-----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, RdWL6Mezuxhn+bmHNPASHn0k/dPX8q1vW335E9sBAsI+nMMiDJ5wTZr6BcjFog74 6UDo4aM7rioqPzSSMrE9UQ== 0001021408-01-503451.txt : 20010717 0001021408-01-503451.hdr.sgml : 20010717 ACCESSION NUMBER: 0001021408-01-503451 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20010716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ISHARES INC CENTRAL INDEX KEY: 0000930667 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510396525 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-97598 FILM NUMBER: 1682211 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-09102 FILM NUMBER: 1682212 BUSINESS ADDRESS: STREET 1: 400 BELLEVUE PKWAY CITY: WILMINGTON STATE: DE ZIP: 19809 BUSINESS PHONE: 800-810-93 FORMER COMPANY: FORMER CONFORMED NAME: WEBS INDEX FUND INC DATE OF NAME CHANGE: 19970211 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 d485apos.txt ISHARES INC MSCI PROSPECTUS As filed with the Securities and Exchange Commission on July 16, 2000 Registration Nos. 33-97598 811-9102 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 __________________________ FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Post-Effective Amendment No. 19 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 21 [X] (Check appropriate box or boxes) iSHARES, 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) 791-2000 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 January 2, 2000 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [X] 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. iShares, Inc. iShares, Inc. is an index fund consisting of separate series, each of which seeks investment results similar to the performance of a single stock market or all of the stock markets in a geographic region. . iShares MSCI Pacific ex-Japan Index Fund The iShares MSCI Index Fund Shares, known as "iShares(R)", are listed for trading on the American Stock Exchange LLC, ("AMEX"). Certain iShares trade on certain other securities exchanges, including certain foreign exchanges. Individual iShares are not redeemable at their net asset value, but trade on the AMEX (or any other securities exchanges on which they trade) during the day at prices that are normally close to, but not the same as, their net asset value. There is no assurance that an active trading market will be maintained for iShares or that market prices of iShares of any iShares MSCI Index Fund will be close to their net asset values in the future. Each iShares MSCI Index Fund issues and redeems iShares on a continuous basis -- at net asset value -- only in large specified numbers of iShares called "Creation Units", usually in exchange for a basket of portfolio securities and an amount of cash. Except when aggregated in Creation Units, iShares are not redeemable securities. These securities have not been approved or disapproved by the Securities and Exchange Commission nor has the SEC determined whether the information in this prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime. Prospectus Dated ______, 2001 Introduction This Prospectus provides you with information you need to make an informed decision about whether to invest in an iShares MSCI Index Fund (each an "Index Fund" and collectively, the "Index Funds") of iShares, Inc. (the "Company"). It is organized to provide you with important facts about the Company as a whole and each particular Index Fund. The Investment Objective, Principal Investment Strategies and Principal Risk Factors sections discuss the general strategies and risks applicable to all Index Funds, while the iShares MSCI Index Funds section provides important information about each particular Index Fund, including a brief description of its benchmark index, specific risks associated with a particular market or region and prior performance. Investment Objective Each Index Fund seeks investment results similar to the performance of a single stock market or all of the stock markets in a geographic region. The performance of these markets is measured by stock indices compiled by Morgan Stanley Capital International Inc. ("MSCI") and calculated based on the reinvestment of net dividends. Principal Investment Strategies Unlike many investment companies, an Index Fund does not attempt to "beat" the market or its benchmark index. Instead, it uses a "passive," or indexing, investment approach to try to produce investment results that come as close as possible to matching the performance of its benchmark index. The Index Fund does this by investing in a representative sample of index stocks that the investment advisor selects using a "portfolio sampling" technique. However, most Index Funds do not usually invest in all of the stocks of a benchmark index. Some Index Funds may even invest in stocks that are not in their benchmark indices. The use of an indexing approach may eliminate some of the risks of active management such as poor stock selection. An indexing approach may also help increase after-tax performance by keeping portfolio turnover low in comparison to actively managed investment companies. One negative feature of indexing is that the Company's investment advisor cannot change a strategy even if it would be beneficial to do so. For example, an Index Fund would not ordinarily sell a stock because its issuer was in financial trouble. It would normally only sell a stock if the stock was removed from an Index Fund's benchmark index by MSCI or if the investment advisor believes that selling the stock would make an Index Fund's performance more like that of its benchmark index. Under each Index Fund's industry concentration policy, the industry weightings in an Index Fund must be within 10% of the weightings of the two most heavily weighted industries in its benchmark index, except when a single stock would cause a weighting to exceed 25%. iShares are designed for investors who want a relatively inexpensive passive approach to investing in a portfolio of stocks from a single country or region. International diversification is a generally recognized way to reduce investment portfolio risk. Also, many of the foreign stocks in an Index Fund are difficult to purchase or hold, or are, as a practical matter, not available to retail investors. The Index Funds offer investors a convenient way to obtain index-based exposure to the stock markets of a specific country or region. The prices of iShares may be volatile. Therefore, if you purchase iShares, you should be able to tolerate sudden, or even drastic, changes in the value of your investment. We cannot assure that any Index Fund will achieve its investment objective, and you should understand that your investment will be exposed to the risks of international equity investing. Each Index Fund issues and redeems iShares on a continuous basis -- at net asset value -- only in large specified numbers of iShares called "Creation Units", usually in exchange for a basket of portfolio securities and an amount of cash. As a practical matter, only large institutions purchase or redeem Creation Units of iShares. Information about the fees paid when they do this is included in the Company's Statement of Additional Information. Except when aggregated in Creation Units, iShares are not redeemable securities. Principal Risk Factors You may lose money by investing in an Index Fund. Each Index Fund is also subject to the following principal risks, more fully described in the Additional Risk Considerations section in this prospectus. Additional risks associated with a particular market or region in which an Index Fund invests are discussed under each Index Fund's profile in The iShares MSCI Index Funds section. Some or all of these risks may adversely affect an Index Fund's net asset value, yield, total return and/or its ability to achieve its objective: Market Risk. Each Fund's net asset value of an Index Fund will change with changes in the market value of the stocks it holds. Foreign Security Risk. Each Index Fund invests entirely within the equity markets of a single country or region. These markets are subject to special risks associated with foreign investment including, but not limited to: generally less liquid and less efficient securities markets; generally greater price volatility; exchange rate fluctuations and exchange controls; the imposition of taxes; higher transaction and custody costs; settlement delays and risk of loss; difficulties in enforcing contracts; less liquidity and smaller market capitalizations; lesser regulation of securities markets; different accounting and disclosure standards; governmental interference; higher inflation; social, economic and political uncertainties; the risk of expropriation of assets; and the risk of war. Currency Risk. Because each Index Fund's net asset value is determined on the basis of US dollars, you may lose money if you invest in any Index Fund if the local currency of a foreign market depreciates against the US dollar, even if the local currency value of an Index Fund's holdings goes up. Non-Diversification Risk. The iShares MSCI Pacific ex-Japan Index Fund is classified as "non-diversified." This means that this Index Fund may invest most of its assets in securities issued by a small number of companies. As a result, this Index Funds is more susceptible to the risks associated with these particular companies, or to a single economic, political or regulatory occurrence. Trading Risk. While the creation/redemption feature of iShares is designed to make it likely that iShares will trade close to their net asset value, disruptions to creations and redemptions (as has occurred because of Malaysia's capital controls) may result in trading prices that differ significantly from net asset value. Also, there can be no assurance that an active trading market will exist for iShares of each Index Fund on the AMEX(or any other securities exchange on which iShares may trade). Fees and Expenses If you invest in an Index Fund, you will pay various expenses, either directly or indirectly. The following tables and examples describe the fees and expenses that you may pay if you buy and hold iShares of an Index Fund. Shareholder Transaction Fees (fees paid directly from your investment). When buying or selling iShares of an Index Fund through a broker, you will incur customary brokerage commissions and charges.* Annual Index Fund Operating Expenses (expenses that are deducted from the Index Fund's assets). This table describes the fees and expenses that you may pay if you buy and hold shares of the iShares MSCI Pacific ex-Japan Index Fund. - -------------------------------------------------------------------------------- iShares MSCI Index Fund Pacific ex-Japan** - ----------------------- ------------------ - -------------------------------------------------------------------------------- Management fees.................................. - -------------------------------------------------------------------------------- Distribution (Rule 12b-1) fees................... - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Other expenses................................... - -------------------------------------------------------------------------------- Total annual Index Fund operating expenses....... - -------------------------------------------------------------------------------- Expense Reimbursement by investment advisor...... - -------------------------------------------------------------------------------- Net Expenses..................................... - -------------------------------------------------------------------------------- *Creation Unit Transaction Fees for Institutional Investors. The Company issues and redeems shares of iShares only in "Creation Units", which are large blocks of from 50,000 to 600,000 shares, depending on the Index Fund. As a practical matter, only institutions are capable of purchasing or redeeming these Creation Units. In connection with the purchase or the redemption of a Creation Unit of an Index Fund, an investor must pay to the Company a purchase or redemption transaction fee, which is intended to offset the issuance/redemption transaction costs incurred by that Index Fund, including market impact expenses relating to investing in or disposing of portfolio securities. The basic transaction fees (per Creation Unit purchase or redemption transaction) range from maximums of $_____to $_____, depending on the Index Fund. In addition to the basic transaction fee, Creation Unit purchase or redemption transactions for cash (only if available) require an additional maximum variable charge based on the value of the Creation Unit being purchased or redeemed, depending on the Index Fund. See "Shareholder Information -- Buying and Selling iShares" in this Prospectus for a list of the Creation Unit maximum transaction fees for each Index Fund. ** As of the date of this prospectus, this Index Fund has not started investment operations. These expenses are based on estimated expenses the Index Fund expects to incur for the current fiscal year. Fees paid to the administrator are included in "other expenses" and are estimated based on assumed average daily net assets of $___ million for the iShares MSCI Pacific ex-Japan. Example of Expenses These examples are intended to help you compare the cost of investing in an Index Fund with the cost of investing in other mutual funds. We are assuming an initial investment of $10,000, a 5% total return each year with no changes in operating expenses and redemption at the end of each period. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: iShares MSCI Index Fund 1 Year ($) 3 Years ($) 5 Years ($) 10 Years ($) - ----------------------- ------ --- ------- --- ------- --- -------- --- Pacific ex-Japan You would pay the following expenses if you did not redeem your shares: iShares MSCI Index Fund 1 Year ($) 3 Years ($) 5 Years ($) 10 Years ($) - ----------------------- ------ --- ------- --- ------- --- -------- --- Pacific ex-Japan The above examples are for illustration purposes only and are not a representation of the Index Funds' actual expenses and returns, either past or future (e.g., the above examples include the maximum transaction fees chargeable by an Index Fund). The iShares MSCI Index Fund iShares MSCI Pacific ex-Japan Index Fund CUSIP: AMEX Trading Symbol: Fund Investment Objective The iShares MSCI Pacific ex-Japan Index Fund (the "Fund") seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the aggregate in the Australia, Hong Kong, New Zealand and Singapore market, as measured by the MSCI Pacific ex-Japan Index (the "Index"). Benchmark Index Information As of ____, 2001, the Index consisted of ____stocks from the following four countries Australia, Hong Kong, New Zealand, and Singapore. Fund-Specific Risks In addition to the principal risk factors referred to elsewhere in this prospectus, you should know that in recent times, Hong Kong's economy has been adversely affected by the Asian economic crisis, contributing to the current recession. Issues and uncertainties linger regarding the integration of Hong Kong's economy with that of China, and the manner in which the Chinese government will honor and interpret the agreement pursuant to which Hong Kong was returned to China by the United Kingdom in 1998. As a small open economy, Singapore is particularly vulnerable to external economic influences, including in recent times the Asian economic crisis. While Singapore has been a leading manufacturer of electronic goods, the extent to which other countries can successfully compete with Singapore in this and related industries, and adverse Asian economic influences generally, may adversely impact Singapore's economy. New Zealand has been predominantly agricultural based country. However, since 1984, the government has been moving its country to become more industrialized. It's growth however, remains dependent on the economic well being of Asia, Europe, and the US. In 1998, the economy fell into recession due to the Asian economic "crisis" and summer drought. New Zealand's primary exports include forestry and mining. Over the past 15 years, in an effort to grow its economy and create open channels, New Zealand has evolved to be one of the most deregulated countries Prior Performance As of the date of this prospectus, the Fund has not started investment operations, and therefore no prior performance information is available. Investment Policies and Strategies Indexing Investment Approach. Index Funds are not managed according to traditional methods of "active" investment management, which involve the buying and selling of securities based on economic, financial and market analysis and investment judgment. Instead, each Index Fund, using a "passive" or indexing investment approach, attempts to approximate the investment performance of its benchmark MSCI Index by investing in a portfolio of stocks selected by using quantitative analytical procedures. Stocks are selected for inclusion in an Index Fund in order to have investment characteristics (based on market capitalization and industry weightings), fundamental characteristics (such as return variability, earnings valuation and yield) and liquidity measures that, taken together, are similar to those of the benchmark MSCI Index taken in its entirety. Portfolio Sampling. Generally, an Index Fund does not hold all of the issues that comprise its benchmark MSCI Index, due in part to the costs involved and, in certain instances, the potential illiquidity of certain securities. Instead, an Index Fund will attempt to hold a representative sample of the securities in its benchmark MSCI Index, which will be selected by the investment advisor using quantitative analytical models in a technique known as "portfolio sampling". Under this technique, each stock is considered for inclusion in an Index Fund based on its contribution to certain capitalization, industry and fundamental investment characteristics. The investment advisor seeks to construct the portfolio of an Index Fund so that, in the aggregate, its capitalization, industry and fundamental investment characteristics perform like those of its benchmark MSCI Index. Over time, the portfolio composition of an Index Fund may be altered (or "rebalanced") to reflect changes in the characteristics of its benchmark MSCI Index or to bring the performance and characteristics of an Index Fund more in line with that of its benchmark MSCI Index. Rebalancing may also be required for tax purposes. These rebalancings will require an Index Fund to incur transaction costs and other expenses. An Index Fund reserves the right to invest in all of the securities in its benchmark MSCI Index, and an Index Fund with a benchmark index comprised of relatively few stocks may do so on a regular basis. In addition, the iShares MSCI Index Funds may hold stocks that are not in their benchmark MSCI Index if the investment advisor determines this to be appropriate in light of the Index Fund's investment objective and relevant investment constraints. Investment Assets. Each Index Fund has a policy to remain as fully invested as practicable in a pool of equity securities. Each Index Fund will normally invest at least 95% of its total assets in stocks that are represented in its benchmark MSCI Index except, in limited circumstances, to help meet shareholder redemptions of Creation Units. To comply with the US Internal Revenue Code, and manage corporate actions and index changes in the smaller markets, the iShares MSCI Pacific ex-Japan Index Fund will at all times invest at least 80% of its total assets in such stocks and at least half of the remaining 20% of its total assets in such stocks or in stocks included in the relevant market, but not in its benchmark MSCI Index. Each Index Fund may invest its remaining assets in money market instruments or funds that invest exclusively in money market instruments (subject to applicable limitations under the Investment Company Act of 1940), in repurchase agreements, in stocks that are in the relevant market but not its benchmark MSCI Index (as indicated above), and/or in combinations of stock index futures contracts, options on futures contracts, stock index options, stock index swaps, cash, local currency and forward currency exchange contracts that are intended to provide an Index Fund with exposure to a stock. The investment advisor may attempt to reduce tracking error by using futures contracts whose behavior is expected to represent the market performance of the Index Fund's underlying securities, although there can be no assurance that these futures will correlate with the performance of its benchmark. An Index Fund will not use these instruments to leverage, or borrow against, their securities holdings or for speculative purposes. In some cases the use of these special investment techniques can adversely affect the performance of an Index Fund. Lending of Securities. Each Index Fund may lend its portfolio securities. In connection with these loans, the Company receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a frequent basis. Notwithstanding such collateral, the Index Fund would lose value to the extent that a borrower defaults on its obligation to return borrowed portfolio securities and the value of the collateral is less than the value of the borrowed securities. Industry Concentration. With respect to the two most heavily weighted industries or groups of industries in its benchmark MSCI Index, an Index Fund will invest in securities (consistent with its investment objective and other investment policies) so that the weighting of each such industry or group of industries in the Index Fund does not diverge by more than 10% from the respective weighting of such industry or group of industries in its benchmark MSCI Index. An exception to this policy is that if an investment in the stock of a single issuer would account for more than 25% of the Index Fund's assets, that Index Fund will invest less than 25% of its net assets in such stock and will reallocate the excess to stock(s) in the same industry or group of industries, and/or to stock(s) in another industry or group of industries, in its benchmark MSCI Index. Each Index Fund will evaluate these industry weightings at least weekly, and at the time of evaluation will adjust its portfolio composition to the extent necessary to maintain compliance with the above policy. An Index Fund may not concentrate its investments except as discussed above. This policy is a fundamental investment policy and may not be changed without the approval of a majority of an Index Fund's shareholders. As of__________, 2001, as a result of this policy with respect to industry concentration, the following iShares MSCI Pacific ex-Japan Index Fund was concentrated (that is, invested 25% or more of the value of their assets) in the specified industries: iShares MSCI Index Fund Industry or Industries ----------------------- ---------------------- Pacific ex-Japan Borrowing Money. An Index Fund 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. To the extent that an Index Fund borrows money, it may be leveraged; at such times, the Index Fund's value may appreciate or depreciate more rapidly than its benchmark MSCI Index. An Index Fund will not make cash purchases of securities when the amount of money borrowed exceeds 5% of the market value of its total assets. Fundamental Policies. The concentration policy of each Index Fund is a fundamental policy that may be changed only with shareholder approval. Each of the other investment policies described in this Prospectus is a non-fundamental policy that may be changed by the Board of Directors without shareholder approval. Shareholders will be notified before any material change in these policies is implemented. Certain other fundamental policies of the Company are set forth in the Statement of Additional Information under "Investment Limitations." Tracking Error. Due to the use of the portfolio sampling technique described above and other factors discussed in this Prospectus, an Index Fund is not expected to track its benchmark MSCI Index with the same degree of accuracy as would an investment vehicle that invested in every component security of its benchmark index. The investment advisor expects that, over time, an Index Fund's "expected tracking error" relative to the performance of its benchmark index will be less than 5% and its tracking error will generally be greater if its benchmark index has 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 an Index Fund will be within plus or minus 5% of its benchmark MSCI Index level after one year, without rebalancing the portfolio composition. Thus, actual tracking error in a period may exceed 5%, perhaps significantly, even though the expected tracking error is less than 5%. In addition, it is possible that future developments (e.g., the domination of an Index Fund's benchmark index by a small number of stocks) may result in an Index Fund having an unexpected tracking error of greater than 5%. A tracking error of 0% would indicate perfect tracking, which would be achieved when the net asset value of an Index Fund increases or decreases in exact proportion to changes in its benchmark MSCI Index. The following factors may adversely affect the tracking of an Index Fund to that of its benchmark MSCI Index: . the Index Funds must pay various expenses, while the benchmark MSCI Indices do not reflect any expenses; . since the investment portfolios of the Index Funds do not generally replicate the underlying MSCI Indices, their investment performance is likely to differ from that of the MSCI Indices; . the portfolio sampling technique used to manage the Index Funds is based on historical price relationships and changes to those relationships can adversely affect tracking. In some situations, the requirements of the US Internal Revenue Code can adversely affect tracking by preventing an Index Fund from holding optimal positions in particular securities; . an Index Fund must comply with regulatory constraints that do not affect the calculation of its corresponding MSCI Index; . the existence of uninvested assets in the portfolios (principally cash and deferred organizational expenses) while the benchmark MSCI Indices do not have univested assets; . Index Funds receive interest income on uninvested cash and most Index Funds receive income from securities lending activities, whereas the benchmark MSCI Indices do not have such sources of income; and . the fact that an Index Fund may be subject to a different foreign withholding tax rate than that assumed by its benchmark MSCI Index. Although the investment advisor regularly monitors the tracking error of each Index Fund, there can be no assurance that any Index Fund will achieve any particular level of tracking error relative to the performance of its benchmark MSCI Index. Semi-annual and annual reports of the Company disclose tracking error for each Index Fund over the previous six-month period, and in the event that tracking error exceeds 5%, the Board of Directors will consider whether it would be appropriate to take action. Additional Information About Principal Risk Factors An investment in iShares of an Index Fund involves risks similar to those of investing in a broad-based portfolio of equity securities traded on exchanges in the relevant foreign securities market, including market fluctuations caused by factors such as economic and political developments, changes in interest rates and perceived trends in stock prices. Investing in iShares MSCI Index Funds generally involves certain risks and considerations not typically associated with investing in a fund that invests in the securities of US issuers. The principal risk factors, which could decrease the value of your investment, are listed and described below: . less liquid and less efficient securities markets; . greater price volatility; . exchange rate fluctuations and exchange controls; . less publicly available information about issuers; . the imposition of withholding or other taxes; . the imposition of restrictions on the expatriation of funds or other assets of an Index Fund; . higher transaction and custody costs and delays and risks of loss attendant in settlement procedures; . difficulties in enforcing contractual obligations; . lesser levels of regulation of the securities markets; . different accounting, disclosure and reporting requirements; . more substantial government involvement in the economy; . higher rates of inflation; . greater social, economic, and political uncertainty and the risk of nationalization or expropriation of assets and risk of war. Index Funds that issue and/or redeem Creation Units for cash may have greater tracking error than other Index Funds since they are at risk that the prices they pay or receive for portfolio securities will be different than the prices in effect when they determine the value of the Creation Units being issued or redeemed. Volatility of Foreign Equity Markets. The US dollar performance of foreign equity markets, particularly emerging markets, has generally been substantially more volatile than that of US markets. Greater volatility connotes greater uncertainty as to a portfolio's liquidation value at a future point in time. The volatility information below is a measurement of the standard deviation of five years of monthly total returns of the MSCI Index. The percentages reflect the historical average annual volatility for the MSCI Pacific ex-Japan Index, based on monthly total returns of the MSCI Indices from _______, 1996 to _______, 2001. MSCI Pacific ex-Japan The larger the percentage stated for an MSCI Index, the greater the historical average annual volatility of that MSCI Index.. Short-term volatility in these markets can be significantly greater than average annual volatility. Foreign Currency Fluctuations. Because each Index Fund's assets are generally invested in non-US securities and because a substantial portion of the revenue and income of each Index Fund is received in a foreign currency, the dollar value of an Index Fund's net assets is reduced by declines in the value of the relevant foreign currency relative to the dollar and are positively affected by increases in the value of that currency relative to the dollar. Also, government or monetary authorities may impose or alter exchange controls in a way that would adversely affect exchange rates. Any currency fluctuations will affect the net asset value of an Index Fund regardless 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, no Index Fund expects to engage in currency transactions for the purpose of hedging against a decline in value of any foreign currencies. Concentration and Lack of Diversification of Certain Index Funds. The iShares MSCI Pacific ex-Japan Index Fund is classified as "non-diversified" for purposes of the Investment Company Act of 1940, which means that it is not limited by that 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 Index Funds concentrate their investments in particular industries as noted in the descriptions of each non-diversified Index Fund. Each Index Fund, however, whether diversified or non-diversified, intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a "regulated investment company" for purposes of the US Internal Revenue Code, to relieve the Index Fund of any liability for federal income tax to the extent that its earnings are distributed to shareholders. Compliance with the diversification requirements of the US Internal Revenue Code severely limits the investment flexibility of certain Index Funds and makes it less likely that such Index Funds will meet their investment objectives. The stocks of particular issuers, or of issuers in particular industries, may dominate the benchmark index of an Index Fund and, consequently, the investment portfolio of an Index Fund. This may adversely affect the performance of an Index Fund or subject it to greater price volatility than that experienced by more diversified investment companies. The iShares of an Index Fund 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 in the equity securities of the relevant market. Trading Issues. Trading in iShares on the AMEX (or any other securities exchange on which iShares may be listed or traded) may be halted due to market conditions or for reasons that, in the AMEX's view (or that of any such other exchange's), make trading in iShares inadvisable. In addition, trading in iShares on the AMEX is subject to trading halts caused by extraordinary market volatility pursuant to AMEX "circuit breaker" rules. If trading on the AMEX or another exchange on which iShares are listed is halted, you may not be able to sell your iShares until trading resumes. There can be no assurance that the requirements of the AMEX (or any other exchange) that are necessary to maintain the listing of any Index Fund will continue to be met or will remain unchanged. Fluctuation of Net Asset Value and Trading Prices. The net asset value of iShares of an Index Fund will fluctuate with changes in the market value of an Index Fund's security holdings and changes in the exchange rate between the US dollar and the subject foreign currency. The market prices of iShares will fluctuate in accordance with changes in net asset value and supply and demand on the AMEX or another exchange on which iShares are listed. The Company cannot predict whether iShares 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 in the secondary trading market for iShares will be closely related, but not identical, to the same forces influencing the prices of the stocks of the MSCI Index trading individually or in the aggregate at any point in time. Given, however, that iShares must 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 investment advisor believes that ordinarily large discounts or premiums to the net asset value of iShares should not be sustained. In the event that the Company must suspend or discourage creations and/or redemptions of Creation Unit aggregations of iShares of an Index Fund, we expect larger discounts or premiums. Management Investment Advisor Barclays Global Fund Advisors is responsible for the investment management of each Index Fund. It is a California corporation indirectly owned by Barclays Bank PLC and is registered under the Investment Advisers Act of 1940. Barclays Global Fund Advisors has managed equity portfolios, including index funds and mutual funds, for over 25 years. As of ______, 2001, the investment advisor and its affiliates managed, administered or advised assets aggregating in excess of $___ billion. Barclays Global Fund Advisors' principal business address is 45 Fremont Street, San Francisco, California 94105. Shareholder Information Determination of Net Asset Value The net asset value per iShares for each Index Fund is computed by dividing the value of the net assets of an Index Fund (i.e., the value of its total assets less total liabilities) by the total number of iShares 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 values of the iShares MSCI Pacific ex-Japan Index Fund is determined as of 8:30 a.m. (Eastern time)), on each day that the New York Stock Exchange, Inc. is open. The Company may commence determining the net asset value of certain Index Funds more frequently than once a day in connection with the possible future trading of the iShares of such Index Funds on foreign exchanges. The price at which a purchase or redemption of Creation Units of iShares is made is based on the next calculation of net asset value. In the case of Index Funds that effect creations and/or redemptions only for cash , it is possible that portfolio securities transactions by the Company in the relevant local markets of those Index Funds could affect the prices of those portfolio securities at the time those Index Funds' net asset values are calculated. Currency values are generally converted into U.S. dollars using the same exchange rates used by MSCI in the calculation of the relevant MSCI Indices (currently exchange rates as of 4:00 p.m. London time. However, the Company may use a different rate from the rate used by MSCI if the investment advisor concludes that a different rate is more appropriate. Any use of a different rate from MSCI may adversely affect an Index Fund's ability to track its benchmark MSCI Index. Buying and Selling iShares There are two ways for you to buy and sell iShares. Most investors buy and sell iShares through a broker in transactions on the AMEX or another exchange on which iShares of the relevant Index Fund may be traded. iShares are also issued and redeemed directly by the Company, but only in transactions involving aggregations of very large numbers of iShares, referred to as Creation Units. These transactions occur on an "in-kind" basis for most Index Funds. Persons capable of purchasing or redeeming Creation Units of iShares should refer to the Company's Statement of Additional Information for further details. In connection with the purchase or the redemption of a Creation Unit of an Index Fund, an investor must pay to the Company a purchase or redemption transaction fee, which is intended to offset the transfer and other transaction costs incurred by that Index Fund, including market impact expenses relating to investing in or disposing of portfolio securities. The maximum transaction fees that may apply to in-kind Creation Unit purchases and redemptions are listed in the second column in the table below. To the extent purchases and redemptions for cash are available, additional variable charges, up to the maximums listed in the third and fourth columns of the table below, will apply (in addition to the fees listed in the second column). This table is subject to revision from time to time. (Investors are also responsible for payment of the costs of transferring portfolio securities to the Company, in the case of a purchase transaction, or from the Company to their own account, in the case of a redemption transaction.)
- -------------------------------------------------------------------------------------------------- iShares MSCI In-kind and Cash Maximum Additional Maximum Additional Variable Index Series Purchases and Variable Charge for Charge for Cash Redemptions* ------------ Redemptions Cash Purchases* ---------------------------- ---------------- ------------------- - -------------------------------------------------------------------------------------------------- Pacificex-Japan ** *** - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
*As a percentage of amount invested. ** This percentage, when aggregated with the basic in-kind transaction fee, will not exceed 3.00%. *** This percentage, when aggregated with the basic in-kind transaction fee, will not exceed 2.00%. iShares may trade on the AMEX (or any other securities exchange on which iShares may trade) at prices that differ to some degree from their net asset value. If you buy or sell iShares in the secondary market, you will incur customary brokerage commissions and charges and may pay some or all of the difference between the bid price and the offered price in the secondary market on each leg of a round trip (purchase and sale) transaction. Given that iShares may be created or redeemed in Creation Units, however, the Advisor believes that ordinarily large discounts or premiums to the net asset value of iShares should not be sustained for long periods. If creations or redemptions of iShares in Creation Units are suspended or difficult to effect, the iShares may trade at sustained discounts or premiums from net asset value. The AMEX disseminates during its trading day (and certain other securities exchanges on which iShares may trade may disseminate during their trading days) an indicative optimized portfolio value, or IOPV, for each Index Fund. This should not be viewed as a real time update of the net asset value per iShares of an Index Fund, which is calculated only once a day, because it may not be computed in a manner consistent with such net asset value. The Depository Trust Company ("DTC") serves as securities depository for iShares. iShares may be held only in book-entry form; stock certificates will not be issued. DTC, or its nominee, is the record or registered owner of all outstanding iShares of each Index Fund. Beneficial ownership of iShares will be shown on the records of DTC or its participants (described below). Beneficial owners of iShares are not entitled to have iShares 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 of iShares. Accordingly, to exercise any rights of a holder of iShares, a beneficial owner must rely on the procedures of (i) DTC; (ii) "DTC Participants", i.e., securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC; and (iii) "Indirect Participants", i.e., brokers, dealers, banks and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly, through which the beneficial owner holds its interests. As described above, the Company recognizes DTC or its nominee as the owner of all iShares for all purposes. The Company will send its shareholders, through DTC and Central Depository Participants, unaudited semi-annual reports, audited annual reports and other information as may be required by applicable laws, rules and regulations. Beneficial owners also receive an annual notification as to the tax status of the Company's distributions. For purposes of the Investment Company Act of 1940, iShares are issued by the Index Funds, and the acquisition of iShares by investment companies is subject to the restrictions of section 12(d)(1) of the Investment Company Act. Dividends and Capital Gains Distributions Dividends from net investment income, including any net foreign currency gains, are declared and paid at least annually and any net realized securities gains are distributed at least annually. In order to improve tracking error or comply with the distribution requirements of the Internal Revenue Code of 1986, dividends may be declared and paid more frequently than annually for certain Index Funds. In addition, the Company intends to distribute, at least annually, amounts representing the full dividend yield on the underlying portfolio securities of each Index Fund, net of expenses, as if the Index Fund owned the 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" below. Dividends and securities gains distributions are distributed in US dollars and cannot be automatically reinvested in additional iShares. The Company will inform shareholders within 60 days after the close of an Index Fund's taxable year of the amount and nature of all distributions made to them. Tax Matters As with any investment, you should consider how the iShares of an Index Fund will be taxed. The tax information in this prospectus is provided as general information. You should consult your own tax professional about the tax consequences of an investment in iShares. Unless your investment in an Index Fund is through a tax-exempt entity or taxed- deferred retirement account, such as an IRA plan, you need to be aware of the possible tax consequences when: . An Index Fund makes distributions, and . You sell iShares on the AMEX. Taxes on Distributions. Each Index Fund will distribute annually any net investment income, and any net realized long-term or short-term capital gains. Each Index Fund may also pay a special distribution at the end of the calendar year to comply with federal tax requirements. In general, your distributions are subject to federal income tax when they are paid. Dividends paid out of an Index Fund's income and net short-term gains, if any, are taxable as ordinary income. Distributions of net long-term capital gains, if any, in excess of net short- term capital losses are taxable as long-term capital gains, regardless of how long you have held the iShares. Distributions in excess of an Index Fund's current and accumulated earnings and profits are treated as a tax-free return of capital to the extent of your basis in iShares, and as capital gain thereafter. A distribution may be taxable to you as ordinary income or capital gain even though, from an investment standpoint, it may constitute a return of capital. Dividends and interest received by each Index Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. Since more than 50% of each Index Fund's total assets at the end of its taxable year will consist of foreign stocks or securities, each Index Fund will "pass through" to you any foreign income taxes (including withholding taxes) paid by an Index Fund, if you held the Index Fund, and the Index Fund held the security, on the dividend entitlement date and for at least fifteen additional days immediately before and/or after. Subject to certain limitations, the foreign income taxes passed through may qualify as a deduction in calculating US taxable income or as a credit in calculating US federal income tax. You will be notified of your portion of the foreign income taxes paid to each country and the portion of dividends that represents income derived from sources within each country. Taxes other than foreign income taxes are not passed through to you in this way. If you are neither a lawful permanent resident nor a citizen of the United States or if you are a foreign entity, each Index Fund's ordinary income dividends (which include distributions of net short-term capital gains) will generally be subject to a 30% US withholding tax, unless a lower treaty rate applies. In addition iShares may be subject to U.S. estate tax. You should consult your personal tax advisor as to this matter. By law, each Index Fund must withhold 31% of a shareholder's distributions and proceeds if the shareholder has not provided a taxpayer identification number or social security number. Taxes When iShares Are Sold on the AMEX. Currently, any capital gain or loss realized upon a sale of iShares is generally treated as long-term capital gain or loss if the iShares have been held for more than one year and as short-term capital gain or loss if the iShares have been held for one year or less. The foregoing discussion summarizes some of the consequences under current federal tax law of an investment in an Index Fund. It is not a substitute for personal tax advice. Consult your personal tax adviser about the potential tax consequences of an investment in an Index Series under all applicable tax laws. Possible Claim A United States patentholder has notified the Company that it believes that the manner of the Company's operation results in the Company, possibly in conjunction with others, engaging in acts of infringement of such patent and has suggested that the Company, or one or more of its service providers, enter into a license agreement with it and pay it substantial fees. Payment of such fees by the Company could materially adversely affect the expense ratios of the Index Funds. In August 2000 the AMEX commenced an action seeking a declaratory judgement that its activities with respect to exchange traded funds, including the Company, do not infringe the patentholder's patents. The patentholder has counterclaimed alleging that such activities infringe its patent. The Company is not a party to this action. The Company believes that it has valid defenses to any potential patent infringement claim by the patentholder. Distribution Arrangements The Company has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940 that allows the Company to pay distribution fees for the sale and distribution of iShares. Because these fees are paid out of an Index Fund's assets on an ongoing basis, over time the fees will increase the cost of your investment and may cost you more than paying other types of sales charges. The fees paid under the Rule 12b-1 Plan are calculated and paid monthly with respect to each Index Fund at a rate set from time to time by the Board, provided that the annual rate may not exceed .__% of the average daily net assets of each Index Fund. These fees are currently being paid at the maximum rate. The distribution fees payable under the 12b-1 Plan are used to pay distributions-related expenses, including: compensation to the distributor at a rate fixed by the Company's Board of Directors from time to time (currently __% of the Company's average daily net assets, subject to an annual minimum of $_____); compensation to a sales and marketing consultant retained by the Company at a rate of .0__% of the Company's average daily net assets; and reimbursements of expenses incurred by the distributor and other persons (principally the investment advisor in connection with the distribution of the Company's shares). In addition, the distributor has entered into sales and investor services agreements with broker-dealers or other persons that are DTC Participants 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 broker- dealers or other persons, out of 12b-1 fees received from an Index Fund, at the annual rate of up to .__% of __% of the average daily net asset value of iShares held through DTC for the account of such DTC Participant. The amounts of the fees paid to the distributor and the sales and marketing consultant are not dependent on the amount of distribution expenses actually incurred by them. The distributor has no role in determining the investment policies of any Index Fund or which securities are to be purchased or sold by any Index Fund. ________________________________________________________________________________ Investment Company Act File No. 811-09102. iShares, Inc. (the "Company") iShares MSCI Pacific ex-Japan Index Fund Statement of Additional Information _______, 2001 This Statement of Additional Information ("SAI") provides information about the Company and its iShares MSCI Index Funds ("Index Funds"). This information is in addition to the information contained in the Company's Prospectus dated __________, 2001. This SAI is not a prospectus. It should be read in conjunction with the Prospectus and the Company's Annual Report for the fiscal year ended August 31, 2001. The financial statements and notes contained in the Annual Report are incorporated by reference into this SAI. Copies of the Company's Prospectus and Annual Report may be obtained free of charge by telephoning 1-800-iShares (1- 800-474-2737) or visiting our website at www.iShares.com. ________________________________________________________________________________ Table of Contents
Page GENERAL INFORMATION...................................................................................... 1 INVESTMENT STRATEGIES AND RISKS.......................................................................... 1 Exchange Listing and Trading.......................................................................... 1 Lending Portfolio Securities.......................................................................... 2 Repurchase Agreements................................................................................. 3 Currency Transactions................................................................................. 4 Futures Contracts and Options......................................................................... 4 Futures Transactions.............................................................................. 5 Restrictions on the Use of Futures Contracts and Options on Future Contracts...................... 6 Federal Tax Treatment of Futures Contracts........................................................ 6 Future Developments............................................................................... 7 Swap Agreements....................................................................................... 7 Non-U.S. Equity Portfolios............................................................................ 7 Concentrations and Lack of Diversification of Certain Index Funds..................................... 8 Investments in Subject Equity Markets................................................................. 8 Regional and Country-Specific Economic Considerations................................................. 10 MSCI INDICES............................................................................................. 15 INVESTMENT LIMITATIONS................................................................................... 19 MANAGEMENT OF THE COMPANY................................................................................ 21 Directors and Officers of the Company................................................................. 21 Directors' Compensation............................................................................... 23 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...................................................... 24 INVESTMENT ADVISORY MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES................................. 24 Investment Adviser.................................................................................... 24 Administrator......................................................................................... 25 Sub-Administrator..................................................................................... 25 Distributor........................................................................................... 26 Custodian and Lending Agent........................................................................... 27 Transfer Agent........................................................................................ 27 BROKERAGE ALLOCATION..................................................................................... 28 ADDITIONAL INFORMATION CONCERNING iSHARES................................................................ 29 Capital Stock......................................................................................... 29 Book Entry Only System................................................................................ 30 PURCHASE AND REDEMPTION OF iSHARES....................................................................... 32 Creation Units........................................................................................ 32 Purchase and Issuance of iShares in Creation Units.................................................... 32 Redemption of iShares in Creation Units............................................................... 36 Determining Net Asset Value........................................................................... 39 Continuous Offering................................................................................... 40 TAXES.................................................................................................... 41 PERFORMANCE INFORMATION.................................................................................. 43 COUNSEL AND INDEPENDENT AUDITORS......................................................................... 47 Counsel............................................................................................... 47 Independent Auditors.................................................................................. 47
