the Fund or any WEBS Index Series thereof. 13. DURATION AND TERMINATION. This Agreement shall continue until terminated by the Fund, PFPC or by MSTC on sixty (60) days' prior written notice to the other parties. However, this Agreement shall terminate immediately with respect to any WEBS Index Series, the shares of which are no longer trading. 14. NOTICES. All notices and other communications, including Written Instructions, shall be in writing or by confirming telegram, cable, telex or facsimile sending device. If notice is sent by confirming telegram, cable, telex or facsimile sending device, it shall be deemed to have been given immediately. If notice is sent by first-class mail, it shall be deemed to have been given three days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered. Notices shall be addressed (a) if to MSTC, at One Pierrepont Plaza, Brooklyn, New York, 11201; (b) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (c) if to the Fund, at c/o Mr. Nathan Most, P.O. Box 193, Burlingame, California 94011-0193; or (d) if to none of the foregoing, at such other address as shall have been provided by like notice to the sender of any such notice or other communication by the other party. 15. AMENDMENTS. This Agreement, or any term thereof, may be changed or waived only by written amendment, signed by the party against whom enforcement of such change or waiver is sought. 16. DELEGATION; ASSIGNMENT. MSTC may assign all or part of its rights and delegate all or part of its duties hereunder, to any affiliate that is either a direct or indirect majority owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co. provided that (i) MSTC gives PFPC thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees with MSTC and PFPC 6 7 to comply with all relevant provisions of the 1940 Act, if any; and (iii) MSTC and such delegate (or assignee) promptly provide such information as PFPC may request, and respond to such questions as PFPC may ask, relative to the delegation (or assignment), including (without limitation) the capabilities of the delegate(s) (or assignee(s)). 17. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. 19. MISCELLANEOUS. (a) Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, provided that the parties may embody in one or more separate documents their agreement, if any, with respect to delegated duties and Oral Instructions. (b) Captions. The captions in 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. (c) Governing Law. This Agreement shall be governed by the laws of the State of New York, without regard to principles of conflicts of law. (d) Partial Invalidity. 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. (e) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (f) Facsimile Signatures. The facsimile signature of any party to this Agreement shall constitute the valid and binding execution hereof by such party. 7 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. PFPC INC. By: ---------------------------- Title: ------------------------- MORGAN STANLEY TRUST COMPANY By: ---------------------------- Title: ------------------------- WEBS INDEX FUND, INC. By: ---------------------------- Title: ------------------------- 8 9 EXHIBIT A THIS EXHIBIT A, dated as of _____________, 1997, is Exhibit A to that certain Sub-Administration Services Agreement dated as of ____________, 1997 between WEBS Index Fund, Inc., PFPC Inc. and Morgan Stanley Trust Company. WEBS INDEX SERIES Australia WEBS Index Series Austria WEBS Index Series Belgium WEBS Index Series Canada WEBS Index Series France WEBS Index Series Germany WEBS Index Series Hong Kong WEBS Index Series Italy WEBS Index Series Japan WEBS Index Series Malaysia (Free) WEBS Index Series Mexico (Free) WEBS Index Series Netherlands WEBS Index Series Singapore (Free) WEBS Index Series Spain WEBS Index Series Sweden WEBS Index Series Switzerland WEBS Index Series United Kingdom WEBS Index Series 9 10 AUTHORIZED PERSONS APPENDIX NAME (TYPE) SIGNATURE - ----------- ----------- - ----------- ----------- - ----------- ----------- - ----------- ----------- - ----------- ----------- - ----------- ----------- 10 EX-99.B(16) 11 SCHEDULE OF PERFORMANCE COMPUTATIONS 1 EXHIBIT 99.B(16) WEBS INDEX FUND, INC. REGISTRATION NUMBERS: 33-97598 AND 811-9102 Registration Statement Item 24b - Exhibit 16 - Schedule of Performance Computations - -------------------------------------------------------------------------------- a-b --- YIELD = 2[(cd + 1)(6) - 1] Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = maximum offering price per share on the last day of the period. TOTAL RETURN = P(1+T)(n) = ERV Where: P = hypothetical initial payment of $1,000. T = the average annual total return. n = number of Years. ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period. CUMULATIVE TOTAL RETURN = [(ERV/P) - 1] -----END PRIVACY-ENHANCED MESSAGE-----