The information contained herein regarding Morgan Stanley Capital International Inc. ("MSCI"), the MSCI Indices, local securities markets and The Depository Trust Company ("DTC") was obtained from publicly available sources. ________________________________________________________________________________ Investment Strategies and Risks Page i General Information iShares, Inc. (the "Company") was organized as a Maryland corporation on August 31, 1994, and is an open-end management investment company currently operating or proposing to operate 29 separate investment portfolios or "Index Funds". The following seventeen Index Funds commenced operations on March 6, 1996: the iShares MSCI Australia Index Fund, the iShares MSCI Austria Index Fund, the iShares MSCI Belgium Index Fund, the iShares MSCI Canada Index Fund, the iShares MSCI France Index Fund, the iShares MSCI Germany Index Fund, the iShares MSCI Hong Kong Index Fund, the iShares MSCI Italy Index Fund, the iShares MSCI Japan Index Fund, the iShares MSCI Malaysia (Free) Index Fund, the iShares MSCI Mexico (Free) Index Fund, the iShares MSCI Netherlands Index Fund, the iShares MSCI Singapore (Free) Index Fund, the iShares MSCI Spain Index Fund, the iShares MSCI Sweden Index Fund, the iShares MSCI Switzerland Index Fund and the iShares MSCI United Kingdom Index Fund. The iShares MSCI Brazil (Free) Index Fund, the iShares MSCI EMU Index Fund, the iShares MSCI South Korea Index Fund and the iShares MSCI Taiwan Index Fund commenced operations on July 11, 2000, July 26, 2000, May 10, 2000 and June 21, 2000, respectively. The iShares MSCI Pacific ex- Japan Index Fund commenced operations on _____, 2001. The following Index Funds had not commenced operations as of the date of this SAI: the iShares MSCI Greece, Indonesia (Free), Portugal, South Africa, Thailand (Free), Turkey and USA Index Funds. Each of the iShares MSCI Japan, United Kingdom and USA Index Funds is classified as a "diversified" investment company under the Investment Company Act of 1940. Each of the other Index Funds offered hereby is classified as a "non-diversified" investment company under the Investment Company Act of 1940. The Board of Directors of the Company may authorize additional Index Funds in the future. Investment Strategies and Risks The following supplements the information contained in the Prospectus concerning the investment objectives and policies of the Index Funds. Exchange Listing and Trading. The shares of each Index Fund are listed for trading on the AMEX. Certain Index Funds also trade on certain other national securities exchanges and foreign exchanges (each a "Listing Exchange"). The AMEX has approved modifications to its Rules to permit the listing of iShares of the Index Funds that have commenced operations. iShares, which are non-redeemable, 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 iShares of any Index Fund will continue to be met. The AMEX may remove the iShares of an Index Fund from listing if (1) following the initial twelve-month period beginning upon the commencement of trading of an Index Fund, there are fewer than 50 beneficial holders of the iShares for 30 or more consecutive trading days, (2) the value of the underlying index or portfolio of securities on which that Index Fund is based is no longer calculated or available or (3) any 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 Company. iShares of certain of the Company's Index Funds may be traded on U.S. national securities exchanges other than the AMEX from time to time. In addition, the iShares MSCI Australia Index Fund, iShares MSCI Japan Index Fund, iShares MSCI Malaysia (Free) Index Fund, iShares MSCI Singapore (Free) Index Fund, iShares MSCI South Korea Index Fund and the iShares MSCI Taiwan Index Fund are traded on certain foreign exchanges. ________________________________________________________________________________ Investment Strategies and Risks Page 1 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 iShares pricing information, the AMEX disseminates through the facilities of the Consolidated Tape Association an updated "indicative optimized portfolio value" ("IOPV") for each Index Fund as calculated by Bloomberg, L.P ("Bloomberg"). The Company 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 Index Fund basis every 15 seconds during regular AMEX trading hours of 9:30 a.m. to 4:00 p.m. Eastern 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 Index Fund. 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 iShares, it does not necessarily reflect the precise composition of the current portfolio of securities held by the Company for each Index Fund at a particular point in time, because the current portfolio of an Index Fund may include securities that are not a part of the current Deposit Securities. Therefore, the IOPV on a per Index Fund basis disseminated during AMEX trading hours should not be viewed as a real time update of the net asset value per share of the Company, which is calculated only once a day. It is possible that the value of the portfolio of securities held by the Company for a particular Index Fund may diverge from the applicable IOPV during any trading day. In such a case, the IOPV would not precisely reflect the value of an Index Fund' portfolio. In addition, the foreign exchange rate used by the Company in computing net asset value of an Index Fund may differ materially from that used by Bloomberg. See "Determining Net Asset Value" below. The equity securities included in the IOPV reflect the same market capitalization weighting as the Deposit Securities of the particular Index Fund. In addition to the equity component described in the preceding paragraph, the IOPV for each Index Fund 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 iShares MSCI Pacific ex-Japan Index Fund, there is no overlap in trading hours between the foreign market and the AMEX. Therefore, for each of these Index Funds, Bloomberg utilizes closing prices (in applicable foreign currency prices) in the foreign market for securities in the Index Fund's 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 Index Funds 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 those 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. Lending Portfolio Securities. The Company may lend portfolio securities to brokers, dealers and other financial institutions needing to borrow securities to complete transactions and for other purposes. Because the cash government securities or other assets that are pledged as collateral to the Company in connection with these loans generate income, securities lending enables an Index Fund to earn additional income that may partially offset the expenses of such Index Fund, and thereby reduce the effect that expenses have on such Index Fund's 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 an Index Fund's total assets. The documentation for these loans provide that the Index Fund will receive collateral equal to at least 105% of the current market value of the loaned securities, as marked to market each day on the same basis as the net asset value of the Index Fund is determined, consisting of cash government securities or other assets permitted by applicable ________________________________________________________________________________ Page 2 i Shares regulations and interpretations. An Index Fund pays reasonable administrative and custodial fees in connection with the loan of securities. The Index Fund invests cash collateral in short-term investments. The Chase Manhattan Bank ("Chase") serves as Lending Agent of the Company and, in such capacity, shares with the respective Index Fund any net income earned on stock loans on a 40/60 basis (i.e., Chase receives 40% of such net income and the Index Fund receives 60%). An Index Fund's share of income from the loan collateral is included in the Index Fund's gross investment income. The Company will comply with the conditions for lending established by the SEC staff. The SEC staff currently requires that the following conditions be met whenever portfolio securities are loaned: (1) the Index Fund 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 Index Fund must be able to terminate the loan at any time; (4) the Index Fund 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 Index Fund 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 Company, acting under the supervision of its 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 Index Fund will receive collateral in connection with all loans of portfolio securities, and such collateral will be marked to market, the Index Fund 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 Company). In addition, each Index Fund bears the risk of loss of any cash collateral that it invests in short-term investments. Repurchase Agreements. Each Index Fund 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 an Index Fund 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 an Index Fund and is unrelated to the interest rate on the underlying instrument. In these transactions, the securities acquired by an Index Fund (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and are held by the Company's custodian bank until repurchased. In addition, the Company's Board of Directors monitors the Company'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 an Index Fund. No more than an aggregate of 15% of the Index Fund's 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. An Index Fund 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 Company 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 an Index Fund not within the control of the Index Fund and therefore the Index Fund 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 Company's management ________________________________________________________________________________ Investment Strategies and Risks Page 3 acknowledges these risks, it is expected that they can be controlled through careful monitoring procedures. Currency Transactions. The investment policy of each Index Fund is to remain as fully invested as practicable in the equity securities of the relevant market. Hence, no Index Fund expects to engage in currency transactions for the purpose of hedging against declines in the value of the Index Fund's currency. An Index Fund 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. 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. 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 an Index Fund's return with the performance of the corresponding MSCI Index and may lower the Index Fund's return. The Index Fund 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 Index Fund will incur transaction costs, including trading commissions, in connection with certain of its foreign currency transactions. Futures Contracts and Options. Each Index Fund may utilize futures contracts and options 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 Index Funds. In such circumstances an Index Fund 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 ________________________________________________________________________________ Page 4 i Shares 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 the contract remains open. The Company expects to earn interest income on its margin deposits. Each Index Fund 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 Index Funds. In addition, the Company 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. Since there are very few futures traded on the MSCI Indices, an Index Fund may need to utilize other futures contracts or combinations thereof to simulate the performance of its benchmark MSCI Index. This process may magnify the "tracking error" of an Index Fund's performance compared to that of its benchmark MSCI Index, due to the lower correlation of the selected futures with its benchmark MSCI Index. The investment adviser will attempt to reduce this tracking error by using futures contracts whose behavior is expected to represent the market performance of the Index Fund's underlying securities, although there can be no assurance that these selected futures will in fact correlate with the performance of its benchmark MSCI Index. 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, an Index Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if an Index Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, an Index Fund may be required to make delivery of the instruments underlying futures contracts it holds. An Index Fund 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 ________________________________________________________________________________ Investment Strategies and Risks Page 5 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, an Index Fund 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. Utilization of futures transactions by an Index Fund 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 Company of margin deposits in the event of bankruptcy of a broker with whom an Index Fund 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. Restrictions on the Use of Futures Contracts and Options on Futures Contracts. An Index Fund 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 an Index Fund's total assets. Assets committed to initial margin deposits for futures and options on futures are held in a segregated account at the Company's custodian bank. Each Index Fund 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). Federal Tax Treatment of Futures Contracts. Each Index Fund 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 an Index Fund may affect the holding period of such securities and, consequently, the nature of the gain or loss on such securities upon disposition. An Index Fund 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 Index Fund. In order for an Index Fund 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 ________________________________________________________________________________ Page 6 i Shares sale of securities or of foreign currencies or other income derived with respect to the Index Fund's 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 Index Fund 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 Index Fund's fiscal year) on futures transactions. Such distributions are combined with distributions of capital gains realized on the Index Fund's other investments and shareholders are advised on the nature of the distributions. Future Developments. Each Index Fund 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 Index Fund or which are not currently available but which may be developed, to the extent such opportunities are both consistent with an Index Fund's investment objective and legally permissible for the Index Fund. Before entering into such transactions or making any such investment, the Index Fund will provide appropriate disclosure. Swap Agreements. Each Index Fund may utilize swap agreements to the extent described in the Prospectus. 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 Index Fund 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 an Index Fund's 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 Company's custodian bank. Non-U.S. Equity Portfolios. An investment in iShares involves risks similar to those of investing in a broad-based portfolio of equity securities traded on exchanges in the respective countries covered by the individual Index Fund. 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 an Index Fund 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; the imposition of restrictions on the expatriation of funds or other assets of an Index Fund; higher transaction and custody costs; delays and risks attendant in settlement procedures; difficulties in enforcing contractual obligations; lesser liquidity and significantly smaller market capitalization of most non-U.S. securities markets; different accounting and disclosure standards; lesser levels of regulation of the securities markets; more substantial government interference with 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. _______________________________________________________________________________ Investment Strategies and Risks Page 7 Concentrations and Lack of Diversification of Certain Index Funds. The iShares MSCI Pacific ex-Japan Index Fund is classified as "non-diversified" for purposes of the Investment Company Act of 1940, which means that it is not limited by that Act with regard to the portion of its assets that may be invested in the securities of a single issuer. Information about larege holdings in single issuers is included in the description of each index fund. In addition, a number of Index Funds concentrate their investments in particular industries as noted in the descriptions of each Index Fund. Each Index Fund, however, whether diversified or non-diversified, intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a "regulated investment company" for purposes of the U.S. Internal Revenue Code, to relieve the Index Fund of any liability for federal income tax to the extent that its earnings are distributed to shareholders. Compliance with the diversification requirements of the U.S. Internal Revenue Code severely limits the investment flexibility of certain Index Funds and makes it less likely that such Index Funds will meet their investment objectives. The stocks of one or more particular issuers, or of issuers in particular industries, may dominate the benchmark index of an Index Fund and, consequently, the investment portfolio of an Index Fund. This may adversely affect the performance of an Index Fund or subject it to greater price volatility than that experienced by more diversified investment companies. The iShares of an Index Fund 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 in the equity securities of the relevant market. Investments in Subject Equity Markets. Brief descriptions of the equity markets in which the respective Index Fund 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 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 November 30, 2000, the total market capitalization of the Australian equity markets was approximately AUD 684 billion or US$359 billion. ________________________________________________________________________________ Page 8 i Shares 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 November 30, 2000, the total market capitalization of the Hong Kong equity markets was approximately HKD 2,292 billion or US$294 billion. The New Zealand Equity Markets General Background. The New Zealand Stock Exchange (NZSE) was originated in the 1870's in four regions: Auckland, Thames, Dunedin and Reefton. In 1915, the Stock Exchange Association of New Zealand was formed. The Sharebrokers Act Amendment 1981governs the operations of the NZSE. During 1989, the Exchange changed from four separate entities to one. Additionally, a Board of Directors was appointed to replace the traditional council. The NZSE also appointed an independent Market Surveillance Panel and adopted revised Listing Rules. On June 24, 1991, they also eliminated the open outcry market and on August 1, 1992, introduced its FASTER system of electronic transfer and moved to fully automated clearing and settlement of trades. Reporting, Accounting and Auditing. New Zealand reporting, accounting and auditing standards differ substantially from U.S. standards. In general, New Zealand 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 November 30, 2000, the total market capitalization of the New Zealand markets was approximately NZD $25,558.52million or US $10,314.99. 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. ________________________________________________________________________________ Investment Strategies and Risks Page 9 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 November 30, 2000, the total market capitalization of the Singaporean markets was approximately SGD 272 billion or US$155 billion. Regional and Country-Specific Economic Considerations. Pacific Region 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 Asian countries continue to depend heavily upon international trade and, accordingly, are 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, along with the reduction of foreign investment in the local economies and a general decline 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 Asian countries. Rapidly rising household incomes have fostered large middle classes and new waves of consumer spending. The 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 these 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. In the fourth quarter of 1997, the Southeast Asian currency markets came under severe selling pressure from abroad, as foreign investors and speculators alike heavily sold regional currencies viewed to be overvalued. The Thai Baht was the first to come under pressure, but Indonesian, Malaysian, Phillipine, Singaporean, Taiwanese, South Korean and Hong Kong currencies were all affected. Equity and fixed income markets also faced selling pressure as foreign investors have been concerned with the overall financial prospects of the region. ________________________________________________________________________________ Page 10 i Shares Among the countries at the center of the Asian crisis, Korea and Thailand have made encouraging advances toward restoring confidence and initiating recovery, although their turnarounds remain at risk, including from the external environment. The situation in Indonesia, however, remains very difficult. Malaysia resorted to external payments controls in an effort to insulate its economy from the regional crisis. In Japan, despite substantial fiscal stimulus and new initiatives to deal with banking sector problems, significant downside risks remain. Growth in China appears to be slowing, and both the renminbi and the Hong Kong dollar have been under considerable pressure. Australia. Australia's economy employs a market-free-enterprise structure, and its largest components are finance, manufacturing, services, and trade. Major exports are metal ores and scrap, wheat, coal, meat, and wool, principally to Japan and the United States. Major imports are machinery, miscellaneous manufactured products (textiles, paper, and nonferrous metals), transport equipment, and crude petroleum, primarily from the United States, Japan, the United Kingdom, and Germany. The GNP is increasing more rapidly than the population, and the GNP per capita is similar to other Western countries. Its chief industries are mining, industrial and transportation equipment, food processing, chemicals, and steel. Australia's natural resources include bauxite, coal, iron ore, copper, tin, silver, uranium, nickel, tungsten, mineral sands, lead, zinc, diamonds, natural gas, and petroleum. Australia is a democratic, federal-state system, which recognizes the British monarch as sovereign. Australia suffered from deficits throughout the 1970s, however Government spending cuts achieved a balanced budget in 1981. Surplus budgets were achieved in the late 1980s. The principal revenue sources are excise, sales taxes, income taxes, corporate taxes, and nontax revenue. The principal expenditures are for social security and welfare, state-government transfers, health, interest on the public debt and defense. After a period of high growth in 1998 and 1999, the Australian economy continued to perform strongly in the first half of 2000. Real GDP grew at an annual rate of nearly 5% in the first half of 2000, averaging 4.4% growth over the last eight years. Unemployment fell to 6.25% in the third quarter of 2000 coinciding with the employment growth. Inflation rose 2 to 3%, however the underlying inflation remained constant. Consumer price inflation rose 2 to 3% largely due to higher oil prices. Over the Fund's fiscal year ended August 31, 2000, the Australian equity market continued its transformation from a market driven by commodities to one increasingly influenced by media and telecommunications stocks. As of August 31, 2000, global media giant News Corp. accounted for approximately 20% of the MSCI Australia Index while telecommunications firm Telstra made up another 12%. Both of these stocks benefited from investors' enthusiasm for "TMT" (technology, media and telecommunications) stocks in late 1999 and early 2000. Interest in those sectors cooled in the spring of 2000. News Corp. then recovered some ground in May, having reported higher-than-expected earnings and new expansion plans, including a bid to purchase U.S. television station operator Chris-Craft. Telstra did not perform as well, due to concerns about greater competition in Australia's domestic telecommunications market. Although the mining sector does not dominate the Australian market to quite the extent that it once did, it still had a powerful influence over the past year. Asia's economic recovery, coupled with weakness in the Australian dollar, has also improved the outlook for mining companies and other exporters. Hong Kong. Hong Kong enjoys a well-developed free market economy highly dependent on international trade. With its limited natural resources, Hong Kong depends on the importation of food and raw materials for virtually all of its needs. Its chief industries are textiles, clothing, tourism, ________________________________________________________________________________ Investment Strategies and Risks Page 11 electronics, plastics, toys, watches, and clocks. Natural resources include a deepwater harbor and feldspar. The transfer of sovereignty from Britain to China in 1998 which created a sense of uncertainty in Hong Kong's economy, has largely been a smooth transition. Under the principle of "one country, two systems," Hong Kong is now a special administrative region (SAR) of the People's Republic of China and is empowered with a high degree of autonomy. It has retained its administrative, legislative and judicial systems. The SAR government has full control over its monetary and fiscal policies and it maintains its own customs and immigration control, separate from the mainland. Except for issues relating to national security and foreign policy, the SAR is largely run as an independent territory. Hong Kong's economy continues to emerge from a recession that began with the Asian crisis in the second half of 1998. Deflation has been a major problem, as it has discouraged investment, postponed consumption and delayed a turnaround in the inventory cycle. Nevertheless, GDP growth seems to be recovering somewhat. Per capita GDP compares with the level in the four big countries of Western Europe. GDP growth averaged a strong 5% in 1989-97. The Hong Kong market ran on two tracks during the Fund's fiscal year ended August 31, 2000. On one track were Hong Kong's "Old Economy" firms. Rising interest rates--a perennial thorn in the side of the Hong Kong market--weighed on financial services companies such as Hang Seng Bank, which made up nearly 10% of the MSCI Hong Kong Index as of August 31. The performance of old economy stocks contrasted sharply with that of Hong Kong's growth oriented companies, especially in the technology, media and telecommunications sectors. Stocks such as Cable & Wireless HKT (acquired by Pacific Century Cyberworks in 2000) were lifted by positive sentiment in late 1999 and early 2000. Investors were excited by the possibility that China would liberalize its telecom and Internet-related markets, opening the way for Cable & Wireless HKT and newly public company China Telecom to build dominant positions in what is potentially the world's largest consumer market. Although, those stocks declined along with many other telecom stocks worldwide in the spring and summer of 2000, their gains over the previous months served only to reinforce telecom's growing influence on the Hong Kong market. That shift has been most evident in the transformation of Hutchison Whampoa - which had a 28% weighting in the MSCI Index as of August 31. The company's property business has gradually been overshadowed by its expansion into the telecom field. With a concentration in telecom rapidly replacing its former concentration in real estate, Hong Kong's new diversification has not led to a significant decline in volatility. The market enjoyed a good economic backdrop during the first half of 2000, with strong trade flows, very robust GDP growth and lower unemployment. New Zealand. New Zealand has been predominantly agricultural based country. However, since 1984, the government has been moving its country to become more industrialized. This transition has brought about increased incomes and technological advances. Inflation continues to be one of the lowest among developed countires. New Zealand's GDP per capita is stated to be comparable to other larger West European countries. It's growth however, remains dependent on the economic well being of Asia, Europe, and the US. In 1998, the economy fell into recession due to the Asian economic "crisis" and summer drought. Since then, however, the economy has recovered and started growing 3.5% for the year ended December 1999. The economy continues to experience increased growth and the prospect for continued growth remains strong. It's constitution is not a single formal document but contains various acts from UK and New Zealand Parliaments. Its legal system is based on English law. Government is parlimentary domocratic. ________________________________________________________________________________ Page 12 i Shares New Zealand's primary exports include forestry and mining. Commodity exports and manufacturing continues to grow. Over the past 15 years, in an effort to grow its economy and create open chanels, New Zealand has evolved to be one of the most deregulated countries. Since 1995, New Zealand's current account deficits has been over 5% of GDP. The primary payments have been to non-residents who have accumulated direct investment in New Zealand. The trade balance has been running a surplus. In November 1999, the Labour-Alliance Coalition Government was elected to help New Zealand become an economy with a foundation in high skills, employment and value-added production. Singapore. Singapore has a highly developed economy with strong service and manufacturing sectors. Singapore benefits from being located at the crossroads of international trade routes. Singapore enjoys one of the highest gross national products (GNP) in the Southeast region. It has generally maintained strong GDP growth. Its chief industries are electronics, financial services, oil drilling equipment, petroleum refining, rubber processing and rubber products, processed food and beverages, ship repair, trade, and biotechnology. Singapore's natural resources include fish and deepwater ports. Singapore's government, a parliamentary republic, 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 a levy 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. Due to globalization, the country is looking to become the region's financial and high-tech hub. Singapore has become a high-income, highly industrialized country though rapid growth in its manufacturing sector due largely 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 the mining and agriculture sectors are of minimal importance. Singapore's equity market experienced periods of steep rises and sharp declines during the Fund's fiscal year ended August 31, 2000. Growing demand in Asia and around the world helped lift Singapore's export driven economy at the end of 1999. The country's electronics and chemical manufacturing sectors were especially strong. Investors were also encouraged by the policies the Singapore government had put in place to steer the economy through Asia's economic crisis and encourage the growth of a "homegrown" technology sector. However, Singapore's equity market deflated considerably during the period. Rising interest rates pressured banks (which made up 33.5% of the MSCI Singapore Index as of August 31, 2000), other financial services and property-related stocks. In addition, the news that Nokia and several high profile telecommunications companies were expecting their growth to slow weighed on Singapore's large contingent of contract manufacturers over the summer of 2000. Profit-taking and rotation into other markets in the region also drew capital from the market over the second half of the Fund's fiscal year. ________________________________________________________________________________ Investment Strategies and Risks Page 13 Real GDP Annual Rate of Growth (annual % change) 1995 1996 1997 1998 1999 -------- --------- --------- --------- --------- Australia................ 4.4 4.0 3.9 5.2 4.4 Hong Kong................ 3.9 4.5 5.0 -5.1 2.9 New Zealand.............. 5.3 4.1 3.0 1.9 0.4 Singapore................ 8.0 7.5 8.4 0.4 5.4 Source: World Economic Outlook, October 2000 (International Monetary Fund) ________________________________________________________________________________ Page 14 i shares 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. In November 1998, Morgan Stanley transferred all rights to the MSCI Indices to Morgan Stanley Capital International Inc. ("MSCI"), a Delaware corporation of which MSDW is the majority owner. 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 85% of the free float-adjusted market capitalization of a country's stock market reflected in the MSCI Index for such country. . On May 19, 2001, MSCI published index constituents and their Inclusion Factors based on the enhanced methodology. They will begin calculating a provisional index series on May 31, 2001. In the first phase, effective as of the close of November 30, 2001, MSCI will implement approximately half of the change resulting from the free float adjustment for all existing index constituents and, simultaneously, inlcude all the new constituents resulting from the increase in coverage to 85% at approximately half of their free float-adjusted market capitalization. The remaining adjustments to fully implement the enhanced methodology will take place in the second phase, effective as of the close of May 31, 2002. Given trends such as increased market concentration, the increase in coverage will provide greater diversification and representation of market opportunities. The MSCI Indices seek to balance the inclusiveness of an "all share" index against the replicability of a "blue chip" index. Weighting. Effective November 30, 2001, all single-country MSCI Indices will be free-float weighted, i.e., companies will be included in the indices at the value of their free public float (free float, multipled by price). MSCI defines "free float" as total shares excluding shares held by strategic investors such as governments, corporations, controlling shareholders and management, and shares subject to foreign ownership restrictions. 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 regional and international indices which include such markets. Regional Weights. Market capitalization weighting, combined with a consistent target of 85% of free float-adjusted market capitzliaation, 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 To construct relevant and accurate equity indices for the global institutional investor under the Enhanced Methodology, MSCI undertakes an index construction process, which involves: (i) Defining the equity universe, (ii) Adjusting the total market capitalization of all securities in the universe for free float available to foreign investors. (iii) Classifying the universe of securities under the Global ________________________________________________________________________________ The MSCI Indies Page 15 Industry Classification Standard (GICS).and (iv) Selecting securities for inclusion according to MSCI's index construction rules and guidelines. Defining the Universe.The index construction process starts at the country level, with the identification of the universe of investment opportunities. Currently, MSCI creates equity indices for 51 country markets globally. MSCI classifies each company and its securities in one and only one country. This allows securities to be sorted distinctly by their respective countries. In general, companies and their respective securities are classified as belonging to the country in which they are incorporated. All listed equity securities, or listed securities that exhibit characteristics of equity securities, except investment trusts, mutual funds and equity derivatives, are eligible for inclusion in the universe. Shares of non-domiciled companies generally are not eligible for inclusion in the universe. About 99% of the world's total equity market capitalization is included in the MSCI universe. Adjusting the Total Market Capitalization of Securities in the Universe for Free Float. After identifying the universe of securities, MSCI calculates the free float-adjusted market capitalization ofeach security in that universe. The process of free float adjusting market capitalization involves (i) Defining and estimating the free float available to foreign investors for each security, using MSCI's definition of free float (ii) Assigning a free float-adjustment factor to each security.and (iii) Calculating the free float-adjusted market capitalization of each security. Classifying Securities Under the Global Industry Classification Standard (GICS). In addition to the free float-adjustment of market capitalization, all securities in the universe are assigned to the industry that best describes their business activities. To this end, MSCI has designed, in conjunction with Standard & Poor's, the Global Industry Classification Standard (GICS). This comprehensive classification scheme provides a universal approach to industries worldwide and forms the basis for achieving MSCI's objective of reflecting broad and fair industry representation in its indices. Selecting Securities for Index Inclusion. In order to ensure a broad and fair representation in the indices of the diversity of business activities in the universe, MSCI follows a "bottom-up" approach to index construction, building indices from the industry group level up. The bottom-up approach to index construction requires a thorough analysis and understanding of the characteristics of the universe. This analysis drives the individual security selection decisions, which aim to reflect the overall features of the universe in the country index. MSCI targets an 85% free float-adjusted market representation level within each industry group, within each country. The security selection process within each industry group is based on the careful analysis of: (i) Each company's business activities and the diversification that its securities would bring to the index. (ii) The size (based on free float- adjusted market capitalization) and liquidity of securities. All else being equal, MSCI targets for inclusion the most sizable and liquid securities in an industry group. In addition, securities that do not meet the minimum size guidelines discussed below and/or securities with inadequate liquidity are not considered for inclusion. (iii) The estimated free float for the company and its individual share classes. Only securities of companies with estimated free float greater than 15% are, in general, considered for inclusion. Free Float. MSCI defines the free float of a security as the proportion of shares outstanding that are deemed to be available for purchase in the public equity markets by international investors. In practice, limitations on free float available to international investors include: (i) Strategic and other shareholdings not considered part of available free float. (ii) Limits on share ownership for foreigners. Under MSCI's free float-adjsutement methodology, a constituent's Inclusion Factor is equal to its estimated free flat rounded-up to the closest 5% for constituents with free float equal to or exceeding 15%. For example, a constituent security with a free float of 23.2% will be included in the index at 25% of its market capitalization. Securities of companies with an overall free float of less than 15% ________________________________________________________________________________ Page 16 i Shares across all share classes are generally not eligible for inclusion. Exceptions to this general rule are made only in significant cases, where not inlcuding a security of a large company would compromise the index's ability to fully and fairly represent the characteristics of the underlying market. 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. 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. Changes to the Indices. Under the Enhanced Methodology, the MSCI Equity Indices are maintained with the objective of reflecting, on a timely basis, the evolution of the underlying equity markets. In maintaining the indices, emphasis is also placed on their continuity and on minimizing turnover in the indices. MSCI classifies index maintenance in two broad categories: (i) Index rebalancing and (ii) Market driven changes and corporate events. The index rebalancing process is designed to ensure that the indices continue to be an accurate reflection of an evolving marketplace. The evolution may be due, for example, to a change in the composition or structure of an industry or other developments, including regular updates in shareholder information used in the estimation of free float. During the examination of a country index at a quarterly index rebalancing, the free float-adjusted market capitalization and representation of each industry group in the index is measured against the underlying market. A complete or partial index rebalancing, which will result in additions and deletions, for a country may be necessary if one or more industry groups have become significantly over- or under-represented. Index rebalancing for each MSCI Country Index generally takes place every 12 to 18 months. Individual country index rebalancing for MSCI Country Indices usually occurs on only four dates throughout the year: as of the close of the last business day of February, May, August and November. MSCI Index additions and deletions due to quarterly index rebalancings are announced at least two weeks in advance. New Issues. In general, newly listed equity securities available to foreign investors would be considered for inclusion in the MSCI Indices, according to MSCI's Enhanced Methodology index rules and guidelines, at the time of the quarterly index rebalancing for the country. However, for new issues that are significant in size and meet all the MSCI inclusion criteria, an early inclusion, outside of the quarterly index rebalancing, may be considered. ________________________________________________________________________________ The MSCI Indices Page 17 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. Index Rebalancing Deletions During an index rebalancing, securities may be deleted from a country index for a variety of reasons, including significant decreases in free float-adjusted market capitalization, significant deterioration in liquidity, changes in industry classification, decreases in free float, more restrictive Foreign Ownership Limits (FOLs), and availability of a better industry representative. In assessing deletions, it is important to emphasize that indices must represent the full-investment cycle, including bull as well as bear markets. Out-of-favor industries and their securities may exhibit declining prices, declining market capitalizations, and/or declining liquidity, and yet not be deleted because they continue to be good representatives of their industry group. ________________________________________________________________________________ Page 18 i Shares Investment Limitations The Company has adopted the following investment restrictions as fundamental policies with respect to each Index Fund. These restrictions cannot be changed with respect to an Index Fund without the approval of the holders of a majority of such Index Fund's outstanding voting securities. For purposes of the 1940 Act, a majority of the outstanding voting securities of an Index Fund means the vote, at an annual or a special meeting of the security holders of the Company, of the lesser of (1) 67% or more of the voting securities of the Index Fund present at such meeting, if the holders of more than 50% of the outstanding voting securities of such Index Fund are present or represented by proxy, or (2) more than 50% of the outstanding voting securities of the Index Fund. An Index Fund 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 an Index Fund 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 Index Fund's 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 Index Fund will not purchase securities while borrowings in excess of 5% of the Index Fund's total assets are outstanding, provided, that for purposes of this restriction, short- term credits necessary for the clearance of transactions are not considered borrowings; 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 Index Fund's 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 an Index Fund 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 Index Fund 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 an Index Fund 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 an Index Fund 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. Industry Concentration. With respect to the two most heavily weighted industries or groups of industries in its benchmark MSCI Index, an Index Fund will invest in securities (consistent with its investment objective and other investment policies) so that the weighting of each such industry or group of industries in the Index Fund does not diverge by more than 10% from the respective ________________________________________________________________________________ Investment Limitations Page 19 weighting of such industry or group of industries in its benchmark MSCI Index. An exception to this policy is that if investment in the stock of a single issuer would account for more than 25% of the Index Fund, the Index Fund will invest less than 25% of its net assets in such stock and will reallocate the excess to stock(s) in the same industry or group of industries, and/or to stock(s) in another industry or group of industries, in its benchmark MSCI Index. Each Index Fund will evaluate these industry weightings at least weekly, and at the time of evaluation will adjust its portfolio composition to the extent necessary to maintain compliance with the above policy. An Index Fund may not concentrate its investments except as discussed above. This policy is a fundamental investment policy and may not be changed without the approval of a majority (as defined in the Investment Company Act of 1940) of an Index Fund's shareholders. As of ________, 2001, as a result of this policy with respect to industry concentration, the iShares MSCI Pacific ex-Japan Index Fund was concentrated (that is, invested 25% or more of the value of their assets) in the specified industries: iShares MSCI Index Fund Industry or Industries ----------------------- ---------------------- Pacific ex-Japan In addition to the investment restrictions adopted as fundamental policies as set forth above, each Index Fund observes the following restrictions, which may be changed by the Board without a shareholder vote. An Index Fund 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 Company may vote the investment securities owned by each Index Fund 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 Index Fund has valued the investment. For purposes of the percentage limitation on each Index Fund's investments in illiquid securities, with respect to each Index Fund, 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 Index Fund. The Adviser monitors the liquidity of restricted securities in each Index Fund's portfolio under the supervision of the Company'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. ________________________________________________________________________________ Page 20 i Shares Management of the Company Directors and Officers of the Company. The Board has responsibility for the overall management and operations of the Company, including general supervision of the duties performed by the Adviser and other service providers. The Board currently consists of five Directors. Nathan Most is an "interested" director, as defined in the 1940 Act, by reason of his position as President of the Company.
Position with the Name and Address the Company Principal Occupations During Past Five Years - ---------------- ----------- --------------------------------------------------- Nathan Most Director, President and Consultant to Barclays Global Investors, American P.O. Box 193 Chairman of the Board Stock Exchange and the Hong Kong Stock Exchange; Burlingame, CA 94011-0193 Senior Vice President (retired) (from 1992 to Age 86 1996) and Vice President (from 1980 to 1992) of the American Stock Exchange, Inc.; President and CEO (retired) (from 1982 to 1996) of AMEX Commodities Corporation. John B. Carroll Director Retired Vice President of Investment Management 520 Main Street (from 1984-2000) of GTE Corporation; Advisory Ridgefield, CT 06877 Board member of Ibbotson Assoc. (since 1998); Age 65 former Trustee and Member of the Executive Committee (since 1991) of The Common Fund, a non-profit organization; Member of the Investment Committee (since 1988) of the TWA Pilots Annuity Trust Fund; former 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. Timothy A. Hultquist Director Advisory Director (since 1995) and Managing Advisory Director Director (from 1985 to 1995) of Morgan Stanley & Morgan Stanley & Co., Incorporated Co. Incorporated; Chairman (since 1994) and 1221 Avenue of the Americas Trustee (since 1885) of the Board of Trustees of 30th Floor Macalester College; Treasurer and Trustee (since New York, NY 10020 1995) of Russell Sage Foundation; Member (since Age 50 1994) of Wilmer Eye Institute Advisory Counsel at Johns Hopkins University Hospital; President (since 1992) of the Hultquist Foundation; Chairman, Council of Board Chairmen of Independent Colleges.
________________________________________________________________________________ Investment Limitations Page 21
Position with Name and Address the Company Principal Occupations During Past Five Years - ---------------- ----------- -------------------------------------------- Lloyd N. Morrisett Director President (retired) of The John and Mary R. Markle Children's Television Workshop Foundation (from 1969 to 1998); Chairman (since One Lincoln Plaza, 4/th/ Floor 1970) of the Children's Television Workshop; New York, NY 10023 Chairman (since 1998) and Director (since 1994) of Age 71 Infonautics Corporation; Trustee (from 1973 to 1983, from 1985 to 1995, and since 1996) of RAND; Director (since 1976) of Haskins Laboratories, Inc.; Director (1990-January, 1997) of the Multimedia Corporation; Director (since 1992) of Classroom, Inc.; Director (since 1995) of Smith College Center for the Study of Social and Political Change; Director (since 1998) of Public Agenda Foundation; Member of Board of Overseers (from 1995 to 1998) of Dartmouth School of Medicine; Member (since 1968) of the Council on Foreign Relations; and Member (since 1970) of the American Association for the Advancement of Science. W. Allen Reed Director President, CEO and Director (since 1994) of President General Motors Investment Management Corporation; General Motors Investment Vice President and Treasurer (from 1991 to 1994) Management Corp. of Hughes Electronics; President (from 1984 to 767 Fifth Avenue 1991) of Hughes Investment Management Company; New York, NY 10153 Director (from 1995 to 1998) of Taubman Centers, Age 53 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 (from 1994 to 1998) 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. Stephen M. Wynne Treasurer Chairman of PFPC Trustee & Custodial Services Ltd. Executive Vice President (since 1995); Executive Vice President and Chief PFPC Inc. Accounting Officer (since 1993) and Senior Vice 400 Bellevue Parkway President and Chief Accounting Officer (from 1991 Wilmington, DE 19809 to 1993) of PFPC Inc.; Executive Vice President Age 45 (from 1993 to 1995) of PFPC International.
________________________________________________________________________________ Page 22 i Shares
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 54
Directors' Compensation. The table below sets forth the compensation paid to Directors of the Company for the fiscal year ended August 31, 2000.
Pension or Total Compensation Aggregate Retirement Benefits Estimated from Registrant and Compensation Accrued as Part of Annual Benefits Company Complex Name of Person and Position from Registrant Company Expenses Upon Retirement Paid to Directors - ------------------------------- --------------- ---------------- --------------- ----------------- Nathan Most, Director, President $82,500 None None $82,500 and Chairman of the Board John B. Carroll, Director $55,000 None None $55,000 Timothy A. Hultquist, Director $55,000 None None $55,000 Lloyd N. Morrisett, Director $55,000 None None $55,000 W. Allen Reed, Director $55,000 None None $55,000
No officer is entitled to any compensation, and no officer or Director is entitled to any pension or retirement benefits, from the Company. ________________________________________________________________________________ Investment Limitations page 23 Control Persons and Principal Holders of Securities The Company expects that, immediately prior to the commencement of trading of the shares of the iShares MSCI Pacific ex-Japan Index Fund, that Index Fund will have one stocker, ____, who will hold more than 5% of its outstanding shares. The Company cannot predict the length of time that such person will remain a control person of that Index Fund Investment Advisory, Management, Administrative and Distribution Services Investment Adviser. Barclays Global Fund Advisors (the "Adviser") acts as investment adviser to the Company and, subject to the supervision of the Board, is responsible for the investment management of each Index Fund. 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., manage, administer or advise assets aggregating in excess of $____ billion as of ______, 2001. The Adviser serves as investment adviser to each Index Fund pursuant to an Advisory Agreement (the "Advisory Agreement") between the Company and the Adviser that was amended effective May 8, 2000. Under the Advisory Agreement, the Adviser, subject to the supervision of the Company's Board and in conformity with the stated investment policies of theiShares MSCI Pacific ex-Japan Index Fund, manages the investment of the Index Fund's assets. The Adviser may enter into subadvisory agreements with additional investment advisers to act as subadvisers with respect to the particular Index Fund. The Adviser will pay subadvisers, if any, out of the fees received by the Adviser. The Adviser is responsible for (i) placing purchase and sale orders, (ii) providing continuous supervision of the investment portfolio of the iShares MSCI Pacific ex-Japan Index Fund, (iii) the general management of the Company's affairs, and (iv) paying all expenses for Company operations and activities. For its investment management services to the Index Fund, , the Adviser is paid a fee equal to each of those Index Fund's allocable portion of: ___% per annum of the aggregate net assets of those Index Funds less than or equal to $____, plus ___% per annum of the aggregate net assets of those Index Funds between $_____ and $_____, plus ___% per annum of the aggregate net assets of those Index Funds in excess of $____; provided, however, that the fee paid to the Adviser with respect to the Index Fund shall be reduced by the aggregate of such Index Fund's fees and expenses, other than (i) expenses of the Index Fund incurred in connection with the execution of portfolio securities transactions on behalf of such Index Fund, (ii) expenses incurred in connection with any distribution plan adopted by the Company in compliance with Rule 12b-1 under the Investment Company Act of 1940, (iii) litigation expenses, (iv) taxes (including, but not limited to, income, excise, transfer and withholding taxes), (v) any cost or expense that a majority of the Directors of the Company who are not "interested persons" (as defined in the Investment Company Act of 1940) deems to be an extraordinary expense and (vi) the advisory fee payable to the Adviser under the Advisory Agreement; and provided, further, that the Adviser shall reimburse the Company to the extent that the expenses of the Index Fund (other than the expenses set forth in the foregoing proviso) exceed the amount set forth above with respect to such Index Fund. The management fees are accrued daily and paid by the Company as soon as practical after the last day of each calendar quarter. The Adviser may from time to time reimburse expenses to the Index Fund. The Company's management fees, like those paid by most index funds, are lower than those paid by many actively ________________________________________________________________________________ page 24 i Shares 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 Advisory Agreement, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by the Company, unless caused by the Adviser's willful malfeasance, bad faith or gross negligence in the performance of its duties or reckless disregard of its duties and obligations under the Advisory Agreement. The Advisory Agreement, with respect to all Index Funds, is subject to annual approval by (1) the Company's Board or (2) vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Company, provided that in either event the continuance also is approved by a majority of the Company's Board who are not interested persons (as defined in the 1940 Act) of the Company by vote cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement is terminable without penalty, on 60 days' notice, by the Company's Board or by vote of the holders of a majority (as defined in the 1940 Act) of the Company's outstanding voting securities. The Advisory 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). Code of Ethics. Each of the Company, the Advisor and the Company's Distributor, SEI Investments Distribution Co. (the "Distributor"), have adopted a Code of Ethics designed to prevent affiliated persons of the Company, the Advisor and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Index Funds. Administrator. PFPC Inc. (the "Administrator"), an indirect wholly owned subsidiary of PNC Bank Corp., acts as administration and accounting agent of the Company pursuant to an Administration and Accounting Services Agreement with the Company and is responsible for certain clerical, recordkeeping and bookkeeping services, except those to be performed by the Adviser, by Chase 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 Company or which securities are to be purchased or sold by the Company. 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 Company, PFPC is paid aggregate fees equal to each Index Fund's allocable portion of: .15% per annum of the average aggregate daily net assets of the Company up to $3 billion; plus .10% per annum of the average aggregate daily net assets of the Company between $3 billion and $4.5 billion, plus .095% per annum of the average aggregate daily net assets of the Company in excess of $4.5 billion. The Administrator pays Morgan Stanley & Co. Incorporated a fee of .05% of the average daily net assets of the Company for sub-administration services as described under "The Sub-Administrator" below. The Administrator paid Morgan Stanley & Co. Incorporated a fee of .05% of the average daily net assets of the Company for sub-administration services as described under "The Sub-Administrator" below. 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 Company 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. Sub-Administrator. Morgan Stanley & Co. Incorporated provides certain sub- administrative services relating to the Company pursuant to a Sub-Administration Agreement and receives a fee from the Administrator equal to .___% of the Company's average daily net assets for providing such services. Morgan Stanley & Co. Incorporated, as Sub-Administrator, has no role in determining the ________________________________________________________________________________ Investment Limitations page 25 investment policies of the Company or which securities are to be purchased or sold by the Company. The principal business address of Morgan Stanley & Co. Incorporated is 1585 Broadway, New York, New York, 10036. Distributor. Effective March 28, 2000, SEI Investments Distribution Co. became the principal underwriter and distributor of iShares. The Distributor's principal offices are located at One Freedom Valley Drive, Oaks, PA 19456. Investor information can be obtained by calling 1-800-iShares (1-800-474-2737). The Distributor has entered into an agreement with the Company which will continue for one year from its effective date, and which is renewable annually thereafter (the "Distribution Agreement"), pursuant to which it distributes Company shares. iShares will be continuously offered for sale by the Company through the Distributor only in Creation Units, as described below under "Purchase and Issuance of iShares in Creation Units." iShares in less than Creation Units are not distributed by the Distributor. The Distributor also acts as agent for the Company. The Distributor will deliver a prospectus to persons purchasing iShares 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. SEI Investments Distribution Co. as Distributor, has no role in determining the investment policies of the Company or which securities are to be purchased or sold by the Company. To compensate the Distributor for the distribution-related services it provides, and broker-dealers authorized by the Distributor for distribution services they provide, the Company has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Company's Plan, for the Index Fund the Distributor is entitled to receive a distribution fee, accrued daily and paid monthly, calculated with respect to the Index Fund at a rate set from time to time by the Board of Directors, provided that the annual rate may not exceed .___% of the average daily net assets of such Index Fund. 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 Company for distribution services provided by it with respect to the Index Fund. 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 Company 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 Index 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 the Index Fund, by a vote of a majority of the outstanding voting securities of such Index Fund (as such vote is defined in the 1940 Act). If a Plan is terminated (or not renewed) with respect to the Index Fund, it may continue in effect with respect to the Index 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 distribution fees payable under the 12b-1 Plan are used to pay distribution related expenses, including: compensation to the distributor at a rate fixed by the Company's Board of Directors from ________________________________________________________________________________ page 26 i Shares time to time (currently .___% of the Company's average daily net assets, subject to an annual minimum of $_____); compensation to a sales and marketing consultant retained by the Company at a rate of .___% of the Company's average daily net assets; and reimbursements of expenses incurred by the distributor and other persons (principally the Adviser) in connection with the distribution of the Company's shares. In addition, the Distributor also has entered 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 Index Fund, at the annual rate of up to .___ of __% of the average daily net asset value of iShares held through DTC for the account of such DTC Participant. The amounts of the fees paid to the distributor and the sales and marketing consultant are not dependent on the amount of distribution expenses actually incurred by such persons. 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 Company (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 Index Fund, on at least 60 days' written notice to the Distributor. The Distribution Agreement is also terminable upon 60 days' notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act). The Distributor pays 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 payments made under the Plan by each Index Fund based on its average daily net assets for the period. Custodian and Lending Agent. Chase serves as the Custodian for the cash and portfolio securities of each Index Fund pursuant to a Custodian Agreement between Chase and the Company and as Lending Agent for the Index Fund. As Lending Agent, Chase causes the delivery of loaned securities from the Company to borrowers, arranges for the return of loaned securities to the Company 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. Chase may from time to time reimburse expenses to one or more Index Funds. Chase, as Custodian and Lending Agent, has no role in determining the investment policies of the Company or which securities are to be purchased or sold by the Company. The principal business address of Chase is One Pierrepont Plaza, Brooklyn, New York 11201. For its custody services to the Index Fund, Chase is paid per annum fees based on the aggregate net assets of the Index Fund.As remuneration for its services in connection with lending portfolio securities of the Index Funds, Chase is paid by the Company, in respect of each Index Fund, 40% of the net investment income earned on the collateral for securities loaned. Transfer Agent. PFPC Inc. (the "Transfer Agent"), an indirect wholly owned subsidiary of PNC Bank Corp., provides transfer agency services pursuant to an agreement with the Company. The Transfer Agent has no role in determining the investment policies of the Company or which securities are to be purchased or sold by the Company. The principal business address of the Transfer Agent is Broad and Chestnut Streets, Philadelphia, Pennsylvania 19110. ________________________________________________________________________________ Investment Limitations page 27 Brokerage Allocation 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 Company will not deal with affiliates in principal transactions unless permitted by exemptive order or applicable rule or regulation. Since the investment objective of each Index Fund 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 an Index Fund, to reduce expenses of the Index Fund. The Adviser assumes general supervision over placing orders on behalf of the Company for the purchase or sale of portfolio securities. If purchases or sales of portfolio securities of the Company 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 Company 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 Company. The primary consideration is prompt execution of orders at the most favorable net price. Portfolio turnover may vary from year to year, as well as within a year. High turnover rates are likely to result in comparatively greater brokerage expenses. The portfolio turnover rate for each Index Fund 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. For the fiscal year ended August 31, 2000, the Company paid $1,776,128 in aggregate brokerage commissions. During that fiscal year, certain portfolio transactions were executed through Morgan Stanley & Co. Incorporated ("MS&Co."), an affiliated broker of the Company due to the Company Secretary's position as a Managing Director of MS&Co. During the fiscal years ended August 31, 2000, 1999 and 1998, the Company paid brokerage commissions to MS&Co. in amounts of $229,929, $40,364 and $2,406, respectively (or 12.9%, 5.7% and 0.6%, respectively, of the aggregate brokerage commissions paid in those years). ________________________________________________________________________________ page 28 i Shares Additional Information Concerning iShares Capital Stock. The Company currently is comprised of twenty-nine series of shares of common stock, par value $.001 per share, referred to herein as iShares: the iShares MSCI Australia Index Fund, the iShares MSCI Austria Index Fund, the iShares MSCI Belgium Index Fund, the iShares MSCI Brazil (Free) Index Fund, the iShares MSCI Canada Index Fund, the iShares MSCI EMU Index Fund, the iShares MSCI France Index Fund, the iShares MSCI Germany Index Fund, the iShares MSCI Greece Index Fund, the iShares MSCI Hong Kong Index Fund, the iShares MSCI Indonesia (Free) Index Fund,the iShares MSCI Italy Index Fund, the iShares MSCI Japan Index Fund, the iShares MSCI Malaysia (Free) Index Fund, the iShares MSCI Mexico (Free) Index Fund, the iShares MSCI Netherlands Index Fund, the iShares MSCI Portugal Index Fund, the iShares MSCI Singapore (Free) Index Fund, the iShares MSCI South Africa Index Fund, the iShares MSCI South Korea Index Fund, the iShares MSCI Spain Index Fund, the iShares MSCI Sweden Index Fund, the iShares MSCI Switzerland Index Fund, the iShares MSCI Taiwan Index Fund, the iShares MSCI Thailand (Free) Index Fund, the iShares MSCI Turkey Index Fund, the iShares MSCI United Kingdom Index Fund, the iShares MSCI USA Index Fund, and the iShares MSCIPacific ex-Japan. Each Index Fund 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. The Articles of Incorporation provide that the shares of each series of common stock of the Company are redeemable, at net asset value, at the option of the Company, in whole or any part, on such terms as the Board of Directors may by resolution approve, without the consent of the holders thereof. Each iShares issued by the Company has a pro rata interest in the assets of the corresponding Index Fund. The Company is currently authorized to issue 10.9 billion shares of common stock. The following number of shares is currently authorized for each Index Fund: the iShares MSCI Australia Index Fund, 127.8 million shares; the iShares MSCI Austria Index Fund, 19.8 million shares; the iShares MSCI Belgium Index Fund, 136.2 million shares; the iShares MSCI Brazil (Free) Index Fund, 500 million shares; the iShares MSCI Canada Index Fund, 340.2 million shares; the iShares MSCI EMU Index Fund, 500 million shares; the iShares MSCI France Index Fund, 340.2 million shares; the iShares MSCI Germany Index Fund, 382.2 million shares; the iShares MSCI Greece Index Fund, 200 million shares; the iShares MSCI Hong Kong Index Fund, 191.4 million shares; the iShares MSCI Indonesia (Free) Index Fund, 200 million shares, the iShares MSCI Italy Index Fund, 63.6 million shares; the iShares MSCI Japan Index Fund, 2,124.6 million shares; the iShares MSCI Malaysia (Free) Index Fund, 127.8 million shares; the iShares MSCI Mexico (Free) Index Fund, 255 million shares; the iShares MSCI Netherlands Index Fund, 255 million shares, the iShares MSCI Portugal Index Fund, 200 million shares; the iShares MSCI Singapore (Free) Index Fund, 191.4 million shares; the iShares MSCI South Africa Index Fund, 200 million shares; the iShares MSCI South Korea Index Fund, 200 million shares; the iShares MSCI Spain Index Fund, 127.8 million shares; the iShares MSCI Sweden Index Fund, 63.6 million shares; the iShares MSCI Switzerland Index Fund, 318.625 million shares; the iShares MSCI Taiwan Index Fund, 200 million shares; the iShares MSCI Thailand (Free) Index Fund, 200 million shares; the iShares MSCI Turkey Index Fund, 200 million shares; the iShares MSCI United Kingdom Index Fund, 943.2 million shares; the iShares MSCI USA Index Fund, 500 million shares; the iShares MSCI Pacific ex-Japan ___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 Index Fund, and in the net distributable assets of such Index Fund on liquidation. Shareholders are entitled to require ________________________________________________________________________________ Additional Information Concerning iShares page 29 the Company to redeem Creation Units of their shares. The Articles of Incorporation confers upon the Board of Directors the power, by resolution, to alter the number of shares constituting a Creation Unit or to specify that shares of common stock of the Company may be individually redeemable. Each iShare 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 Index Fund it will be voted on only by that Index Fund and if a matter affects a particular Index Fund differently from other Index Funds, that Index Fund will vote separately on such matter. Under Maryland law, the Company is not required to hold an annual meeting of stockholders unless required to do so under the 1940 Act. The policy of the Company is not to hold an annual meeting of stockholders unless required to do so under the 1940 Act. All shares of the Company (regardless of Index Fund) have noncumulative voting rights for the election of Directors. Under Maryland law, Directors of the Company may be removed by vote of the stockholders. The Company 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 Company'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 Company's distributions. Stockholder inquiries may be made by writing to the Company, c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809. Book Entry Only System. DTC acts as securities depositary for iShares. iShares of each Index Fund 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 iShares. DTC has advised the Company 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 iShares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in iShares (owners of such beneficial interests are referred to herein as "Beneficial Owners") is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive ________________________________________________________________________________ page 30 i Shares from or through the DTC Participant a written confirmation relating to their purchase of iShares. 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 iShares. Beneficial Owners of iShares are not entitled to have iShares 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 iShares. The Company understands that under existing industry practice, in the event the Company requests any action of holders of iShares, or a Beneficial Owner desires to take any action that DTC, as the record owner of all outstanding iShares, 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 Company recognizes DTC or its nominee as the owner of all iShares 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 Company and DTC, DTC is required to make available to the Company upon request and for a fee to be charged to the Company a listing of the iShares holdings of each DTC Participant. The Company shall inquire of each such DTC Participant as to the number of Beneficial Owners holding iShares, directly or indirectly, through such DTC Participant. The Company 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 Company 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. iShares distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all iShares. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants' accounts with payments in amounts proportionate to their respective beneficial interests in iShares as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of iShares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a "street name," and will be the responsibility of such DTC Participants. The Company 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 iShares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants. DTC may determine to discontinue providing its service with respect to iShares at any time by giving reasonable notice to the Company and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Company 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 iShares, unless the Company makes other arrangements with respect thereto satisfactory to the AMEX (or such other exchange on which iShares may be listed). ________________________________________________________________________________ Additional Information Concerning iShares page 31 Purchase and Redemption of iShares Creation Units. The Company issues and redeems iShares of each Index Fund only in aggregations of iShares specified for each Index Fund. The following table sets forth the number of iShares of the iShares MSCI Pacific ex-Japan Index Fund that constitute a Creation Unit for such Index Fund and the estimated value of such Creation Unit at ____, 2001: iShares Per Value Per Index Fund Creation Unit Creation Unit ($U.S.) - ---------- ------------- --------------------- Pacific ex-Japan ________________ * Estimated. See "Purchase and Issuance of iShares in Creation Units" and "Redemption of iShares in Creation Units" below. The Board of Directors of the Company reserves the right to declare a split or a consolidation in the number of iShares outstanding of any Index Fund of the Company, and to make a corresponding change in the number of iShares constituting a Creation Unit, in the event that the per iShares price in the secondary market rises (or declines) to an amount that falls outside the range deemed desirable by the Board. Purchase and Issuance of iShares in Creation Units. General. The Company issues and sells iShares 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 Index Fund is any day on which (i) the New York Stock Exchange ("NYSE") and (ii) the stock exchange(s) and Company subcustodian(s) relevant to such Index Fund are open for business. As of the date of this SAI, the NYSE observes the following holidays: New Year's Day, Dr. Martin Luther King, Jr. 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 Index Fund are set forth in Appendix B to this SAI. Portfolio Deposit. The consideration for purchase of a Creation Unit of iShares of an Index Fund generally consists of the in-kind deposit of a designated portfolio of equity securities (the "Deposit Securities") constituting an optimized representation of the Index Fund's 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 Index Fund of the Company. 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 Company 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 Company 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 Index Fund and (y) the sum of (i) the Dividend Equivalent Payment and (ii) the ________________________________________________________________________________ page 32 i Shares market value (per Creation Unit) of the securities deposited with the Company (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., Eastern 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 Index Fund. Such Portfolio Deposit is applicable, subject to any adjustments as described below, in order to effect purchases of Creation Units of iShares of a given Index Fund 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 Index Fund 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 Index Fund. 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 Company 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 Index Fund, 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 iShares of each Index Fund, 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 day. Although the Adviser makes available on each Business Day the list of names and the required number of shares of each Deposit Security to be included in the current Portfolio Deposit for each Index Fund, the Company reserves the right to permit the substitution of securities that differ from certain of such Deposit Securities in such numbers of shares as the Adviser determines appropriate, together with a corresponding adjustment to the required cash Balancing Amount necessary to compensate for any differences between the net asset value per Creation Unit and the Deposit Amount. Role of The Authorized Participant. Creation Units of iShares may be purchased only by or through a DTC Participant that has entered into an Authorized Participant Agreement with the Company 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 iShares 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 iShares may have to be placed by the investor's broker through an Authorized Participant. As a ________________________________________________________________________________ Purchase and Redemption of iShares page 33 result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The Company 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 current Authorized Participants may be obtained from the Distributor. Purchase Order. To initiate an order for a Creation Unit of iShares, the Authorized Participant must give notice to the Distributor of its intent to submit an order to purchase iShares after 9:00 a.m. but not later than 4:00 p.m., Eastern 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 Index Fund, the Custodian shall cause the subcustodian of the Index Fund 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 Company. 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 Company, must be received by the Distributor from an Authorized Participant on its own or another investor's behalf by the closing time of the regular trading session on the AMEX (currently 4:00 p.m., Eastern time) on the relevant Business Day. (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. Timing of Submission of Creation Unit Purchase Orders and Redemption Requests. Although an Authorized Participant ordinarily must submit to the Distributor a purchase order or a redemption request in respect of Creation Units of any Index Fund on a day that the AMEX is open for business, between the hours of 9:00 a.m. and 4:00 p.m. Eastern time, the Distributor in its discretion may permit the submission of such orders and requests by or through an Authorized Participant at any time (including on days on which the AMEX is not open for business) via communication through the facilities of the Distributor's proprietary website maintained for this purpose. However, the ability of an Authorized Participant to submit a purchase order or redemption request at any time via this website does not assure the Authorized Participant that such order or request will be processed at the net asset value determined on the date of such submission. The purchase order or redemption request, once accepted by the Company, will be processed based on the net asset value determined after such acceptance, either on the date of submission or on the next day that net asset value is determined, as the case may be, in accordance with the Company's standard cut-off times as provided in the Authorized Participant Agreement and disclosed in this Statement of Additional Information. The Authorized Participant must also make available on or before the contractual settlement date, by means satisfactory to the Company, immediately available or same day funds estimated by the Company 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 iShares. 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 iShares placed with it to be in the form required by the individual Authorized Participant, which ________________________________________________________________________________ page 34 i Shares form will not be the same as the form of purchase order specified by the Company, 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 Company are in place for payment of the Cash Component and any other cash amounts which may be due, the Company 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 Company has accepted an order, upon next determination of the net asset value of the shares, the Company will confirm the issuance, against receipt of payment, of a Creation Unit of iShares of the Index Fund at such net asset value. The Distributor will then transmit a confirmation of acceptance to the Authorized Participant that placed the order. The Company reserves the absolute right to reject a purchase order transmitted to it by the Distributor in respect of any Index Fund 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 Index Fund; (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 Index Fund; (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 Company or the Adviser, have an adverse effect on the Company or the rights of beneficial owners; or (f) in the event that circumstances outside the control of the Company, the Distributor and the Adviser make it for all practical purposes impossible to process purchase orders. The Company shall notify a prospective purchaser of its rejection of the order of such person. The Company 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. Except as provided herein, a Creation Unit of iShares of an Index Fund will not be issued until the transfer of good title to the Company 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 Company will issue and cause the delivery of the Creation Unit of iShares. To the extent contemplated by an Authorized Participant's agreement with the Company, the Company will issue Creation Units of iShares to such Authorized Participant notwithstanding the fact that the corresponding Portfolio Deposits have not been received in part or in whole, in reliance on the undertaking of the Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participant's delivery and maintenance of collateral consisting of cash or Short-Term Investments having a value at least equal to such amount as required by the Company in accordance with its then-effective procedures, provided that such amount shall be no less than 125% of the value of the missing Deposit Securities. Information concerning the Company's current procedures for collateralization of missing Deposit Securities is available from the Distributor. The Authorized Participant Agreement will permit the Company 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 Company of purchasing such securities and the value of the collateral. ________________________________________________________________________________ Purchase and Redemption of iShares page 35 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 Company, and the Company's determination shall be final and binding. Cash Purchase Method. Although the Company does not ordinarily permit cash purchases of Creation Units, when cash purchases of Creation Units of iShares are available or specified for an Index Fund (Creation Units of the Brazil (Free), Malaysia (Free), South Korea and Taiwan Index Funds are currently offered only for cash), 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 Company'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 iShares are described below. Purchase Transaction Fee. A purchase transaction fee payable to the Company is imposed to compensate the Company for the transfer and other transaction costs of an Index Fund associated with the issuance of Creation Units of iShares. Purchasers of Creation Units of iShares for cash are required to pay an additional variable charge to compensate the relevant Index Fund for brokerage and market impact expenses relating to investing in portfolio securities. Where the Company permits an in-kind purchaser to substitute cash in lieu of depositing a portion of the Deposit Securities, the purchaser will be assessed the additional variable charge for cash purchases on the "cash in lieu" portion of its investment. Purchasers of iShares in Creation Units are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Company. The purchase transaction fees for in-kind purchases and cash purchases (when available) are listed in the table below. This 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 Company. Maximum Additional Variable Charge for Index Fund In-kind and Cash Purchases Cash Purchases* - ---------- -------------------------- --------------- Pacific ex-Japan $__ **___% _____________ * As a percentage of the value of amount invested. ** This percentage, when aggregated with the basic in-kind transaction fee, will not exceed ___%. See "Investment Advisory, Management, Administrative and Distribution Services" herein, for additional information concerning the distribution arrangements for iShares. Redemption of iShares in Creation Units. iShares 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 Company will not redeem iShares in amounts less than Creation Units. Beneficial Owners also may sell iShares in the secondary market, but must accumulate enough iShares to constitute a Creation Unit in order to have such shares redeemed by the Company. 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 iShares. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of iShares to constitute a redeemable Creation Unit. With respect to each Index Fund the Adviser makes available through the Distributor immediately prior to the opening of business on the AMEX (currently 9:30 a.m., Eastern time) on each day that the AMEX is open for business the Portfolio Securities that will be applicable (subject to possible ________________________________________________________________________________ page 36 i Shares amendment or correction) to redemption requests received in proper form (as defined below) on that day. Unless cash redemptions are available or specified for an Index Fund, 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 iShares. A redemption transaction fee payable to the Company is imposed to offset transfer and other transaction costs that may be incurred by the relevant Index Fund, including market impact expenses relating to disposing of portfolio securities. 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 in the table below. Investors will also bear the costs of transferring the Portfolio Deposit from the Company 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. In-kind and Additional Variable Charge Index Fund Cash Redemptions for Cash Redemptions* - ------------ ---------------- --------------------- Pacific ex-Japan $____ **___% ______________ * As a percentage of the value of amount invested. ** This percentage, when aggregated with the basic in-kind transaction fee, will not exceed 2.00%. Redemption requests in respect of Creation Units of any Index Fund must be submitted to the Distributor by or through an Authorized Participant on a day that the AMEX is open for business, between the hours of 9:00 a.m. and 4:00 p.m., Eastern time. 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 Company, 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 iShares to the Company'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. A redemption request is considered to be in "proper form" if (i) an Authorized Participant has transferred or caused to be transferred to the Company's Transfer Agent the Creation Unit of iShares 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 after 9:00 a.m. and not later than 2:00 p.m. on the next following day (on which the AMEX is open for business). If the Transfer Agent does not receive the investor's iShares through DTC's facilities by 2:00 p.m. on the AMEX business day following the day that the redemption request is received, the ________________________________________________________________________________ Purchase and Redemption of iShares page 37 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 iShares. Upon receiving a redemption request, the Distributor shall notify the Company and the Company's Transfer Agent of such redemption request. The tender of an investor's iShares 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 iShares, 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 iShares, 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 Index Funds 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 an Index Fund, 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 Index Fund, the Company 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 Company 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 iShares of the relevant Index Fund 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 Company's brokerage and other transaction costs associated with the disposition of Portfolio Securities of the Index Fund). Redemptions of iShares for Deposit Securities will be subject to compliance with applicable United States federal and state securities laws and each Index Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Index Fund 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 Company does not ordinarily permit cash redemptions of Creation Units (except that, as noted above, Creation Units of the Brazil (Free), Malaysia (Free), South Korea and Taiwan Index Funds may be redeemed only for cash, and resident Australian and New Zealand holders may redeem solely for cash), in the event that cash redemptions are permitted or required by the Company, 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 ________________________________________________________________________________ page 38 i Shares thereafter, except for the instances listed in Appendix B hereto where more than seven calendar days would be needed). To the extent contemplated by an Authorized Participant's agreement with the Company, in the event the Authorized Participant that has submitted a redemption request in proper form is unable to transfer all or part of the Creation Units of iShares to be redeemed to the Distributor, on behalf of the Company, at or prior to 2:00 p.m. on the AMEX business day after the date of submission of such redemption request, the Distributor will nonetheless accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing iShares as soon as possible, which undertaking shall be secured by the Authorized Participant's delivery and maintenance of collateral consisting of cash having a value at least equal to 125% of the value of the missing iShares. The collateral is marked to market daily in accordance with the Company's procedures. The Company's current procedures for collateralization of missing iShares require, among other things, that any cash collateral shall be in the form of U.S. dollars in immediately available funds and shall be held by the Company's custodian and marked to market daily, and that the fees of the custodian and any subcustodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Authorized Participant. The Authorized Participant Agreement permits the Company to purchase the missing iShares or acquire the Portfolio Securities and the Cash Component underlying such iShares at any time and subjects the Authorized Participant to liability for any shortfall between the cost to the Company of purchasing such iShares, Portfolio Securities or Cash Component and the value of the collateral. Because the Portfolio Securities of an Index Fund may trade on the relevant exchange(s) on days that the AMEX is closed or are otherwise not Business Days for such Index Fund, stockholders may not be able to redeem their shares of such Index Fund, or to purchase or sell iShares on the AMEX, on days when the net asset value of such Index Fund 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 Index Fund (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 Index Fund's 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. Determining Net Asset Value. Net asset value per share for each Index Fund is computed by dividing the value of the net assets of such Index Fund (i.e., the value of its total assets less total liabilities) by the total number of iShares 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 the iShares MSCI Pacific ex-Japan Index Fund is determined as of 8:30 a.m. (Eastern time) on each day that the NYSE is open. The net asset value of the iShares MSCI Brazil Index Fund is determined as of 5:00 p.m. (Eastern time) on each day that the New York Stock Exchange, Inc. is open. The Company may establish additional times for the computation of net asset value of one or more Index Funds in the future in connection with the possible future trading of iShares of such Index Funds on one or more foreign exchanges. In computing an Index Fund's net asset value, the Index Fund's 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. Currency values generally ________________________________________________________________________________ Purchase and Redemption of iShares page 39 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). However, the Company may use a different rate from the rate used by MSCI in the event the Adviser concludes that such rate is more appropriate. Any such use of a different rate than MSCI may adversely affect an Index Fund's ability to track its benchmark MSCI Index. Continuous Offering. The method by which Creation Units of iShares are created and traded may raise certain issues under applicable securities laws. Because new Creation Units of iShares are issued and sold by the Company 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 iShares, and sells some or all of the iShares comprising such Creation Units directly to its customers; or if it chooses to couple the creation of a supply of new iShares with an active selling effort involving solicitation of secondary market demand for iShares. A determination of whether a person is an underwriter for the purposes of the Securities Act depends upon all the facts and circumstances pertaining to that person's activities. Thus, the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter. Broker-dealer firms should also note that dealers who are effecting transactions in iShares, whether or not participating in the distribution of iShares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. The Company has, however, applied to the Securities and Exchange Commission for an exemption from this prospectus delivery obligation in ordinary iShares secondary market transactions under certain circumstances, on the condition that iShares purchasers are provided with a iShares product description. If the SEC granted the Company this relief, broker-dealer firms should note that dealers who are not "underwriters" but are participating in a distribution (as contrasted to ordinary secondary market transaction), and thus dealing with iShares that are part of an "unsold allotment" within the meaning of section 4(3)(C) of the Securities Act, would be unable to take advantage of the prospectus delivery exemption provided by section 4(3) of the Securities Act. Firms that incur a prospectus-delivery obligation with respect to iShares are reminded that under Securities Act Rule 153 a prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed to a national exchange member in connection with a sale on the national exchange is satisfied by the fact that the Index Fund's prospectus is available at the national exchange (i.e., the AMEX) upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on a national exchange and not with respect to "upstairs" transactions. Foreign brokers are advised that it has been the SEC's policy for many years that sales of open-end investment companies that register with the SEC (such as the Fund) be sold in accordance with the requirements of U.S. law, except that in the case of a conflict with specifically applicable foreign law, the foreign law generally would be considered controlling. ________________________________________________________________________________ page 40 i Shares Taxes The Company on behalf of each Index Fund has the right to reject an order for a purchase of iShares if the purchaser (or group of purchasers) would, upon obtaining the iShares so ordered, own 80% or more of the outstanding iShares of a given Index Fund and if, pursuant to section 351 of the Internal Revenue Code, the respective Index Fund would have a basis in the securities different from the market value of such securities on the date of deposit. The Company also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination. See "Purchase and Issuance of iShares in Creation Units." Each Index Fund 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 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)(3)(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 Index Fund may be subject to foreign income taxes withheld at source. Each Index Fund will elect to "pass through" to its investors the amount of foreign income taxes paid by the Index Fund provided that the investor held the Index Fund, and the Index Fund held the security, on the dividend settlement date and for at least fourteen additional days immediately before and/or thereafter, with the result that each investor will (i) include in gross income, even though not actually received, the investor's pro rata share of the Index Fund's foreign income taxes, and (ii) either deduct (in calculating U.S. taxable income) or credit (in calculating U.S. federal income tax) the investor's pro rata share of the Index Fund's foreign income taxes. A foreign tax credit may not exceed the investor's U.S. federal income tax otherwise payable with respect to the investor's foreign source income. For this purpose, each shareholder must treat as foreign source gross income (i) his proportionate share of foreign taxes paid by the Index Fund and (ii) the portion of any dividend paid by the Index Fund which represents income derived from foreign sources; the Index Fund's gain from the sale of securities will generally be treated as U.S. source income. This foreign tax credit limitation is applied separately to separate categories of income; dividends from the Index Fund will be treated as "passive" or "financial services" income for this purpose. The effect of this limitation may be to prevent investors from claiming as a credit the full amount of their pro rata share of the Index Fund's foreign income taxes. Taxes other than foreign income taxes are not passed through to you in this way. If any Index Fund owns shares in certain foreign investment entities, referred to as "passive foreign investment companies," the Index Fund will be subject to one of the following special tax regimes: (i) the Index Fund is liable for U.S. federal income tax, and an additional charge in the nature of interest, on a portion of any "excess distribution" from such foreign entity or any gain from the ________________________________________________________________________________ Taxes page 41 disposition of such shares, even if the entire distribution or gain is paid out by the Index Fund as a dividend to its shareholders; (ii) if the Index Fund were able and elected to treat a passive foreign investment company as a "qualified electing fund," the Index Fund would be required each year to include in income, and distribute to shareholders in accordance with the distribution requirements set forth above, the Index Fund's pro rata share of the ordinary earnings and net capital gains of the passive foreign investment company, whether or not such earnings or gains are distributed to the Index Fund or (iii) the Index Fund 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. An Index Fund 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 Index Fund 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 an Index Fund that is a foreign corporation or an individual who is a nonresident alien for U.S. tax purposes will be subject to adverse U.S. tax consequences. For example, dividends paid out of an Index Fund's 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 an Index Fund. The foregoing discussion is a summary only and is not intended as a substitute for careful tax planning. Purchasers of shares of the Company 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. ________________________________________________________________________________ page 42 i Shares Performance Information The performance of the Index Funds 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 an Index Fund over periods of 1, 5 and 10 years (or the life of an Index Fund, if shorter). Such total return figures will reflect the deduction of a proportional share of such Index Fund's 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). Quotations of a cumulative total return will be calculated for any specified period by assuming a hypothetical investment in an Index Fund on the date of the commencement of the period and will assume that all dividends and distributions are reinvested on ex date. However, currently there is no dividend reinvestment option available to shareholders of iShares and such calculation is provided for informational purposes only. The net increase or decrease in the value of the investment over the period will be divided by its beginning value to arrive at cumulative total return. Total return calculated in this manner will differ from the calculation of average annual total return in that it is not expressed in terms of an average rate of return. The yield of an Index Fund 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). Quotations of cumulative total return, average annual total return or yield reflect only the performance of a hypothetical investment in an Index Fund during the particular time period on which the calculations are based. Such quotations for an Index Fund will vary based on changes in market conditions and the level of such Index Fund's 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 Company with performance quoted with respect to other investment companies or types of investments. Because some or all of the Company'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 ________________________________________________________________________________ Performance Information page 43 Company'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 Company. 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 Company 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 Company's performance may be compared to the performance of broad groups of open-end and closed-end investment companies with similar investment goals, as tracked by independent organizations such as Investment Company Data, Inc., Lipper Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc., Value Line Mutual Fund Survey and other independent organizations. When these organizations' tracking results are used, the Company 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 Company also may compare those figures to the performance of certain unmanaged indices which may assume the reinvestment of dividends or interest but generally do not reflect deductions for administrative and management costs. Examples of such indices include, but are not limited to the following: . Dow Jones Industrial Average . Consumer Price Index . Standard & Poor's 500 Composite Stock Price Index (S&P 500) . NASDAQ OTC Composite Index . NASDAQ Industrials Index . International Finance Corporation's (Global) Composite and (Investable) . Composite Indices . Morgan Stanley Capital International Indices . NASDAQ Composite Index . Wilshire 5000 Stock Index In addition, the Company from time to time may compare the results of each Index Fund to the following national benchmarks: Country National Index ------- -------------- Australia All Ordinaries Hong Kong Hang Seng New Zealand NZSE 40 Singapore SES All From time to time, the Company 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 Company, and is not a guarantee of future results. ________________________________________________________________________________ page 44 i Shares Evaluation of Company performance of the Index Funds or other relevant statistical information made by independent sources may also be used in advertisements and sales literature concerning the Company, including reprints of, or selections from, editorials or articles about the Company. Sources for Company performance information and articles about the Company 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 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, ________________________________________________________________________________ Performance Information page 45 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. ________________________________________________________________________________ page 46 i Shares Counsel and Independent Auditors Counsel. Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, are counsel to the Company and have passed upon the validity of the Company's shares. Independent Auditors. Ernst & Young LLP resigned on _____, 20001. PriceWaterhouseCoopers LLP, 333 Market Street, San Francisco, California, 94105, serve as the independent auditors of the Company. ________________________________________________________________________________ Counsel and Independent Auditors page 47 iSHARES, INC. PART C OTHER INFORMATION ITEM 23. EXHIBITS Exhibit Number Description - ------ ----------- (a.1) Registrant's Amended and Restated Articles of Incorporation.(1) (a.2) Registrant's Articles of Amendment.(4) (a.3) Registrant's Articles Supplementary.(8) (a.4) Registrant's Articles of Amendment.(9) (a.5) Form of Registrant's Articles Supplementary. (11) (b.1) Registrant's Amended By-Laws.(1) (b.2) Registrant's Amendment No. 1 to Amended By-Laws.(5) (c.) None. (d.1) Investment Management Agreement between Registrant and Barclays Global Fund Advisors.(9) (d.2) Form of amended Schedule A to Investment Management Agreement. (11) (e.1) Distribution Agreement between Registrant and SEI Investments Distribution Co.(10) (e.2) Form of Amended Exhibit A to Distribution Agreement. (11) (e.3) Form of Authorized Participant Agreement.(11) (e.4) Authorized Participant Agreement for Merrill Lynch.(3) (e.5) Form of Sales and Investor Services Agreement.(10) (f.) None. (g.1) Custody Agreement between Registrant and The Chase Manhattan Bank.(11) (g.2) Form of amended Appendix 2 to Custody Agreement.(11) (h.1) Amended Administration and Accounting Services Agreement between Registrant and PFPC Inc.(6) (h.2) Form of amended Exhibit A to Amended Administration and Accounting Services Agreement. (11) (h.3) Transfer Agency Services Agreement between Registrant and PNC Bank, National Association.(3) (h.4) Amendment to Transfer Agency Services Agreement.(5) (h.5) Form of amended Exhibit A to Transfer Agency Services Agreement. (11) (h.6) Sub-License Agreement between Registrant and Barclays Global Investors with respect to the use of the MSCI Indices. (10) (h.7) Sub-Administration Agreement between Registrant and Morgan Stanley Trust Company.(6) (h.8) Assignment Letter among Morgan Stanley Trust Company, Morgan Stanley & Co. Incorporated and PFPC Inc.(7) (h.9) Form of amended Exhibit A to Sub-Administration Agreement.(11) (h.10) Form of Securities Lending Agreement between Registrant and The Chase Manhattan Bank. (10) (h.11) Form of amended Schedule A to Securities Lending Agreement. (11) (i.1) None. (j.1) Consent of Ernst & Young, LLP. (k.) None. (l.1) Subscription Agreement between the Registrant and Funds Distributor, Inc.(2) (l.2) Letter of Representations among the Registrant, Depository Trust Company and Morgan Stanley Trust Company. (1) (l.3) Letter of Representations between the Registrant and Depository Trust Company. (10) (m.) Form of 12b-1 Plan. (1) (n.) None. (o.) Not applicable, as Registrant is an open-end fund. (p.1) Code of Ethics of the Registrant.(9) (p.2) Code of Ethics of Barclays Global Fund Advisors.(9) ____________________________ C-1 (1) Exhibit is incorporated herein by reference to Pre-Effective Amendment No. 2, filed March 1, 1996, to the Company's initial registration statement on Form N-1A filed on September 29, 1995 (the "Registration Statement"). (2) Exhibit is incorporated herein by reference to Pre-Effective Amendment No. 3 to the Registration Statement, filed on March 6, 1999. (3) Exhibit is incorporated herein by reference to Post-Effective Amendment ("PEA") No. 1 to the Registration Statement, filed on October 30, 1996. (4) Exhibit is incorporated herein by reference to PEA No. 2 to the Registration Statement, filed on December 27, 1996. (5) Exhibit is incorporated herein by reference to PEA No. 8 to the Registration Statement, filed on August 27, 1997. (6) Exhibit is incorporated herein by reference to PEA No. 10 to the Registration Statement, filed on October 29, 1997. (7) Exhibit is incorporated herein by reference to PEA No. 12 to the Registration Statement, filed on November 25, 1998. (8) Exhibit is incorporated herein by reference to PEA No. 16 to the Registration Statement, filed on December 22, 1999. (9) Exhibit is incorporated herein by reference to PEA No. 17 to the Registration Statement, filed on November 3, 2000. (10) Exhibit is incorporated herein by reference to PEA No. 18 to the Registration Statement, filed on December 30, 2000. (11) Filed herewith. ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None. ITEM 25. INDEMNIFICATION. Incorporated herein by reference to Post-Effective Amendment No. 7 to the Registration Statement, filed on January 15, 1997. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. The Fund is advised by Barclays Global Fund Advisors ("BGFA"), a wholly owned subsidiary of Barclays Global Investors, N.A. ("BGI"), 45 Fremont Street, San Francisco, CA 94105. BGFA's business is that of a registered investment adviser to certain open-end, management investment companies and various other institutional investors. The directors and officers of BGFA consist primarily of persons who during the past two years have been active in the investment management business. Each of the directors and executive officers of BGFA will also have substantial responsibilities as directors and/or officers of BGI. To the knowledge of the Registrant, except as set forth below, none of the directors or executive officers of BGFA is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature.
Name and Position Principal Business(es) During the last Two Fiscal Years - ----------------- ------------------------------------------------------- Patricia Dunn Director of BGFA and Chairman and Director of BGI Director 45 Fremont Street, San Francisco, CA 94105 Garrett F. Bouton Chairman of the Board of Directors of BGFA and Chief Operating Chairman Officer and Director of BGI 45 Fremont Street, San Francisco, CA 94105 Lawrence G. Tint Director of BGFA and Director of BGI Director 45 Fremont Street, San Francisco, CA 94105
C-2 Name and Position Principal Business(es) During the last Two Fiscal Years - ----------------- ------------------------------------------------------- Geoffrey Fletcher Chief Financial Officer of BGFA and BGI Chief Financial Officer 45 Fremont Street San Francisco, CA 94105
ITEM 27 PRINCIPAL UNDERWRITERS (a) The Fund's distributor, SEI Investments Distribution Co. (the "Distributor") acts as distributor for SEI Daily Income Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI Institutional International Trust, The Advisors' Inner Circle Fund, The Pillar Funds, STI Classic Funds, First American Funds, Inc., First American Investment Funds, Inc., The Arbor Fund, Bishop Street Funds, STI Classic Variable Trust, ARK Funds, Huntington Funds, SEI Asset Allocation Trust, TIP Funds, SEI Institutional Investments Trust, First American Strategy Funds, Inc., HighMark Funds, Armada Funds, Expedition Funds, Alpha Select Funds, Oak Associates Funds, The Nevis Funds, Inc., CNI Charter Funds, The Armada Advantage Funds, Amerindo Funds Inc., Huntington VA Funds, Friends Ivory Funds, iShares Inc., SEI Insurance Products Trust, iShares Trust, Pitcairn Funds, First Omaha Funds, Inc.; JohnsonFamily Funds, Inc.; and The MDL Funds pursuant to distribution agreements dated July 15, 1982, November 29, 1982, December 3, 1982, July 10, 1985, January 22, 1987, August 30, 1988, November 14, 1991, February 28, 1992, May 29, 1992, November 1, 1992, November 1, 1992, January 28, 1993, January 27, 1995, August 18, 1995, November 1, 1995, January 11, 1996, April 1, 1996, April 28, 1996, June 14, 1996, October 1, 1996, February 15, 1997, March 8, 1997, June 9, 1997, January 1, 1998, February 27, 1998, June 29, 1998, April 1, 1999, May 1, 1999, July 13, 1999, October 15, 1999, December 16, 1999, January 28, 2000, March 29, 2000, April 25, 2000, August 1, 2000; October 1, 2000; November 1, 2000 and January 24, 2001, respectively. The Distributor provides numerous financial services to investment managers, pension plan sponsors, and bank trust departments. These services include portfolio evaluation, performance measurement, and consulting services ("Funds Evaluation") and automated execution, clearing and settlement of securities transactions ("MarketLink"). (b) Following is information with respect to each director, officer or partner of the Distributor. The business address of each director or officer is 1 Freedom Valley Drive, Oaks, PA 19456.
Name Position and Office with the Distributor ---- --------------------------------------- Alfred P. West, Jr. Director, Chairman of the Board of Directors Richard B. Lieb Director, Executive Vice President Carmen V. Romeo Director Mark J. Held President & Chief Operating Officer Dennis J. McGonigle Executive Vice President Robert M. Silvestri Chief Financial Officer & Treasurer Todd Cipperman Senior Vice President & General Counsel Leo J. Dolan, Jr. Senior Vice President Carl A. Guarino Senior Vice President Jack May Senior Vice President Hartland J. McKeown Senior Vice President Kevin P. Robins Senior Vice President Patrick K. Walsh Senior Vice President Wayne M. Withrow Senior Vice President Robert Aller Vice President John D. Anderson Vice President & Managing Director Timothy D. Barto Vice President & Assistant Secretary Robert Crudup Vice President & Managing Director Richard A. Deak Vice President & Assistant Secretary Scott W. Dellorfano Vice President & Managing Director
C-3 Barbara Doyne Vice President Jeff Drennen Vice President Scott C. Fanatico Vice President & Managing Director Vic Galef Vice President & Managing Director Steven A. Gardner Vice President & Managing Director Lydia A. Gavalis Vice President & Assistant Secretary Greg Gettinger Vice President & Assistant Secretary Kathy Heilig Vice President Jeff Jacobs Vice President Samuel King Vice President John Kirk Vice President & Managing Director Kim Kirk Vice President & Managing Director John Krzeminski Vice President & Managing Director Alan H. Lauder Vice President Paul Lonergan Vice President & Managing Director Ellen Marquis Vice President Christine M. McCullough Vice President & Assistant Secretary Carolyn McLaurin Vice President & Managing Director Mark Nagle Vice President Joanne Nelson Vice President Rob Redican Vice President Maria Rinehart Vice President Steve Smith Vice President Daniel Spaventa Vice President Kathryn L. Stanton Vice President Lori L. White Vice President & Assistant Secretary William E. Zitelli, Jr. Vice President & Assistant Secretary
(c) Not applicable. ITEM 28. 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 are maintained at the offices of PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809. ITEM 29. MANAGEMENT SERVICES. Not applicable. ITEM 30. UNDERTAKINGS. (a) The Company 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 Company'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. (b) 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 Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company 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 Company 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 C-4 the final adjudication of such issue. C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment No. 19 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the San Francisco, and State of California, on the 13th day of July 2001.
iSHARES, INC. By: /s/ Nathan Most ---------------------------------- Nathan Most, President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 19 to the Registration Statement has been signed below by the following persons, in the capacities indicated, on the 13th day of July, 2001. 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 officer) (Stephen M. Wynne)
iSHARES, INC. EXHIBIT INDEX Exhibit No. Description - ----------- ----------- (a.5) Form of Registrant's Articles Supplementary. (11) (d.2) Form of amended Schedule A to Investment Management Agreement. (11) (e.2) Form of Amended Exhibit A to Distribution Agreement. (11) (e.3) Form of Authorized Participant Agreement. (11) (g.1) Custody Agreement between Registrant and The Chase Manhattan Bank. (11) (g.2) Form of amended Appendix 2 to Custody Agreement.(11) (h.2) Form of amended Exhibit A to Amended Administration and Accounting Services Agreement. (11) (h.5) Form of amended Exhibit A to Transfer Agency Services Agreement. (11) (h.9) Form of amended Exhibit A to Sub-Administration Agreement.(11) (h.11) Form of amended Schedule A to Securities Lending Agreement. (11) EX-99.A.5 2 dex99a5.txt FORM OF REGISTRANT'S ARTICLES SUPPLEMENTARY EXHIBIT (a.5) ARTICLES SUPPLEMENTARY TO THE ARTICLES OF INCORPORATION OF iSHARES, INC. iShares, Inc., a Maryland corporation having its principal office in Baltimore, Maryland (the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Immediately prior to the filing of these Articles Supplementary (i) the Corporation was authorized to issue ten billion nine hundred million (10,900,000,000) shares of capital stock designated as Common Stock and having a par value of one tenth of one cent ($.001) per share for an aggregate par value of ten million nine hundred thousand dollars ($10,900,000), (ii) 9,099,425,000 authorized shares of Common Stock were previously classified by the Board of Directors and were allocated among the Corporation's twenty-eight series as follows: iShares MSCI Australia Index Fund 127,800,000 iShares MSCI Austria Index Fund 19,800,000 iShares MSCI Belgium Index Fund 136,200,000 iShares MSCI Brazil (Free) Index Fund 500,000,000 iShares MSCI Canada Index Fund 340,200,000 iShares MSCI EMU Index Fund 500,000,000 iShares MSCI France Index Fund 340,200,000 iShares MSCI Germany Index Fund 382,200,000 iShares MSCI Greece Index Fund 200,000,000 iShares MSCI Hong Kong Index Fund 191,400,000 iShares MSCI Indonesia (Free) Index Fund 200,000,000 iShares MSCI Italy Index Fund 63,600,000 iShares MSCI Japan Index Fund 2,124,600,000 iShares MSCI Malaysia (Free) Index Fund 127,800,000 iShares MSCI Mexico (Free) Index Fund 255,000,000 iShares MSCI Netherlands Index Fund 255,000,000 iShares MSCI Portugal Index Fund 200,000,000 iShares MSCI Singapore (Free) Index Fund 191,400,000 iShares MSCI South Africa Index Fund 200,000,000 iShares MSCI South Korea Index Fund 200,000,000 iShares MSCI Spain Index Fund 127,800,000 iShares MSCI Sweden Index Fund 63,600,000 iShares MSCI Switzerland Index Fund 318,625,000 iShares MSCI Taiwan Index Fund 200,000,000 iShares MSCI Thailand (Free) Index Fund 200,000,000 iShares MSCI Turkey Index Fund 200,000,000 iShares MSCI United Kingdom Index Fund 934,200,000 iShares MSCI USA Index Fund 500,000,000 and (iii) the remaining 1,800,575,000 authorized shares of Common Stock were undesignated as to series. SECOND: Acting pursuant to authority granted to the Board of Directors in Article FIFTH of the Corporation's Articles of Incorporation, as amended, Section 2-105(a) of the Maryland General Corporation Law to classify and reclassify authorized but unissued shares of its Common Stock,and Section 2-105(c) of the Maryland General Corporation Law to increase or decrease the aggregate number of shares of its Common Stock, the Board of Directors has (i) increased the number of shares of Common Stock, par value one tenth of one cent per share ($.001), the Corporation has the authority to issue by two billion (2,000,000,000) shares, i.e., from ten billion nine hundred million (10,900,000,000) shares to twelve billion nine hundred million (12,900,000,000) shares, (ii) designated the following named series of Common Stock: iShares MSCI All Country Far East (Free) Ex Japan Index Fund, iShares MSCI All Country World Index Fund, iShares MSCI Emerging Markets (Free) Index Fund, iShares MSCI Emerging Markets Latin America Index Fund, iShares MSCI Europe Index Fund, iShares MSCI Israel Index Fund and iShares MSCI Pacific (Free) Ex Japan Index Fund, and (iii) provided for the issuance of shares of each of the series described in item (ii) above. Each series so designated shall consist, until further changed, of the number of shares allocated to such series by the Board of Directors as set forth below: iShares MSCI All Country Far East (Free) Ex Japan Index Fund 500,000,000 iShares MSCI All Country World Index Fund 500,000,000 iShares MSCI Emerging Markets (Free) Index Fund 500,000,000 iShares MSCI Emerging Markets Latin America Index Fund 500,000,000 iShares MSCI Europe Index Fund 500,000,000 iShares MSCI Israel Index Fund 500,000,000 iShares MSCI Pacific Ex Japan Fund 500,000,000
with the result that the authorized shares of Common Stock are now allocated as follows: iShares MSCI All Country Far East (Free) Ex Japan Index Fund 500,000,000 iShares MSCI All Country World Index Fund 500,000,000 iShares MSCI Australia Index Fund 127,800,000 iShares MSCI Austria Index Fund 19,800,000 iShares MSCI Belgium Index Fund 136,200,000 iShares MSCI Brazil (Free) Index Fund 500,000,000 iShares MSCI Canada Index Fund 340,200,000 iShares MSCI Emerging Markets (Free) Index Fund 500,000,000 iShares MSCI Emerging Markets Latin America Index Fund 500,000,000 iShares MSCI EMU Index Fund 500,000,000 iShares MSCI Europe Index Fund 500,000,000 iShares MSCI France Index Fund 340,200,000 iShares MSCI Germany Index Fund 382,200,000 iShares MSCI Greece Index Fund 200,000,000 iShares MSCI Hong Kong Index Fund 191,400,000 iShares MSCI Indonesia (Free) Index Fund 200,000,000 iShares MSCI Israel Index Fund 500,000,000 iShares MSCI Italy Index Fund 63,600,000 iShares MSCI Japan Index Fund 2,124,600,000 iShares MSCI Malaysia (Free) Index Fund 127,800,000 iShares MSCI Mexico (Free) Index Fund 255,000,000 iShares MSCI Netherlands Index Fund 255,000,000 iShares MSCI Pacific (Free) Ex Japan Index Fund 500,000,000 iShares MSCI Portugal Index Fund 200,000,000 iShares MSCI Singapore (Free) Index Fund 191,400,000 iShares MSCI South Africa Index Fund 200,000,000 iShares MSCI South Korea Index Fund 200,000,000 iShares MSCI Spain Index Fund 127,800,000 iShares MSCI Sweden Index Fund 63,600,000 iShares MSCI Switzerland Index Fund 318,625,000 iShares MSCI Taiwan Index Fund 200,000,000 iShares MSCI Thailand (Free) Index Fund 200,000,000 iShares MSCI Turkey Index Fund 200,000,000 iShares MSCI United Kingdom Index Fund 934,200,000 iShares MSCI USA Index Fund 500,000,000
and the remaining 300,575,000 authorized shares of Common Stock remain undesignated as to series. 2 THIRD: The terms of the shares of each series of Common Stock designated above are as set forth in the Corporation's Articles of Incorporation filed with the State Department of Assessments and Taxation of Maryland on September 1, 1994, as amended by Articles of Amendment, dated February 29, 1996 and May 12, 2000. FOURTH: The Corporation is registered as an open-end management investment company under the Investment Company Act of 1940. FIFTH: After giving effect to the foregoing, the total number of shares of capital stock that the Corporation has authority to issue is twelve billion nine hundred million (12,900,000,000) shares of its Common Stock, par value one tenth of one cent per share ($.001), for an aggregate par value of twelve million nine hundred thousand ($12,900,000) dollars. IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its President and witnessed by its Assistant Secretary on , 2001. WITNESS: iSHARES, INC. By:_________________________ By:_________________________ Name: John P. Falco Name: Nathan Most Title: Assistant Secretary Title: President THE UNDERSIGNED, President of iShares, Inc., who executed on behalf of the Corporation Articles Supplementary of which this certificate is made a part, hereby acknowledges in the name and on behalf of the Corporation the foregoing Articles Supplementary to be the corporate act of the Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. _________________________________ Name: Nathan Most 3 EX-99.D.2 3 dex99d2.txt AMENDED SCHEDULE A TO INVESTMENT MGMT AGREEMENT EXHIBIT (d.2) ADVISORY AGREEMENT Schedule A Advisory Fee* for the Category I Series: - ------------------------------------------ 0.59% per annum of the aggregate net assets of the Category I Series less than or equal to $7.0 billion plus 0.54% per annum of the aggregate net assets of the Category I Series between $7.0 billion and $11.0 billion plus 0.49% per annum of the aggregate net assets of the Category I Series in excess of $11.0 billion Category I Series: - ------------------ Australia WEBS Index SeriesIndex Fund iShares MSCI Austria WEBS Index SeriesIndex Fund iShares MSCI Belgium WEBS Index SeriesIndex Fund iShares MSCI Canada WEBS Index SeriesIndex Fund iShares MSCI EMU WEBS Index SeriesIndex Fund iShares MSCI France WEBS Index SeriesIndex Fund iShares MSCI Germany WEBS Index SeriesIndex Fund iShares MSCI Hong Kong WEBS Index SeriesIndex Fund iShares MSCI Italy WEBS Index SeriesIndex Fund iShares MSCI Japan WEBS Index SeriesIndex Fund iShares MSCI Malaysia (Free) WEBS Index SeriesIndex Fund iShares MSCI Mexico (Free) WEBS Index SeriesIndex Fund iShares MSCI Netherlands WEBS Index SeriesIndex Fund iShares MSCI Singapore (Free) WEBS Index SeriesIndex Fund iShares MSCI Spain WEBS Index SeriesIndex Fund iShares MSCI Sweden WEBS Index SeriesIndex Fund iShares MSCI Switzerland WEBS Index SeriesIndex Fund iShares MSCI United Kingdom WEBS Index SeriesIndex Fund iShares MSCI USA WEBS Index SeriesIndex Fund Advisory Fee* for Category II Series: - ------------------------------------- 0.74% per annum of the aggregate net assets of the Category II Series less than or equal to $2 billion plus 0.69% per annum of the aggregate net assets of the Category II Series between $2 billion and $4 billion plus 0.64% per annum of the aggregate net assets of the Category II Series greater than $6 billion Category II Series: - ------------------- Brazil (Free) WEBS Index SeriesIndex Fund iShares MSCI Greece WEBS Index SeriesIndex Fund iShares MSCI Indonesia (Free) WEBS Index SeriesIndex Fund iShares MSCI Portugal WEBS Index SeriesIndex Fund iShares MSCI South Africa WEBS Index SeriesIndex Fund iShares MSCI South Korea WEBS Index SeriesIndex Fund iShares MSCI Thailand (Free) WEBS Index SeriesIndex Fund iShares MSCI Taiwan WEBS Index SeriesIndex Fund iShares MSCI Turkey WEBS Index SeriesIndex Fund Advisory Fee* for Category III Series: - -------------------------------------- 0.50% per annum of the aggregate net assets of the Category III Series Category III Series: - -------------------- iShares MSCI Pacific Ex Japan Index Fund - --------------- * Pursuant to Section 4 of this Advisory Agreement, the fee rates for a Series set forth in this Schedule A will be reduced, possibly to zero, by the expenses of the Series. A-1 EX-99.E.2 4 dex99e2.txt AMENDED EXHIBIT A TO DISTRIBUTION AGREEMENT EXHIBIT (e.2) EXHIBIT A INDEX SERIES OF THE FUND iSHARES, INC. (Formerly, WEBS INDEX FUND, INC. iShares MSCI Australia Index Fund iShares MSCI Austria Index Fund iShares MSCI Belgium Index Fund iShares MSCI Brazil (Free) Index Fund iShares MSCI Canada Index Fund iShares MSCI EMU Index Fund iShares MSCI France Index Fund iShares MSCI Germany Index Fund iShares MSCI Greece Index Fund iShares MSCI Hong Kong Index Fund iShares MSCI Indonesia (Free) Index Fund iShares MSCI Italy Index Fund iShares MSCI Japan Index Fund iShares MSCI Malaysia (Free) Index Fund iShares MSCI Mexico (Free) Index Fund iShares MSCI Netherlands Index Fund iShares MSCI Pacific (Free) ex Japan Index Fund iShares MSCI Portugal Index Fund iShares MSCI Singapore (Free) Index Fund iShares MSCI South Africa Index Fund iShares MSCI South Korea Index Fund iShares MSCI Spain Index Fund iShares MSCI Sweden Index Fund iShares MSCI Switzerland Index Fund iShares MSCI Thailand (Free) Index Fund iShares MSCI Taiwan Index Fund iShares MSCI Turkey Index Fund iShares MSCI United Kingdom Index Fund iShares MSCI USA Index Fund EX-99.E.3 5 dex99e3.txt FORM OF AUTHORIZED PARTICIPANT AGREEMENT EXHIBIT (e.3) iShares, Inc. AUTHORIZED PARTICIPANT AGREEMENT This Authorized Participant Agreement (the "Agreement") is entered into by and between SEI Investments Distribution Co. (together with its affiliates, "SEI" or the "Distributor") and _________________ (the "Participant") and is subject to acknowledgement by PFPC Inc. ("PFPC" or the "Transfer Agent"). The Transfer Agent serves as the transfer agent for iShares, Inc. (the "Fund"). The Distributor, the Transfer Agent and the Participant acknowledge and agree that the Fund shall be a third party beneficiary of this Agreement, and shall receive the benefits contemplated by this Agreement, to the extent specified herein. The Distributor has been retained to provide services as principal underwriter of the Fund acting on an agency basis in connection with the sale and distribution of shares of common stock, par value $.001 per share (sometimes referred to as "iShares(SM)"), of the iShares MSCI Index Funds of the Fund (each, an "Index Fund") named on Annex I hereto. As specified in the Fund's prospectus, including the statement of additional information incorporated therein (the "Prospectus") included as part of its registration statement, as amended, on Form N-1A (No. 33-97598), the iShares of any Index Fund offered thereby may be purchased or redeemed only in aggregations of a specified number of iShares referred to therein and herein as a "Creation Unit". The number of iShares presently constituting a Creation Unit of each Index Fund is set forth in Annex I. Creation Units of iShares may be purchased only by or through a Participant that has entered into an Authorized Participant Agreement with the Fund and the Distributor. The Prospectus provides that Creation Units generally will be sold in exchange for an in-kind deposit of a designated portfolio of equity securities (the "Deposit Securities") and an amount of cash computed as described in the Prospectus (the "Cash Component"), plus a purchase transaction fee as described in the Prospectus, delivered to the Fund by the Participant for its own account or acting on behalf of another party. Together, the Deposit Securities and the Cash Component constitute the "Portfolio Deposit", which represents the minimum initial and subsequent investment amount for iShares of any Index Fund of the Fund. References to the Prospectus are to the then current Prospectus as it may be supplemented or amended from time to time. Capitalized terms not otherwise defined herein are used herein as defined in the Prospectus. This Agreement is intended to set forth certain premises and the procedures by which the Participant may purchase and/or redeem Creation Units of iShares through the facilities of The Depository Trust Company ("DTC"). The procedures for processing an order to purchase iShares (each a "Purchase Order") and an order to redeem iShares (each a "Redemption Order") are described in the Fund's Prospectus and in Annex II to this Agreement. All Purchase and Redemption Orders must be made pursuant to the procedures set forth in Annex II. All Purchase Orders and Redemption Orders are irrevocable. The parties hereto in consideration of the premises and of the mutual agreements contained herein agree as follows: 1. STATUS OF PARTICIPANT. The Participant hereby represents, covenants and --------------------- warrants that with respect to Purchase Orders or Redemption Orders of Creation Units of iShares of any Index Fund, it is a DTC participant. Any change in the foregoing status of the Participant shall terminate this Agreement and the Participant shall give prompt written notice to the Distributor and the Fund of such change. The Participant hereby represents and warrants that, unless the following paragraph is applicable to it, it is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, is qualified to act as a broker or dealer in the states or other jurisdictions where it transacts business, and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"), and the Participant agrees that it will maintain such registrations, qualifications, and membership in good standing and in full force and effect throughout the term of this Agreement. The Participant agrees to comply with all applicable Federal laws, the laws of the states or other jurisdictions concerned, and the rules and regulations promulgated thereunder and with the Constitution, By- Laws and Conduct Rules of the NASD, and that it will not offer or sell iShares of any Index Fund of the Fund in any state or jurisdiction where they may not lawfully be offered and/or sold. If the Participant is offering and selling iShares of any Index Fund of the Fund in jurisdictions outside the several states, territories and possessions of the United States and is not otherwise required to be registered, qualified, or a member of the NASD as set forth above, the Participant nevertheless agrees to observe the applicable laws of the jurisdiction in which such offer and/or sale is made, to comply with the full disclosure requirements of the Securities Act of 1933, as amended (the "1933 Act") and the regulations promulgated thereunder and to conduct its business in accordance with the spirit of the NASD Conduct Rules. The Participant understands and acknowledges that the proposed method by which Creation Units of iShares will be created and traded may raise certain issues under applicable securities laws. For example, because new Creation Units of iShares may be issued and sold by the Fund on an ongoing basis, at any point a "distribution", as such term is used in the 1933 Act, may occur. The Participant understands and acknowledges that some activities on its part, depending on the circumstances, result in its being deemed a participant in a distribution in a manner which could render it a statutory underwriter and subject it to the prospectus delivery and liability provisions of the 1933 Act. The Participant also understands and acknowledges that dealers who are not "underwriters" but are effecting transactions in iShares, whether or not participating in the distribution of iShares, are generally required to deliver a prospectus. 2. EXECUTION OF PURCHASE ORDERS AND REDEMPTION ORDERS. All Purchase Orders or -------------------------------------------------- Redemption Orders shall be made in accordance with the terms of the Prospectus and the procedures described in Annex II to this Agreement. Each party hereto agrees to comply with the provisions of such documents to the extent applicable to it. It is contemplated that the phone lines used by the SEI telephone representatives will be recorded, and the Participant hereby consents to the recording of all calls with the SEI telephone representatives. The Fund reserves the right to issue additional or other procedures relating 2 to the manner of purchasing or redeeming Creation Units and the Participant agrees to comply with such procedures as may be issued from time to time, including but not limited to the iShares Cash Collateral Settlement Procedures that are referenced in Annex II to this Agreement. The Participant acknowledges and agrees on behalf of itself and any party for which it is acting (whether as a customer or otherwise) that delivery of a Purchase Order or Redemption Order shall be irrevocable, provided that the Fund and the Distributor on behalf of the Fund reserves the right to reject any Purchase Order until the trade is released as "good" as described in Annex II and any Redemption Order that is not in "proper form" as defined in the Prospectus. With respect to any Redemption Order, the Participant also acknowledges and agrees on behalf of itself and any party for which it is acting (whether as a customer or otherwise) to return to the Fund any dividend, distribution or other corporate action paid to it or to the party for which it is acting in respect of any Deposit Security that is transferred to the Participant or any party for which it is acting that, based on the valuation of such Deposit Security at the time of transfer, should have been paid to the Index Fund. With respect to any Redemption Order, the Participant also acknowledges and agrees on behalf of itself and any party for which it is acting (whether as a customer or otherwise) that the Fund is entitled to reduce the amount of money or other proceeds due to the Participant or any party for which it is acting by an amount equal to any dividend, distribution or other corporate action to be paid to it or to the party for which it is acting in respect of any Deposit Security that is transferred to the Participant or any party for which it is acting that, based on the valuation of such Deposit Security at the time of transfer, should be paid to the Index Fund. With respect to any Purchase Order, the Fund acknowledges and agrees to return to the Participant or any party for which it is acting any dividend, distribution or other corporate action paid to the Fund in respect of any Deposit Security that is transferred to the Fund that, based on the valuation of such Deposit Security at the time of transfer, should have been paid to the Participant or any party for which it is acting. 3. MARKETING MATERIALS AND REPRESENTATIONS. The Participant represents, --------------------------------------- warrants and agrees that it will not make any representations concerning iShares other than those contained in the Fund's then current Prospectus or in any promotional materials or sales literature furnished to the Participant by the Distributor. The Participant agrees not to furnish or cause to be furnished to any person or display or publish any information or materials relating to iShares (including, without limitation, promotional materials and sales literature, advertisements, press releases, announcements, statements, posters, signs or other similar materials), except such information and materials as may be furnished to the Participant by the Distributor and such other information and materials as may be approved in writing by the Distributor. The Participant understands that the Fund will not be advertised or marketed as an open-end investment company, i.e., as a mutual fund, which offers redeemable securities, and that any advertising materials will prominently disclose that the iShares are not redeemable units of beneficial interest in the Fund. In addition, the Participant understands that any advertising material that addresses redemptions of iShares, including the Fund's Prospectus, will disclose that the owners of iShares may acquire iShares and tender iShares for redemption to the Fund in Creation Unit aggregations only. Notwithstanding the foregoing, the Participant may without the written approval of the Distributor prepare and 3 circulate in the regular course of its business research reports that include information, opinions or recommendations relating to iShares (i) for public dissemination, provided that such research reports compare the relative merits and benefits of iShares with other products and are not used for purposes of marketing iShares and (ii) for internal use by the Participant. 4. SUBCUSTODIAN ACCOUNT. The Participant understands and agrees that in the -------------------- case of each Index Fund, the Fund has caused the Fund's custodian, The Chase Manhattan Bank ("Custodian"), to maintain with the applicable subcustodian for such Index Fund an account in the relevant foreign jurisdiction to which the Participant shall deliver or cause to be delivered in connection with the purchase of a Creation Unit the securities and any other redemption proceeds (or the cash value of all or a part of such securities, in the case of a permitted or required cash purchase or "cash in lieu" amount) on behalf of itself or any party for which it is acting (whether or not a customer), with any appropriate adjustments as advised by the Fund, in accordance with the terms and conditions applicable to such account in such jurisdiction. 5. TITLE TO SECURITIES; RESTRICTED SHARES. The Participant represents on -------------------------------------- behalf of itself and any party for which it acts that upon delivery of a portfolio of Deposit Securities to the Custodian and/or the relevant subcustodian in accordance with the terms of the Prospectus, the Fund will acquire good and unencumbered title to such securities, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims, including, without limitation, any restriction upon the sale or transfer of such securities imposed by (i) any agreement or arrangement entered into by the Participant or any party for which it is acting in connection with a Purchase Order or (ii) any provision of the 1933 Act, and any regulations thereunder (except that portfolio securities of issuers other than U.S. issuers shall not be required to have been registered under the 1933 Act if exempt from such registration), or of the applicable laws or regulations of any other applicable jurisdiction and (iii) no such securities are "restricted securities" as such term is used in Rule 144(a)(3)(i) promulgated under the 1933 Act. 6. CASH COMPONENT AND FEES. The Participant hereby agrees that as between the ----------------------- Fund and itself or any party for which it acts in connection with a Purchase Order, it will make available in same day funds for each purchase of iShares an amount of cash sufficient to pay the Cash Component and any other amounts of cash due to the Fund in connection with the purchase of any Creation Unit of iShares (including the purchase transaction fee for in-kind and cash purchases and the additional variable charge for cash purchases (when, in the sole discretion of the Fund, cash purchases are available or specified)) (the "Cash Amount") which shall be made to an account maintained by the Custodian at The Chase Manhattan Bank, New York, providing payment on or before the Contractual Settlement Date (as defined in Annex II). The Participant hereby agrees to ensure that the Cash Amount will be received by the Fund on or before the Contractual Settlement Date, and in the event payment of such Cash Amount has not been made by such Contractual Settlement Date, the Participant agrees on behalf of itself or any party for which it acts in connection with a Purchase Order to pay the full cash amount, plus interest, computed at such reasonable rate as may be specified by the Fund from time to time. The Participant 4 may require its customer to enter into an agreement with the Participant with respect to such matters. The Participant shall be liable to the Custodian and/or the Fund for any amounts advanced by the Custodian in its sole discretion to the Participant for payment of the amounts due and owing for the Cash Component, the purchase transaction fee, cash collateral discrepancies and/or the additional variable charge for cash purchases (when, in the sole discretion of the Fund, cash purchases are available or specified). 7. ROLE OF PARTICIPANT. ------------------- (a) The Participant acknowledges and agrees that for all purposes of this Agreement, the Participant will be deemed to be an independent contractor, and will have no authority to act as agent for the Fund or the Distributor in any matter or in any respect. The Participant agrees to make itself and its employees available, upon request, during normal business hours to consult with the Fund or the Distributor or their designees concerning the performance of the Participant's responsibilities under this Agreement. (b) In executing this Agreement, the Participant agrees in connection with any purchase or redemption transactions in which it acts for a customer or for any other DTC Participant or indirect participant, or any other Beneficial Owner, that it shall extend to any such party all of the rights, and shall be bound by all of the obligations, of a DTC Participant in addition to any obligations that it undertakes hereunder or in accordance with the Prospectus. (c) The Participant agrees to maintain records of all sales of iShares made by or through it and to furnish copies of such records to the Fund or the Distributor upon the request of the Fund or the Distributor. 8. AUTHORIZED PERSONS. Concurrently with the execution of this Agreement and ------------------ as requested from time to time by the Fund and/or Distributor, the Participant shall deliver to the Distributor and the Fund, with copies to the Transfer Agent (referred to below) duly certified as appropriate by its Secretary or other duly authorized official, a certificate in a form approved by the Fund (see Annex III hereto) setting forth the names and signatures of all persons authorized to give instructions relating to any activity contemplated hereby or any other notice, request or instruction on behalf of the Participant (each an "Authorized Person"). Such certificate may be accepted and relied upon by the Distributor and the Fund as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Distributor and the Fund of a superseding certificate in a form approved by the Fund bearing a subsequent date. Upon the termination or revocation of authority of such Authorized Person by the Participant, the Participant shall give prompt written notice of such fact to the Distributor and the Fund and such notice shall be effective upon receipt by both the Distributor and the Fund. The Distributor shall issue to each Participant a unique personal identification number ("PIN Number") by which such Participant shall be identified and instructions issued by the Participant hereunder shall be authenticated. The PIN Number shall be kept confidential and only provided to Authorized Persons. If after issuance, a Participant's PIN Number is changed, the new PIN Number will become effective on a date mutually agreed upon by the Participant and the Distributor. 5 9. REDEMPTION. The Participant understands and agrees that Redemption Orders ---------- may be submitted only on days that the American Stock Exchange LLC (the "AMEX") is open for trading or business. (a) The Participant represents and warrants that it will not attempt to place a Redemption Order for the purpose of redeeming any Creation Unit of iShares of any Index Fund unless it first (i) ascertains prior to submitting such order that it or its customer, as the case may be, owns outright or has full legal authority and legal and beneficial right to tender for redemption the requisite number of iShares of the relevant Index Fund to be redeemed and to the entire proceeds of the redemption and that such iShares have not been loaned or pledged to another party and are not the subject of a repurchase agreement, securities lending agreement or any other arrangement that would preclude the delivery of such iShares to the Transfer Agent in accordance with the Prospectus or as otherwise required by the Fund; and (ii) agrees to transfer all collateral to the Fund's custodial account or iShares to the Transfer Agent's DTC account prior to 2 p.m. on the Business Day following the day on which the Redemption Order is placed. The Participant understands and agrees that in the event collateral or iShares are not transferred under (ii) above, the Redemption Order trade may be broken by the Fund and the Participant will be solely responsible for all costs incurred by the Fund or the Distributor related to breaking the trade. The Distributor will only process Redemption Orders upon verification from the Transfer Agent of the Fund's receipt of such collateral or iShares. The Participant understands that iShares of any Index Fund may be redeemed only when one or more Creation Units of iShares of a Beneficial Owner are held in the account of a single Participant. (b) In the case of a resident Australian or New Zealand holder, notwithstanding the foregoing, the Participant understands and agrees that such holder is only entitled to receive cash upon its redemption of Creation Units of iShares. In the Redemption Order the Participant will be required to confirm that an in-kind redemption request has not been submitted on behalf of a beneficial owner who is an Australian or New Zealand resident. 10. BENEFICIAL OWNERSHIP. The Participant represents and warrants to the -------------------- Distributor and the Fund that (based upon the number of outstanding iShares of such Index Fund made publicly available by the Fund) it does not, and will not in the future, hold for the account of any single Beneficial Owner of iShares of the relevant Index Fund 80 percent or more of the currently outstanding iShares of such relevant Index Fund, so as to cause the Fund to have a basis in the portfolio securities deposited with the Fund with respect to such Index Fund different from the market value of such portfolio securities on the date of such deposit, pursuant to section 351 of the Internal Revenue Code of 1986, as amended. The Participant agrees that the confirmation relating to any order for one or more Creation Units of iShares of an Index Fund shall state as follows: "Purchaser represents and warrants that, after giving effect to the purchase of iShares to which this confirmation relates, it will not hold 80 percent or more of the outstanding iShares of the relevant Index Fund of the Fund and that it will not treat such purchase as eligible for tax-free treatment under Section 351 of the Internal Revenue Code of 1986, as amended. If purchaser is a dealer, it agrees to deliver similar 6 written confirmations to any person purchasing any of the iShares to which this confirmation relates from it." The Fund and its Transfer Agent and Distributor shall have the right to require information from the Participant regarding iShares ownership of each Index Fund, and to rely thereon to the extent necessary to make a determination regarding ownership of 80 percent or more of the currently outstanding iShares of any Index Fund by a Beneficial Owner as a condition to the acceptance of a deposit of Deposit Securities. 11. INDEMNIFICATION. This paragraph shall survive the termination of this --------------- Agreement. (a) The Participant hereby agrees to indemnify and hold harmless the Distributor, the Fund, the Transfer Agent, their respective subsidiaries, affiliates, directors, officers, employees and agents, and each person, if any, who controls such persons within the meaning of Section 15 of the 1933 Act (each an "Indemnified Party") from and against any loss, liability, cost and expense (including attorneys' fees) incurred by such Indemnified Party as a result of (i) any breach by the Participant of any provision of this Agreement that relates to the Participant; (ii) any failure on the part of the Participant to perform any obligations set forth in the Agreement; (iii) any failure by the Participant to comply with applicable laws, including rules and regulations of self-regulatory organizations; or (iv) actions of such Indemnified Party in reliance upon any instructions issued in accordance with Annexes II, III and IV (as each may be amended from time to time) reasonably believed by the Distributor and/or the Transfer Agent to be genuine and to have been given by the Participant. The Participant and the Distributor understand and agree that the Fund as a third party beneficiary to this Agreement is entitled and intends to proceed directly against the Participant in the event that the Participant fails to honor any obligations pursuant to this Agreement that benefit the Fund. The Distributor shall not be liable to the Participant for any damages arising out of mistakes or errors in data provided to the Distributor, or out of mistakes or errors by or interruptions or delays of communications with the Indemnified Parties who are service providers to the Fund, nor is the Distributor liable for any action, representation, or solicitation made by the wholesalers of the Fund. (b) The Distributor hereby agrees to indemnify and hold harmless the Participant, its respective subsidiaries, affiliates, directors, officers, employees and agents, and each person, if any, who controls such persons within the meaning of Section 15 of the 1933 Act (each an "Indemnified Party") from and against any loss, liability, cost and expense (including attorneys' fees) incurred by such Indemnified Party as a result of (i) any breach by the Distributor of any provision of this Agreement that relates to the Distributor; (ii) any failure on the part of the Distributor to perform any obligations set forth in this Agreement; (iii) any failure by the Distributor to comply with applicable laws, including rules and regulations of self-regulatory organizations; or (iv) actions of such Indemnified Party in reliance upon any representations made in accordance with Annex II, III and IV (as each may be amended from time to time) reasonably believed by the Participant to be genuine and to have been given by the Distributor. The Participant shall not be liable to the Distributor for any damages arising out of mistakes or errors in data provided to the Participant, or out of interruptions or delays of communications with the Indemnified Parties who are service providers to the Fund, 7 nor is the Participant liable for any action, representation, or solicitation made by the wholesaler of the Fund. 12. INFORMATION ABOUT PORTFOLIO DEPOSITS. The Participant understands that the ------------------------------------ number and names of the designated portfolio of Deposit Securities to be included in the current Portfolio Deposit for each Index Fund will be made available by the Distributor as such information is supplied to the Distributor by the Fund's investment adviser each day that the AMEX is open for trading and will also be made available by the Fund's investment adviser on each such day through the facilities of the National Securities Clearing Corporation. 13. ACKNOWLEDGMENT. The Participant acknowledges receipt of the Prospectus and -------------- represents it has reviewed such documents and understands the terms thereof. NOTICES. Except as otherwise specifically provided in this Agreement, all ------- notices required or permitted to be given pursuant to this Agreement shall be given in writing and delivered by personal delivery or by postage prepaid registered or certified United States first class mail, return receipt requested, or by telex, telegram or facsimile or similar means of same day delivery (with a confirming copy by mail). Unless otherwise notified in writing, all notices to the Fund shall be at the address or telephone, facsimile or telex numbers as follows: Attn: Vice President, Operations, with a copy to The Chase Manhattan Bank, 2 Chase MetroTech-8, Eighth Floor, Brooklyn, New York 11245, Attn: iShares. All notices to the Participant, the Distributor and the Transfer Agent shall be directed to the address or telephone, facsimile or telex numbers indicated below the signature line of such party. 15. EFFECTIVENESS, TERMINATION AND AMENDMENT. This Agreement shall become ---------------------------------------- effective in this form upon execution and delivery to the Distributor. This Agreement may be terminated at any time by any party upon sixty days prior written notice to the other parties and may be terminated earlier by the Fund or the Distributor at any time in the event of a breach by the Participant of any provision of this Agreement or the procedures described or incorporated herein. This Agreement supersedes any prior such agreement between or among the parties. This Agreement may be amended by the Fund or the Distributor from time to time without the consent of any Beneficial Owner by the following procedure: The Fund or the Distributor will mail a copy of the amendment to the Participant and the Fund or Distributor, as applicable. For purposes of this Agreement, mail will be deemed received by the recipient thereof on the fifth (5/th/) Business Day following the deposit of such mail into the U.S. Postal system. If neither the Participant nor the other party objects in writing to the amendment within five days after its receipt, the amendment will become part of this Agreement in accordance with its terms. 16. GOVERNING LAW. This Agreement shall be governed by and interpreted in ------------- accordance with the laws of the State of New York. The parties irrevocably submit to the non-exclusive jurisdiction of any New York State or United States Federal court sitting in New York City over any suit, action or proceeding arising out of or relating to this Agreement. 8 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. 9 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year written below. DATED: ______________ SEI INVESTMENTS DISTRIBUTION CO. _________________________ [Name of Participant] By: _____________________________ By: _____________________________ Title: __________________________ Title: __________________________ Address: ________________________ Address: ________________________ _________________________________ _________________________________ _________________________________ _________________________________ Telephone: ______________________ Telephone: ______________________ Facsimile: ______________________ Facsimile: ______________________ ACKNOWLEDGED BY: PFPC INC., AS TRANSFER AGENT By: _____________________________ Title: __________________________ Address: ________________________ _________________________________ _________________________________ Telephone: ______________________ Facsimile: ______________________ 10 ANNEX I iShares, Inc. INDEX FUNDS AND iSHARES PER CREATION UNIT
Index iShares per Fund Creation Unit ---- ------------- The iShares MSCI Australia Index Fund 200,000 The iShares MSCI Austria Index Fund 100,000 The iShares MSCI Belgium Index Fund 40,000 The iShares MSCI Brazil (Free) Index Fund 50,000 The iShares MSCI Canada Index Fund 100,000 The iShares MSCI EMU Index Fund 50,000 The iShares MSCI France Index Fund 200,000 The iShares MSCI Germany Index Fund 300,000 The iShares MSCI Greece Index Fund* 50,000 The iShares MSCI Hong Kong Index Fund 75,000 The iShares MSCI Indonesia (Free) Index Fund* 50,000 The iShares MSCI Italy Index Fund 150,000 The iShares MSCI Japan Index Fund 600,000 The iShares MSCI Malaysia (Free) Index Fund 75,000 The iShares MSCI Mexico (Free) Index Fund 100,000 The iShares MSCI Netherlands Index Fund 50,000 The iShares MSCI Portugal Index Fund* 50,000 The iShares MSCI Singapore (Free) Index Fund 100,000 The iShares MSCI South Africa Index Fund* 50,000 The iShares MSCI South Korea Index Fund 50,000 The iShares MSCI Spain Index Fund 75,000 The iShares MSCI Sweden Index Fund 75,000
The iShares MSCI Switzerland Index Fund 125,000 The iShares MSCI Taiwan Index Fund 50,000 The iShares MSCI Thailand (Free) Index Fund* 50,000 The iShares MSCI Turkey Index Fund* 50,000 The iShares MSCI United Kingdom Index Fund 200,000 The iShares MSCI USA Index Fund 500,000
- --------------- * These Index Funds may not be offered until the relevant prospectus has been finalized. 2 ANNEX II iShares, Inc. PROCEDURES FOR PROCESSING PURCHASE ORDERS AND REDEMPTION ORDERS This Annex II to the Authorized Participant Agreement supplements the Prospectus with respect to the procedures to be used in processing a Purchase Order for the purchase of iShares in Creation Units of each Index Fund and a Redemption Order for the redemption of iShares in Creation Units of each Index Fund. Capitalized terms, unless otherwise defined in this Annex II, have the meanings attributed to them in the Authorized Participant Agreement or the Prospectus. A Participant is required to have signed the Authorized Participant Agreement. Upon execution thereof by the Distributor and acknowledgement thereof by the Transfer Agent and in connection with the initial Purchase Order submitted by the Participant, the Distributor will assign a PIN Number to each Authorized Participant. This will allow a Participant through its Authorized Person(s) to place a Purchase Order or Redemption Order with respect to the purchase or redemption of Creation Units of iShares. PART A TO PLACE AN ORDER FOR PURCHASE OR REDEMPTION OF CREATION UNIT(S) OF iSHARES The Participant understands and agrees that Purchase and Redemption Orders may be submitted only on days that the American Stock Exchange LLC (the "AMEX") is open for trading. 1. Call to Give Notice of Intent to Submit Redemption Order. To initiate an -------------------------------------------------------- order to redeem a Creation Unit of iShares, an Authorized Person of the Participant must give notice to the Distributor of its intent to submit a Redemption Order to redeem iShares. Giving notice to the Distributor of an intent to submit a Redemption Order does not constitute a Redemption Order, which must be completed subsequently pursuant to the procedures set forth below. 2. Delivery of Creation Unit Before Submitting Redemption Order. The ------------------------------------------------------------ Participant must deliver the aggregated iShares constituting the requisite number of Creation Units or the requisite amount of cash collateral to the Transfer Agent prior to 2 p.m. Eastern Standard Time on the Business Day following the day on which the Redemption Order for such Creation Units was submitted. A Participant planning to deliver iShares for redemption on such day should ascertain the deadlines applicable to DTC by contacting the operation department of the broker or depository institution effectuating such transfer of securities. These deadlines will vary and are likely to be significantly earlier than the AMEX Closing Time. 3. Option by Participant to Deliver Cash Collateral on the Redemption Notice ------------------------------------------------------------------------- Date in Lieu of iShares. In the event the Participant is unable to transfer all - ----------------------- or part of the Creation Units of iShares to be redeemed to the Distributor, on behalf of the Fund, at or prior to the AMEX Closing Time on the date it provides notice of its intent to submit a Redemption Order to redeem iShares relating to a redemption, the Distributor will nonetheless accept the redemption request in reliance on the undertaking by the Participant to delivery the missing iShares as soon as possible, which undertaking shall be secured by the Participant's delivery and maintenance of collateral consisting of cash having a value at least equal to 125% of the value of the missing iShares. The parties hereto agree that the delivery of such collateral shall be made in accordance with the iShares Cash Collateral Settlement Procedures approved by the Fund's Board of Directors, as they may be amended from time to time, which such procedures shall be provided to the Participant by the Distributor upon request. Such Cash Collateral Settlement Procedures contemplate, among other things, that any cash collateral shall be in the form of U.S. dollars in immediately available funds, that such cash collateral shall be held by the Custodian and marked to market daily, and that the fees of the Custodian and subcustodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Participant. The Participant, as pledgor, hereby pledges to the Fund, as pledgee, as security for its obligation to deliver the missing iShares as soon as possible, and grants to the Fund, a first priority security interest in, lien on, and right of set-off against, all such cash collateral. The parties hereto further agree that the Fund may purchase the missing iShares or acquire the Deposit Securities and the Cash Component underlying such iShares at any time and the participant agrees to accept liability for any shortfall between the cost to the Fund of purchasing such iShares, Deposit Securities or Cash Component and the value of the collateral, which may be used by the Fund at such time, and in such manner, as the Fund may determine in its sole discretion. 4. Place the Purchase or Redemption Order. -------------------------------------- (a) Telephone Orders - Telephone orders shall be placed in accordance with the ---------------- following guidelines and "Telephone Flow Process" set forth in Part B of this Annex II. (i) An Authorized Person for the Participant must call the SEI telephone representative at 888-276-2328 not later than the closing time of the regular trading session on the AMEX (the "AMEX Closing Time") (ordinarily 4:00 p.m. New York time) with respect to its contemplated Purchase or Redemption Order. Incoming telephone calls are queued and will be handled in the sequence received. Calls placed before the AMEX Closing Time will be processed even if the call is taken after this cut-off time. ACCORDINGLY, DO NOT HANG UP AND REDIAL. INCOMING CALLS THAT ARE ATTEMPTED LATER THAN THE AMEX CLOSING TIME WILL NOT BE ACCEPTED. (ii) NOTE THAT WHILE INITIATING THE TELEPHONE CALL COMMENCES THE ORDER PROCESS, IT DOES NOT ALONE CONSTITUTE A PURCHASE OR REDEMPTION ORDER, WHICH ARE ONLY COMPLETED AND PROCESSED WHEN THE TRADE IS RELEASED AS "GOOD" BY THE DISTRIBUTOR AND CONFIRMED AT THE END OF THE TELEPHONE CALL. ONCE THE TRADE IS RELEASED AS "GOOD" AND CONFIRMED BY THE PARTICIPANT, THE PARTICIPANT ASSUMES ALL RESPONSIBILITY FOR THE TERMS OF THE TRADE. (iii) A transaction charge will be assessed on each Purchase Order and each Redemption Order. (b) Internet Orders - Internet orders shall be placed in accordance with the ------------------- following guidelines and "Internet Flow Process" set forth in Part B of this Annex II. (i) each Participant authorized to transact via the internet will be issued a PIN Number to access the iShares Trading Website ("Website"). The Distributor shall not be responsible for unauthorized access to the Website, and shall process all trades affirmed through the system that were placed with a valid PIN Number. (ii) Any authorized Participant may log onto the Website at any time but generally must submit trades by 4:00 p.m. EST to receive that day's NAV. Trades 2 submitted after 4:00 p.m. EST will receive the next determined NAV for the applicable Fund. Certain Funds may determine an NAV more than once per trade date. It is the responsibility of the Participant to submit trades on or before the designated times to receive the applicable NAV. (iii) Note that while initiating the trades on the Website commences the order process, it does not alone constitute a purchase or redemption order, which is only completed and which will only be processed after the trade has been submitted by the Participant and Affirmation of such trade has been generated by the Website. It is the responsibility of the Participant to retain such Affirmation for its records. (iv) A transaction charge will be assessed on each Purchase Order and each Redemption Order. 5. Dividends, Distributions and Other Corporate Actions. ---------------------------------------------------- (a) For a Purchase Order, it is understood that the Fund will return to the Participant or any party for which it is acting any dividend, distribution or other corporate action paid to the Fund in respect of any Deposit Security that is transferred to the Fund that, based on the valuation of such Deposit Security at the time of transfer, should have been paid to the Participant or any party for which it is acting. (b) For a Redemption Order, the Participant acknowledges its agreement on behalf of itself and any party for which it is acting (whether as a customer or otherwise) to return to the Fund any dividend, distribution or other corporate action paid to it or to the party for which it is acting in respect of any Deposit Security that is transferred to the Participant or any party for which it is acting that, based on the valuation of such Deposit Security at the time of transfer, should be paid to the Index Fund to which the Redemption Order relates. In the Redemption Order, the Participant also acknowledges its agreement on behalf of itself and any party for which it is acting (whether as a customer or otherwise) that the Fund is entitled to reduce the amount of money or other proceeds due to the Participant or any party for which it is acting by an amount equal to any dividend, distribution or other corporate action to be transferred to the Participant or any party for which it is acting that, based on the valuation of such Deposit Security at the time of transfer, should be paid to the Index Fund to which the Redemption Order relates. 6. Processing an Order. The Distributor will accept a Purchase or Redemption ------------------- Order as "good" and confirmed if (i) the Participant communicates by telephone to the Distributor, prior to the AMEX Closing time, a Purchase or Redemption Order (whether on its own behalf or on behalf of another investor), together with all relevant information concerning the terms of such Order, and (ii) the Participant verifies that such Purchase or Redemption Order and its terms, as transcribed by the Distributor and repeated back to the Participant, have been accurately communicated to the Distributor. Notwithstanding the foregoing, the Participant acknowledges that a Purchase Order cannot be placed until the Participant has made arrangements satisfactory to the Fund for payment of the Cash Component and any other cash amounts which may be due. 3 In addition, the Participant and Distributor each acknowledge that a Redemption Order can not be placed until the Participant has given notice to the Distributor of its intent to place a Redemption Order. The Participant understands and acknowledges that the Redemption Order trade may be broken by the Fund, with all costs of the Fund or the Distributor related to breaking the trade being attributed to the Participant, unless the Participant has transferred or caused to be transferred to the Fund the Creation Unit of iShares to be redeemed or the requisite amount of cash collateral in connection with such Redemption Order and the Transfer Agent has verified receipt of such Creation Unit of iShares or collateral by 2:00 p.m. New York time on the Business Day following the day on which the Redemption Order was submitted. For purposes of quality assurance only, the Distributor will on a best efforts basis provide the Participant with a facsimile affirmation of the terms of the trade and will endeavor to contact the Participant concerning such affirmation. 7. Rejecting a Purchase Order. The Distributor and/or the Fund reserve the -------------------------- absolute right to reject or suspend a Purchase Order if (i) it appears that the Participant or a Beneficial Owner would own 80 percent or more of all outstanding iShares of an Index Fund as a result of acceptance of the Purchase Order; (ii) the portfolio of Deposit Securities delivered is not as specified by the Distributor; (iii) acceptance of the Deposit Securities would have certain adverse tax consequences to the Index Fund; (iv) the Fund believes that the acceptance of the Portfolio Deposit would be unlawful; (v) 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 of iShares; (vi) the Fund has suspended the offering of iShares of the particular Index Fund; or (vii) in the event that circumstances outside the control of the Fund and the Adviser make it for all practical purposes impossible to process purchase orders. The Fund shall notify the Participant of its rejection of any Purchase Order. The Fund is under no duty, however, to give notification of any defects or irregularities in the delivery of Portfolio Deposits nor shall it incur any liability for the failure to give any such notification. 8. Taking Delivery of Deposit Securities for Redemption Orders. A redeeming ----------------------------------------------------------- Beneficial Owner or Participant acting on behalf of such Beneficial Owner must maintain appropriate securities broker-dealer, bank or other custody arrangements in each jurisdiction in which any of the Deposit Securities are customarily traded, to which account such Deposit Securities will be delivered. If neither the redeeming beneficial owner nor the Participant acting on behalf of such redeeming Beneficial Owner has appropriate arrangements to take delivery of the Deposit Securities in the applicable jurisdiction and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Deposit Securities in such jurisdiction, the 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 iShares of the relevant Index Fund next determined after the Redemption Order is received in proper form (minus a redemption transaction fee and additional variable charge for cash redemptions as specified in the Prospectus, to offset the Fund's brokerage and other transaction costs associated with the disposition of Deposit Securities of the Index Fund). Redemptions of iShares for Deposit Securities will be subject to compliance with applicable United States federal and state securities laws and each Index Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Index Fund could not lawfully deliver specific Deposit Securities upon redemptions or could 4 not do so without first registering the Deposit Securities under such laws. 9. Contractual Settlement for Purchase Orders. Except as provided below, ------------------------------------------ Deposit Securities must be delivered to an account maintained at the applicable local subcustodian of the Fund on or before the Contractual Settlement Date (defined below). The 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 (as described in the Prospectus). Any excess funds will be returned following settlement of the issue of the Creation Unit of iShares. The "Contractual Settlement Date" is the earlier of (i) the date upon which all of the required Deposit Securities, the Cash Component and any other cash amounts which may be due are delivered to the Fund and (ii) the last day for settlement on the customary settlement cycle in the jurisdiction where the securities of the applicable Index Fund are customarily traded. Except as provided in the next two paragraphs, a Creation Unit of iShares of an Index Fund will not be issued until the transfer of good title to the Fund of the portfolio of Deposit Securities and the payment of the Cash Component and the purchase transaction fee have been completed. When the subcustodian confirms to the Custodian that the required securities included in the Portfolio Deposit (or, when permitted in the sole discretion of the Fund, the cash value thereof) have been delivered to the account of the relevant subcustodian, the Custodian shall notify the Transfer Agent and the Adviser, and the Fund will issue and cause the delivery of the Creation Unit of iShares. The Transfer Agent will then transmit a confirmation of acceptance to the Participant. The Fund may in its sole discretion permit or require the substitution of an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or for other similar reasons. If the Adviser notifies the Transfer Agent that a "cash in lieu" amount will be accepted, the Transfer Agent will notify the Participant and the Participant shall deliver, on behalf of itself or the party on whose behalf it is acting, the "cash in lieu" amount, with any appropriate adjustments as advised by the Fund. Any excess funds will be returned following settlement of the issue of the Creation Unit of iShares. In the event that a Portfolio Deposit is incomplete on the settlement date for a Creation Unit of iShares because certain or all of the Deposit Securities are missing, the Fund will issue a Creation Unit of iShares notwithstanding such deficiency in reliance on the undertaking of the Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Participant's delivery and maintenance of collateral consisting of cash having a value at least equal to 125% of the value of the missing Deposit Securities. The parties hereto agree that the delivery of such collateral shall be made in accordance with the iShares Cash Collateral Settlement Procedures approved by the Fund's Board of Directors, as they may be amended from time to time, which such procedures shall be provided to the Participant by the Transfer Agent upon request. Such Cash Collateral Settlement Procedures contemplate, among other things, that any cash collateral shall be in the form of U.S. dollars in immediately available funds, that such cash collateral shall be held by the Custodian and marked to market daily, and 5 that the fees of the Custodian and subcustodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Participant. The Participant, as pledgor, hereby pledges to the Fund, as pledgee, as security for its obligation to delivery the missing Deposit Securities as soon as possible, and grants to the Fund, a first priority security interest in, lien on and right of set-off against, all such cash collateral. The parties hereto further agree that the Fund may purchase the missing Deposit Securities at any time and the Participant agrees to accept liability for any shortfall between the cost to the Fund of purchasing such securities and the value of the collateral, which may be sold by the Fund at such time, and in such manner, as the Fund may determine in its sole discretion. 10. Contractual Settlement for Redemption Orders. Deliveries of redemption -------------------------------------------- proceeds by the Index Fund 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 Order is received in proper form. See the Fund's statement of additional information for instances where more than seven calendar days would be needed to deliver redemption proceeds. 11. Cash Purchases. When, in the sole discretion of the Fund, cash purchases -------------- of Creation Units of iShares are available or specified for an Index Fund, such purchases shall be effected in essentially the same manner as in-kind purchases thereof. In the case of a cash purchase, the Participant must pay the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind purchaser. In addition, to offset the Fund's brokerage and other transaction costs associated with using the cash to purchase the requisite Deposit Securities, the Participant must pay a fixed purchase transaction fee, plus an additional variable charge for cash purchases, which is expressed as a percentage of the value of the Deposit Securities. The transaction fees for in- kind and cash purchases of Creation Units of iShares are described in the Prospectus. 12. Cash Redemptions. In the event that, in the sole discretion of the Fund, ---------------- cash redemptions are permitted or required by the Fund, proceeds will be paid to the Participant redeeming shares on behalf of the redeeming investors as soon as practicable after the date of redemption (within seven calendar days thereafter, except for instances listed in the Fund's statement of additional information where more than seven calendar days would be needed). 13. Subcustodian Accounts. Annex IV hereto contains a list of the subcustodian --------------------- accounts of the Fund, into which the portfolio securities constituting the portfolio of Deposit Securities of each Index Fund are to be delivered in connection with a Purchase Order. 6 PART B FLOW PROCESS This Annex II supplements the Fund's Prospectus with respect to the procedures to be used by the Distributor and Transfer Agent in processing an order for the creation or redemption of iShares. A Participant is required to have signed the Participant Agreement. The Distributor will assign a personal identification number to each Authorized Participant. This will allow a Participant through its Authorized Person(s) to place a creation or redemption order with respect to iShares. The Authorized Participant and Distributor shall implement the appropriate "Flow Process" as agreed to by the parties from time to time, a form of which is attached hereto. 7 "TELEPHONE" FLOW PROCESS - -------------------------------------------------------------------------------- ORIGINATOR ACTIVITY ---------- -------- - -------------------------------------------------------------------------------- CALLER VERIFICATION AND ORDER PROCESSING - -------------------------------------------------------------------------------- 1. AP calls on SEI's SEI rep greets caller. recorded 1-888 number to place a share creation and/or redemption order. These trades are to be placed by 4:00 PM EST. - -------------------------------------------------------------------------------- 2. AP identifies his name, SEI rep selects the AP from drop down box to the Institution he pull up the account registration and list of represents and PIN #. authorized transacters. The SEI rep verifies that the caller is authorized to place trades on behalf of that institution. The rep then asks the AP for his PIN #. The rep types the number, which will be alpha numeric into the database. The SEI rep will read to the AP a statement confirming that the AP will not be placing trades that would raise their total holdings to 80% or more of each fund. The trader confirms the rule and the rep will click "ok". The database will then open to a trading input screen for the rep to start entering trades online. - -------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- 3. AP tells SEI Rep that he SEI rep is checking the creation or redemption wants to place a creation or box and then types in the fund's ticker symbols. redemption of units in a specific fund. The AP Procedures for Redemptions: states the fund name and --------------------------- ticker symbol. If the AP states to the SEI rep that he/she intends to place a redemption order for units of a particular fund, the SEI rep will not process a redemption order until PFPC has verified the receipt of iShares or collateral with respect to such redemption request. Therefore, the AP should advise SEI of its `Intent to Redeem' prior to placing its redemption order. All redemptions need to be verified by PFPC prior to 4:00 PM EST. PFPC will verify that all iShares or collateral have been delivered to it prior to 2 p.m. Eastern Standard Time the Business Day following the day on which the redemption request is placed. The SEI rep will notify PFPC via phone or email regarding an `Intent to Redeem'. PFPC will notify SEI via telephone or email that the redemption can be processed. The call will be recorded. The redemption request may be broken by the Fund or SEI if the iShares or collateral have not been transferred to PFPC within the time period stated above. - -------------------------------------------------------------------------------- 4. AP states the number of SEI rep types in the number of units to be units he wants to create or created or redeemed. Only redemption units that redeem. Steps 4 and 5 have been previously verified will be taken. continue until the AP has Steps 3 and 4 continue until the AP has completed all transactions. completed all transactions. - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- 5. AP states he has finished The database will summarize all trading into one trading. online text box, which the SEI rep reads back to the AP, asking for a verbal confirmation of the terms of the trade. The representative reads back the fund's ticker and name, along with create or redeem and the amount of units. It is the responsibility of the AP to verify that the terms of the trade are correct. If the AP does not confirm that the read back is correct, the SEI rep will delete the first trade and reenter the corrected trade. Once the AP indicates that the terms of the trade are correct, the trade is released as "good" and confirmed, and the AP assumes all responsibility for the terms of the trade. All trades placed with SEI are irrevocable once the trade has been confirmed. The SEI rep will give the AP a trade confirmation batch number for all trades placed. - -------------------------------------------------------------------------------- QUALITY CONTROL / BALANCING - -------------------------------------------------------------------------------- 6. The SEI rep sends to the The SEI rep sends an affirmation to the AP via a AP a facsimile of all trades system-generated fax or email of all trades. placed. - -------------------------------------------------------------------------------- 7. The AP receives the The SEI rep will contact the AP within 15 facsimile. minutes after faxing the affirmation to verify the trade information in the fax for quality control purposes. Contact of the AP is done on a "best efforts" basis. If the SEI rep cannot get in touch with the AP, the SEI rep will contact the AP the following day. - -------------------------------------------------------------------------------- FILE TRANSMISSION - -------------------------------------------------------------------------------- 8. SEI send trade blotter After verifying that all trades have been and trade file. approved and balancing the interface file with the database pend file, SEI will transmit the trade file to BGI via FTP. SEI will also fax or email the PDF file (trade blotter) summarizing the trades to BGI and PFPC (two places) - -------------------------------------------------------------------------------- 10 - -------------------------------------------------------------------------------- CASH COMPONENT / CONFIRMATIONS - -------------------------------------------------------------------------------- 9. PFPC emails to SEI the SEI will manually enter the cash component into final cash figures. the ETF system. The system will generate the trade confirmations, including the cash amount, will be emailed or faxed to AP. - -------------------------------------------------------------------------------- 11 "INTERNET" FLOW PROCESS - -------------------------------------------------------------------------------- ORIGINATOR ACTIVITY ---------- -------- - -------------------------------------------------------------------------------- CALLER VERIFICATION AND ORDER PROCESSING - -------------------------------------------------------------------------------- 1. AP will log into the If the AP is not an authorized transacter with a iShares Trading Website to valid PIN # the AP will be unable to access the place a purchase and/or website. redemption order. In-kind country trades are to be placed by 4:00 PM EST to receive the current day's trade date. Cash creation country trades are to be placed by 11:50.59 PM EST to receive the current day's trade date. - -------------------------------------------------------------------------------- 2. AP will enter a PIN # in If the PIN # is not valid, the page will the initial screen of the refresh with an error message. website. If the PIN # is correct, this will generate the next page. - -------------------------------------------------------------------------------- 3. The second screen will Both of these are required fields and must be display the AP's name. The filled before the trader can continue through trader will need to select the system. If either of these fields is not their name from a drop down completed correctly, the page will refresh with box. an error message. This screen will also require If the "check here" box and the AP trader name the trader to verify, by are valid, the system will generate the next checking a check box that page. any trades being placed will not raise their total holding to 80% or more of the fund(s) that they are creating. - -------------------------------------------------------------------------------- 12 - -------------------------------------------------------------------------------- 4. The third screen is the If the AP trader has a problem at any point trade entry screen. he/she will have the option to logout or sign in as a different user. The AP trader indicates the If any of the required fields are empty the ticker symbol, transaction page will refresh with an error message. type, and settlement date that he/she wants to purchase/redeem. These are If all required fields are completed correctly the required fields in this the system will generate the next page. screen. After entering this information the AP trader will click the "insert trade" button. This button creates a screen that will list all trades that the AP trader has entered up to this point. The AP trader will have the option to delete any of these trades before moving forward. If all trade information is correct and the AP trader agrees with the trades entered then the AP trader will click the "continue" button. - -------------------------------------------------------------------------------- 13
- ---------------------------------------------------------------------------------------- QUALITY CONTROL / BALANCING - ---------------------------------------------------------------------------------------- 5. The fourth screen is the Once the affirmation has been submitted then the trade "Affirmation of Trade" will be considered "irrevocable." The language noted screen. at the bottom of the affirmation/estimated confirmation will refer to the portfolio composition file (PCF), This screen simply lists the this is a listing of the underlying constituents of the trade(s) placed by the AP fund. trader. There is no required field(s) for completion on this screen. The AP trader has four options on this screen. He/She can logout, sign in as a different trader, click Go Back to revise the listed trades, or click the "Finish" button. Once the "Finish" button has been clicked the system will automatically generate a PDF file of the affirmation, which can be saved and/or printed by the AP trader for his/her records. - ----------------------------------------------------------------------------------------
14
- ---------------------------------------------------------------------------------------- FILE TRANSMISSION - ---------------------------------------------------------------------------------------- 6. SEI will send the trade The first trade blotter and trade file will include all blotter trades taken between 4PM EST of the previous business day and 7:30 AM of the current business day. and trade file to the BGI trade ops and international portfolio The second trade blotter and trade file will include managers any trade activity from 7:30AM until 4PM EST for the current business day. between 7:30 and 8:30AM EST. SEI will also send a second trade blotter and trade file at 4PM EST. - ---------------------------------------------------------------------------------------- CASH COMPONENT / CONFIRMATIONS - ---------------------------------------------------------------------------------------- 7. PFPC will email to SEI the SEI will manually enter the cash component into the ETF system. The system will generate the trade confirmations, including the cash amount and such final cash component and NAV confirmations will be emailed or faxed to AP trader. figures for the Asian cross-traded funds between 11:00 AM and 12:00PM EST. PFPC will email to SEI the final cash component and NAV for the remaining MSCI Funds after 4PM EST. - ----------------------------------------------------------------------------------------
15 ANNEX III iShares, Inc. CERTIFIED AUTHORIZED PERSON OF PARTICIPANT The following are the names, titles and signatures of persons (each, an "Authorized Person") authorized to give instructions relating to activity contemplated by the Authorized Participant Agreement relating to iShares, Inc. or any other notice, request or instruction on behalf of the Participant pursuant to the Authorized Participant Agreement, as of _______, 200_. Name: Title: Signature: _____________________________ Name: Title: Signature: _____________________________ Name: Title: Signature: ____________________________ Name: Title: Signature: ______________________________ Name: Title: Signature: _______________________________ 1 Name: Title: Signature: _______________________________ Name: Title: Signature: _______________________________ The undersigned, _____________ [name], ______________ [title], __________________ [name of Participant], does hereby certify that the persons listed above have been duly authorized to act as Authorized Persons as of the date hereof, pursuant to the Authorized Participant Agreement by and among iShares, Inc., SEI Investments Distribution Co. and ________________ [name of Participant], dated ____________, 200_ and that their signatures set forth above are their own true and genuine signatures. In Witness Whereof, the undersigned has hereby set his hand as of this ___ day of _______, 200_. ____________________________ Name: Title: 2 ANNEX IV iShares, Inc. FUND SUBCUSTODIAN ACCOUNTS FOR DELIVERY OF DEPOSIT SECURITIES The subcustodian accounts into which a Participant should deposit the securities constituting the Deposit Securities of each Index Fund are set forth below: iShares MSCI Australia Index Fund: Account Name: iShares MSCI Australia Index Fund Account Number: 17168 Cash Account Number (US$): 23511002 Other Reference Number: 6028468 iShares MSCI Austria Index Fund: Account Name: iShares MSCI Austria Index Fund Account Number: 17167 Cash Account Number (US$): 23510902 Other Reference Number: 6028450 iShares MSCI Belgium Index Fund: Account Name: iShares MSCI Belgium Index Fund Account Number: 17169 Cash Account Number (US$): 23511102 Other Reference Number: 6028492 iShares MSCI Brazil (Free) Index Fund: 1 Account Name: iShares MSCI Brazil Index Fund Account Number: 19653 Cash Account Number (US$): 23760401 Other Reference Number: 6033427 iShares MSCI Canada Index Fund: Account Name: iShares MSCI Canadian Index Fund Account Number: 17170 Cash Account Number (US$): 23511202 Other Reference Number: 6028500 iShares MSCI EMU Index Fund: Account Name: iShares MSCI EMU Index Fund Account Number: 19652 Cash Account Number: 23760801 Other Reference Number: 6033468 iShares MSCI France Index Fund: Account Name: iShares MSCI France Index Fund Account Number: 18638 Cash Account Number (US$): 23547102 Other Reference Number: 6072136 iShares MSCI Germany Index Fund: Account Name: iShares MSCI Germany Index Fund 2 Account Number: 17172 Cash Account Number (US$): 23511402 Other Reference Number: 6028526 iShares MSCI Greece Index Fund: Account Name: iShares MSCI Greece Index Fund Account Number: Cash Account Number (US$): Other Reference Number: iShares MSCI Hong Kong Index Fund: Account Name: iShares MSCI Hong Kong Index Fund Account Number: 17175 Cash Account Number (US$): 23510102 Other Reference Number: 6028559 iShares MSCI Italy Index Fund Account Name: iShares MSCI Italy Index Fund Account Number: 17176 Cash Account Number (US$): 23510202 Other Reference Number: 6028567 iShares MSCI Japan Index Fund: Account Name: iShares MSCI Japan Index Fund Account Number: 17177 3 Cash Account Number (US$): 23510302 Other Reference Number: 6028575 iShares MSCI Malaysia (Free) Index Fund: Account Name: iShares MSCI Malaysian Index Fund Account Number: 17179 Cash Account Number (US$): 23510502 Other Reference Number: 6028591 iShares MSCI Mexico (Free) Index Fund: Account Name: iShares MSCI Mexican Index Fund Account Number: 17178 Cash Account Number (US$): 23510402 Other Reference Number: 6028583 iShares MSCI Netherlands Index Fund: Account Name: iShares MSCI Netherlands Index Fund Account Number: 17180 Cash Account Number (US$): 23510602 Other Reference Number: 6028617 iShares MSCI Singapore (Free) Index Fund: Account Name: iShares MSCI Singapore Index Fund Account Number: 17182 Cash Account Number (US$): 23510802 4 Other Reference Number: 6028641 iShares MSCI South Africa Index Fund: Account Name: iShares MSCI South African Index Fund Account Number: Cash Account Number (US$): Other Reference Number: iShares MSCI South Korea Index Fund: Account Name: iShares MSCI Korea Index Fund Account Number: 19655 Cash Account Number (US$): 23760601 Other Reference Number: 6033443 iShares MSCI Spain Index Fund: Account Name: iShares MSCI Spain Index Fund Account Number: 17173 Cash Account Number (US$): 23511502 Other Reference Number: 6028534 iShares MSCI Sweden Index Fund: Account Name: iShares MSCI Sweden Index Fund Account Number: 17181 Cash Account Number (US$): 23510702 Other Reference Number: 6028625 5 iShares MSCI Switzerland Index Fund: Account Name: iShares MSCI Switzerland Index Fund Account Number: 17171 Cash Account Number (US$): 23511302 Other Reference Number: 6028518 iShares MSCI Taiwan Index Fund: Account Name: iShares MSCI Taiwan Index Fund Account Number: 19654 Cash Account Number (US$): 23760501 Other Reference Number: 6033435 iShares MSCI Thailand (Free) Index Fund: Account Name: iShares MSCI Thailand (Free) Index Fund Account Number: Cash Account Number (US$): Other Reference Number: iShares MSCI United Kingdom Index Fund: Account Name: iShares MSCI United Kingdom Index Fund Account Number: Cash Account Number (US$): Other Reference Number: 6 iShares MSCI USA Index Fund: Account Name: iShares MSCI USA Index Fund Account Number: Cash Account Number (US$): Other Reference Number: 7 EX-99.G.1 6 dex99g1.txt CUSTODY AGREEMENT EXHIBIT (g.1) CUSTODY AGREEMENT THIS CUSTODY AGREEMENT is dated January 30, 2001 BETWEEN THE CHASE MANHATTAN BANK, a New York State chartered bank, having an office at 270 Park Ave., New York, NY 10017-2070 (the "Custodian"), and iSHARES INC., an investment company with multiple iShares MSCI Index Funds, whose principal office is at 400 Bellevue Parkway, Wilmington Delaware 19809 (the Client) APPOINTMENT AND ACCEPTANCE; ACCOUNTS 1.(a) The Client hereby appoints the Custodian as a custodian of Property (as defined below) owned or under the control of the Client that is delivered to the Custodian, or any Subcustodian as appointed below, from time to time to be held in custody for the Client. The Custodian agrees to act as such custodian upon the terms and conditions hereinafter provided. The Custodian acknowledges that the Client acts on behalf of its various iShares MSCI Index Funds, each of which maintains a separate account with the Custodian. (b) Prior to the delivery of any Property by the Client to the Custodian in respect of any Account, the Client shall deliver to the Custodian each document and other item listed in Appendix 1 as reasonably necessary or appropriate for such Property. In addition, the Client shall deliver to the Custodian any additional documents the Custodian may reasonably deem necessary for the performance of its duties under this Agreement. (c) The Client instructs the Custodian to establish on the books and records of the Custodian the cash and securities accounts listed in Appendix 2, as such Appendix may be amended or supplemented from time to time (the "Accounts"). Upon receipt of Authorized Instructions (as defined below) and appropriate account opening forms, the Custodian shall open additional Accounts for the Client. Upon the Custodian's confirmation to the Client of the opening of such additional Accounts, or of the closing of Accounts, Appendix 2 shall be deemed automatically amended or supplemented accordingly. The Custodian shall record in the Accounts and shall have general responsibility for the safekeeping of all securities ("Securities"), cash, cash equivalents and other property (all such Securities, cash, cash equivalents and other property being collectively the "Property") of the Client that are delivered to the Custodian for custody or that were previously delivered to Custodian for custody at any time on or after the date that Custodian succeeded by operation of law to the rights and obligations of Morgan Stanley Trust Company and that remain in the custody of the Custodian as of the date hereof (it being expressly agreed that cash is not a "financial asset" for purposes of Article 8 of the New York Uniform Commercial Code and it being further expressly agreed that Custodian shall be responsible, where applicable, for certain services specified herein with respect to Property no longer in its custody (including, by way of illustration, tax reclaim services). (d) For the avoidance of doubt, there shall be no right of set-off between Accounts and no Property relating to any Account shall be used to meet the obligations of any other Account or of the Client in relation thereto or of any other customers of the Custodian. 1 SUBCUSTODIANS 2. The Securities may be held in custody accounts that have been established by the Custodian with one or more domestic or foreign banks or other institutions as listed on Exhibit A (the Subcustodians), as such Exhibit may be amended from time to time by the Custodian by not less than sixty (60) days' written notice to the Client, or through the facilities of one or more securities depositories or clearing agencies, but the Custodian may not use the services of any Subcustodian or depository not named in Exhibit A (as amended from time to time) save where obliged to do so in order to deliver or take delivery of a Security in settlement of a transaction carried out by the Client and instructed to be settled by the Client. Subject as provided in Section 12, the Custodian shall hold Property through a Subcustodian, securities depository or clearing agency, and any Subcustodian may hold Property in a securities depository or a clearing agency, and in the case of each Subcustodian as selected by it using reasonable care and skill, only if: (a) the agreement between Customer and such Subcustodian provides that the Property shall not be subject to any right, charge, security interest, lien or claim of any kind in favor of such Subcustodian or any of its creditors, except a claim of payment for their safe custody or administration or, in the case of cash deposits, except for liens or rights in favor of creditors of the Subcustodian, arising under bankruptcy, insolvency or similar laws; and (b) beneficial ownership of such Property may be freely transferred without the payment of money or value other than for safe custody or administration. RECORDS 3. With respect to Property held by a Subcustodian: (i) The Custodian may hold Securities with securities or other investments of other customers with a Subcustodian in a single account identified as held by the Custodian for the benefit of its customers; (ii) The Custodian shall identify on its books as belonging to Client's Accounts any Property held by a Subcustodian for the Custodian's account; (iii) The Custodian shall require that Property held by the Subcustodian for the Custodian's account be identified on the Subcustodian's books as separate from any other property held by the Subcustodian other than property of the Custodian's customers held solely for the benefit of customers of the Custodian; and (iv) In the event the Subcustodian holds Property in a securities depository or clearing agency, such Subcustodian shall be required by its agreement with the Custodian to identify on its books such Property as being held for the account of the Custodian as custodian for its customers or in such other manner as is required by local law or market practice. ACCESS TO RECORDS 4. The Custodian shall allow the Client or its duly authorized agent reasonable access to the records held by the Custodian relating to Property as the Client may reasonably require in connection with their examination of the Client's affairs. The Custodian shall also obtain from any Subcustodian (and shall 2 require each Subcustodian to use reasonable efforts to obtain from any securities depository or clearing agency in which it deposits Property) an undertaking, to the extent consistent with local market practice and the laws of the jurisdiction or jurisdictions to which such Subcustodian, securities depository or clearing agency is subject, to permit the Client or its duly authorized agent such reasonable access to the records of such Subcustodian, securities depository or clearing agency as may be reasonably required or to take such other action as the Custodian in its judgement may deem sufficient to ensure such reasonable access. REPORTS 5. The Custodian shall provide such reports and other information to the Client and to such persons as the Client directs and as the Custodian and the Client may agree from time to time. Custodian shall issue statements to Client at times mutually agreed identifying the Property in the Accounts, and otherwise on request. Additionally, the Custodian shall send Client an advice or notification of any transfers of Property to or from the Accounts. Such statements, advice, or notifications shall indicate the identity of the entity having custody of the Property. Unless the Client sends the Custodian a written exception or other objection to any such statement, advice or related notification within thirty (30) days after the Client's next audit covering any period included in the statement, advice or related notification (but in no event shall such written exception or other objection be made more than thirty (30) days and one (1) year from the date of such statement, advice or related notification), the Client shall be deemed to have approved the same. The Custodian shall advise the Client in writing of any material changes in the foreign custody arrangements applicable to Client's Property. PAYMENT OF MONIES 6(a) The Custodian shall make payments from monies being held in the Accounts only in accordance with Authorized Instructions or as provided in Sections 9(e) and (i), 13 and 17. To facilitate the administration of the Client's trading and investment activity, when instructed by specific or standing Instruction, the Custodian is authorized as the Client's agent to cause the Client to enter into spot or forward foreign exchange contracts with the Custodian, its Affiliates or Subcustodians. Authorized Instructions, including standing instructions, may be issued with respect to such contracts but the Custodian may establish rules or limitations concerning any foreign exchange facility made available. In all cases where the Custodian, its Affiliates or Subcustodians enter into a separate master foreign exchange contract with the Client that covers foreign exchange transactions for the Accounts, the terms and conditions of that foreign exchange contract and, to the extent not inconsistent, this Agreement shall apply to such transactions. (For purposes hereof, the term "Affiliate" shall mean an entity controlling, controlled by, or under common control with, the Custodian.) TRANSFER OF SECURITIES 7. The Custodian shall make, or cause any Subcustodian to make, transfers, exchanges or deliveries of Securities only in accordance with Authorized Instructions or as provided in Sections 9 and 17. For purposes of Sections 7 and 7(A), all notices shall be sent both as set forth in Section 20 and any service level documentation that may be agreed upon by the parties (the "Service Documentation"). 7A (1) Except as specified in Section 7(A)(3) below, if the Custodian credits the Account on a payable date, or at any time prior to actual collection and reconciliation to the Account, with interest, dividends, 3 redemptions or any other amount due, the Client shall promptly return any such amount upon the prior written notice periods specified in the Service Documentation: (i) that such amount has not been received in the ordinary course of business or (ii) that such amount was incorrectly credited. If the Client does not return any such amount by the expiration of the applicable notice period, the Custodian shall be entitled, upon 72 hours additional prior written notice to the Client, to reverse such credit by debiting the Account for the amount previously credited. The Custodian or its Subcustodian shall have no duty or obligation to institute legal proceedings, file a claim or a proof of claim in any insolvency proceeding or take any other action with respect to the collection of such amount, but may act for the Client upon Authorized Instructions after consultation with the Client. (2) Property shall be transferred, exchanged or delivered by the Custodian or its Subcustodian only upon receipt by the Custodian of Authorized Instructions which include all information required by the Custodian. Settlement and payment for Property received for, and delivery of Property out of, the Account may be made in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivery of Property to a purchaser, dealer or their agents against a receipt with the expectation of receiving later payment and free delivery. Delivery of Property out of the Account may also be made in any manner specifically required by Authorized Instructions acceptable to the Custodian. Notwithstanding the foregoing, the parties agree that, except where inconsistent with local law or customary practice, Property will not be delivered out of an Account except against receipt on behalf of the Client of the consideration against which such Property is being delivered. (3) With respect to any sale, exchange or purchase of Property, the Custodian will debit or credit the Account with cash or Property on the contractual settlement date for the countries listed on Schedule One, attached hereto and fully incorporated herein. With respect to dividends and interest, the Custodian will credit or debit the Account with cash or Property on the "AutoCredit Date" as defined and specified in the Service Documentation. Otherwise, transactions shall be credited or debited to the Account on the date cash or Property are actually received by the Custodian and reconciled to the Account. Schedule One is subject to change from time to time (i) by written agreement between the Custodian and the Client, (ii) by at least thirty (30) days prior written notice from the Custodian to the Client, where the amendment is necessary to reflect changes in law, regulation or market practice and affects all of the Custodian's relevant clients or (iii) notwithstanding Section 7A(3)(ii) above and, only in the event of sudden major changes in law, regulation or market practice without an amendment for which the Custodian or any Subcustodian could reasonably suffer significant financial liabilities, by such notice and by such means as is reasonably practicable and consistent with a reasonable standard of care. (i) The Custodian may reverse credits or debits made to the Account pursuant to this Section 7(A) if the related transaction fails to settle within ninety (90) days after the contractual settlement date for the related transaction, but only upon at least 72 hours prior written notice to the Client of any such reversals. (ii) If any Property delivered pursuant to this Section 7A is returned by the recipient thereof, the Custodian may reverse the credits and debits of the particular transaction at any time, provided however, the Custodian gives Client at least 72 hours prior written notice of any such reversals. CORPORATE ACTIONS; PROXY VOTING; TAX RECLAIMS 4 For purposes of Sections 8 and 8(A), all notices shall be sent both as set forth in Section 20 and the Service Document. 8. (a) Whenever any of the Custodian's or any Subcustodian's departments or units involved in custodial operations receives information on a timely basis or has any reason to believe that it should have received information (whether from an issuer, Subcustodian, depository or by means of electronic information typically used by custodian banks for such purpose) concerning the Property which requires discretionary or mandatory action by the beneficial owner of the Property (other than a proxy), such as subscription rights, bonus issues, stock repurchase plans and rights offerings, or legal notices or other material intended to be transmitted to securities holders ("Corporate Actions"), the Custodian shall give the Client timely notice of such Corporate Actions. When a rights entitlement or a fractional interest resulting from a rights issue, stock dividend, stock split or similar Corporate Action is received which bears an expiration date, the Custodian shall endeavor to obtain Authorized Instructions from the Client or its Authorized Person (as defined in Section 10(b) hereof), but if Authorized Instructions are not received in time for the Custodian to take timely action, or notice of information regarding such Corporate Action (as set forth in Section 8(a) above) was received too late to seek Authorized Instructions, the Custodian is authorized to sell such rights entitlement or fractional interest and to credit the Deposit Account with the proceeds or take any other action it deems, in good faith, to be appropriate in which case it shall be held harmless for any such action. Custodian shall inform the Client of execution prices in writing within three (3) business days. (b) The Custodian shall provide proxy voting services, if elected by the Client, in accordance with the terms of the proxy voting services rider hereto. Proxy voting services may be provided by the Custodian or, in whole or in part, by one or more third parties appointed by the Custodian (which may be "Affiliates" of the Custodian). 8A (1) Subject to the provisions hereof, the Custodian shall apply for a reduction of withholding tax and any refund of any tax paid or tax credits which apply in each applicable market in respect of income payments on Property for the Client's benefit which the Custodian believes or, in the exercise of reasonable care, should have known, may be available to the Client. (2) The provision of tax reclaim services by the Custodian is conditional upon the Custodian's receiving from the Client or, to the extent the Property are beneficially owned by others, from each beneficial owner, A) a declaration of the beneficial owner's identity and place of residence and (B) certain other documentation (pro forma copies of which are available --- ----- from the Custodian). The Client acknowledges that, if the Custodian does not receive such declarations, documentation and information the Custodian shall be unable to provide tax reclaim services. (3) Unless the Custodian has acted with gross negligence, fraudulently or with willful misconduct or knows or has reason to know that any third party (including any Subcustodian) has acted in such a way and Custodian fails to inform the Client on a timely basis of such third party action, the Custodian shall not be liable to the Client or any third party for any taxes, fines or penalties payable by the Custodian or the Client, and shall be indemnified accordingly, whether these result from the inaccurate completion of documents by the Client or any third party, or as a result of the provision to the Custodian or any third party of inaccurate or misleading information or the withholding of material information by the Client or any other 5 third party, or as a result of any delay of any revenue authority or any other matter beyond the Custodian's control. (4) The Custodian shall perform tax reclaim services only with respect to taxation levied by the revenue authorities of the countries notified to the Client as of the date hereof, and the Custodian may, by two weeks prior written notice supplement or amend the markets in which tax reclaim services are offered. Other than as expressly provided in this sub-clause, the Custodian shall have no responsibility with regard to the Client's tax position or status in any jurisdiction. (5) The Custodian is authorized to disclose to any revenue authority, governmental body or any institution acting as agent for or on behalf of such authority or body any information contained in a Chase "Investor Tax Questionnaire" completed by Client regarding the securities and/or cash custodied by the Custodian on behalf of the Client. In the event, however, that any revenue authority or governmental body or any institution acting as agent for or on behalf of such authority or body requests information on the nature of the Client and/or information beyond that contained in an Investor Tax Questionnaire, then the Custodian shall provide the Client prompt, written notice of such request and obtain its prior, written approval before disclosing any information. The Client may not unreasonably withhold its consent to any such disclosures. To the extent permitted to do so by applicable law, regulation or the like, the Custodian shall provide the Client with copies of all such requests and notice of the applicable disclosures within fifteen (15) days, if practicable, of the disclosures. (6) Tax reclaim services may be provided by the Custodian or, in whole or in part, by one or more third parties appointed by the Custodian (which may be any of the Affiliates); provided that the Custodian shall be liable for the performance of any such third party to the same extent as the Custodian would have been if the Custodian performed such services. (7) The Client confirms that, upon prior written notice, the Custodian is authorized to deduct from any cash received or credited to the Account any taxes or levies required by any revenue or governmental authority for whatever reason in respect of the Custody Account. (8) If the Custodian does not receive appropriate declarations, documentation and information, then any additional applicable United Kingdom taxation shall be deducted from all income received in respect of the Property issued outside the United Kingdom (which shall for this purpose include UK Eurobonds) and any applicable United States tax shall be deducted from income received from the Property. The Client shall provide to the Custodian such documentation and information as the Custodian may require in connection with taxation, and warrants that, when given, this information shall be true and correct in every material respect, not misleading in any material way, and contain all material information. The Client undertakes to notify the Custodian immediately if any such information requires updating or amendment. (9) Unless otherwise specified or contemplated in Service Documentation, the Client shall be responsible for the payment of all taxes relating to the Property in the Custody Account, and the Client agrees to pay, indemnify and hold the Custodian harmless from and against any and all liabilities, penalties, interest or additions to tax with respect to or resulting from, any delay in, or failure by, the Custodian (1) to pay, withhold or report any U.S. federal, state or local taxes or foreign taxes imposed on, or (2) to report interest, dividend or other income paid or credited to the Cash Account, whether such failure or delay by the Custodian to pay, withhold or report tax or income is the result of (x) the Client's failure to comply with the terms of this paragraph, or 6 (y) the Custodian's own acts or omissions; provided however, the Client shall not be liable to the Custodian and Custodian shall indemnify Client for any penalty, interest or additions to tax due as a result of the Custodian's failure to pay or withhold tax or to report interest, dividend or other income paid or credited to the Cash Account primarily as a result of the Custodian's breach of this Agreement, negligent acts or omissions. (10) Notwithstanding anything contained in Sections 8(A)(1) through (9), the Custodian shall be liable for any tax reclaims not obtained on behalf of the Client as a result of missed deadlines and/or statutes of limitations where the applicable deadline or statute of limitation is missed on account of the Custodian having failed to give Client at least two months prior notice of (a) any missing required documentation or (b) any change in the law, facts, procedures and/or any other circumstances beyond the control of the Custodian; provided that, such notice may be less than two months in respect of alternative (b) where giving two months notice is not reasonably feasible as long as the notice given is as much as is reasonably feasible. GENERAL AUTHORITY 9. In the absence of Authorized Instructions to the contrary, the Custodian shall, and shall authorize any Subcustodian to: (a) receive and collect all income and principal with respect to Securities and to credit cash receipts to the Accounts; (b) exchange Securities when the exchange is purely ministerial (including, without limitation, the exchange of interim receipts or temporary securities for securities in definitive form and the exchange of warrants, or other documents of entitlement to securities, for the securities themselves); (c) surrender Securities at maturity or when called for redemption upon receiving payment therefor; (d) execute in the Client's name such ownership and other certificates as may be required to obtain the payment of income from Securities; (e) pay or cause to be paid, from the Accounts, any and all taxes and levies in the nature of taxes imposed on Securities by any governmental authority in connection with custody of and transactions in such Securities; (f) endorse for collection, in the name of the Client , cheques, drafts and other negotiable instruments; (g) take non-discretionary action on mandatory corporate actions; (h) in general, attend to all non-discretionary details in connection with the custody, sale, purchase, transfer and other dealings with the Property; (i) pay calls due on partly paid Securities where the liability to pay such calls is apparent on the face of the relevant document of title held by the Custodian but not otherwise; and (j) make payments to itself or others for expenses of handling Property or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted 7 for to the Client and Custodian shall provide at least 72 hours prior written notice of local market-imposed fees, such as stamp and registration fees. AUTHORIZED INSTRUCTIONS; AUTHORIZED PERSONS 10.(a) Except as otherwise provided in Sections 6 through 9, and 17, all payments of monies, all transfers, exchanges or deliveries of Property and all responses to corporate actions shall be made or taken only upon receipt by the Custodian of Authorized Instructions; provided that such Authorized Instructions are timely received by the Custodian. Authorized Instructions of the Client means instructions from an Authorized Person received by facsimile, tested telex, electronic link or other electronic means or by telephone (given or purporting to be given by an Authorized Person) or by such other means as may be agreed in writing between the Client and the Custodian. (b) Where the Custodian receives Authorized Instructions, pursuant to Section 10(a) or otherwise, by telephone the Custodian shall be entitled to rely on such Authorized Instructions provided that the person giving such Authorized Instructions is or purports to be an Authorized Person. Such telephone instructions shall be confirmed in writing as soon as possible. The Custodian shall, however, be entitled in its sole discretion to act on the Authorized Instructions first given (unless prior to so acting such telephone instructions have been countermanded) and whether or not such confirmation is received. The Custodian shall not be liable to the Client for any loss caused to the Client or third parties by its taking or refraining from taking any action pursuant hereto pending receipt of written confirmation of such telephone instructions as set out above or by any irregularity, delay, mistake, telegraphic error, omission or misrepresentation that may arise provided that nothing in this sentence shall absolve the Custodian from liability for any loss, liability or expense for which it would be liable under Section 15. (c) Authorized Person means each of the persons or entities identified on Appendix 3 as amended from time to time by written notice from the Client to the Custodian. The Client represents and warrants to the Custodian that each Authorized Person listed in Appendix 3, as amended from time to time, is authorized to issue Authorized Instructions on behalf of the Client. Prior to the delivery of the Property to the Custodian, the Custodian shall provide a list of designated system user ID numbers and passwords that the Client shall be responsible for assigning to Authorized Persons. The Custodian shall assume that an electronic transmission received and identified by a system user ID number and password was sent by an Authorized Person. The Custodian agrees to provide additional designated system user ID numbers and passwords as needed by the Client. The Client authorizes the Custodian to issue new system user ID numbers upon the request of a previously existing Authorized Person. Upon the issuance of additional system user ID numbers by the Custodian to the Client, Appendix 3 shall be deemed automatically amended accordingly. The Client authorizes the Custodian to act and rely, and directs it to accept and act, upon any Authorized Instructions received by the Custodian which have been issued, or purport to have been issued, by an Authorized Person, but this authority and direction does not apply if, prior to receipt of such Authorized Instructions, the Custodian has received Authorized Instructions from the Client that such Authorized Person is no longer authorized to issue Authorized Instructions on behalf of the Client and the Custodian has received and has had a reasonable opportunity to act upon such notice. (d) Any Authorized Person may cancel/correct or otherwise amend any Authorized Instruction received by the Custodian, but the Client agrees to indemnify the Custodian for any loss or expense incurred by the Custodian as a result of it having relied upon or acted on any prior 8 Authorized Instruction save to the extent the Custodian is liable therefor under Section 15. An amendment or cancellation of an Authorized Instruction to deliver or receive any security or funds in connection with a trade shall not be processed once the trade has settled. REGISTRATION OF SECURITIES 11.(a) In the absence of Authorized Instructions to the contrary, Securities which must be held in registered form shall be registered in the name of the Custodian or the Custodian's nominee or, in the case of Securities in the custody of an entity other than the Custodian, in the name of the Custodian, its Subcustodian or their respective nominees, provided that the Custodian shall not register securities in its own name if it is prohibited from doing so by relevant regulatory rules applicable to the Custodian or any Subcustodian. The Custodian may, upon prior written notice to the Client, cause any Securities to be registered or re-registered in the name of the Client. (b) Where the Custodian has been instructed by the Client (other than as required to comply with local law or practice) to hold any Securities in the name of any person or entity other than the Custodian, its Subcustodian or their respective nominees, the Custodian shall not be responsible for any failure to collect such dividends or other income or participate in any such corporate action with respect to such Securities. DEPOSIT ACCOUNTS 12. The Custodian confirms that, except to the extent otherwise agreed in writing, all cash held in the custody or related cash Accounts shall be deposited at all times in one or more commercial deposit accounts at the Custodian's New York or London branches. SHORT-TERM CREDIT EXTENSIONS 13.(a) In the absence of Authorized Instructions, from time to time, the Custodian may extend credit for the Client which: (i) is necessary in connection with payment and clearance of Securities and foreign exchange transactions; or (ii) is pursuant to the schedule, as and if set forth in the Service Documentation, of credits for dividends and interest payments on Securities; or (iii) arises in connection with the provision by the Custodian of contractual settlement date accounting. Except for extensions of credit made in connection with Custodian's provision of contractual settlement date accounting or pursuant to the AutoCredits Schedule in the Service Documentation, both as specified in Section 7(a), all such extensions of credit shall be repayable by the Client on demand or within such notice period (if any) as is set out in the Service Documentation. (b) Except for extensions of credit made in connection with Custodian's provision of contractual settlement date accounting or pursuant to the AutoCredits Schedule in the Service Documentation, both as specified in Section 7(a), the Custodian shall be entitled to charge the Client interest for any such credit extension at rates to be agreed upon from time to time. 9 REPRESENTATIONS AND WARRANTIES 14.(a) The Client represents and warrants that: (i) the execution, delivery and performance of this Agreement (including, without limitation, the ability to obtain the extensions of credit in accordance with Section 13) are within the Client's power and authority and have been duly authorized by all requisite action (corporate or otherwise) of the Client; and (ii) this Agreement and each extension of short-term credit extended to or arranged for the benefit of the Client in accordance with Section 13 shall at all times constitute a legal, valid and binding obligation of the Client enforceable against the Client, except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law). (b) The Custodian represents and warrants that: (i) the execution, delivery and performance of this Agreement are within the Custodian's power and authority and have been duly authorized by all requisite action (corporate or otherwise) of the Custodian, and the Custodian has all necessary regulatory authorisations to perform its functions under this Agreement and the Service Documentation; and (ii) this Agreement constitutes a legal, valid and binding obligation of the Custodian enforceable against the Custodian, except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) without prejudice to the Custodian's existing obligations and the limitations thereon, the Custodian has developed and is implementing programs to help assure that its relevant systems (including, but not limited to, the Morgan Stanley, Dean Witter & Co. "TAPS" custody system as licensed to the Custodian) and business processes will be capable of processing on and after: (a) January 1, 2000, date and date related data consistent with the functionality of such systems and applications; and (b) January 1, 1999 data relating to EMU and the euro. STANDARD OF CARE; INDEMNIFICATION 15.(a) The Custodian shall be responsible for the performance of only such duties as are set forth in this Agreement or contained in Authorized Instructions given to the Custodian which are not contrary to the provisions of any relevant law or regulation. The Custodian shall be liable to the Client for, and shall indemnify the Client for and hold it harmless from, any loss, liability or expense (including reasonable attorney's fees and disbursements) incurred by the Client in connection with this Agreement to the extent that any such loss, liability or expense results directly from the negligence, wilful default or fraud of the Custodian or breach of the terms of this Agreement by the Custodian. In addition, the Custodian shall be liable to the Client for, and shall indemnify the Client for and hold it harmless from, any loss, liability or expense (including reasonable attorney's fees and disbursements) incurred by the Client in connection with this 10 Agreement to the extent that any such loss, liability or expense results directly from the negligence, wilful default or fraud of the Custodian or breach of the terms of this Agreement by the Custodian. In addition, the Custodian shall be liable to the Client for, and shall indemnify the Client for and hold it harmless from, any loss, liability or expense (including reasonable attorney's fees and disbursements) incurred by the Client in connection with this Agreement to the extent that any such loss, liability or expense results directly from the negligence, wilful default or fraud of any Subcustodian or breach of the terms of this Agreement by the Subcustodian. The Custodian shall have no liability for any consequential loss, liability or expense (including, but not limited to, lost profits) (collectively "Losses") caused by or otherwise attributable to a Subcustodian and suffered by the Client entity where such Losses arose as a result or consequence of special circumstances peculiar to the entity incurring such Losses and regardless of whether the Custodian (or the Subcustodian) had been advised as to the possibility of such Losses and regardless of the form of the action. The Custodian confirms that its liability shall include, without limitation, (and notwithstanding the limitation of liability set forth in the previous sentence) any Losses incurred by the applicable Client entity on account of: (1) a "Change in the Market Value of a Security" (as defined in the next sentence hereof) where the applicable entity had instructed the Custodian to deliver out (receive in) a security in connection with the sale (purchase) of such security by such entity but which trade failed on account of a Subcustodian's negligence, wilful default, fraud or breach of the terms of this Agreement; (2) a Change in the Market Value of a Security where a purchase transaction advised to the Custodian in the normal course of business failed on account of the applicable Client entity having insufficient funds in its Accounts, to the extent that such insufficiency resulted from a Subcustodian's negligence, wilful default, fraud or breach of the terms of this Agreement. The term "Change in the Market Value of a Security" shall mean the difference determined by subtracting the closing price of such Security on the original (failed) trade date for such security from the closing price of such Security on the actual trade date for such Security where, in the case of a sale, the difference is a negative number and, in the case of a purchase, the difference is a positive number. (b) The Client acknowledges that the Securities may be physically held outside the United States. The Custodian shall not be liable for any loss, liability or expense resulting from events beyond the reasonable control of the Custodian or any Subcustodian, including, but not limited to, force majeure, except to the extent that it results directly from the negligence, wilful misconduct or fraud of the Custodian or any Subcustodian. Without limiting the foregoing, the Custodian shall not be liable for any loss which results from: 1) the general risk of investing, or 2) investing or holding Property in a particular country including, but not limited to, losses resulting from malfunction, interruption of or error in the transmission of information caused by any machines or system or interruption of communication facilities, abnormal operating conditions, nationalization, expropriation or other governmental actions; regulation of the Custodian or securities industry; currency restrictions, devaluations or fluctuations; and market conditions which prevent the orderly execution of securities transactions or affect the value of Property; except that, with respect to the failure of machines, systems, interruption of communication facilities or abnormal operating conditions on Custodian or a Subcustodian's premises or otherwise within the control of Custodian or a Subcustodian, Custodian shall not be so excused to the extent that such failure was on account of Custodian's or the Subcustodian's (as the case may be) negligence or wilful misconduct (such as a failure to have had routine maintenance performed or to have selected equipment reasonably suitable for the purposes contemplated hereby) given, in the case of Subcustodians. (c) In addition, the Client shall indemnify the Custodian and Subcustodians and their respective nominees for, and hold each of them harmless from, any liability, loss or expense (including attorneys' fees and disbursements) to the extent incurred in connection with this Agreement together with, without limitation, the Service Documentation, including without limitation, 11 (i) as a result of the Custodian having acted or relied upon any Authorized Instructions received by the Custodian in accordance with or as provided in Section 10; or (ii) arising out of any such person being a nominee or holder of record of Securities, save to the extent that any such liability or expense results directly from the negligence, wilful misconduct or fraud of or breach of the terms of this Agreement by the Custodian or any Subcustodian. FEES 16(a) The Client shall pay to the Custodian from time to time such compensation for its services pursuant to this Agreement as may be mutually agreed upon. (b) The Client shall hold the Custodian harmless from any liability or loss resulting from any taxes or other governmental charges, and any expenses related thereto, which may be imposed or assessed with respect to the Accounts or any Property held therein, in each case arising from the performance by the Custodian of its duties and functions under this Agreement; provided that the Custodian shall remain liable for any loss, liability or expense for which it would be liable under Section 15. (c) Nothing in this Agreement shall authorize the Custodian or any Subcustodian to charge or debit the Cash Accounts for any amounts due and payable by the Client to the Custodian under this Section 16 which amounts shall be invoiced to the Client in accordance with the provisions of the Service Documentation. (d) All amounts owing to the Custodian under this Clause 16 or under Clauses 13 or 15 shall be direct payment obligations of the Client to the Custodian. TERMINATION 17(a) Either party hereto may terminate this Agreement on giving not less than 90 days prior written notice to the other. Any notice to terminate shall be sent by registered mail. (b) If notice to terminate is given, the Client shall, within 30 days following the giving of such notice, deliver to the Custodian a statement in writing specifying the successor custodian or other person to whom the Custodian shall transfer the Property. In either event, the Custodian shall transfer the Property to the person so specified. If the Custodian does not receive such statement the Custodian, at its election, may transfer the Property to a bank or trust company established under the laws of the United States or any state thereof and that satisfies the requirements of Section 2(a)(5) of the Investment Company Act of 1940, to be held and disposed of pursuant to the provisions of this Agreement or may continue to hold the Property until such a statement is delivered to the Custodian. In such event the Custodian shall be entitled to compensation, on the basis of the agreed compensation applicable at the time, for its services during such period as the Custodian remains in possession of any Property and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect; provided, however, that the Custodian shall have no obligation to settle any transactions in Securities for the Accounts at any time later than 60 days after the date by which the Client is obliged to give the Custodian the notice required to be given under this 12 Section 17(b). The provisions of Sections 15, 16, 19, 22 and 23 shall survive termination of this Agreement. INVESTMENT ADVICE 18. The Custodian shall not supervise, recommend or advise the Client relative to the investment, purchase, sale, retention or other disposition of any Property held under this Agreement. Nothing in this Agreement shall require or oblige the Custodian to act otherwise than as a custodian. In that regard and only to the extent not otherwise provided in this Agreement, the Custodian shall have no duty or responsibility to: (i) question Authorized Instructions or make any suggestions to Client or an Authorized Person regarding such Authorized Instructions; (ii) advise the Client or an Authorized Person regarding any default in the payment of principal or income of any security other than as provided in Section 7A hereof; (iii) evaluate or report to the Client or an Authorized Person regarding the financial condition of any broker, agent or other party to which Property is delivered or payments are made pursuant hereto; and (iv) review or reconcile trade confirmations received from brokers. The Client or its Authorized Persons issuing Authorized Instructions shall bear any responsibility to review such confirmations against Authorized Instructions issued to and statements issued by the Custodian. CONFIDENTIALITY 19(a) The Custodian, its agents and employees shall maintain the confidentiality of information concerning the Property held in the Accounts, including in dealings with affiliates of the Custodian. In addition, the Custodian shall use all reasonable efforts to ensure that the organisation of the department carrying out its duties hereunder is such that knowledge of the Client's investment activities and policies is not available to any officers and departments of the Custodian concerned with dealing, managing or advising on securities. In the event the Custodian or any Subcustodian is requested or required to disclose any confidential information concerning the Property, the Custodian shall, to the extent practicable and legally permissible, promptly notify the Client of such request or requirement so that the Client may seek a protective order or waive any objection to the Custodian's or such Subcustodian's compliance with this Section 19. In the absence of such a waiver, if the Custodian or such Subcustodian is compelled, in the opinion of its counsel, to disclose any confidential information, the Custodian or such Subcustodian may disclose such information to such persons as, in the opinion of counsel, is so required. (b) The Client shall maintain the confidentiality of, and not provide to any third parties absent the written permission of the Custodian, any computer software, hardware or communications facilities made available to the Client or its agents by the Custodian. NOTICES; COMMUNICATIONS AND CLIENT SUPPORT 20. Any notice or other communication from the Client to the Custodian, unless otherwise provided by this Agreement, shall be sent by facsimile and by certified or registered mail to The Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, N.Y. 11245, Attention: Global Investor Services, and any notices or other communications from the Custodian to the Client relating to the custody services provided to the Client by the Custodian under this Agreement, including any reports and other information provided to the Client pursuant to Section 5 and, if so requested by the Client, any invoices for amounts owing to the Custodian pursuant to Section 16 of this Agreement, shall be made from the Custodian's address appearing above, or as it may hereafter be changed on the Custodian's records in accordance with written notice from the Client. The principal location from which client support 13 services shall be provided by the Custodian in connection with this Agreement shall be the Custodian's address appearing above. Any notice or other communication from the Custodian to the Client, unless otherwise provided in this Agreement or any service level documentation, shall be sent by certified or registered mail to iShares, Inc., c/o PFPC, Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809, Attention: Fund Administration. ASSIGNMENT 21. This contract may not be assigned by either party in whole or in part without the prior written approval of the other. VARIATION AND WAIVER 22(a) Subject to Section 1(d), no variation of any of the terms of this Agreement shall be valid unless it is in writing and signed by or on behalf of the parties hereto. The expression "variation" shall include any variation, supplement, deletion or replacement however effected. (b) Any delay by either party in exercising, or failure to exercise, any right or remedy under this Agreement shall not constitute a waiver of the right or remedy or a waiver of any other rights or remedies and no single or partial exercise of any rights or remedy under this Agreement or otherwise shall prevent any further exercise of the right or remedy or the exercise of any other right or remedy. MISCELLANEOUS 23(a) This Agreement shall bind the successors and any permitted assigns of the Client and the Custodian. (b) If Client is acting as an agent for a disclosed or undisclosed principal in respect of any transaction or Property, the Custodian nevertheless shall treat the Client as its principal for all purposes under this Agreement. In this regard, the Client shall be liable to the Custodian as a principal in respect of any transactions relating to the Account. The foregoing shall not affect any rights the Custodian might have against the Client's principal. (c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN NEW YORK. The Custodian and the Client hereby irrevocably submit to the non-exclusive jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder and hereby irrevocably waive any objection to the venue of any such action or proceeding brought in any such court or any defence of an inconvenient forum. (d) - --- (i) The following Rider(s) are incorporated into this Agreement: ___ Cash Trade Execution; _X__ Investment Company 14 _X__ Domestic and Global Special Terms and Conditions _X__ Global Proxy Service (ii) This Agreement, including the Schedules, Exhibits, and Riders (and any separate agreement which Custodian and Client may enter into with respect to any Cash Account), sets out the entire Agreement between the parties in connection with the subject matter, and this Agreement supersedes any other agreement, statement, or representation relating to custody, whether oral or written. Amendments must be in writing and signed by both parties. (e) Custodian's Right Over Property; Set-off; Each iShares MSCI Index Fund ----------------------------------------------------------------------- Separate. - --------- (i) Client grants Custodian a security interest in and a lien on the Property held in the securities account as security for any and all amounts which are now or become owing to Custodian under any provision of this Agreement, whether or not matured or contingent ("Indebtedness"). (ii) Custodian shall be further entitled to set-off any such Indebtedness against any cash or deposit account with Custodian or any of its Affiliates of which Client is the beneficial owner, regardless of the currency involved. Custodian shall notify Client in advance of any such charge. (iii) With respect to any obligations of Client on behalf of any particular iShares MSCI Index Fund arising hereunder, Custodian shall look for payment or satisfaction of any such obligation solely to the Property attributable to such iShares MSCI Index Fund and Client's Accounts to which such obligation relates as though that iShares MSCI Index Fund had separately contracted with Custodian by separate written agreement with respect to such Accounts. The rights and benefits to which Client on behalf of any particular iShares MSCI Index Fund is entitled hereunder shall be solely those of Client on behalf of the particular iShares MSCI Index Fund and no other iShares MSCI Index Fund shall receive such benefits. For avoidance of doubt, Client may terminate this Agreement on behalf of any particular iShares MSCI Index Fund pursuant to its provisions and the Agreement shall survive such termination in respect of the remaining iShares MSCI Index Funds that have not so terminated or been terminated. 15 IN WITNESS WHEREOF, the parties hereto have set their hands as of the date first above written. iSHARES, INC. By /s/ Nate Most -------------- Name: Nate Most Title: President Accepted: THE CHASE MANHATTAN BANK By /s/ Peter Mistretta -------------------- Name: Peter M. Mistretta Title: VP Relationship Manager 16 Investment Company Rider to Global Custody Agreement Between The Chase Manhattan Bank and iShares, Inc. effective January 30, 2001 The following modifications are made to the Agreement: I. Add the following language to the end of Section 3 of the Agreement: In addition to the foregoing, the term Subcustodian as used herein shall be limited to the following: (a) a "U.S. Bank," which shall mean a U.S. bank as defined in rule 17f- 5(a)(7); and (b) an "Eligible Foreign Custodian," which, as defined in rule 17f-5(a)(1) and (5), shall mean (i) a banking institution or trust company, incorporated or organized under the laws of a country other than the United States, that is regulated as such by that country's government or an agency thereof, and (ii) a majority-owned direct or indirect subsidiary of a U.S. Bank or bank holding company which subsidiary is incorporated or organized under the laws of a country other than the United States. In addition, an Eligible Foreign Custodian shall also mean any other entity that shall have been so qualified by exemptive order, rule or other appropriate action of the SEC. The term "securities depository" as used herein shall be limited to the following, when referring to a securities depository located: (a) outside the U.S., an "Eligible Securities Depository" which, in turn, shall have the same meaning as in rule 17f-7(b)(1)(i)-(vi) as the same may be amended from time to time, or that has otherwise been made exempt by an SEC exemptive order, rule or other appropriate SEC action, except that prior to the compliance date with rule 17f-7 for a particular securities depository the term "securities depositories" shall be as defined in (a)(1)(ii)-(iii) of the 1997 amendments to rule 17f-5; and (b) in the U.S., shall mean a "securities depository" as defined in SEC rule 17f-4(a). For purposes of provisions of the Agreement imposing liability on Custodian, the term Subcustodian shall not include any securities depository. II. Add a new Section 24 to the Agreement as follows: 24. Compliance with Securities and Exchange Commission rule 17f-5 ("rule -------------------------------------------------------------------- 17f-5"). -------- (a) Client's board of directors (or equivalent body) (hereinafter "Board") hereby delegates to Custodian, and Custodian hereby accepts the delegation to it of, the obligation to perform as Client's "Foreign Custody Manager" (as that term is defined in rule 17f-5(a)(3)), including for the purpose of selecting Eligible Foreign Custodians (as that term is defined in rule 17f-5(a)(1), as the same may be amended from time to time or that have otherwise been made exempt by SEC exemptive order, rule other appropriate SEC action) to hold Client's foreign Assets and of evaluating the contractual arrangements with such Eligible Foreign Custodians (as set forth in rule 17f-5(c)(2)). (b) In connection with the foregoing, Custodian shall: (i) provide written reports notifying Client's Board of the placement of Foreign Assets with particular Eligible Foreign Custodians and of any material change in the arrangements with such Eligible Foreign Custodians, with such reports to be provided to Client's Board at such times as the Board deems reasonable and appropriate based on the circumstances of Client's foreign custody arrangements but until further notice from Client requesting a different schedule, such reports shall be provided not less than quarterly in summary form, with a more detailed report annually. (ii) exercise such reasonable care, prudence and diligence in performing as Client's Foreign Custody Manager as a person having responsibility for the safekeeping of Foreign Assets would exercise; (iii) in selecting an Eligible Foreign Custodian, first have determined that Foreign Assets placed and maintained in the safekeeping of such Eligible Foreign Custodian shall be subject to reasonable care, based on the standards applicable to custodians in the relevant market, after having considered all factors relevant to the safekeeping of such Assets, including, without limitation, those factors set forth in rule 17f- 5(c)(1)(i)-(iv); (iv) determine that the written contract with the Eligible Foreign Custodian requires that the Eligible Foreign Custodian will provide reasonable care for Foreign Assets based on the standards applicable to custodians in the relevant market as provided in rule 17f-5(c)(2); and (v) have established a system to monitor the continued appropriateness of maintaining Foreign Assets with particular Eligible Foreign Custodians and performance of the governing contractual arrangements; it being understood, however, that in the event that Custodian shall have determined that the existing Eligible Foreign Custodian in a given country would no longer afford Foreign Assets reasonable care and that no other Eligible Foreign Custodian in that country would afford reasonable care, Custodian shall promptly so advise Client and shall then act in accordance with the Instructions of Client with respect to the disposition of the affected Foreign Assets. Subject to (b)(i)-(v) above, Client is hereby authorized to place and maintain Foreign Assets on behalf of Client with Eligible Foreign Custodians pursuant to a written contract deemed appropriate by Custodian. (c) Except as expressly provided herein and in Section 25 hereof, Client shall be solely responsible to assure that the maintenance of Foreign Assets hereunder complies with the rules, regulations, interpretations and exemptive orders promulgated by or under the authority of the SEC. (d) Custodian represents to Client that it is a U.S. Bank as defined in rule 17f-5(a)(7). Client represents to Custodian that: (1) the Assets being placed and maintained in Custodian's custody are subject to the Investment Company Act of 1940, as amended (the "1940 Act") as the same may be amended from time to time; (2) its Board (or other governing body) has determined that it is reasonable to rely on Custodian to perform as Client's Foreign Custody Manager; and (3) its Board (or other governing body) or its investment adviser shall have determined that Client may maintain Foreign Assets in each country in which Client's Foreign Assets shall be held hereunder and determined to accept the risks arising therefrom (including, but not limited to, a country's financial infrastructure, prevailing custody and settlement practices, laws applicable to the safekeeping and recovery of Foreign Assets held in custody, and the 2 likelihood of nationalization, currency controls and the like) (collectively ("Country Risk")). Nothing contained herein shall require Custodian to make any selection on behalf of Client that would entail consideration of Country Risk and, except as may be provided in (e) below, to engage in any monitoring of Country Risk. (e) Custodian shall provide to Client such information relating to Country Risk as is specified in Appendix 1-A hereto. Client hereby acknowledges that: (i) such information is solely designed to inform Client of market conditions and procedures and is not intended as a recommendation to invest or not invest in particular markets; and (ii) Custodian has gathered the information from sources it considers reliable, but that Custodian shall have no responsibility for inaccuracies or incomplete information. III. Add a new Section 25 to the Agreement as follows: 25. Compliance with Securities and Exchange Commission rule 17f-7 ("rule -------------------------------------------------------------------- 17f-7"). ------- (a) Custodian shall, for consideration by Client, provide an analysis of the custody risks associated with maintaining Client's Foreign Assets with each Eligible Securities Depository used by Custodian as of the date hereof (or, in the case of an Eligible Securities Depository not used by Custodian as of the date hereof, prior to the initial placement of Client's Foreign Assets at such Depository) and at which any Foreign Assets of Client are held or are expected to be held. Custodian shall monitor the custody risks associated with maintaining Client's Foreign Assets at each such Eligible Securities Depository on a continuing basis and shall promptly notify Customer or its adviser of any material changes in such risks. (b) Custodian shall exercise reasonable care, prudence and diligence in performing the requirements set forth in Section 25(a) above. (c) Based on the information available to it in the exercise of diligence, Custodian shall determine the eligibility under rule 17f-7 of each depository before including it on Appendix 1-B hereto and shall promptly advise Client if any Eligible Securities Depository ceases to be eligible. (Eligible Securities Depositories used by Custodian as of the date hereof are set forth in Appendix 1-B hereto, and as the same may be amended on notice to Client from time to time.) 3 Appendix 1-A Information Regarding Country Risk ---------------------------------- 1. To aid Client in its determinations regarding Country Risk, Custodian shall furnish annually and upon the initial placing of Foreign Assets into a country the following information (check items applicable): A Opinions of local counsel concerning: ___ i. Whether applicable foreign law would restrict the access afforded Client's independent public accountants to books and records kept by an Eligible Foreign Custodian located in that country. ___ ii. Whether applicable foreign law would restrict the Client's ability to recover its assets in the event of the bankruptcy of an Eligible Foreign Custodian located in that country. ___ iii. Whether applicable foreign law would restrict the Client's ability to recover assets that are lost while under the control of an Eligible Foreign Custodian located in the country. B. Written information concerning: ___ i. The likelihood of expropriation, nationalization, freezes, or confiscation of Client's assets. ___ ii. Whether difficulties in converting Client's cash and cash equivalents to U.S. dollars are reasonably foreseeable. C. A market report with respect to the following topics: (i) securities regulatory environment, (ii) foreign ownership restrictions, (iii) foreign exchange, (iv) securities settlement and registration, (v) taxation, (vi) market settlement risk, (vii) Eligible Securities Depositories (including Depository evaluation), if any. 2. Custodian shall furnish the following additional information: Market flashes, including with respect to changes in the information in market reports. 4 -------------------------- GLOBAL INVESTOR SERVICES -------------------------- Securities Depositories As of January 17, 2001 Appendix 1-B ELIGIBLE SECURITIES DEPOSITORIES As of January 17, 2001
- ------------------------------------------------------------------------------------------------------------------------------ Country Depository Instruments - ------------------------------------------------------------------------------------------------------------------------------ Argentina CVSA Equity, Corporate Debt, Government Debt (Caja de Valores S.A.) - ------------------------------------------------------------------------------------------------------------------------------ Argentina CRYL Government Debt (Central de Registration y Liquidacion de Instrumentos de Endeudamiento Publico) - ------------------------------------------------------------------------------------------------------------------------------ Australia Austraclear Limited Corporate Debt, Money Market, Semi-Government Debt - ------------------------------------------------------------------------------------------------------------------------------ Australia CHESS Equity (Clearing House Electronic Sub-register System) - ------------------------------------------------------------------------------------------------------------------------------ Australia RITS Government Debt (Reserve Bank of Australia/Reserve Bank Information and Transfer System) - ------------------------------------------------------------------------------------------------------------------------------ Austria OeKB Equity, Corporate Debt, Government Debt (Oesterreichische Kontrollbank AG) - ------------------------------------------------------------------------------------------------------------------------------ Belgium CIK Equity, Corporate Debt (Caisse Interprofessionnelle de Depots et de Virements de Titres S.A.) - ------------------------------------------------------------------------------------------------------------------------------ Belgium NBB Corporate Debt, Government Debt (National Bank of Belgium) - ------------------------------------------------------------------------------------------------------------------------------ Brazil CBLC Equity (Companhia Brasileira de Liquidacao e Custodia) - ------------------------------------------------------------------------------------------------------------------------------ Brazil CETIP Corporate Debt (Central de Custodia e Liquidacao Financiera de Titulos Privados) - ------------------------------------------------------------------------------------------------------------------------------ Brazil SELIC Government Debt (Sistema Especial de Liquidacao e Custodia) - ------------------------------------------------------------------------------------------------------------------------------ Bulgaria BNB Government Debt - ------------------------------------------------------------------------------------------------------------------------------
1 -------------------------- GLOBAL INVESTOR SERVICES -------------------------- Securities Depositories As of January 17, 2001
- ------------------------------------------------------------------------------------------------------------------------------ Country Depository Instruments - ------------------------------------------------------------------------------------------------------------------------------ (Bulgaria National Bank) - ----------------------------------------------------------------------------------------------------------------------------- Bulgaria CDAD Equity, Corporate Debt (Central Depository A.D.) - ------------------------------------------------------------------------------------------------------------------------------ Canada CDS Equity, Corporate, Government Debt (The Canadian Depository for Securities Limited) - ------------------------------------------------------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------------------------- Country Depository Instruments - --------------------------------------------------------------------------------------------------- Chile DCV Equity, Corporate Debt, Government Debt (Deposito Central de Valores S.A.) - --------------------------------------------------------------------------------------------------- China, SSCCRC Equity Shanghai (Shanghai Securities Central Clearing and Registration Corporation) - --------------------------------------------------------------------------------------------------- China, SSCC Equity Shenzhen (Shenzhen Securities Clearing Company, Limited) - --------------------------------------------------------------------------------------------------- Colombia DCV Government Debt (Deposito Central de Valores) - --------------------------------------------------------------------------------------------------- Colombia DECEVAL Equity, Corporate Debt, Government Debt (Deposito Centralizado de Valores de Colombia S.A.) - --------------------------------------------------------------------------------------------------- Croatia SDA Equity, Government Debt (Central Depository Agency Inc. - Stredisnja depozitarna agencija d.d.) - --------------------------------------------------------------------------------------------------- Croatia Ministry of Finance of the Republic Short-term debt issued by the Ministry of of Croatia Finance. - --------------------------------------------------------------------------------------------------- Croatia CNB Short-term debt issued by the National (Croatian National Bank) Bank of Croatia. - --------------------------------------------------------------------------------------------------- Czech Republic SCP Equity, Corporate Debt, Government Debt (Stredisko cennych papiru) - --------------------------------------------------------------------------------------------------- Czech Republic CNB Government Debt (Czech National Bank) - --------------------------------------------------------------------------------------------------- Denmark VP Equity, Corporate Debt, Government Debt (Vaerdipapircentralen A/S) - --------------------------------------------------------------------------------------------------- Egypt MCSD Equity, Corporate Debt (Misr for Clearing, Settlement and Depository, S.A.E.) - --------------------------------------------------------------------------------------------------- Estonia ECDS Equity, Corporate Debt, Government Debt (Estonian Central Depository for Securities Limited - Eesti Vaatpaberite Keskdepositoorium) - --------------------------------------------------------------------------------------------------- Euromarket DCC Euro-CDs (The Depository and Clearing Centre) - --------------------------------------------------------------------------------------------------- Euromarket Clearstream Euro-Debt (Clearstream Banking, S.A.) - ---------------------------------------------------------------------------------------------------
-------------------------- GLOBAL INVESTOR SERVICES -------------------------- Securities Depositories As of January 17, 2001
- --------------------------------------------------------------------------------------------------- Country Depository Instruments - --------------------------------------------------------------------------------------------------- Euromarket Euroclear Euro-Debt - --------------------------------------------------------------------------------------------------- Finland APK Equity, Corporate Debt, Government Debt (Finnish Central Securities Depository Limited) - ---------------------------------------------------------------------------------------------------- France Euroclear France Equity, Corporate Debt, Government Debt - ---------------------------------------------------------------------------------------------------- Germany Clearstream Equity, Corporate Debt, Government Debt (Clearstream Banking AG) - ---------------------------------------------------------------------------------------------------- Greece CSD Equity, Corporate Debt (Central Securities Depository S.A.) - ---------------------------------------------------------------------------------------------------- Greece BoG Government Debt (Bank of Greece) - ---------------------------------------------------------------------------------------------------- Hong Kong HKSCC Equity (Hong Kong Securities Clearing Company Limited) - ---------------------------------------------------------------------------------------------------- Hong Kong CMU Corporate Debt, Government Debt (Central Moneymarkets Unit) - ---------------------------------------------------------------------------------------------------- Hungary KELER Equity, Corporate Debt, Government Debt (Central Depository and Clearing House - Kosponti Elszamolohaz es Ertektar (Budapest) Rt.) - ---------------------------------------------------------------------------------------------------- India NSDL Equity, Corporate Debt, Government Debt (National Securities Depository Limited) - ---------------------------------------------------------------------------------------------------- India CDSL Equity (Central Depository Services (India) Limited) - ---------------------------------------------------------------------------------------------------- India RBI Government Debt (Reserve Bank of India) - ---------------------------------------------------------------------------------------------------- Indonesia KSEI Equity, Corporate Debt (PT Kustodian Sentral Efek Indonesia) - ---------------------------------------------------------------------------------------------------- Ireland CREST Equity, Corporate Debt (CRESTCo Limited) - ----------------------------------------------------------------------------------------------------
2 -------------------------- GLOBAL INVESTOR SERVICES -------------------------- Securities Depositories As of January 17, 2001
- --------------------------------------------------------------------------------------------------- Country Depository Instruments - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Israel TASE Clearing House Equity, Corporate Debt, Government Debt (Tel Aviv Stock Exchange Clearing House) - ---------------------------------------------------------------------------------------------------- Italy Monte Titoli S.p.A. Equity, Corporate Debt, Government Debt - ---------------------------------------------------------------------------------------------------- Italy Banca d'Italia Government Debt - ----------------------------------------------------------------------------------------------------
3 ---------------------------------------- GLOBAL INVESTOR SERVICES ---------------------------------------- Securities Depositories As of January 17, 2001
- ---------------------------------------------------------------------------------------------------- Country Depository Instruments - ---------------------------------------------------------------------------------------------------- Ivory Coast DC/BR Equity (Le Depositaire Central / Banque de Reglement) - ---------------------------------------------------------------------------------------------------- Japan JASDEC Equity, Convertible Debt (Japan Securities Depository Center) - ---------------------------------------------------------------------------------------------------- Japan BoJ Registered Government Debt (Bank of Japan) - ---------------------------------------------------------------------------------------------------- Kazahkstan CSD Equity (Central Securities Depository CJSC) - ---------------------------------------------------------------------------------------------------- Kenya CBCD Government Debt (Central Bank Central Depository) - ---------------------------------------------------------------------------------------------------- Latvia LCD Equity, Corporate Debt, Government Debt (Latvian Central Depository) - ---------------------------------------------------------------------------------------------------- Lebanon Midclear S.A.L. Equity (Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East S.A.L.) - ---------------------------------------------------------------------------------------------------- Lithuania CSDL Equity, Corporate Debt, Government Debt (Central Securities Depository of Lithuania) - ---------------------------------------------------------------------------------------------------- Luxembourg Clearstream Equity (Clearstream Banking S.A.) - ---------------------------------------------------------------------------------------------------- Malaysia MCD Equity, Corporate Debt, Government Debt (Malaysian Central Depository Sdn. Bhd.) - ---------------------------------------------------------------------------------------------------- Mauritius CDS Equity, Corporate Debt (Central Depository and Settlement Company Limited) - ---------------------------------------------------------------------------------------------------- Mexico INDEVAL Equity, Corporate Debt, Government Debt (S.D. INDEVAL S.A. de C.V.) - ---------------------------------------------------------------------------------------------------- Morocco Maroclear Equity, Corporate Debt, Government Debt - ---------------------------------------------------------------------------------------------------- Netherlands NECIGEF Equity, Corporate Debt, Government Debt (Nederlands Centraal Insituut voor Giraal Effectenverkeer B.V.) - ---------------------------------------------------------------------------------------------------- New Zealand NZCSD Equity, Corporate Debt, Government - ----------------------------------------------------------------------------------------------------
4 ---------------------------------------- GLOBAL INVESTOR SERVICES ---------------------------------------- Securities Depositories As of January 17, 2001 - -------------------------------------------------------------------------------- Zealand (New Zealand Central Securities Depository) Debt - -------------------------------------------------------------------------------- 5 ---------------------------------------- GLOBAL INVESTOR SERVICES ---------------------------------------- Securities Depositories As of January 17, 2001
- ------------------------------------------------------------------------------------------------------------------------------- Country Depository Instruments - ------------------------------------------------------------------------------------------------------------------------------- Nigeria CSCS Equity, Corporate Debt, Government Debt (Central Securities Clearing System Limited) - ------------------------------------------------------------------------------------------------------------------------------- Norway VPS Equity, Corporate Debt, Government Debt (Verdipapirsentralen) - ------------------------------------------------------------------------------------------------------------------------------- Oman MDSRC Equity, Corporate Debt (The Muscat Depository and Securities Registration Company, S.A.O.C.) - ------------------------------------------------------------------------------------------------------------------------------- Pakistan CDC Equity, Corporate Debt (Central Depository Company of Pakistan Limited) - ------------------------------------------------------------------------------------------------------------------------------- Pakistan SBP Government Debt (State Bank of Pakistan) - ------------------------------------------------------------------------------------------------------------------------------- Peru CAVALI Equity, Corporate Debt, Government Debt (CAVALI ICLV S.A.) - ------------------------------------------------------------------------------------------------------------------------------- Philippines PCD Equity (Philippine Central Depository Inc.) - ------------------------------------------------------------------------------------------------------------------------------- Philippines ROSS Government Debt (Bangko Sentral ng Pilipinas / Register of Scripless Securities) - ------------------------------------------------------------------------------------------------------------------------------- Poland NDS Equity, Long-Term Government Debt (National Depository for Securities S.A.) - ------------------------------------------------------------------------------------------------------------------------------ Poland CRT Short-Term Government Debt (Central Registry of Treasury-Bills) - ------------------------------------------------------------------------------------------------------------------------------- Portugal CVM Equity, Corporate Debt, Government Debt (Central de Valores Mobiliarios e Sistema de Liquidacao e Compensacao) - ------------------------------------------------------------------------------------------------------------------------------- Romania SNCDD Equity (National Company for Clearing, Settlement and Depository for Securities) - ------------------------------------------------------------------------------------------------------------------------------- Romania BSE Equity (Bucharest Stock Exchange Registry) - ------------------------------------------------------------------------------------------------------------------------------- Russia VTB Equity, Corporate Debt, Government Debt (Ministry of (Vneshtorgbank) Finance Bonds) - -------------------------------------------------------------------------------------------------------------------------------
6 ---------------------------------------- GLOBAL INVESTOR SERVICES ---------------------------------------- Securities Depositories As of January 17, 2001
- --------------------------------------------------------------------------------------------------- Country Depository Instruments - --------------------------------------------------------------------------------------------------- Russia NDC Equity, Corporate Debt, Government Debt (National Depository Centre) - --------------------------------------------------------------------------------------------------- Russia DCC Equity (Depository Clearing Company) - --------------------------------------------------------------------------------------------------- Singapore CDP Equity, Corporate Debt (The Central Depository (Pte) Limited) - --------------------------------------------------------------------------------------------------- Singapore SGS Government Debt (Monetary Authority of Singapore / Singapore Government Securities Book-Entry System) - --------------------------------------------------------------------------------------------------- Slovak SCP Equity, Corporate Debt, Government Debt Republic (Stredisko cennych papierov SR Bratislava, a.s.) - --------------------------------------------------------------------------------------------------- Slovak NBS Government Debt Republic (National Bank of Slovakia) - --------------------------------------------------------------------------------------------------- Slovenia KDD Equity, Corporate Debt, Government Debt (Centralna klirinsko depotna druzba d.d.) - --------------------------------------------------------------------------------------------------- South Africa CDL Corporate Debt, Government Debt (Central Depository (Pty) Limited) - --------------------------------------------------------------------------------------------------- South Africa STRATE Equity (Share Transactions Totally Electronic) - --------------------------------------------------------------------------------------------------- South Korea KSD Equity, Corporate Debt, Government Debt (Korea Securities Depository) - --------------------------------------------------------------------------------------------------- Spain SCLV Equity, Corporate Debt (Servicio de Compensacion y Liquidacion de Valores, S.A.) - --------------------------------------------------------------------------------------------------- Spain CBEO Government Debt (Banco de Espana / Central Book Entry Office) - --------------------------------------------------------------------------------------------------- Sri Lanka CDS Equity, Corporate Debt (Central Depository System (Private) Limited) - --------------------------------------------------------------------------------------------------- Sweden VPC Equity, Corporate Debt, Government Debt (Vardepapperscentralen AB) - ---------------------------------------------------------------------------------------------------
7 ---------------------------------------- GLOBAL INVESTOR SERVICES ---------------------------------------- Securities Depositories As of January 17, 2001
- ---------------------------------------------------------------------------------------------------- Country Depository Instruments - ---------------------------------------------------------------------------------------------------- Switzerland SIS Equity, Corporate Debt, Government Debt (SIS SegaInterSettle AG) - ---------------------------------------------------------------------------------------------------- Taiwan TSCD Equity, Government Debt (Taiwan Securities Central Depository Co., Ltd.) - ---------------------------------------------------------------------------------------------------- Thailand TSD Equity, Corporate Debt, Government Debt (Thailand Securities Depository Company Limited) - ---------------------------------------------------------------------------------------------------- Tunisia STICODEVAM Equity, Corporate Debt, Government Debt (Societe Tunisienne Interprofessionnelle pour la Compensation et le Depot des Valeurs Mobilieres) - ---------------------------------------------------------------------------------------------------- Turkey TAKASBANK Equity, Corporate Debt, Government Debt (IMKB Takas ve Saklama Bankasi A.S.) - ---------------------------------------------------------------------------------------------------- United Kingdom CREST Equity, Corporate Debt, Government Debt (CRESTCo Limited) - ---------------------------------------------------------------------------------------------------- United Kingdom CMO Sterling & Euro CDs, Commercial Paper (Central Moneymarkets Office) - ---------------------------------------------------------------------------------------------------- United States DTC Equity, Corporate Debt (Depository Trust Company) - ---------------------------------------------------------------------------------------------------- United States PTC Mortgage Back Debt (Participants Trust Company) - ---------------------------------------------------------------------------------------------------- United States FED Government Debt (The Federal Reserve Book-Entry System) - ---------------------------------------------------------------------------------------------------- Uruguay BCU Corporate Debt, Government Debt (Banco Central del Uruguay) - ---------------------------------------------------------------------------------------------------- Venezuela BCV Government Debt (Banco Central de Venezuela) - ---------------------------------------------------------------------------------------------------- Zambia CSD Equity, Government Debt (LuSE Central Shares Depository Limited) - ---------------------------------------------------------------------------------------------------- ZAMBIA BOZ Government Debt (Bank of Zambia) - ----------------------------------------------------------------------------------------------------
8 GLOBAL PROXY SERVICE RIDER To Global Custody Agreement Between THE CHASE MANHATTAN BANK AND iSHARES, INC. dated January 30, 2001 1. Global Proxy Services ("Proxy Services") shall be provided for the countries listed in the procedures and guidelines ("Procedures") furnished to Client, as the same may be amended by Custodian from time to time on prior notice to Client. The Procedures are incorporated by reference herein and form a part of this Rider. 2. Proxy Services shall consist of those elements as set forth in the Procedures, and shall include (a) notifications ("Notifications") by Custodian to Client of the dates of pending shareholder meetings, resolutions to be voted upon and the return dates as may be received by Custodian or provided to Custodian by its Subcustodians or third parties, and (b) voting by Custodian of proxies based on Client Instructions. Original proxy materials or copies thereof shall not be provided. Notifications shall generally be in English and, where necessary, shall be summarized and translated from such non-English materials as have been made available to Custodian or its Subcustodian. In this respect Custodian's only obligation is to provide information from sources it believes to be reliable and/or to provide materials summarized and/or translated in good faith. Custodian reserves the right to provide Notifications, or parts thereof, in the language received. Upon reasonable advance request by Client, backup information relative to Notifications, such as annual reports, explanatory material concerning resolutions, management recommendations or other material relevant to the exercise of proxy voting rights shall be provided as available, but without translation. 3. While Custodian shall attempt to provide accurate and complete Notifications, whether or not translated, Custodian shall not be liable for any losses or other consequences that may result from reliance by Client upon Notifications where Custodian prepared the same in good faith. 4 Notwithstanding the fact that Custodian may act in a fiduciary capacity with respect to Client under other agreements or otherwise under the Agreement, in performing Proxy Services Custodian shall be acting solely as the agent of Client, and shall not exercise any discretion with regard to such Proxy Services. 5. Proxy voting may be precluded or restricted in a variety of circumstances, including, without limitation, where the relevant Financial Assets are: (i) on loan; (ii) at registrar for registration or reregistration; (iii) the subject of a conversion or other corporate action; (iv) not held in a name subject to the control of Custodian or its Subcustodian or are otherwise held in a manner which precludes voting; (v) not capable of being voted on account of local market regulations or practices or restrictions by the issuer; or (vi) held in a margin or collateral account. ---------------------------------------- GLOBAL INVESTOR SERVICES ---------------------------------------- Securities Depositories As of January 17, 2001 6 Client acknowledges that in certain countries Custodian may be unable to vote individual proxies but shall only be able to vote proxies on a net basis (e.g., a net yes or no vote given the voting instructions received --- from all Clients). 7. Client shall not make any use of the information provided hereunder, except in connection with the funds or plans covered hereby, and shall in no event sell, license, give or otherwise make the information provided hereunder available, to any third party, and shall not directly or indirectly compete with Custodian or diminish the market for Proxy Services by provision of such information, in whole or in part, for compensation or otherwise, to any third party. 8. The names of Authorized Persons for Proxy Services shall be furnished to Custodian in accordance with (S)10 of the Agreement. Proxy Services fees shall be as set forth in (S)16 of the Agreement or as separately agreed. 2 DOMESTIC AND GLOBAL SPECIAL TERMS AND CONDITIONS RIDER ---------------------------------- Domestic Corporate Actions and Proxies - -------------------------------------- With respect to domestic U.S. and Canadian Property (the latter only if held in DTC), the following provisions shall apply rather than the pertinent provisions of Section 8 of the Agreement and the Global Proxy Service rider: Custodian shall send to Client or the Authorized Person for a Custody Account, such proxies (signed in blank, if issued in the name of Custodian's nominee or the nominee of a central depository) and communications with respect to Financial Assets in the Custody Account as call for voting or relate to legal proceedings within a reasonable time after sufficient copies are received by Custodian for forwarding to its Clients. In addition, Custodian shall follow coupon payments, redemptions, exchanges or similar matters with respect to Financial Assets in the Custody Account and advise Client or the Authorized Person for such Account of rights issued, tender offers or any other discretionary rights with respect to such Financial Assets, in each case, of which Custodian has received notice from the issuer of the Financial Assets, or as to which notice is published in publications routinely utilized by Custodian for this purpose. ------------------------------------------ GLOBAL INVESTOR SERVICES ------------------------------------------ Securities Depositories As of January 17, 2001 APPENDIX 2 (List of Accounts)
iShares Accounts - ---------------- - ---------------------------------------------------------------------------------------------------------- Mnemonic Account Name GTI a/c no CUST NO. - ---------------------------------------------------------------------------------------------------------- XATS iSHARES Austria Index Series 17167 6028450 - ---------------------------------------------------------------------------------------------------------- XAUD iSHARES Australia Index Series 17168 6028468 - ---------------------------------------------------------------------------------------------------------- XBEF iSHARES Belgium Index Series 17169 6028492 - ---------------------------------------------------------------------------------------------------------- XBRL iSHARES BRAZIL INDEX SERIES 19653 6033427 - ---------------------------------------------------------------------------------------------------------- XCAD iSHARES Canadian Index Series 17170 6028500 - ---------------------------------------------------------------------------------------------------------- XCHF iSHARES Switzerland Index Series 17171 6028518 - ---------------------------------------------------------------------------------------------------------- XDEM iSHARES Germany Index Series 17172 6028526 - ---------------------------------------------------------------------------------------------------------- XESP iSHARES Spain Index Series 17173 6028534 - ---------------------------------------------------------------------------------------------------------- XEUR iSHARES EURO INDEX SERIES 19652 6033468 - ---------------------------------------------------------------------------------------------------------- XFRF iSHARES France Index Series 18638 6072136 - ---------------------------------------------------------------------------------------------------------- XGBP iSHARES Great Britain Index Series 17174 6028542 - ---------------------------------------------------------------------------------------------------------- XHKD iSHARES Hong Kong Index Series 17175 6028559 - ---------------------------------------------------------------------------------------------------------- XITL iSHARES Italy Index Series 17176 6028567 - ---------------------------------------------------------------------------------------------------------- XJPY iSHARES Japan Index Series 17177 6028575 - ---------------------------------------------------------------------------------------------------------- XKRW iSHARES SOUTH KOREAN INDEX SERIES 19655 6033443 - ---------------------------------------------------------------------------------------------------------- XMXN iSHARES Mexican Index Series 17178 6028583 - ---------------------------------------------------------------------------------------------------------- XMYR iSHARES Malaysian Index Series 17179 6028591 - ---------------------------------------------------------------------------------------------------------- XNLG iSHARES Netherlands Index Series 17180 6028617 - ---------------------------------------------------------------------------------------------------------- XSEK iSHARES Sweden Index Series 17181 6028625 - ---------------------------------------------------------------------------------------------------------- XSGD iSHARES Singapore Index Series 17182 6028641 - ---------------------------------------------------------------------------------------------------------- XTWD iSHARES TAIWAN INDEX SERIES 19654 6033435 - ----------------------------------------------------------------------------------------------------------
2 ------------------------------------------ GLOBAL INVESTOR SERVICES ------------------------------------------ Securities Depositories As of January 17, 2001
- ---------------------------------------------------------------------------------------------------------- XUSA iSHARES USA INDEX SERIES 19650 6033419 - ---------------------------------------------------------------------------------------------------------- XZAR iSHARES SOUTH AFRICAN INDEX SERIES 19651 6033450 - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------
3 ------------------------------------------ GLOBAL INVESTOR SERVICES ------------------------------------------ Securities Depositories As of January 17, 2001 EXHIBIT A SUB-CUSTODIANS EMPLOYED BY -------------------------- THE CHASE MANHATTAN BANK, GLOBAL CUSTODY FOR iSHARES ----------------------------------------------------
COUNTRY SUB-CUSTODIAN CORRESPONDENT - ------- ------------- ------------- BANK - ---- AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank - --------- Sydney Level 37 AAP Center 259, George Street Sydney NSW 2000 AUSTRALIA BIC: CHASAU2X BIC: CHASAU2X AUSTRIA Bank Austria AG Chase Manhattan Bank AG - ------- Julius Tandler Platz - 3 Frankfurt A-1090 Vienna AUSTRIA BIC: BKAUATWW BIC: CHASDEFX BELGIUM Generale Bank Chase Manhattan Bank AG - ------- 3 Montagne Du Parc Frankfurt 1000 Brussels BELGIUM BIC: GEBABEBB BIC: CHASDEFX BRAZIL BankBoston, N.A. BankBoston, N.A.
4 ------------------------------------------ GLOBAL INVESTOR SERVICES ------------------------------------------ Securities Depositories As of January 17, 2001 Rua Libero Badaro, 425-29 andar Sao Paulo Sao Paulo - SP 01009-000 BRAZIL CVM: 06980.000043.057037.1-8 BIC: FNBBBRSPICS BIC: FNBBBRSPICS CANADA The Royal Bank of Canada Royal Bank of Canada - ------ 200 Bay Street, Suite 1500 Toronto 15/th/ Floor Royal Bank Plaza, North Tower Toronto Ontario M5J 2J5 CANADA BIC: ROYCCATZ BIC: ROYCCATZ DENMARK Den Danske Bank Unibank - ------- 2-12 Holmens Kanal Copenhagen (COSMIC) DK 1092 Copenhagen K Den Danske Bank DENMARK Copenhagen (TAPS) BIC: DABADKKK BIC: UNIBDKKK EUROMARKET Cedelbank EURO: Chase Manhattan Bank AG - ---------- 67 Bd Grande-Duchesse Charlotte Frankfurt L-2967 LUXEMBOURG Euroclear Euroclear Operations Centre Boulevard Emile Jacqmain 151 B-1210 Brussels BELGIUM
5 ------------------------------------------ GLOBAL INVESTOR SERVICES ------------------------------------------ Securities Depositories As of January 17, 2001 FINLAND Merita Bank Plc Chase Manhattan Bank AG - ------- 2598 Custody Services Frankfurt Aleksis Kiven Katu 3-5 FIN-00020 MERITA, Helsinki FINLAND BIC: MRITFIHH BIC: CHASDEFX FRANCE Bank Paribas Chase Manhattan Bank AG - ------ Ref 256 Frankfurt BP 141 3 Rue D'Antin 75078 Paris Cedex 02 FRANCE BIC: PARBFRPP BIC: CHASDEFX GERMANY Dresdner Bank AG Chase Manhattan Bank AG - ------- Juergen-Ponto-Platz 1 Frankfurt 60284 Frankfurt/Main GERMANY BIC: DRESDEFF BIC: CHASDEFX HONG KONG The Chase Manhattan Bank The Chase Manhattan Bank - --------- 15/th/F Chase Manhattan Tower Hong Kong Shatin New Territories HONG KONG BIC: CHASHKHH BIC: CHASHKHH IRELAND Bank of Ireland Chase Manhattan Bank AG - ------- Intl Financial Services Centre Frankfurt
6 ------------------------------------------ GLOBAL INVESTOR SERVICES ------------------------------------------ Securities Depositories As of January 17, 2001 1 Harbourmaster Place Dublin 1 IRELAND BIC: BISSIE2D BIC: CHASDEFX ITALY Banque Paribas Chase Manhattan Bank AG - ----- 2 Piazza San Fedele Frankfurt 20121 Milan ITALY BIC: PARBITMM BIC: CHASDEFX JAPAN The Fuji Bank The Chase Manhattan Bank - ----- 6-7 Nohombashi-Kabutocho Tokyo Chuo-Ku Tokyo JAPAN BIC: FUJIJPJT BIC: CHASJPJT MALAYSIA The Chase Manhattan Bank Berhad Chase Manhattan Bk Berhad - -------- Merana Dion, Level 26 Kuala Lumpur Jalan Sultan Ismail 50250 Kuala Lumpur MALAYSIA BIC: CHASMYKK BIC: CHASMYKK MEXICO Citibank Mexico, S.A. Chase Manhattan Bank Mexico, S.A. Paseo de la reforma 390 BIC: CHSEMXMX 06695 Mexico, D.F MEXICO BIC: CITIUS33MER
7 ------------------------------------------ GLOBAL INVESTOR SERVICES ------------------------------------------ Securities Depositories As of January 17, 2001 NETHERLANDS ABN AMRO N.V. Chase Manhattan Bank AG - ----------- Kemelstede 2 Frankfurt P. O. Box 3200 4800 DE Breda NETHERLANDS BIC: ABNANL2A BIC: CHASDEFX NEW ZEALAND National Nominees Limited Bank of New Zealand - ----------- Level 2 BNZ Tower Wellington 125 Queen Street Auckland NEW ZEALAND BIC: NATANZ22 BIC: BKNZNZ22 NORWAY Den norske Bank ASA Den norske Bank ASA - ------ Stranden 21 Oslo PO Box 1171 Sentrum N-0107 Oslo NORWAY BIC: DNBANOKK BIC: DNBANOKK PORTUGAL Bco Espito Santo e Com de Lisboa, Lisbon Chase Manhattan Bank AG - -------- 195 Avenida da Liberdade Frankfurt P-1200 Lisbon PORTUGAL BIC: BESCPTPL BIC: CHASDEFX SINGAPOR Standard Chartered Bank The Chase Manhattan Bank - --------- 3/F, 6 Battery Road Singapore
8 --------------------------------------- GLOBAL INVESTOR SERVICES --------------------------------------- Securities Depositories As of January 17, 2001 049909 SINGAPORE BIC: SCBLSGSG BIC: CHASSGSG SOUTH AFRICA Standard Chartered Bank of South Africa Standard Corporate - ------------ 1st FL and Merchant Bank 5 Simmonds Street Johannesburg 2001 BIC: SBZAZAJJ SOUTH AFRICA BIC: SBZAZAJJ SOUTH KOREA Standard Chartered Bank Standard Chartered Bank - ----------- 13/F, Nae Wei Building, 6 Seoul 2 KA, Ulchi-Ro, Chung-Ku Seoul SOUTH KOREA Investor ID 10366 BIC: SCBLKRSEXXX BIC: SCBLKRSEXXX SPAIN Chase Manhattan Bank CMB, S.A. Chase Manhattan Bank AG - ----- Paseo de la Castellana, 51 Frankfurt 28046 Madrid SPAIN BIC: CHASESMX BIC: CHASDEFX SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken - ------ Sergels Torg 2 Stockholm SE-106 40 Stockholm SWEDEN BIC: ESSESESS BIC: HANDSESS SWITZERLAND UBS AG UBS AG - ----------- 45 Bahnhofstrasse Zurich 8021 Zurich
9 --------------------------------------- GLOBAL INVESTOR SERVICES --------------------------------------- Securities Depositories As of January 17, 2001 SWITZERLAND BIC: UBSWCHZH BIC: UBSWCHZ TAIWAN The Hongkong and Shanghai Banking The Hongkong and Shanghai - ------ International Trade Building Banking Corporation Limited 16th Floor, Taipei World Trade Center Taipei 333 Keelung Road, Section 1 Taipei 110 TAIWAN BIC: HSBCTWTP BIC: HSBCTWTP U.K. The Chase Manhattan Bank The Chase Manhattan Bank - ---- Crosby Court London Ground Floor 38 Bishopsgate London EC2N 4AJ UNITED KINGDOM CREST ID: BT01C BIC: CHASGB2L BIC: CHASGB2L U.S.A. The Chase Manhattan Bank The Chase Manhattan Bank - ------ 4 New York Plaza New York New York NY 10004 U.S.A. DTC: 902 Agent bank no: 00902
10 --------------------------------------- GLOBAL INVESTOR SERVICES --------------------------------------- Securities Depositories As of January 17, 2001 a/c no: PS35481 BIC: CHASUS33 BIC: CHASUS33
11 --------------------------------------- GLOBAL INVESTOR SERVICES --------------------------------------- Securities Depositories As of January 17, 2001 SCHEDULE ONE ------------
- ------------------------------------------------------------------------------------------- Market AutoCredit CSDA Active Proxy Voting (Sales & Purchases) - --------------------------------------------------------------------------------------------------- Argentina no Yes Yes - --------------------------------------------------------------------------------------------------- Australia Yes Yes Yes - --------------------------------------------------------------------------------------------------- Austria Yes Yes Yes - --------------------------------------------------------------------------------------------------- Bahrain no Yes Yes - --------------------------------------------------------------------------------------------------- Bangladesh no Yes Yes - --------------------------------------------------------------------------------------------------- Belgium Yes Yes Voting Only - --------------------------------------------------------------------------------------------------- Bermuda Yes Yes Yes - --------------------------------------------------------------------------------------------------- Botswana no Yes Voting Only - --------------------------------------------------------------------------------------------------- Brazil no Yes* Yes - --------------------------------------------------------------------------------------------------- Bulgaria no no Voting Only - --------------------------------------------------------------------------------------------------- Canada Yes Yes Yes - --------------------------------------------------------------------------------------------------- Chile no no Yes - --------------------------------------------------------------------------------------------------- Colombia no no Yes - --------------------------------------------------------------------------------------------------- Croatia no no Yes - --------------------------------------------------------------------------------------------------- Cyprus no no Voting Only - --------------------------------------------------------------------------------------------------- Czech Republic Yes Yes Yes - --------------------------------------------------------------------------------------------------- Denmark Yes Yes Yes - --------------------------------------------------------------------------------------------------- Ecuador no no Voting Only - --------------------------------------------------------------------------------------------------- Egypt no Yes Voting Only - --------------------------------------------------------------------------------------------------- Estonia Yes Yes Voting Only - --------------------------------------------------------------------------------------------------- Eurobonds Yes Yes n/a - --------------------------------------------------------------------------------------------------- Euro CDs no Yes n/a - --------------------------------------------------------------------------------------------------- Finland Yes Yes Yes - --------------------------------------------------------------------------------------------------- France Yes Yes Yes - --------------------------------------------------------------------------------------------------- Germany Yes Yes Yes - --------------------------------------------------------------------------------------------------- Ghana no Yes Voting Only - --------------------------------------------------------------------------------------------------- Market AutoCredit CSDA Active Proxy Voting (Sales & Purchases) - --------------------------------------------------------------------------------------------------- Greece Yes Yes Yes - --------------------------------------------------------------------------------------------------- Hong Kong Yes Yes Yes - --------------------------------------------------------------------------------------------------- Hungary no Yes Yes - --------------------------------------------------------------------------------------------------- India no no Yes - --------------------------------------------------------------------------------------------------- Indonesia Yes** Yes Yes - --------------------------------------------------------------------------------------------------- Ireland Yes Yes Yes - --------------------------------------------------------------------------------------------------- Israel Yes Yes Yes - --------------------------------------------------------------------------------------------------- Italy Yes Yes Yes - ---------------------------------------------------------------------------------------------------
12 --------------------------------------- GLOBAL INVESTOR SERVICES --------------------------------------- Securities Depositories As of January 17, 2001 - --------------------------------------------------------------------------------------------------- Ivory Coast no no Voting Only - --------------------------------------------------------------------------------------------------- Japan Yes Yes Yes - --------------------------------------------------------------------------------------------------- Jordan no Yes* Yes - --------------------------------------------------------------------------------------------------- Kazakhstan no no Voting Only - --------------------------------------------------------------------------------------------------- Kenya no no Voting Only - --------------------------------------------------------------------------------------------------- Latvia no Yes Voting Only - --------------------------------------------------------------------------------------------------- Lebanon no Yes Yes - --------------------------------------------------------------------------------------------------- Lithuania no Yes Voting Only - --------------------------------------------------------------------------------------------------- Luxembourg Yes Yes Voting Only - --------------------------------------------------------------------------------------------------- Malaysia no no Yes - --------------------------------------------------------------------------------------------------- Mauritius no Yes Yes - --------------------------------------------------------------------------------------------------- Mexico Yes Yes Yes - --------------------------------------------------------------------------------------------------- Morocco no Yes Voting Only - --------------------------------------------------------------------------------------------------- Nambia no no Voting Only - --------------------------------------------------------------------------------------------------- Netherlands Yes Yes Yes - --------------------------------------------------------------------------------------------------- New Zealand Yes Yes Yes - --------------------------------------------------------------------------------------------------- Norway Yes Yes Yes - --------------------------------------------------------------------------------------------------- Oman no Yes Voting Only - --------------------------------------------------------------------------------------------------- Pakistan no no Yes - --------------------------------------------------------------------------------------------------- Peru no Yes Yes - --------------------------------------------------------------------------------------------------- Market AutoCredit CSDA Active Proxy Voting (Sales & Purchases) - --------------------------------------------------------------------------------------------------- Philippines no Yes* Yes - --------------------------------------------------------------------------------------------------- Poland no Yes Yes - --------------------------------------------------------------------------------------------------- Portugal Yes Yes Yes - --------------------------------------------------------------------------------------------------- Romania no no Voting Only - --------------------------------------------------------------------------------------------------- Russia no no Yes - --------------------------------------------------------------------------------------------------- Shanghai (China) no Yes Yes - --------------------------------------------------------------------------------------------------- Shenzhen (China) no Yes Yes - --------------------------------------------------------------------------------------------------- Singapore Yes Yes Yes - --------------------------------------------------------------------------------------------------- Slovak Republic no Yes Yes - --------------------------------------------------------------------------------------------------- Slovenia no no Voting Only - --------------------------------------------------------------------------------------------------- South Africa Yes Yes Yes - --------------------------------------------------------------------------------------------------- South Korea no no Yes - --------------------------------------------------------------------------------------------------- Spain Yes Yes Yes - --------------------------------------------------------------------------------------------------- Sri Lanka no Yes Yes - --------------------------------------------------------------------------------------------------- Swaziland no no Voting Only - --------------------------------------------------------------------------------------------------- Sweden Yes Yes Yes - --------------------------------------------------------------------------------------------------- Switzerland Yes Yes Yes - --------------------------------------------------------------------------------------------------- Taiwan no Yes* Yes - --------------------------------------------------------------------------------------------------- Thailand Yes Yes Yes - --------------------------------------------------------------------------------------------------- Tunisia no Yes Yes - ---------------------------------------------------------------------------------------------------
13 --------------------------------------- GLOBAL INVESTOR SERVICES --------------------------------------- Securities Depositories As of January 17, 2001 - --------------------------------------------------------------------------------------------------- Turkey no Yes Voting Only - --------------------------------------------------------------------------------------------------- United Kingdom Yes Yes Yes - --------------------------------------------------------------------------------------------------- Uruguay no Yes Voting Only - --------------------------------------------------------------------------------------------------- United States of America Yes Yes Yes - --------------------------------------------------------------------------------------------------- Venezuela no no Yes - --------------------------------------------------------------------------------------------------- Zambia no no Voting Only - --------------------------------------------------------------------------------------------------- Zimbabwe no Yes Voting Only - ---------------------------------------------------------------------------------------------------
* Local currency only ** Currently suspended 14 EX-99.G.2 7 dex99g2.txt FORM OF AMENDED APPENDIX 2 TO CUSTODY AGREEMENT EXHIBIT (g.2) APPENDIX 2
- ----------------------------------------------------------------------------------------------------------------------------------- iShares Accounts - ---------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- XATS iSHARES MSCI Austria Index Series 17167 6028450 - ----------------------------------------------------------------------------------------------------------------------------------- XAUD iSHARES MSCI Australia Index Series 17168 6028468 - ----------------------------------------------------------------------------------------------------------------------------------- XBEF iSHARES MSCI Belgium Index Series 17169 6028492 - ----------------------------------------------------------------------------------------------------------------------------------- XBRL iSHARES MSCI BRAZIL Index Series 19653 6033427 - ----------------------------------------------------------------------------------------------------------------------------------- XCAD iSHARES MSCI Canadian Index Series 17170 6028500 - ----------------------------------------------------------------------------------------------------------------------------------- XCHF iSHARES MSCI Switzerland Index Series 17171 6028518 - ----------------------------------------------------------------------------------------------------------------------------------- XDEM iSHARES MSCI Germany Index Series 17172 6028526 - ----------------------------------------------------------------------------------------------------------------------------------- XESP iSHARES MSCI Spain Index Series 17173 6028534 - ----------------------------------------------------------------------------------------------------------------------------------- XEUR iSHARES MSCI Euro Index Series 19652 6033468 - ----------------------------------------------------------------------------------------------------------------------------------- XFRF iSHARES MSCI France Index Series 18638 6072136 - ----------------------------------------------------------------------------------------------------------------------------------- XGBP iSHARES MSCI Great Britain Index Series 17174 6028542 - ----------------------------------------------------------------------------------------------------------------------------------- XHKD iSHARES MSCI Hong Kong Index Series 17175 6028559 - ----------------------------------------------------------------------------------------------------------------------------------- XITL iSHARES MSCI Italy Index Series 17176 6028567 - ----------------------------------------------------------------------------------------------------------------------------------- XJPY iSHARES MSCI Japan Index Series 17177 6028575 - ----------------------------------------------------------------------------------------------------------------------------------- XKRW iSHARES MSCI South Korea Index Series 19655 6033443 - ----------------------------------------------------------------------------------------------------------------------------------- XMXN iSHARES MSCI Mexican Index Series 17178 6028583 - ----------------------------------------------------------------------------------------------------------------------------------- XMYR iSHARES MSCI Malaysian Index Series 17179 6028591 - ----------------------------------------------------------------------------------------------------------------------------------- XNLG iSHARES MSCI Netherlands Index Series 17180 6028617 - ----------------------------------------------------------------------------------------------------------------------------------- XSEK iSHARES MSCI Sweden Index Series 17181 6028625 - ----------------------------------------------------------------------------------------------------------------------------------- XSGD iSHARES MSCI Singapore Index Series 17182 6028641 - ----------------------------------------------------------------------------------------------------------------------------------- XTWD iSHARES MSCI Taiwan Index Series 19654 6033435 - ----------------------------------------------------------------------------------------------------------------------------------- XUSA iSHARES MSCI USA Index Series 19650 6033419 - ----------------------------------------------------------------------------------------------------------------------------------- XZAR iSHARES MSCI South Africa Index Series 19651 6033450 - -----------------------------------------------------------------------------------------------------------------------------------
EX-99.H.2 8 dex99h2.txt AMENDED EXHIBIT A TO ADMIN. AND ACCTG. AGREEMENT EXHIBIT (h.2) EXHIBIT A THIS EXHIBIT A, dated as of July ___, 2001, is Exhibit A to that certain Amended Administration Services Agreement dated as of October 29, 1997 between iShares, Inc. (formerly, WEBS Index Fund, Inc.), PFPC Inc. iShares MSCI Index Funds ------------------------ iShares MSCI Australia Index Fund iShares MSCI Austria Index Fund iShares MSCI Belgium Index Fund iShares MSCI Brazil (Free) Index Fund iShares MSCI Canada Index Fund iShares MSCI EMU Index Fund iShares MSCI France Index Fund iShares MSCI Germany Index Fund iShares MSCI Greece Index Fund iShares MSCI Hong Kong Index Fund iShares MSCI Indonesia (Free) Index Fund iShares MSCI Italy Index Fund iShares MSCI Japan Index Fund iShares MSCI Malaysia (Free) Index Fund iShares MSCI Mexico (Free) Index Fund iShares MSCI Netherlands Index Fund iShares MSCI Pacific Ex Japan Index Fund iShares MSCI Portugal Index Fund iShares MSCI Singapore (Free) Index Fund iShares MSCI South Africa Index Fund iShares MSCI South Korea Index Fund iShares MSCI Spain Index Fund iShares MSCI Sweden Index Fund iShares MSCI Switzerland Index Fund iShares MSCI Taiwan Index Fund iShares MSCI Thailand (Free) Index Fund iShares MSCI Turkey Index Fund iShares MSCI United Kingdom Index Fund iShares MSCI USA Index Fund EX-99.H.5 9 dex99h5.txt AMENDED EXHIBIT A - TRANSFER AGENCY SVC. AGREEMENT EXHIBIT (h.5) EXHIBIT A THIS EXHIBIT A, dated as of July ___, 2001, is Exhibit A to that certain Transfer Agency Services Agreement dated as of March 11, 1996 between iShares, Inc. and PFPC Inc. iShares MSCI Index Funds ------------------------ iShares MSCI Australia Index Fund iShares MSCI Austria Index Fund iShares MSCI Belgium Index Fund iShares MSCI Brazil (Free) Index Fund iShares MSCI Canada Index Fund iShares MSCI EMU Index Fund iShares MSCI France Index Fund iShares MSCI Germany Index Fund iShares MSCI Greece Index Fund iShares MSCI Hong Kong Index Fund iShares MSCI Indonesia (Free) Index Fund iShares MSCI Italy Index Fund iShares MSCI Japan Index Fund iShares MSCI Malaysia (Free) Index Fund iShares MSCI Mexico (Free) Index Fund iShares MSCI Netherlands Index Fund iShares MSCI Pacific Ex Japan Index Fund iShares MSCI Portugal Index Fund iShares MSCI Singapore (Free) Index Fund iShares MSCI South Africa Index Fund iShares MSCI South Korea Index Fund iShares MSCI Spain Index Fund iShares MSCI Sweden Index Fund iShares MSCI Switzerland Index Fund iShares MSCI Taiwan Index Fund iShares MSCI Thailand (Free) Index Fund iShares MSCI Turkey Index Fund iShares MSCI United Kingdom Index Fund iShares MSCI USA Index Fund EX-99.H.9 10 dex99h9.txt AMENDED EXHIBIT A TO SUB-ADMIN. AGREEMENT EXHIBIT (h.9) EXHIBIT A THIS EXHIBIT A, dated as of July ___, 2001, is Exhibit A to that certain Sub-Administration Services Agreement dated as of October 29, 1997 between iShares, Inc. (formerly, WEBS Index Fund, Inc.), PFPC Inc. and Morgan Stanley & Co. Inc. iShares MSCI Index Funds ------------------------ iShares MSCI Australia Index Fund iShares MSCI Austria Index Fund iShares MSCI Belgium Index Fund iShares MSCI Brazil (Free) Index Fund iShares MSCI Canada Index Fund iShares MSCI EMU Index Fund iShares MSCI France Index Fund iShares MSCI Germany Index Fund iShares MSCI Greece Index Fund iShares MSCI Hong Kong Index Fund iShares MSCI Indonesia (Free) Index Fund iShares MSCI Italy Index Fund iShares MSCI Japan Index Fund iShares MSCI Malaysia (Free) Index Fund iShares MSCI Mexico (Free) Index Fund iShares MSCI Netherlands Index Fund iShares MSCI Pacific Ex Japan Index Fund iShares MSCI Portugal Index Fund iShares MSCI Singapore (Free) Index Fund iShares MSCI South Africa Index Fund iShares MSCI South Korea Index Fund iShares MSCI Spain Index Fund iShares MSCI Sweden Index Fund iShares MSCI Switzerland Index Fund iShares MSCI Taiwan Index Fund iShares MSCI Thailand (Free) Index Fund iShares MSCI Turkey Index Fund iShares MSCI United Kingdom Index Fund iShares MSCI USA Index Fund EX-99.H.11 11 dex99h11.txt AMENDED SCHEDULE A TO SECURITIES LENDING AGREEMNT iShares, Inc. EXHIBIT (h.11) Schedule A Lenders iShares MSCI Australia Index Fund iShares MSCI Austria Index Fund iShares MSCI Belgium Index Fund iShares MSCI Brazil Index Fund iShares MSCI Canada Index Fund iShares MSCI EMU Index Fund iShares MSCI France Index Fund iShares MSCI Germany Index Fund iShares MSCI Hong Kong Index Fund iShares MSCI Italy Index Fund iShares MSCI Japan Index Fund iShares MSCI Malaysia (Free) Index Fund iShares MSCI Mexico (Free) Index Fund iShares MSCI Netherlands Index Fund iShares MSCI Singapore Index Fund iShares MSCI South Korea Index Fund iShares MSCI Spain Index Fund iShares MSCI Sweden Index Fund iShares MSCI Switzerland Index Fund iShares MSCI Taiwan Index Fund iShares MSCI United Kingdom Index Fund iShares MSCI Pacific Ex Japan Index Fund 1 iShares, Inc. Appendix 1 Approved Borrowers Borrower Borrowing Limit - -------- --------------- Banc of America Securities LLC USD200mm. Bear Stearns & Co., Inc. USD400mm. CIBC World Markets Corp. USD200mm. Credit Suisse First Boston Corp. USD100mm. DB Alex Brown LLC USD100mm. Deutsche Bank Securities, Inc. USD400mm. Donaldson, Luftkin & Jenrette Securities Corp. USD300mm. Goldman Sachs & Co. USD500mm. ING Barings LLC USD200mm. JP Morgan Securities Inc. USD200mm. Lehman Brothers Inc. USD400mm. Merrill Lynch, Pierce, Fenner & Smith Incorporated USD400mm. Morgan Stanley & Co., Inc. USD500mm. PaineWebber, Inc. USD300mm. Salomon Smith Barney Inc. USD400mm. SG Cowen Securities Corp. USD200mm. UBS Warburg LLC USD200mm. 2 iShares, Inc. Appendix 2 Approved Issuing Banks for Letters of Credit Bank of America Mellon Bank Morgan Guaranty Trust Company 3 iShares, Inc. Appendix 3A Form of Master Securities Lending Agreement for U.S. Borrowers This MASTER SECURITIES LENDING AGREEMENT dated as of _____________199 by and between (the "Borrower") and THE CHASE MANHATTAN BANK, as trustee or managing agent for those certain trusts and accounts (including accounts subject to ERISA, as hereinafter defined) from time to time listed in Appendix A hereto (The Chase Manhattan Bank, acting in its capacity as trustee or managing agent for each such trust or account, and not in its individual capacity, is hereinafter referred to as the "Trustee"). W I T N E S S E T H T H A T: WHEREAS, the Borrower desires to borrow, from time to time, certain securities from the Accounts, as hereinafter defined, on the terms and conditions hereinafter set forth; and WHEREAS, the Trustee is willing, subject to mutual agreement as to each loan in the manner hereinafter set forth, to lend such securities to the Borrower from time to time on behalf of the Accounts on the terms and conditions hereinafter set forth; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto hereby agree as follows: 1. Definitions. As used in this Agreement the following words and terms ----------- shall have the meanings set forth below, unless the context clearly indicates otherwise: "Account" shall mean each trust or account from time to time listed in Appendix A hereto, as the same may be amended from time to time in accordance with paragraph 12 hereof. "Approved Securities" shall mean book-entry securities issued by the U.S. Treasury (as defined in Subpart O of Treasury Department Circular No. 300 and any successor provisions) and any other securities issued or fully guaranteed by the United States government or any agency, instrumentality or establishment of the U.S. government, including, without limitation, securities commonly known as "Ginnie Maes", "Sally Maes", "Fannie Maes" and "Freddie Macs", and any other securities as agreed to by the Borrower and the Trustee from time to time, which are acceptable to the Trustee in its sole discretion. "Business Day" shall mean any day on which national banks and the NYSE are open for business in New York City. "Collateral" shall mean, collectively, (a) all Pledged Cash from time to time held by the Trustee hereunder, any property in which such Pledged Cash may from time to time be invested or reinvested by the Trustee and held by it (but not the income or distributions thereon or gains therefrom), and any amounts or other proceeds arising in connection with the sale, exchange, collection or other disposition of any of the foregoing, (b) all Approved Securities from time to time delivered by the Borrower and held by the Trustee hereunder, the interest or other income therefrom and the proceeds thereof, and (c) all Letters of Credit from time to time 4 held by the Trustee hereunder and the proceeds thereof, in each case regardless of whether the same has been allocated at any time or from time to time to any particular Loan. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Equivalent Securities" shall mean securities of an identical type, nominal value, description and number, of the same issuer and of the same class, as the Loaned Securities. "Letter of Credit" shall mean an irrevocable performance letter of credit issued by a bank acceptable to the Trustee for the account of the Borrower or any other person acceptable to the Trustee, which letter of credit (a) expires not earlier than such time as shall be agreed between the Borrower and the Trustee, (b) names as beneficiary The Chase Manhattan Bank, as trustee or managing agent, (c) is payable to the beneficiary upon presentation of a draft in the amount of any drawing and a statement of the beneficiary that the amount being drawn thereunder represents money owed to the beneficiary in connection with a loan or loans of securities, (d) permits any number of partial drawings (which pro tanto reduce the amount available under the Letter of Credit), and (e) otherwise contains such terms and provisions as are required by or acceptable to the Trustee. "Loaned Securities" shall mean all securities loaned to the Borrower hereunder or an equal principal amount of the same issue or series and any securities issued in exchange therefor. "Loan" shall mean each securities loan made pursuant to paragraph 2 hereof. "Market Value" shall mean, with respect to any security, as of any date of determination thereof, (a) the closing price of such security on the NYSE on the trading day next preceding such date of determination, or (b) if such security is not listed on the NYSE, the closing price of such security on any national securities exchange selected by the Trustee on which such security is listed on the trading day next preceding such date of determination, or (c) if such security is not listed on any national securities exchange, the asked price of such security as quoted by a recognized pricing service selected by the Trustee (including as evidenced by quotations available through Bloomberg's Financial Service and any pricing service provided by The Chase Manhattan Bank, or any affiliate thereof), at or as nearly as practicable at the close of business on the last trading day during which such security was traded next preceding such date of determination, or (d) with respect to a marketable United States government obligation, the price of such security as quoted by a recognized pricing service selected by the Trustee (including as evidenced by quotations available through Bloomberg's Financial Service and any pricing service provided by The Chase Manhattan Bank, or any affiliate thereof), or if the Trustee so chooses the dealer asked price quoted by a recognized dealer in such security (which may be The Chase Manhattan Bank or any affiliate thereof) at or as nearly as practicable at the close of business on the last Business Day preceding such date of determination; provided, that the market value of any security held as Collateral as to which the issuer of such security is in default or as to which any third party has asserted an interest shall be zero for purposes hereof. In addition, the term "Market Value", shall mean, as of any date of determination thereof, (a) with respect to any Pledged Cash or Collateral in which such Pledged Cash is invested, the amount of such Pledged Cash originally paid to the Trustee, as reduced by any payments of such Pledged Cash to or for the account of the Borrower, and (b) with respect to any Letter of Credit, the undrawn balance thereof which the Trustee may at any such time prior to the expiration of such Letter of Credit, draw thereunder; provided, however, that the market value of any Letter of Credit as to which the issuing bank has defaulted in honoring any draft drawn thereunder or has indicated its intention not to honor any such draft or as to which any judicial or similar restraint on payments thereunder exists shall be zero for all purposes hereof. 5 "NYSE" shall mean the New York Stock Exchange, Inc. "Pledged Cash" shall mean the aggregate amount of cash paid to the Trustee from time to time as Collateral with respect to any Loan, as reduced to reflect any amounts thereof paid to or for the account of the Borrower and any increases or decreases resulting from marking to market adjustments. "Required Value" shall mean at any date, with respect to any Loan, an amount equal to at least 102% of the then current Market Value of the relevant Loaned Securities which are the subject of that Loan as of the close of trading on the preceding Business Day, except in the case of certain discounted securities at or approaching maturity, for which "Required Value" shall mean, with respect to any Loan, an amount eaqual to at least 100% of the par value of the relevant Loaned Securities. "SEC" shall mean the Securities and Exchange Commission. 2. Loans of Securities. ------------------- (a) The Loans. From time to time, upon the request of the Borrower, the --------- Trustee may, in its sole discretion, lend securities to the Borrower from one or more of the Accounts. Each such Loan shall be made on the terms and subject to the conditions hereinafter set forth, except as may be otherwise expressly agreed in writing by the parties hereto at the time such Loan is made. The Borrower hereby unconditionally agrees that it will punctually return all Loaned Securities to the Trustee at the times when the Loan of such Loaned Securities is terminated hereunder or when such Loaned Securities are otherwise required to be returned to the Trustee in accordance with the terms hereof, and that it will punctually pay, or cause to be paid, when due, all other amounts at any time payable by it hereunder or in connection herewith. (b) Obligations to be Separate. Each and every obligation, liability or -------------------------- undertaking of the Trustee or an Account with respect to any Loan (i) shall be solely an obligation, liability or undertaking of, and binding upon, the Account by which such Loan is made and the Trustee acting for such Account in its capacity as such and (ii) shall be payable solely from the available assets of such Account. No such obligation, liability or undertaking shall be binding upon or affect any other Account, the Trustee acting in any other capacity or The Chase Manhattan Bank in its individual capacity. 3. Method of Making the Loans. -------------------------- (a) Delivery of Loaned Securities. Each Loan hereunder shall be made by the ----------------------------- Trustee delivering to the Borrower the Loaned Securities that are the subject of such Loan against receipt by the Trustee of the Collateral required to secure such Loan. The Trustee may deliver Loaned Securities to the Borrower either by (i) delivering to the Borrower certificates representing the Loaned Securities, duly endorsed in blank or accompanied by duly executed stock or bond transfer powers, as the case may be, with signatures guaranteed by a bank or a member firm of the New York Stock Exchange, Inc., in which event the Trustee shall list the Loaned Securities on a schedule and receipt, which the Borrower shall execute and return when the Loaned Securities are received, or (ii) causing the Loaned Securities to be credited to the Borrower's account or the Borrower's agent's account at the Depository Trust Company (or any other depository or clearing agency agreed by the Borrower and the Trustee), including the Federal Reserve/Treasury Book Entry System. The Borrower agrees that the completion of a delivery of Loaned Securities to it as provided in this paragraph 3 shall constitute its acceptance and receipt thereof and that each such acceptance and receipt shall be deemed to constitute, and shall constitute, a representation by the Borrower that as of the date of such acceptance and receipt (i) all representations and warranties by the Borrower herein are true and correct, as if made on and as of such date, (ii) no default hereunder has occurred and is 6 continuing, and (iii) except as otherwise theretofore disclosed to the Trustee in writing, there has been no material adverse change in the financial condition or business of the Borrower since the date of the most recent financial statements of the Borrower provided to the Trustee in accordance with subparagraph 7(c) or 8(a) hereof. (b) Delivery of Collateral. The Borrower hereby agrees that, as a condition ---------------------- precedent to the making of any Loan, or, in the Trustee's sole discretion, simultaneously with the making of any Loan, it shall deliver to the Trustee Collateral consisting of (i) cash, (ii) Approved Securities, and/or (iii) Letters of Credit having an aggregate Market Value on the date of such Loan at least equal to the Required Value with respect to such Loan on such date. Collateral at any time delivered to the Trustee under this paragraph or paragraph 6 hereof shall be of such type or types listed above as are then acceptable to the Trustee in its sole discretion. (c) Manner of Collateral Delivery. Unless otherwise agreed by the Trustee ----------------------------- and the Borrower, the delivery of Pledged Cash shall be made by (i) the Borrower transferring funds by wire, (ii) the Borrower delivering to the Trustee a certified or bank check representing New York Clearing House funds, (iii) the Borrower causing the Borrower's account or the Borrower's agent's account at a depository to be debited and the Trustee's account to be credited in a corresponding amount, (iv) if agreed to, at the time, by the parties hereto, causing the Borrower's account at The Chase Manhattan Bank to be charged or (v) any combination of any of the foregoing. Delivery of Approved Securities shall be effected for purposes hereof by normal and customary delivery procedures satisfactory, at the time, to the Trustee. Such procedures shall include, but are not limited to, delivery through book entry transfer pursuant to the rules and procedures of the Depository Trust Company (or any other clearing agency registered by the SEC) or the Federal Reserve/Treasury Book Entry System, as the case may be. All such deliveries shall be deemed to have been effected for purposes hereof when final, irreversible, credit has been made to the account of the party entitled to the receipt of such credit under the rules of such clearing agency or book entry system. (d) Delivery of Letters of Credit. The delivery of a Letter of Credit shall ----------------------------- be effected for the purposes of this Agreement by (i) physical delivery of the original executed Letter of Credit or (ii) tested telex by the issuing, confirming or advising bank to the Trustee. Unless the Trustee otherwise agrees to same day delivery of a Letter of Credit, no such delivery shall be effective until one Business Day after the receipt of a Letter of Credit by the Trustee, during which period the Trustee may reject such Letter of Credit, by oral notice to the Borrower, if such Letter of Credit is not in the form approved by the Trustee. 4. The Collateral. -------------- (a) Pledge. As security for the prompt payment and performance of any and ------ all obligations of the Borrower at any time or from time to time existing hereunder, or in connection with any Loan, the Borrower hereby pledges to the Trustee, and grants to the Trustee a security interest in, all Collateral (other than Letters of Credit) whether now owned or hereafter acquired, and whenever delivered to the Trustee (except insofar as greater rights are provided in subparagraph 4(b) hereof) and agrees that such pledge and grant of a security interest shall be effective immediately as to any Collateral upon delivery thereof to the Trustee. The Borrower hereby agrees that the Trustee shall have all right, title and interest in and to the Letters of Credit delivered as Collateral hereunder. The Trustee shall not be obligated to release Collateral, or take any other action with respect thereto, except as expressly provided herein. (b) Pledged Cash. The Trustee shall have the unrestricted right to use and ------------ invest Collateral consisting of Pledged Cash, and any Collateral in which Pledged Cash is invested and reinvested, as it may elect, for the sole account of the Accounts. So long as appropriate records allocating such Pledged Cash or other Collateral are maintained, the Trustee may commingle such Pledged Cash or other Collateral with any other Collateral or other funds or 7 assets, including funds or assets held by The Chase Manhattan Bank acting in any capacity as collateral agent under other lending agreements, and may hold the same in its own name or the name of its nominee. The Trustee shall be entitled to collect and retain, for the account of the affected Account or Accounts, any income on such Collateral and any net gains realized upon the sale, maturity, payment, retirement or other disposition of such investments or reinvestments. The Accounts shall bear the risk of all losses in value of the principal amount of any Collateral in which Pledged Cash is invested or reinvested. The sole obligation of the Trustee with respect to Pledged Cash is to repay such Pledged Cash to the Borrower as required by paragraphs 6, 9, and 10 hereof. (c) Approved Securities. The Trustee may commingle any Approved Securities ------------------- held by it with other Collateral or other assets, including assets held by The Chase Manhattan Bank acting in any capacity as collateral agent under other lending agreements, and may hold the same in its own name or the name of its nominee. Unless a default by the Borrower hereunder shall have occurred and be continuing, the Borrower shall be entitled to receive all interest payments or other distributions on Approved Securities held as Collateral that are received by the Trustee (if any). The parties hereto shall deliver such suitable assignments, orders and other instruments as may be required in order to effectuate the provisions of the preceding sentence. If any interest or other distribution on any Approved Securities is paid to the Borrower or to the Trustee in respect of a time when the recipient thereof is not entitled to receive such distribution, such recipient shall forthwith pay or deliver such distribution, or the equivalent thereof, to the party entitled to receive the same. The Borrower shall bear the risk of all losses in value of the principal amount of Approved Securities held as Collateral. The sole obligation of the Trustee with respect to Approved Securities held as Collateral, except as provided in this paragraph, is to deliver such Approved Securities to the Borrower as required by paragraphs 6, 9 and 10 hereof. (d) Substitutions of Approved Securities. Prior to the maturity of any ------------------------------------ Approved Securities, the Borrower may substitute other securities for the Approved Securities if (i) such substituted securities, together with all Collateral then held by the Trustee for such Loan, shall equal no less than the Required Value for such Loan, and (ii) such substituted securities Collateral is reasonably acceptable to the Trustee and the Account. In addition, the Trustee shall have the right to request that other securities be substituted by the Borrower for the Approved Securities if for any reason the Approved Securities are not at any time reasonably acceptable to the Trustee or the Account. 5. Rights of Borrower and Trustee with Respect to Loaned Securities. ---------------------------------------------------------------- (a) Borrower's Rights. Until a Loan is terminated in accordance with the ----------------- provisions hereof, the Borrower shall have all the incidents of ownership of the relevant Loaned Securities, including, without limitation, the right to transfer such Loaned Securities or any part thereof to others, free and clear of any right, title or interest of the Trustee, and to vote or otherwise consent as holder thereof, subject, however, to all rights of the Trustee and all obligations of the Borrower hereunder, including the provisions of subparagraphs 5(b) and (c) hereof. (b) Trustee's Rights. The Trustee shall be entitled to receive all ---------------- interest, dividends and other distributions of any kind whatsoever on or with respect to the Loaned Securities made during the period of the relevant Loan or for which the record date occurs during the period of the relevant Loan. Upon the payment or distribution of any of the foregoing to any person other than the Trustee, the Borrower shall, on the due date for payment or distribution thereof, pay and deliver the same or identical property (with any such endorsements or assignments as shall be customary and appropriate to effect the delivery) to the Trustee, for the account of the relevant Account, irrespective of whether the Borrower received the same; provided, however, that (i) any distribution of securities made in exchange for Loaned Securities shall be considered as substituted for such Loaned Securities and need not be delivered to the Trustee 8 until the relevant Loan is terminated hereunder, (ii) any dividend payable solely in shares of stock which is distributed with respect to any Loaned Securities shall become a new Loan (and shall constitute Loaned Securities, on the same terms as the Loaned Securities in respect of which they were distributed, for all purposes hereof) and need not be delivered to the Trustee until such new Loan is terminated hereunder, if at or before the delivery of such dividend the Borrower shall have delivered such additional Collateral for such new Loan to the Trustee as shall be necessary to make the aggregate Market Value of the Collateral for such Loan, determined on the date of such distribution, at least equal to the Required Value with respect to such Loan determined on such date, and (iii) any distribution of warrants or rights to purchase shares made with respect to any Loaned Securities shall be deemed to be, and shall be, a new Loan made to the Borrower from the Account which loaned the Borrower the Loaned Securities with respect to which such distribution is made (and shall be treated as Loaned Securities, and as a separate Loan, for all purposes hereof) and need not to be delivered to the Trustee until such new Loan is terminated in accordance herewith, if at or before the delivery of such distribution the Borrower and the Trustee shall have agreed upon the Required Value for such new Loan and the Borrower shall have delivered to the Trustee Collateral for such new Loan having a Market Value acceptable to the Trustee. 6. Allocation and Adjustment of Collateral. --------------------------------------- (a) Allocation of Collateral. Except as provided in the following sentence, ------------------------ upon receipt of Collateral for a Loan, such Collateral shall be allocated to such Loan; provided that, if Collateral is received on the same day for more than one Loan, the Trustee shall allocate such Collateral to each Loan then being made so that each such Loan is secured by not less than the Required Value of Collateral as specified herein. Any Collateral received by the Trustee with respect to a Loan in excess of the Required Value for such Loan may be held by the Trustee as collateral security for all Loans made to the Borrower at any time without being allocated to any one Loan or, in the sole discretion of the Trustee, may be allocated at any time to any Loan or Loans then outstanding hereunder. All allocations of Collateral shall be marked in the Trustee's books, which shall be conclusive evidence of such allocations. (b) Marking to Market. If at any time the aggregate Market Value of the ----------------- Collateral allocated to any Loan exceeds the Required Value for such Loan, then the Trustee shall, upon oral demand, redeliver to the Borrower Collateral having an aggregate Market Value equal to such excess by the close of business on such Business Day or as otherwise agreed. If at any time the aggregate Market Value of the Collateral allocated to any Loan is less than the Required Value for such Loan, then the Borrower shall, upon oral demand by the Trustee, deliver to the Trustee additional Collateral having a Market Value at least equal to such deficiency. The Borrower unconditionally agrees to deliver such additional Collateral to the Trustee in the manner specified herein before the close of business on the date of such demand or as otherwise agreed. (c) Reallocation of Collateral. The Trustee shall have the right, at its -------------------------- sole election, at any time and from time to time, to allocate and/or reallocate any Collateral held by it hereunder to or among any outstanding Loan or Loans. (d) Partial Returns of Collateral. If, at the time, less than all of the ----------------------------- Collateral held by the Trustee which has been allocated to any Loan or which is unallocated is required to be returned by the Trustee to the Borrower, the selection of the portion of such Collateral to be returned shall be solely at the election of the Trustee. If at any time the Trustee is required, or desires, to return a portion of any Approved Security to the Borrower pursuant to this Agreement, the Borrower shall, at the oral request of the Trustee, take all such action as is necessary to cause such Approved Security to be reissued in such denominations as are required to permit such a partial return and in such case the Trustee shall not be obligated to return Collateral hereunder unless and until such action has been taken and may thereafter make required returns of Collateral hereunder by returning Approved Securities in such amounts as 9 are, as nearly as practicable, equal to but not greater than the required return. The return to the Borrower of Approved Securities the Market Value of which on the day on which the requirement to return the same was established was then sufficient to comply with such requirement of return shall be in full compliance with this Agreement and a full discharge of the Trustee's obligation to make such return, notwithstanding the fact that at the date of such return the Market Value of any such Approved Securities may have declined. Whenever a Letter of Credit is to be returned in part, such return shall be effected by the Trustee's consent to a reduction equivalent to such part in the amount available for drawings under such Letter of Credit. 7. Representations and Warranties of Borrower. The Borrower hereby ------------------------------------------ represents and warrants to the Trustee that: (a) Due Authorization, etc. The making and performance by the Borrower of ----------------------- this Agreement and the transactions contemplated hereby have been duly authorized by the Borrower; the Borrower has the requisite power and authority to make and perform the same; and such making and performance will not violate any applicable provision of law or regulation or result in the breach of or constitute a default or result in the creation of any lien or encumbrance under any agreement or other instrument to which the Borrower is a party or by which the Borrower or its property may be bound or affected. This Agreement constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. At any time that any Collateral is delivered to the Trustee hereunder the Borrower shall have the absolute right to transfer title to, and dispose of, such Collateral to the Trustee, and the Trustee shall at all times have a perfected security interest in all such Collateral, except that in the case of Letters of Credit the Trustee shall have all right, title and interest therein, in each case subject to no equal, prior or other liens, charges, encumbrances or other claims of any kind (except, in the case of Approved Securities, those in favor of The Chase Manhattan Bank or the Federal Reserve Bank). (b) Borrower's Status. The Borrower is either a bank or a broker- dealer ----------------- registered under the Securities Exchange Act of 1934, as amended. Neither the Borrower nor any affiliate (as defined in Department of Labor Prohibited Transaction Exemption 81-6) of the Borrower has discretionary authority or control with respect to investment of any plan assets held in any Account to which this Agreement is applicable or renders investment advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to such assets, and the Borrower will promptly notify the Trustee of any change which would make the foregoing representation untrue. In connection with the foregoing, Trustee acknowledges that such representation and warranty shall not take effect until the Borrower has been furnished with a list of Lenders and has been given a reasonable opportunity to review the same (but in no event greater than 10 Business Days from the date such list is furnished to the Borrower). The Borrower shall advise the Trustee as soon as possible, but in no event later than the expiration of the 10 Day period referred to in the preceding sentence of the identity of any Lender(s) as to which Borrower cannot make the representation and warranty referred to in this subsection (b), in which event any such Lender(s) shall be deleted from the list of Lenders eligible to lend to the Borrower. (c) Financial statements. The Borrower has heretofore delivered to the -------------------- Trustee a copy of the most recent annual consolidated financial statements of the Borrower and its consolidated subsidiaries, duly audited by independent certified public accountants, including a balance sheet as at the end of the fiscal year, and a copy of the most recent unaudited consolidated financial statements of the Borrower and its consolidated subsidiaries, including a balance sheet as at the end of the period covered thereby, and each of said statements and the related notes thereto are complete and correct and fairly present the consolidated financial condition and results of operations of the Borrower and its consolidated subsidiaries, all in conformity with generally accepted accounting principles consistently applied. 10 7A. Representations and Warranties of Trustee on Behalf of Each Lender. ------------------------------------------------------------------ The Trustee represents and warrants that each Lender has represented and warranted to the Trustee that it: (i) has authorized Trustee to execute and deliver an agreement substantially in the form hereof, to enter into the transactions contemplated hereby, and to perform Trustee's obligations hereunder; (ii) is the beneficial owner of all securities lent by it hereunder or otherwise has the right to lend such securities; and (iii) is entitled to receive all interest, dividends and other distributions made by the issuer with respect to such securities. 8. Covenants of Borrower. The Borrower hereby covenants and agrees with the --------------------- Trustee as follows: (a) Delivery of Financial Statements, etc. The Borrower will furnish to the -------------------------------------- Trustee, (i) as soon as available, a copy of the annual consolidated financial statements of the Borrower and its consolidated subsidiaries duly audited by independent certified public accountants, including a balance sheet as at the end of such fiscal year,prepared in accordance with generally accepted accounting principles consistently applied, (ii) as soon as available for each quarter, a copy of the consolidated financial statements of the Borrower and its consolidated subsidiaries for the period then ended, including a balance sheet as at the end of such period, prepared in accordance with generally accepted accounting principles on a basis consistent with that used in the preparation of the financial statements referred to in clause (i) above and certified by an appropriate officer of the Borrower, (iii) promptly after the filing thereof, a copy of each report or other instrument filed by the Borrower with the SEC, (iv) promptly after the occurrence of any default under this Agreement, a written notice setting forth the nature of such default and the steps being taken by the Borrower to remedy such default, and (v) from time to time such further information (whether or not of the kind mentioned above) regarding the business, affairs and financial condition of the Borrower as the Trustee may reasonably request. (b) Notice of Certain Actions. The Borrower will give the Trustee immediate ------------------------- notice (i) if at any time there is entered against the Borrower any order, decree, determination or instruction issued on the authority of any rule, regulation or proceeding of any governmental commission, bureau or other administrative agency or self-regulatory organization, including the SEC and the NYSE, which could have a material adverse effect on the ability of the Borrower to perform its obligations under this Agreement or to carry on its business as conducted at the date of this Agreement or which would prohibit expansion or require reduction of the business of the Borrower as conducted at the date of this Agreement or which might adversely affect the borrowing of securities by the Borrower, (ii) if at any time any litigation, arbitration or similar proceeding against or affecting the Borrower is commenced which could have a material adverse effect on the ability of the Borrower to perform its obligations under this Agreement or to carry on its business as conducted at the date of this Agreement or which would prohibit expansion or require reduction of the business of the Borrower as conducted at the date of this Agreement or which might adversely affect the borrowing of securities by the Borrower, (iii) if at any time there is commenced any investigation or proceeding which may result in the expulsion of the Borrower from any stock exchange, including the NYSE, or from the National Association of Securities Dealers, Inc., or from any self- regulatory organization, or a suspension of the Borrower's power under Federal or state law to transact business as a broker or dealer in securities or if the Borrower is so expelled or suspended, (iv) if at any time any communication is received by the Borrower from the SEC or any stock exchange, including the NYSE, constituting a warning to the Borrower of the violation, or threatened violation, of any rule of the SEC or of such exchange a failure to comply with which could have a material adverse effect on the ability of the Borrower to perform its obligations under this Agreement or to carry on its business as conducted at the date of this Agreement or result in a prohibition on expansion or a requirement for reduction of the business of the Borrower as conducted at the date of this Agreement or adversely affect the borrowing of securities by the Borrower, (v) if at any time the Borrower shall receive information that the Borrower is under special surveillance by any stock exchange, including the NYSE, or by any other self-regulatory 11 organization, (vi) if at any time the Borrower shall receive information that the SEC or any self-regulatory organization, including the NYSE, has notified the Securities Investor Protection Corporation ("SIPC") pursuant to Section 5(a) (1) of the Securities Investor Protection Act of 1970 ("SIPC Act") of facts which indicate that the Borrower is in or is approaching financial difficulty, or (vii) if at any time SIPC shall file an application for a protective decree with respect to the Borrower under Section 5(a) (3) of the SIPC Act. Any such notice shall set forth in reasonable detail a description of the event which has occurred and of the action, if any, which the Borrower proposes to take with respect thereto. The Borrower will forward to the Trustee a copy of any order, decree, determination, instruction or other written evidence received by it of or with respect to any matter referred to in the first sentence of this subparagraph (b) with respect to which notice is required to be given to the Trustee by such sentence. The Borrower will comply with any such order, decree, determination or instruction within the time required for such compliance and with any changes of rules or regulations of the SEC or the NYSE or any other self-regulatory organization by the effective date thereof or the time for compliance specified therein or, within the time required for compliance, shall cause the same to be revoked, reversed or modified to the satisfaction of the Trustee. (c) Further Acts. The Borrower will, from time to time, do and perform any ------------ and all acts and execute any and all further instruments required or reasonably requested by the Trustee more fully to effect the purposes of this Agreement and the pledge of the Collateral hereunder, including, without limitation, the execution and filing of financing statements and continuation statements relating to the Collateral under the provisions of the New York State Uniform Commercial Code. 9. Termination of Loans without a Default. -------------------------------------- (a) Termination by the Borrower. The Borrower may at any time terminate any --------------------------- Loan by (unless otherwise agreed) giving the Trustee oral notice of such termination and delivering the Loaned Securities or Equivalent Securities with respect to such Loan to the Trustee on the date specified in such oral notice. The date so specified shall be as agreed by the Borrower and the Trustee. In the event that the Borrower terminates any term loan prior to the expiration of the agreed term, the Borrower may be liable for any costs or expenses incurred as a result thereof. (b) Termination by the Trustee. Each Loan made hereunder shall be a demand -------------------------- loan. The Trustee may at any time terminate any Loan, in whole or in part, by giving the Borrower oral notice of such termination, whereupon such Loan, or the portion thereof being terminated, shall become due on the date specified in such notice unless it shall become due sooner pursuant to paragraph 10 hereof. The date so specified shall be as agreed between the Trustee and the Borrower. The Borrower hereby unconditionally promises to redeliver the Loaned Securities that are the subject of any Loan so terminated to the Trustee through the same delivery means as the Loaned Securities were delivered by the Trustee to the Borrower, on the date so specified with respect to such Loan, which shall be within the same timeframe as applicable to the delivery of the Loaned Securities by the Trustee to the Borrower. (c) Return of Collateral. Upon the termination of any Loan in accordance -------------------- with this paragraph 9 and the return of the Loaned Securities with respect to such Loan to the Trustee, the Trustee shall, unless otherwise directed by the Borrower, deliver the Collateral then allocated to such Loan to the Borrower; provided, however, that if any default hereunder shall have occurred and be continuing the Trustee shall not be obligated to return any such Collateral until such default shall have been cured, and that if a record date for any distribution with respect to the Loaned Securities occurred during the period of such Loan and such distribution has not been paid or delivered to the Trustee, the Trustee may retain a portion of the Collateral for such Loan sufficient to satisfy the Borrower's obligation with respect to such distribution until such obligation has been satisfied in accordance with paragraph 5(b) hereof. Such delivery shall occur on the date of the return of the relevant 12 Loaned Securities. The Trustee acknowledges that, if at the election of the Borrower, upon the termination in accordance with this paragraph 9 of any Loan which is secured by a Letter of Credit, or a portion thereof, and the return of the Loaned Securities with respect to such Loan, such Letter of Credit, or portion thereof, is not returned to the Borrower, the Trustee shall have no further right to draw under such Letter of Credit with respect to such Loan to the extent that the obligations of the Borrower with respect to such Loan have been fully discharged and the payments and deliveries of Loaned Securities made in respect of such obligations are not subsequently recovered from the Trustee in any bankruptcy, insolvency or similar proceeding. 10. Defaults. -------- (a) Events of Default. Any one or more of the following events shall ----------------- constitute an "Event of Default" hereunder: (i) A failure by the Borrower to deliver any Loaned Securities on the date specified for such delivery in accordance with subparagraph 9(a) or (b) hereof or any other default by the Borrower in the due performance or observance of any covenant or agreement contained herein; or (ii) Any representation or warranty made by the Borrower herein or in connection herewith or with any borrowing hereunder shall be breached or prove to have been untrue when made; or (iii) A violation by the Borrower, in connection with any Loaned Securities or the holding or disposition thereof by the Borrower, of any applicable law, regulation or rule of the United States, any state or any instrumentality of either thereof, the NYSE or any other national securities exchange to the requirements of which the Borrower may be subject, or the Board of Governors of the Federal Reserve System or the National Association of Securities Dealers, Inc.; or (iv) A violation by the Borrower of any rule limiting its aggregate indebtedness or requiring a minimum net capital imposed under the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder or imposed by any stock exchange, or the imposition, under any such rule, of a prohibition against expansion, or a requirement of any reduction, of the business of the Borrower; or (v) The occurrence of any event of which the Borrower is required to notify the Trustee pursuant to clause (i), (iii), (vi), or (vii) of subparagraph 8(b) hereof; or (vi) The Borrower or any bank which has issued a Letter of Credit held as Collateral shall (1) apply for or consent to the appointment of or the taking of possession by a trustee, receiver, custodian, liquidator, conservator or the like of itself or of all or any substantial part of its property, (2) admit in writing its inability, or be generally unable, to pay its debts as such debts become due or voluntarily suspend payment of its obligations, (3) make a general assignment for the benefit of its creditors, (4) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect) or, in the case of any such bank, under the analogous law pertaining to it, (5) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, (6) fail to controvert in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under such Bankruptcy Code or analogous law, or (7) take any corporate action for the purpose of effecting any of the foregoing; or (vii) A proceeding or case shall be commenced, without the application or consent of the Borrower or any bank which has issued a Letter of Credit held as Collateral, as the case may be, before any court, agency or supervisory authority having jurisdiction in the premises, 13 seeking (1) the liquidation, reorganization, dissolution, winding-up, marshaling of assets or composition or adjustment of debts of the Borrower or such bank, (2) the appointment of a trustee, receiver, custodian, liquidator, conservator or the like of the Borrower or such bank or of all or any substantial part of its assets or (3) similar relief in respect of the Borrower or such bank under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition and adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 30 days; or any action shall be taken by any agency or supervisory authority having jurisdiction which results in the occurrence of any of the events specified in clauses (1) through (3) above; or any order for relief against the Borrower or any such bank shall be entered in an involuntary proceeding or case under such Bankruptcy Code or, in the case of any such bank, under the analogous law pertaining to it. (b) Automatic Termination. Upon the occurrence of any Event of Default all --------------------- outstanding Loans shall terminate and become immediately due, without any notice or other action on the part of the Trustee, and the Borrower shall immediately deliver all Loaned Securities to the Trustee. (c) Trustee's Remedies. If an Event of Default shall have occurred and be ------------------ continuing the Trustee may take whatever action at law or in equity may appear necessary or desirable to collect any and all amounts due and thereafter to become due hereunder and to enforce the performance or observance by the Borrower of any and all obligations, covenants and agreements of the Borrower under or in connection with this Agreement. Without in any way limiting the foregoing, if the Borrower shall fail to immediately deliver any Loaned Securities to the Trustee in accordance with subparagraph 10(b) hereof, the Trustee may in its sole discretion either (i) purchase securities equivalent to the Loaned Securities which have not been delivered, or any part thereof, in any principal market for such securities and apply such purchased securities towards the Borrower's obligation to deliver such Loaned Securities, or (ii) by oral notice to the Borrower (confirmed in writing), and without purchasing equivalent securities, hold the Borrower liable for an amount equal to the Market Value (including for this purpose accrued interest to the date of such oral notice) of the Loaned Securities which have not been delivered, or any part thereof as specified in such notice, determined as of the date of such oral notice, whereupon the Borrower's obligation to deliver such Loaned Securities to the Trustee hereunder (to the extent equivalent securities have been purchased or the Trustee has given an oral notice with respect thereto pursuant to clause (ii) above) shall terminate for all purposes and the Borrower shall thereafter be obligated to the Trustee hereunder for, and hereby agrees to pay to the Trustee, the full amount of the purchase price of such securities or the Market Value (including accrued interest as provided above) thereof, as the case may be. (d) Application of Collateral. The Trustee shall have all of the rights, ------------------------- powers and remedies with respect to the Collateral of a secured party, or, in the case of Letters of Credit, a beneficiary, under the New York State Uniform Commercial Code as in effect from time to time. Without in any way limiting the foregoing, upon the occurrence of any Event of Default the Trustee may draw upon any Letters of Credit then held as Collateral and liquidate any or all other Collateral then held by it. The proceeds of the foregoing, together with any Pledged Cash then held, may be applied by the Trustee to the payment of any and all amounts due and to become due to it hereunder, including without limitation amounts due to the Trustee in accordance with subparagraph 10(c) hereof. In addition to and without limiting the foregoing, the Trustee may sell or cause to be sold all or any of the Collateral in the Borough of Manhattan, New York City, or elsewhere, in one or more sales, at such price as the Trustee may deem best, and for cash or on credit or for future delivery, without assumption of any credit risk, at public or private sale, without demand of performance or notice of intention to sell or of time or place of sale (except such notice as is required by applicable statute and cannot be waived), and the Trustee or anyone else may be the purchaser of any or all of the Collateral so sold and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any equity of redemption, of the Borrower, any such demand, 14 notice or right and equity being hereby expressly waived and released. It is expressly understood and agreed by the parties hereto that any allocation of Collateral to any Loan or liabilities due to any Account pursuant to the terms hereof shall in no way affect the ability of the Trustee to apply such Collateral to the satisfaction of any obligation of the Borrower hereunder upon any default hereunder, regardless of the Loan or Account to which such obligation relates, and that all Collateral at any time given hereunder shall constitute collateral security for all the Borrower's obligations to the Trustee hereunder without distinction of any kind and upon any default hereunder may be applied to any such obligation or obligations as the Trustee in its sole discretion may elect. (e) Borrower's Remedies. If at any time any Lender Default (as such term is ------------------- hereinafter defined) shall have occurred and be continuing with respect to any Account, the Borrower may, by oral notice to the Trustee, declare all outstanding Loans made by such Account (the "Defaulted Loans") to be terminated and to be immediately due, whereupon the same shall terminate and become immediately due without any further notice or other action on the part of the Borrower, and the Trustee shall immediately deliver all Collateral for such Defaulted Loans to the Borrower in accordance with subparagraph 9(c) hereof against receipt of the Loaned Securities which are the subject of such Defaulted Loans; provided, however, that upon the occurrence of any Lender Default referred to in clause (iv) of the definition of Lender Default below with respect to any Account all outstanding Loans made by such Account shall automatically terminate and become immediately due, without any notice or other action on the part of the Borrower, and the Trustee shall immediately deliver all Collateral for such Defaulted Loans to the Borrower in accordance with subparagraph 9(c) after tender to the Trustee of the Loaned Securities which are the subject of such Defaulted Loans. If the Trustee shall fail to deliver any such Collateral to the Borrower in accordance with this sub- paragraph 10(e) after tender to the Trustee of the Loaned Securities which are the subject of the Loan secured by such Collateral, the Borrower shall have the right, in addition to any other remedies which may be available at law or in equity, after oral notice (confirmed in writing) to the Trustee, to sell in a commercially reasonable manner, the Loaned Securities then held by it which are the subject of the Loan secured by such Collateral, for the account of the Account which made such Loan, and apply the proceeds of such sale in accordance with this subparagraph 10(e). Upon receipt by the Trustee of any such notice of sale, the Trustee's obligation to return any Pledged Cash or Approved Securities allocated to the Loan with respect to which such notice was given which have not theretofore been returned to the Borrower shall terminate for all purposes and the Trustee shall thereafter be obligated, on behalf of the Account, to the Borrower hereunder, with respect to such Loan, for, and hereby agrees to pay to the Borrower, an amount equal to such Pledged Cash and the Market Value (including for this purpose accrued interest to the date of the relevant Lender Default) of such Approved Securities, determined as of the date of the relevant Lender Default. The proceeds of any sale of Loan Securities under this subparagraph 10(e) shall be automatically applied to the payment of any and all amounts due to the Borrower hereunder from the Account which loaned such Loaned Securities to the Borrower, including without limitation amounts due to the Borrower in accordance with this subparagraph 10(e). Except as otherwise provided in this subparagraph 10(e), if a Lender Default has occurred with respect to any Account and the Loans made by such Account have been terminated pursuant to this subparagraph 10(e), the Borrower shall not be obligated to (i) return any Loaned Securities which are the subject of any Defaulted Loan made by such Account, or the proceeds of any sale thereof, or (ii) pay or deliver to the Trustee pursuant to subparagraph 5(b) hereof any interest, dividends or other distributions with respect to the Loaned Securities which are the subject of any Defaulted Loan made by such Account until all of the obligations hereunder of such Account have been satisfied; provided, however, that upon satisfaction of all obligations of such Account hereunder any and all such Loaned Securities, proceeds, interest, dividends and other distributions which have not been applied to the satisfaction of such obligations shall be returned to the Trustee for the account of such Account. As used herein, the term "Lender Default" shall mean, with respect to any Account, any one or more of the following events: (i) a failure by such Account to deliver any Pledged Cash or Approved Securities to the Borrower in accordance with 15 subparagraph 9(c) hereof; (ii) a failure by such Account to deliver any Collateral to the Borrower in accordance with subparagraph 6(b) hereof; (iii) a failure by such Account to pay or deliver to the Borrower any interest payment or other distribution on any Approved Securities held as Collateral in accordance with subparagraph 4(c) hereof and the continuance of such default for a period of one Business Day after written notice thereof has been given to the Trustee by the Borrower; (iv) such Account, if such Account is not an employee benefit plan subject to ERISA, shall make a general assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a petition in bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall file a petition seeking reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall seek, consent to or acquiesce in the appointment of any liquidator (or similar official) of itself or of any material part of its properties, or any petition, not dismissed within 30 calendar days, shall be filed against such Account (other than by the Borrower) in any court or before any agency alleging the bankruptcy or insolvency of such Account or seeking any reorganization, arrangement, composition, readjustment of debts, liquidation, dissolution or similar relief with respect to such Account under any present or future statute, law or regulation, or the appointment of a liquidator of all or any material part of such Account's property, or, if such Account is an employee benefit plan subject to ERISA, the Pension Benefit Guaranty Corporation, or any successor thereof, shall institute proceedings to terminate such plan under section 4042 of ERISA; or (v) such Account, if such Account is not an employee benefit plan subject to ERISA, shall have any license, charter or other authorization necessary to conduct a material portion of its business withdrawn, suspended or revoked by any applicable federal or state government or agency thereof, or, if such Account is an employee benefit subject to ERISA, a final determination shall be rendered that such plan no longer is exempt from tax under Section 501(a) of the Internal Revenue Code of 1986, as amended. (f) Payment of Expenses. If any Event of Default shall occur the Borrower ------------------- shall pay to the Trustee, on demand, all out-of-pocket expenses, including reasonable attorneys' fees, paid or incurred by the Trustee in realizing upon any Collateral or enforcing any covenants or obligations hereunder and all fees, commissions, taxes and other out-of-pocket expenses, including reasonable attorneys' fees, paid or incurred in connection with the purchase of any equivalent securities in accordance with subparagraph 10(c) hereof. Amounts payable under this subparagraph 10(f) and subparagraph 10(c) hereof shall be paid to the Trustee by the Borrower on demand, together with interest thereon from the date such amounts were paid by the Trustee or otherwise became payable to the Trustee to the date of the payment of such amounts to the Trustee, whether out of the proceeds of Collateral or otherwise, at a rate per annum equal to 1/2 of 1% above the prime commercial lending rate per annum as announced from time to time by The Chase Manhattan Bank (National Association) at its principal office in New York, as in effect from time to time during such period, but in no event at a rate in excess of the highest rate permissible under any applicable usury law. (g) Remedies Cumulative. No remedy herein conferred upon the Trustee or the ------------------- Borrower shall be exclusive of any other remedy but each and every such remedy shall be cumulative and shall be in addition to every remedy given to such party under this Agreement or now or hereafter existing at law or in equity or by statute. (h) Return of Collateral After a Default. If the Loans hereunder have been ------------------------------------ terminated pursuant to subparagraph 10(b) hereof, the Trustee shall not be obligated to return any Collateral to the Borrower until (i) all Loaned Securities have been returned to the Trustee or securities equivalent to such Loaned Securities have been acquired by the Trustee, (ii) all amounts due and to become due hereunder have been paid to the Trustee in full, and (iii) the Borrower has delivered to the Trustee any and all property of any kind which it is then or may thereafter be required to deliver to the Trustee hereunder. If each of the conditions in the preceding sentence is satisfied the Trustee shall deliver all Collateral then held by it which has not been applied to the satisfaction of the Borrower's obligations hereunder to the Borrower. 16 11. Transfer Taxes, Necessary Costs and Compensation. The Borrower shall ------------------------------------------------ pay all transfer taxes and necessary costs with respect to the transfer of Loaned Securities by the Trustee to the Borrower and from the Borrower to the Trustee upon the termination of each Loan. In addition, the Borrower shall reimburse the Trustee for any loss, including interest and/or penalties, incurred by the Trustee by reason of the Borrower's failure to pay all such taxes and costs. Except as otherwise expressly provided in paragraph 10 hereof, the Borrower shall pay the Trustee interest on any and all amounts not paid when due hereunder from the date due until paid at the current daily average offered rate for federal funds. 12. Addition and Removal of Accounts. The Account which makes any -------------------------------- particular Loan shall be determined in the sole discretion of the Trustee at the time such Loan is made and recorded in the Trustee's books (which shall be conclusive). The Borrower agrees to accept any loan of securities requested by it from any Account or Accounts listed in Appendix A hereto (except that Borrower may delete one or more Lenders from Appendix A on not less than five Business Days prior notice to the Trustee), and the Trustee shall not be required to notify the Borrower at any time as to which of such Accounts has made or may make any Loan hereunder; provided, however, that the Trustee shall record with respect to each Loan the identity of the lending Account. The Trustee may at any time amend Appendix A hereto to add further trusts and accounts to the list of Accounts set forth therein and to remove Accounts from such list by delivering a copy of the amendment to Appendix A to the Borrower. Any such amendment shall become effective three Business Days after the receipt thereof by the Borrower unless the Trustee has theretofore received a written notice from the Borrower objecting to such amendment. 13. Indemnification. The Borrower agrees to indemnify and hold harmless the --------------- Trustee from any and all damages, losses, liabilities, costs and expenses (including reasonable attorneys' fees) which the Trustee may incur or suffer arising in any way out of the use by the Borrower of Loaned Securities or any failure of the Borrower to deliver Loaned Securities in accordance herewith or otherwise comply with the terms of this Agreement, except those caused by the gross negligence or willful misconduct of the Trustee. 14. Notices, Deliveries, etc. All oral notices specified herein shall be ------------------------ given in person or by telephone. All other notices and communications hereunder shall be in writing and all such other notices and communications, and all deliveries and payments hereunder, shall be delivered by hand or mailed by certified or registered mail, or given by telegram confirmed by certified or registered mail as follows: If to the Trustee, to: The Chase Manhattan Bank Global Securities Lending 4 New York Plaza New York, New York 10004 Attention: Business Executive Telephone: (212) 623-2944 17 If to the Borrower, to: or, in either case, to such other person and at such other address or telephone number as either party may designate by written notice to the other hereunder. 15. Miscellaneous. Neither this Agreement, any obligation to return a ------------- security borrowed hereunder or any other obligation of the Borrower hereunder shall be assignable by either party without the prior written consent of the other party. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement shall be governed by and construed in accordance with the law of the State of New York, except to the extent such law is preempted by ERISA or other applicable Federal law. This Agreement shall not be modified or amended except by an instrument in writing signed by each of the parties hereto. 16 Fees. The compensation in connection with Loans and the manner of ---- payment thereof shall be as agreed upon from time to time by the parties hereto. With respect to Loans secured by Approved Securities, the Borrower shall pay to the Trustee a loan fee negotiated at the time of the Loan. With respect to Loans secured by Pledged Cash, the Trustee shall pay to the Borrower a rate of interest earned on Pledged Cash investments as negotiated at the time of the Loan or subsequently revised from time to time by the mutual consent of the parties. Each agreement by the parties hereto with respect to the foregoing matters shall be evidenced by a written confirmation from the Trustee to the Borrower and shall be deemed to be, and shall be, a part of this Agreement for all purposes hereof as fully as if such agreement were set forth herein in full, and each and every amount due under any such agreement shall be deemed to constitute, and shall constitute, an amount due under this Agreement for all purposes hereof. 17. SIPC Act. THE TRUSTEE ACKNOWLEDGES THAT THE PROVISIONS OF THE -------- SECURITIES INVESTORS PROTECTION ACT OF 1970 MAY NOT PROTECT THE TRUSTEE OR THE ACCOUNTS WITH RESPECT TO THE SECURITIES LOAN TRANSACTIONS HEREUNDER BETWEEN THE TRUSTEE AND THE BORROWER AND THAT, THEREFORE, THE COLLATERAL DELIVERED BY THE BORROWER TO THE TRUSTEE MAY IN EFFECT CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF THE BORROWER'S OBLIGATIONS IN THE EVENT THE BORROWER FAILS TO RETURN THE SECURITIES. The Trustee agrees to notify the Accounts of this provision. This provision does not constitute a limitation on any obligations of the Borrower hereunder or a waiver by the Trustee of any of its rights hereunder. 18 18. Effective Date. This Agreement shall be and become effective as of the -------------- date first above written. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective duly authorized officers as of the date first above written. THE CHASE MANHATTAN BANK as trustee and managing agent By ____________________________________ Name: Title: Date: ________________________________________ Insert name of Borrower By ____________________________________ Name: Title: Date: 19 INTERNATIONAL ADDENDUM TO MASTER SECURITIES LENDING AGREEMENT ADDENDUM, dated , 199 , to the master securities lending agreement, as amended ("Agreement"), dated , 19 , between (the "Borrower") and The Chase Manhattan Bank,, as trustee or managing agent for certain trusts or accounts (the "Trustee"). It is hereby agreed as follows: 1. Unless otherwise provided herein, all terms and conditions of the Agreement are expressly incorporated herein by reference and except as modified hereby, the Agreement is confirmed in all respects. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Agreement. 2. Section 1 of the Agreement is amended as follows: a. The definition of "Approved Securities" is amended by inserting the phrase "("U.S. Government Securities") or any other securities, in each case" after the word "government". b. The definition of "business day" is deleted and replaced in appropriate alphabetic sequence by the following: "Foreign Business Day" shall mean (unless otherwise agreed) with respect to: (i) International Securities (whether comprising Loaned Securities or Collateral consisting of Approved Securities), any day on which banks are open for business in the country in which the principal market for such Securities is located and on which regular trading therein occurs in such Securities in such market, and (ii) cash Collateral denominated in other than U.S. dollars, any day on which banks are open for business in the country of issuance of such cash. "New York Business Day" shall mean (unless otherwise agreed) with respect to (i) Loaned Securities other than International Securities and (ii) Collateral comprising Letters of Credit, and U.S. dollar-denominated Approved Securities and cash, any day on which national banks and the NYSE are open for business in New York City. c. The definition of "Collateral" is amended by adding the words "or International Securities" after the words "Approved Securities" in clause (b) thereof. d. A new term, "Dollar Equivalent", is added. "'Dollar Equivalent' shall mean, as of any date of determination thereof, in respect of any International Securities or Collateral denominated or issued in an International Currency or otherwise, the equivalent thereof in United States dollars calculated by the Trustee on the basis of the most current spot rate of exchange quoted by The Chase Manhattan Bank, or other source selected by the Trustee in its sole discretion, for selling the relevant International Currency for United States dollars in a recognized foreign exchange market selected by the Trustee in its sole discretion." 20 e. A new term, "International Currency", is added. "'International Currency' shall mean a currency other than United States dollars which is freely transferable and freely convertible into United States dollars." f. A new term, "International Securities", is added. "'International Securities' shall mean, with respect to a Loan, securities denominated or issued in an International Currency which are acceptable to the Trustee in its sole discretion." g. The definition of "Letter of Credit" is amended in clause (e) by adding the words "and is payable in such currency or currencies" after the word "provisions" and by adding the words "in its sole discretion" after the word "Trustee". h. The definition of "Market Value" is amended as follows: The reference to "national" in clause (b) is replaced with the words "foreign or domestic"; the reference to "national" in clause (c) is replaced with the word "such"; the parenthetical in clause (c) is amended by deleting the words "the Associated Press as evidenced by quotations published in the New York Times and" and also by adding the words "to or" following the word "provided"; the parenthetical in clause (d) is amended by adding the words "to or" following the word "provided"; the proviso clause in the first sentence is amended by adding, between the words "security" and "held", the words "determined in clauses (a)- (d) hereinabove shall include accrued interest and the market value of any security"; the phrase "New York Business Day" is substituted for the phrase "business day"; and the phrase "New York Business Days" is substituted for the phrase "business days"; and a new last sentence is added, namely, "In all cases involving International Securities or Collateral denominated or issued in an International Currency, Market Value shall be adjusted by the Trustee to a Dollar Equivalent". 3. Section 3(a) of the Agreement is amended by inserting the phrase "prior or contemporaneous" after the word "against" in the first sentence thereof. 4. Section 3(b) of the Agreement is amended by adding a new clause (iii), "International Securities" and designating existing clause (iii) as (iv). 5. Section 3(c) of the Agreement is amended by adding to the first sentence thereof the words "as evidenced in the relevant Loan Confirmation" after the word "Borrower" and by adding the words "(other than International Securities)" after the reference to both "Loaned Securities" and "Approved Securities" therein. Section 3(c) is further amended by adding a new last sentence, namely, "Delivery of International Securities shall be effected in the manner agreed to by the Trustee and the Borrower, as evidenced in the relevant Loan confirmation." 6. Section 3(d) of the Agreement is amended by substituting the phrase "New York Business Day" for the phrase "business day". 7. Section 4(c) of the Agreement is amended by adding the words "or International Securities" after each reference to the words "Approved Securities" in the first, second, fourth, fifth, and sixth sentences thereof. Section 4(c) is further amended by adding the words ", as the case may be," after the word Trustee in the fourth sentence thereof. 21 8. Section 5(b) of the Agreement is amended by inserting the following after the phrase "the Borrower shall, within one business day after the payment or distribution thereof" in the second sentence thereof: "(and such business day shall be a New York Business Day with respect to interest, dividends and distributions denominated in U.S. dollars or otherwise paid or issued in respect of Loaned Securities other than International Securities and shall be a Foreign Business Day in respect of all other interest, dividends and distributions)". 9. Section 6(b) of the Agreement is amended by inserting the following after the phrase "such demand" in the first sentence thereof: ", and such business day shall be a New York Business Day with respect to Collateral denominated in U.S. dollars or delivered to the Trustee in New York and shall be a Foreign Business Day in respect of all other Collateral". 10. Section 6(d) of the Agreement is amended by substituting the following sentence for the existing second sentence: "If at any time the Trustee is required, or desires, to return a portion of any Approved Security or International Security held by it as Collateral to the Borrower pursuant to this Agreement, the Borrower shall, at the oral request of the Trustee, take all such action as is necessary to cause such Approved Security or International Security to be reissued in such denominations as are required to permit such a partial return and in such case the Trustee shall not be obligated to return Collateral hereunder unless and until such action has been taken and may thereafter make required returns of Collateral hereunder by returning Approved Securities or International Securities, as the case may be, in such amounts as are, as nearly as practicable, equal to but not greater than the required return." Section 6(d) is further amended by inserting, in the third sentence thereof, the words "or International Securities, as the case may be," after the initial reference to "Approved Securities" therein. 11. Section 9(a) of the Agreement is amended by adding the following at the end thereof: "and whether such business days shall be New York Business Days or Foreign Business Days shall be determined by reference to the location of the principal trading market for the Loaned Securities which are the subject of the Loan being terminated. 12. Section 9(b) of the Agreement is amended by deleting the third sentence thereof, and inserting in lieu thereof the following: "The date so specified shall be not less than: (i) in the case of a Loan of U. S. Government Securities, one New York Business Day subsequent to the giving of such notice; and (ii) in the case of a Loan of any other Loaned Securities (unless otherwise agreed by the parties hereto as evidenced in the confirmation relating to a Loan), the lesser of five days or the standard market settlement time in the principal market in which the Loaned Securities are traded. For purposes of clause (ii), if there is a difference between the settlement time for sales and purchases in the applicable market, the standard market settlement time for such market for purposes of this (S)9(b) shall be the shorter of the two times." 13. Section 9(c) of the Agreement is amended by inserting: the (i) phrase "of Collateral" after the phrase "Such delivery" in the second sentence thereof"; and (ii) following after the phrase "Loaned Securities" in the second sentence thereof: "where the Loaned Securities are not International Securities. Where the Loaned Securities are International 22 Securities, return of Collateral shall occur on or before the New York Business Day next succeeding the Foreign Business Day on which the Loaned Securities were returned." 14. Section 10(a)(iii) of the Agreement is amended by adding the words "or any foreign jurisdiction" after the words "rule of the United States" and deletion of the word "national" in the words "the NYSE or any other national securities exchange. Section 10(a)(vi)(7) of the Agreement is amended by adding the words "or effect any process under the laws of any jurisdiction" after the words "take any corporate action". 15. Section 10(c) of the Agreement is amended by substituting the following clause for existing clause (i): "purchase securities equivalent to the Loaned Securities which have not been delivered, or any part thereof, in any principal market for such securities and apply the Market Value of such purchased securities against the Market Value of the Loaned Securities on the date of such purchase." Section 10(c) of the Agreement is further amended by adding the following as a new subparagraph at the end thereof: "If the Borrower fails to return Loaned Securities when due (at a time when the Account is obligated to deliver the Loaned Securities to settle a sale to third party ("Account Counterparty")) and this results in a buy-in of equivalent securities by the Account Counterparty, Borrower shall, promptly upon demand therefor, reimburse Trustee for any loss, including interest and/or penalties, incurred by the Trustee and the Account arising from or relating to such buy- in." 16. Section 10(e) of the Agreement is amended by substituting the phrase "New York Business Day" for the phrase "business day". 17. Section 10(f) is amended as follows: In the first sentence thereof, the words "and as of the date of any" are added immediately prior to the word "demand" and immediately subsequent to the word "demand" the comma is deleted and the following words are added: "therefor, an amount in United States dollars equal to the Dollar Equivalent of". The first two clauses of the second sentence (but no other clauses therein) are revised to read as follows: "Amounts payable under this subparagraph 10(f) and subparagraph 10(c) hereof shall be paid in United States dollars to the Trustee by the Borrower on and as of the date of any demand therefor, together with the interest thereon in United States dollars from the date such amounts were paid by the Trustee (including, where applicable, Dollar Equivalents thereof) to the date of the repayment of such amounts to the Trustee,". 18. Section 11 of the Agreement is amended by inserting the following: (i) as a new first sentence, "All transfers of Loaned Securities shall be in good deliverable form."; (ii) after the word "taxes" in the existing first sentence thereof, ", relevant stamp duties, registration fees"; and (iii) after the word "costs" in the existing first sentence thereof, "and shall arrange for transfer deeds and/or documents, and shall pay any other applicable fees and expenses". Section 11 of the Agreement is further amended so that the second and third sentences read as follows: 23 "In addition, the Borrower shall reimburse the Trustee in United States dollars for the Dollar Equivalent of any loss, including interest and/or penalties, incurred by the Trustee by reason of the Borrower's failure to pay all such taxes and costs and to arrange for such transfer deeds and/or documents and to pay any other applicable fees and expenses, as of the date of the incurrence of any such loss by the Trustee. Except as otherwise expressly provided in paragraph 10 hereof, the Borrower shall pay the Trustee interest in United States dollars on any and all amounts (including, where applicable, Dollar Equivalents thereof) not paid when due hereunder from the date due until paid at the current daily average offered rate for federal funds." 19. Section 12 of the Agreement is amended by substituting the phrase "New York Business Days" for the phrase "business days" in the last sentence thereof. 20. Section 13 of the Agreement is amended by adding the following sentences: "Without limiting the foregoing, if, under any applicable law and whether pursuant to a judgment, against the Borrower or the liquidation, bankruptcy or analogous process of the Borrower or for any other reason, any amount due to the Trustee hereunder or in respect of any Loan is paid in a currency other than United States dollars, then to the extent that the payment actually received by the Trustee (when converted into a Dollar Equivalent on the first day after the date of payment on which it is practicable for the Trustee to effect the conversion) falls short of the amount due hereunder or under the terms of the relevant Loan, the Borrower shall, as a separate and independent obligation, indemnify the Trustee and hold the Trustee harmless against the amount of such shortfall." 21. Section 14 of the Agreement is amended by deleting the first two sentences thereof and substituting, in lieu thereof, the following: "14. Notices, Deliveries, etc. All oral notices specified herein ------------------------- shall be given in person or by telephone, if to the Trustee, to the Securities Lending Business Executive at the address for the Trustee specified below or at telephone number [ ] and, if to the Borrower, to ________________________at the address for the Borrower specified below or at telephone number ________________, or to such other person and at such other address or telephone number as either party may designate by written notice to the other hereunder. All other notices and communications hereunder shall be in writing and delivered by hand or mailed by certified or registered mail, if to the Trustee, to The Chase Manhattan Bank, [ ], Attention: Securities Lending Division, Securities Lending Business Executive, and if to the Borrower to _________________________, or at such other address and number as either party may designate by written notice to the other hereunder." Section 14 of the Agreement is further amended by adding the following at the end thereof: "Deliveries of Loaned Securities and Collateral and payments due hereunder or in respect of any Loan may be made in any manner to any designee of the Borrower or the Trustee, as the case may be, upon agreement of the other party as evidenced in the relevant Loan confirmation." IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first above written. THE CHASE MANHATTAN BANK. _______________________ as trustee or managing agent 24 Insert name of Borrower By: _________________ By: _________________ Name: Name: Title: Title: Date: Date: 25 HONG KONG ADDENDUM TO MASTER SECURITIES LENDING AGREEMENT ADDENDUM dated August , 1999, to the Master Securities Lending Agreement, as amended (the "Agreement") dated August , 1999, between (the "Borrower") and The Chase Manhattan Bank, as trustee or managing agent for certain trusts or accounts (the "Trustee"). WHEREAS: The parties desire that all stock loan transactions entered into by them from the date hereof shall be subject to the terms of this Addendum. THE PARTIES HEREBY AGREE THAT: 1. Interpretation (a) "Collector" means the Collector of Stamp Revenue appointed under Section 3 of the Ordinance; "Hong Kong stock has the meaning set out in section 2 of the Ordinance; "Ordinance" means the Hong Kong Stamp Duty Ordinance (Cap.117), as amended from time to time; and "stock borrowing" has the meaning set out in section 19(16) of the Ordinance. (b) Reference in the "Agreement" in the Agreement and in this Addendum shall be deemed to include a reference to the Agreement as amended by the terms of this Addendum, unless the context otherwise indicates. (c) Capitalized terms which are not otherwise defined in this Addendum shall have the meaning ascribed to them in the Agreement. 2. Application (a) The parties hereby agree that the terms of this Addendum shall apply in addition to the terms set out in the Agreement in the event that Securities borrowed by the Borrower under the Agreement fall within the definition of Hong Kong stock. For the avoidance of doubt, where the Securities do not comprise Hong Kong stock the terms of this Addendum shall not apply. (b) In the event of conflict between the terms of this Addendum and the terms of the Agreement, the terms of this Addendum shall prevail. Except as otherwise 26 set forth herein, the Agreement shall remain unchanged and in full force and effect. 3. Taxation and Indemnity The Borrower undertakes to the Trustee as follows: (a) promptly to pay and account for any transfer, registration or similar charges or duties or taxes (including for the avoidance of doubt, stamp duty and any penalties relating thereto) chargeable on the Borrower or the Trustee and/or accounts in connection with any transaction effected pursuant to or contemplated by the Agreement; and (b) to indemnify and keep indemnified the Trustee and/or the Accounts against any liability, losses, expenses and costs (including reasonable legal costs) arising as a result of the Borrower's failure to make any payment under paragraph 3(a) above on its due date or as a result of any breach by the Borrower of any or all of the undertakings given by the Borrower to the Trustee under paragraphs 4(a), 4(b) and 5(a) below. 4. Borrower"s Warranties and Undertakings In addition to the warranties and undertakings set out in the Agreement and in order to comply with the requirements of the Ordinance, the Borrower hereby undertakes to the Trustee on a continuing basis with the intent that such warranties and undertakings shall survive the completion of any transaction contemplated herein that: (a) the Borrower is borrowing or will borrow securities under the Agreement for one or more of the following purposes: (i) to settle a contract to sell such Securities wherever effected, whether by the Borrower or another person; (ii) to settle a future contract to sell such Securities, whether agreed or not when the transaction is effected and whether by the Borrower or another person; (iii) to replace, in whole or in part, Securities obtained by the Borrower under another stock borrowing agreement; (iv) to on-lend the Securities to another borrower who effects a stock borrowing in respect of the same; or (v) such other purpose as the Collector may in writing agree; and (b) in order to comply with the requirements of the Ordinance and without prejudice to the rights of the Trustee under the Agreement, the Borrower shall return to the Trustee Securities or Equivalent Securities before the expiry of twelve (12) months after the day on which the Securities were borrowed from the Trustee under the Agreement or, if the Securities were borrowed in order to 27 replace in whole or in part Securities obtained by the Borrower under another stock borrowing, before the expiry of twelve (12) months after the day on which the Borrower first borrowed Securities in relation to such borrowing. 5. Borrower"s Obligations (a) The Borrower undertakes to the Trustee on a continuing basis that it shall: (i) as soon as practicable, but in any event within (A) ten (10) Business Days of the execution of this Addendum if such execution occurs in Hong Kong, (B) one (1) month thereof if such execution occurs outside of Hong Kong or (C) such other period as the Collector may from time to time specify, provide the Collector with an executed copy (or otherwise as the Collector may permit) of the Agreement, this Addendum, such fees as may be specified from time to time by the Financial Secretary for these purposes and such other documents, particulars and information as the Collector may require; (ii) promptly notify the Trustee upon its having complied with its undertaking under paragraph 5(a)(i) above and to provide to the Trustee such documents as the Trustee may reasonably request in respect of the same; and (iii) promptly comply with all record keeping, filing and reporting obligations within such a time as may be specified by the Collector and do all other acts and things as may be required by the Collector from time to time. (b) In the event that the Borrower is in breach of its undertaking under paragraphs 5(a)(i), (ii) or (iii) above, the Trustee reserves the right (but shall not be obliged) to provide the Agreement and this Addendum, pay such fee and provide such other documents, particulars and information and do all other acts and things for and on behalf of the Borrower and at the cost and expense of the Borrower, without prejudice to the provisions of the Agreement and paragraphs 3 and 4 above. IN WITNESS WHEREOF, this Addendum has been executed on behalf of the parties the date and year above written. SIGNED BY ON BEHALF OF DATE SIGNED BY ON BEHALF OF The Chase Manhattan Bank IN THE PRESENCE OF 28 SOUTH AFRICA ADDENDUM TO MASTER SECURITIES LENDING AGREEMENT ADDENDUM dated , 199 , to the Master Securities Lending Agreement dated , 199 , between (the "Borrower" and The Chase Manhattan Bank, as trustee or managing agent for certain trusts or accounts (the "Trustee"). It is hereby agreed as follows: Section 9(a) of the Agreement is amended by adding the following at the end thereof: "In any event, with respect to any Loaned Securities issued by a South African entity, the Borrower shall terminate any Loan of such Securities no later than six months from the making of such Loan, regardless of whether the Borrower shall have received notice of termination. This obligation of termination shall be solely the Borrower"s, and the Borrower shall be responsible for any stamp or other taxes or charges, including but not limited to any applicable Marketable Securities Tax, that may be attributable to Borrower"s failure to terminate such Loans within such six month period." In witness whereof, the parties have executed this Addendum as of the day and year above written. [Name of Borrower] The Chase Manhattan Bank By By 29 ISHARES, INC. Appendix 3B Form of Master Securities Lending Agreement for U.K. Borrowers
CONTENTS - -------- Clause Page - ------ ---- INTERPRETATION............................................................................................. 2 - -------------- LOANS OF SECURITIES........................................................................................ 16 - ------------------- DELIVERY OF SECURITIES..................................................................................... 16 - ---------------------- RIGHTS AND TITLE........................................................................................... 16 - ---------------- RATES...................................................................................................... 19 - ----- COLLATERAL................................................................................................. 20 - ---------- REDELIVERY OF EQUIVALENT SECURITIES........................................................................ 24 - ----------------------------------- SET-OFF ETC................................................................................................ 26 - ------------ TAXATION................................................................................................... 28 - --------- LENDER'S WARRANTIES........................................................................................ 29 - ------------------- BORROWER'S WARRANTIES...................................................................................... 29 - --------------------- EVENTS OF DEFAULT.......................................................................................... 30 - ----------------- OUTSTANDING PAYMENTS....................................................................................... 30 - -------------------- TRANSACTIONS ENTERED INTO AS AGENT......................................................................... 32 - ----------------------------------
30 TERMINATION OF COURSE OF DEALINGS BY NOTICE................................................................ 34 - ------------------------------------------- GOVERNING PRACTICES........................................................................................ 34 - ------------------- OBSERVANCE OF PROCEDURES................................................................................... 35 - ------------------------ SEVERANCE.................................................................................................. 35 - --------- SPECIFIC PERFORMANCE....................................................................................... 35 - -------------------- NOTICES.................................................................................................... 35 - ------- ASSIGNMENT................................................................................................. 36 - ---------- NON-WAIVER................................................................................................. 36 - ---------- ARBITRATION AND JURISDICTION............................................................................... 36 - ---------------------------- TIME....................................................................................................... 37 - ---- RECORDING.................................................................................................. 37 - --------- GOVERNING LAW.............................................................................................. 37 - ------------- SCHEDULE................................................................................................... 39 - --------
31 THIS AGREEMENT is made the day of , 19 BETWEEN:- (1) THE CHASE MANHATTAN BANK (London branch) incorporated with limited liability as a New York State chartered bank registered in England as a branch; and whose registered branch address is 125 London Wall, London, EC2Y 5AJ. (2) a company incorporated under the laws of England and Wales whose registered office is at. WHEREAS:- 1. The Parties hereto are desirous of agreeing a procedure whereby either one of them (the "Lender") will make available to the other of them (the "Borrower") from time to time Securities (as hereinafter defined) in order to enable the Borrower, subject to any Inland Revenue provisions then in force, to fulfil a contract to sell such Securities or to on lend such Securities to a third party to enable such party to fulfil a contract to sell such Securities, whether or not as part of a chain of arrangements to enable the final party in such chain to fulfil a contract to sell such Securities or to replace an existing loan of Securities to such third party, or for other purposes. 2. All transactions carried out under this Agreement will be effected in accordance with the Rules (as hereinafter defined) TOGETHER WITH current market practices, customs and conventions. NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED AS FOLLOWS:- -1- 1. INTERPRETATION -------------- (A)In this Agreement:- "Act of Insolvency" means in relation to either Party (i) its making a general assignment for the benefit of, or entering into a reorganisation, arrangement, or composition with creditors, or (ii) its admitting in writing that it is unable to pay its debts as they become due, or (iii) its seeking, consenting to or acquiescing in the appointment of any trustee, administrator, receiver or liquidator or analogous officer of it or any material part of its property, or; (iv) the presentation or filing of a petition in respect of it (other than by the other Party to this Agreement in respect of any obligation under this Agreement) in any court or before any agency alleging or for the bankruptcy, winding-up or insolvency of such Party (or any analogous proceeding) or seeking any reorganisation, arrangement, composition, re- adjustment, administration, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such petition (except in the case of a petition for winding-up or any analogous proceeding in respect of which no such 30 day period shall apply) not having been stayed or dismissed within 30 days of its filing; (v) the appointment of a receiver, administrator, liquidator or trustee or analogous officer of such Party over all or any material part of such Party's property; or (vi) the convening of any meeting of its creditors for the purpose of considering a voluntary arrangement as referred to in Section 3 of the Insolvency Act 1986 (or any analogous proceeding); "Agent" shall have the same meaning given in Clause 14; "Alternative Collateral" means Collateral of a Value equal to the Collateral delivered pursuant to Clause 6 and provided by way of substitution for Collateral originally delivered or previously substituted in accordance with the provisions of Clauses 6(F) or 6(G); "Appropriate Tax Vouchers" means:- (i) either such tax vouchers and/or certificates as shall enable the recipient to claim and receive from any relevant tax authority, in respect of interest, dividends, distributions and/or other amounts (including for the avoidance of doubt any manufactured payment) relating to particular Securities, all and any repayment of tax or benefit of tax credit to which the Lender would have been entitled but for the loan of Securities in accordance with this Agreement and/or to which the Lender is entitled in respect of tax withheld and accounted for in respect of any manufactured payment; or such tax vouchers and/or certificates as are provided by the Borrower which evidence an amount of overseas tax deducted which shall enable the recipient to claim and receive from any relevant tax authority all and any repayment of tax from the UK Inland Revenue or benefits of tax credit in the jurisdiction of the recipient's residence; and (ii) such vouchers and/or certificates in respect of interest, dividends, distributions and/or other amounts relating to particular Collateral; "Approved UK Collecting Agent" means a person who is approved as such for the purposes of the Rules of the UK Inland Revenue relating to stocklending and manufactured interest and dividends; "Approved Intermediary" means a person who is approved as such for the purposes of the Rules of the UK Inland Revenue relating to stocklending and manufactured interest and dividends; "Assured Payment" means a payment obligation of a Settlement Bank arising (under the Assured Payment Agreement) as a result of a transfer of stock or other securities to a CGO stock account of a member of the CGO for whom that Settlement Bank is acting; "Assured Payment Agreement" means an agreement dated 24 October 1986 between the Bank of England and all the other banks which are for the time being acting as Settlement Banks in relation to the CGO regulating the obligations of such banks to make payments in respect of transfers of securities through the CGO as supplemented and amended from time to time; "Base Currency" has the meaning given in the Schedule hereto; "Bid Price" in relation to Equivalent Securities or Equivalent Collateral means the best available bid price thereof on the most appropriate market in a standard size; "Bid Value" Subject to Clause 8(E) means:- (a) in relation to Equivalent Collateral at a particular time:- (i) in relation to Collateral Types B(x) and C (more specifically referred to in the Schedule) the Value thereof as calculated in accordance with such Schedule; (ii) in relation to all other types of Collateral (more specifically referred to in the Schedule) the amount which would be received on a sale of such Collateral at the Bid Price thereof at such time less all costs, fees and expenses that would be incurred in connection with selling or otherwise realising such Equivalent Collateral, calculated on the assumption that the aggregate thereof is the least that could reasonably be expected to be paid in order to carry out such sale or realisation and adding thereto the amount of any interest, dividends, distributions or other amounts paid to the Lender and in respect of which equivalent amounts have not been paid to the Borrower in accordance with Clause 6(G) prior to such time in respect of such Equivalent Collateral or the original Collateral held gross of all and any tax deducted or paid in respect thereof; and (b) in relation to Equivalent Securities at a particular time the amount which would be received on a sale of such Equivalent Securities at the Bid Price thereof at such time less all costs, fees and expenses that would be incurred in connection therewith, calculated on the assumption that the aggregate thereof is the least that could reasonably be expected to be paid in order to carry out the transaction; "Borrower" with respect to a particular loan of Securities means the Borrower as referred to in Recital 1 of this Agreement; "Borrowing Request" means a request made (by telephone or otherwise) by the Borrower to the Lender pursuant to Clause 2(A) specifying the description, title and amount of the Securities required by the Borrower, the proposed Settlement Date and duration of such loan and the date, time, mode and place of delivery which shall, where relevant, include the bank agent clearing or settlement system and account to which delivery of the Securities is to be made; "Business Day" means a day on which banks and securities markets are open for business generally in London and, in relation to the delivery or redelivery of any of the following in relation to any loan, in the place(s) where the relevant Securities, Equivalent Securities, Collateral (including Cash Collateral) or Equivalent Collateral are to be delivered; "Cash Collateral" means Collateral that takes the form of a deposit of currency; "Central Gilts Office" or "CGO" means the computer based system managed by the Bank of England to facilitate the book- entry transfer of gilt-edged securities; "CGO Collateral" shall have the meaning specified in paragraph A of the Schedule; "CGO Rules" means the requirements of the CGO for the time being in force as defined in the membership agreement regulating membership of the CGO; "Close of Business" means the time at which banks close in the business centre in which payment is to be made or Collateral is to be delivered; "Collateral" means such securities or financial instruments or deposits of currency as are referred to in the Schedule hereto or any combination thereof which are delivered by the Borrower to the Lender in accordance with this Agreement and shall include the certificates and other documents of or evidencing title and transfer in respect of the foregoing (as appropriate), and shall include Alternative Collateral; "Defaulting Party" shall have the meaning given in Clause 12; "Equivalent Collateral" or in relation to any Collateral provided under this Agreement "Collateral equivalent to" means securities, cash or other property, as the case may be, of an identical type, nominal value, description and amount to particular Collateral so provided and shall include the certificates and other documents of or evidencing title and transfer in respect of the foregoing (as appropriate). If and to the extent that such Collateral consists of securities that are partly paid or have been converted, subdivided, consolidated, redeemed, made the subject of a takeover, capitalisation issue, rights issue or event similar to any of the foregoing, the expression shall have the following meaning: (a) in the case of conversion, subdivision or consolidation the securities into which the relevant Collateral has been converted, subdivided or consolidated PROVIDED THAT, if appropriate, notice has been given in accordance with Clause 4(B)(vi); (b) in the case of redemption, a sum of money equivalent to the proceeds of the redemption; (c) in the case of a takeover, a sum of money or securities, being the consideration or alternative consideration of which the Borrower has given notice to the Lender in accordance with Clause 4(B)(vi); (d) in the case of a call on partly paid securities, the paid-up securities PROVIDED THAT the Borrower shall have paid to the Lender an amount of money equal to the sum due in respect of the call; (e) in the case of a capitalisation issue, the relevant Collateral TOGETHER WITH the securities allotted by way of a bonus thereon; (f) in the case of a rights issue, the relevant Collateral TOGETHER WITH the securities allotted thereon, PROVIDED THAT the Borrower has given notice to the Lender in accordance with Clause 4(B)(vi), and has paid to the Lender all and any sums due in respect thereof; (g) in the event that a payment or delivery of Income is made in respect of the relevant Collateral in the form of securities or a certificate which may at a future date be exchanged for securities or in the event of an option to take Income in the form of securities or a certificate which may at a future date be exchanged for securities, notice has been given to the Borrower in accordance with Clause 4(B)(vi) the relevant Collateral TOGETHER WITH securities or a certificate equivalent to those allotted; (h) in the case of any event similar to any of the foregoing, the relevant Collateral TOGETHER WITH or replaced by a sum of money or securities equivalent to that received in respect of such Collateral resulting from such event; For the avoidance of doubt, in the case of Bankers' Acceptances (Collateral type B(v)), Equivalent Collateral must bear dates, acceptances and endorsements (if any) by the same entities as the bill to which it is intended to be equivalent and for the purposes of this definition, securities are equivalent to other securities where they are of an identical type, nominal value, description and amount and such term shall include the certificate and other documents of or evidencing title and transfer in respect of the foregoing (as appropriate); "Equivalent Securities" means securities of an identical type, nominal value, description and amount to particular Securities borrowed and such term shall include the certificates and other documents of or evidencing title and transfer in respect of the foregoing (as appropriate). If and to the extent that such Securities are partly paid or have been converted, subdivided, consolidated, redeemed, made the subject of a takeover, capitalisation issue, rights issue or event similar to any of the foregoing, the expression shall have the following meaning: (a) in the case of conversion, subdivision or consolidation the securities into which the borrowed Securities have been converted, subdivided or consolidated PROVIDED THAT if appropriate, notice has been given in accordance with Clause 4(B)(vi); (b) in the case of redemption, a sum of money equivalent to the proceeds of the redemption; (c) in the case of takeover, a sum of money or securities, being the consideration or alternative consideration of which the Lender has given notice to the Borrower in accordance with Clause 4(B)(vi); (d) in the case of a call on partly paid securities, the paid-up securities PROVIDED THAT the Lender shall have paid to the Borrower an amount of money equal to the sum due in respect of the call; (e) in the case of a capitalisation issue, the borrowed Securities TOGETHER WITH the securities allotted by way of a bonus thereon; (f) in the case of a rights issue, the borrowed Securities TOGETHER WITH the securities allotted thereon, PROVIDED THAT the Lender has given notice to the Borrower in accordance with Clause 4(B)(vi), and has paid to the Borrower all and any sums due in respect thereof; (g) in the event that a payment or delivery of Income is made in respect of the borrowed Securities in the form of securities or a certificate which may at a future date be exchanged for securities or in the event of an option to take Income in the form of securities or a certificate which may at a future date be exchanged for securities, notice has been given to the Borrower in accordance with Clause 4(B)(vi) the borrowed Securities TOGETHER WITH securities or a certificate equivalent to those allotted; (h) in the case of any event similar to any of the foregoing, the borrowed Securities TOGETHER WITH or replaced by a sum of money or securities equivalent to that received in respect of such borrowed Securities resulting from such event; For the purposes of this definition, securities are equivalent to other securities where they are of an identical type, nominal value, description and amount and such term shall include the certificate and other documents of or evidencing title and transfer in respect of the foregoing (as appropriate); "Event of Default" has the meaning given in Clause 12; "Income" any interest, dividends or other distributions of any kind whatsoever with respect to any Securities or Collateral; "Income Payment Date", with respect to any Securities or Collateral means the date on which Income is paid in respect of such Securities or Collateral, or, in the case of registered Securities or Collateral, the date by reference to which particular registered holders are identified as being entitled to payment of Income; "Lender" with respect to a particular loan of Securities means the Lender as referred to in Recital 1 of this Agreement; "Manufactured Dividend" shall have the meaning given in Clause 4(B)(ii); "Margin" shall have the meaning specified in the Schedule hereto; "Nominee" means an agent or a nominee appointed by either Party and approved (if appropriate) as such by the Inland Revenue to accept delivery of, hold or deliver Securities, Equivalent Securities, Collateral and/or Equivalent Collateral on its behalf whose appointment has been notified to the other Party; "Non-Defaulting Party" shall have the meaning given in Clause 12; Offer Price" in relation to Equivalent Securities or Equivalent Collateral means the best available offer price thereof on the most appropriate market in a standard size; "Offer Value" Subject to Clause 8(E) means:- (a) in relation to Collateral equivalent to Collateral types B (ix) and C (more specifically referred to in the Schedule hereto) the Value thereof as calculated in accordance with such Schedule; and (b) in relation to Equivalent Securities or Collateral equivalent to all other types of Collateral (more specifically referred to in the Schedule hereto) the amount it would cost to buy such Equivalent Securities or Equivalent Collateral at the Offer Price thereof at such time together with all costs, fees and expenses that would be incurred in connection therewith, calculated on the assumption that the aggregate thereof is the least that could reasonably be expected to be paid in order to carry out the transaction; "Parties" means the Lender and the Borrower and "Party" shall be construed accordingly; "Performance Date" shall have the meaning given in Clause 8; "Principal" shall have the meaning given in Clause 14; "Reference Price" means: (a) in relation to the valuation of Securities, Equivalent Securities, Collateral and/or Collateral equivalent to types B (ii), (viii), (xi) and (xii) (more specifically referred to in the Schedule hereto) such price as is equal to the mid market quotation of such Securities, Equivalent Securities, Collateral and/or Equivalent Collateral as derived from a reputable pricing information service (such as the services provided by Reuters, Extel Statistical Services and Telerate) reasonably chosen in good faith by the Lender or if unavailable the market value thereof as derived from the prices or rates bid by a reputable dealer for the relevant instrument reasonably chosen in good faith by the Lender, in each case at Close of Business on the previous Business Day; (b) in relation to the valuation of Collateral and/or Collateral equivalent to Collateral types A and B(i) (more specifically referred to in the Schedule hereto), the CGO Reference Price of such Securities, Equivalent Securities, Collateral and/or Equivalent Collateral then current as determined in accordance with the CGO Rules from time to time in force. (c) in relation to the valuation of Collateral and/or Collateral equivalent to Collateral types B(iii), (iv), (v), (vi) (vii) and (ix), (more specifically referred to in the Schedule hereto), the market value thereof as derived from the rates bid by Barclays Bank PLC for such instruments or, in the absence of such a bid, the average of the rates bid by two leading market makers for such instruments at Close of Business on the previous Business Day; "Relevant Payment Date" shall have the meaning given in Clause 4(B)(i); "Rules" means the rules for the time being of the Stock Exchange (where either Party is a member of the Stock Exchange) and/or any other regulatory authority whose rules and regulations shall from time to time affect the activities of the Parties pursuant to this Agreement including but not limited to the stocklending regulations and guidance notes relating to both stocklending and manufactured interest and dividends for the time being in force of the Commissioners of the Inland Revenue and any associated procedures required pursuant thereto (PROVIDED THAT in an Event of Default, where either Party is a member of the Stock Exchange, the Rules and Regulations of the Stock Exchange shall prevail); "Securities" means Overseas Securities as defined in the Income Tax (Stock Lending) Regulations 1989 (S.1. 1989 No. 1299) (as amended by the Income Tax (Stock Lending) (Amendment) Regulations 1990 (S.I. 1990 No. 2552)and 1993 (S.I. 1993 No. 2003)) or any statutory modification or re-enactment thereof for the time being in force which the Borrower is entitled to borrow from the Lender in accordance with the Rules and which are the subject of a loan pursuant to this Agreement and such term shall include the certificates and other documents of title in respect of the foregoing; "Settlement Bank" means a settlement member of the CHAPS and Town Clearing systems who has entered into contractual arrangements with the CGO to provide Assured Payment facilities for members of the CGO; "Settlement Date" means the date upon which Securities are or are to be transferred to the Borrower in accordance with this Agreement; "Stock Exchange" means the London Stock Exchange Limited; "Value" at any particular time means in respect of Securities and Equivalent Securities, the Reference Price thereof then current and in respect of Collateral and/or Equivalent Collateral such worth as determined in accordance with the Schedule hereto. (B) All headings appear for convenience only and shall not affect the interpretation hereof. (C) Notwithstanding the use of expressions such as "borrow", "lend", "Collateral", "Margin", "redeliver" etc. which are used to reflect terminology used in the market for transactions of the kind provided for in this Agreement, title to Securities "borrowed" or "lent" and "Collateral" provided in accordance with this Agreement shall pass from one Party to another as provided for in this Agreement, the Party obtaining such title being obliged to redeliver Equivalent Securities or Equivalent Collateral as the case may be. (D) For the purposes of Clauses 6(H)-6(K) and 8(C)-8(E) of this Agreement or otherwise where a conversion into the Base Currency is required, all prices, sums or values (including any Value, Offer Value and Bid Value) of Securities, Equivalent Securities, Collateral or Equivalent Collateral (including Cash Collateral) stated in currencies other than the Base Currency shall be converted into the Base Currency at the spot rate of exchange at the relevant time in the London interbank market for the purchase of the Base Currency with the currency concerned. (E) Where at any time there is in existence any other agreement between the Parties the terms of which make provision for the lending of Securities (as defined in this Agreement) as well as other securities the terms of this Agreement shall apply to the lending of such Securities to the exclusion of any other such agreement. 2. LOANS OF SECURITIES ------------------- (A) The Lender will lend Securities to the Borrower, and the Borrower will borrow Securities from the Lender in accordance with the terms and conditions of this Agreement and with the Rules PROVIDED ALWAYS THAT the Lender shall have received from the Borrower and accepted (by whatever means) a Borrowing Request. (B) The Borrower has the right to reduce the amount of Securities referred to in a Borrowing Request PROVIDED THAT the Borrower has notified the Lender of such reduction no later than midday London time on the day which is two Business Days prior to the Settlement Date unless otherwise agreed between the Parties and the Lender shall have accepted such reduction (by whatever means). 3. DELIVERY OF SECURITIES ---------------------- The Lender shall procure the delivery of Securities to the Borrower or deliver such Securities in accordance with the relevant Borrowing Request TOGETHER WITH appropriate instruments of transfer duly stamped where necessary and such other instruments as may be requisite to vest title thereto in the Borrower. Such Securities shall be deemed to have been delivered by the Lender to the Borrower on delivery to the Borrower or as it shall direct of the relevant instruments of transfer, or in the case of Securities held by an agent or a clearing or settlement system on the effective instructions to such agent or the operator of such system to hold the Securities absolutely for the Borrower, or by such other means as may be agreed. 4. RIGHTS AND TITLE ---------------- (A) The Parties shall execute and deliver all necessary documents and give all necessary instructions to procure that all right, title and interest in: (i) any Securities borrowed pursuant to Clause 2; (ii) any Equivalent Securities redelivered pursuant to Clause 7; (iii) any Collateral delivered pursuant to Clause 6; (iv) any Equivalent Collateral redelivered pursuant to Clauses 6 or 7; shall pass from one Party to the other subject to the terms and conditions mentioned herein and in accordance with the Rules, on delivery or redelivery of the same in accordance with this Agreement, free from all liens, charges and encumbrances. In the case of Securities, Collateral, Equivalent Securities or Equivalent Collateral title to which is registered in a computer based system which provides for the recording and transfer of title to the same by way of book entries, delivery and transfer of title shall take place in accordance with the rules and procedures of such system as in force from time to time. The Party acquiring such right, title and interest shall have no obligation to return or redeliver any of the assets so acquired but, in so far as any Securities are borrowed or any Collateral is delivered to such Party, such Party shall be obliged, subject to the terms of this Agreement, to redeliver Equivalent Securities or Equivalent Collateral as appropriate. (B) (i) Where Income is paid in relation to any Securities on or by reference to an Income Payment Date on which such Securities are the subject of a loan hereunder, the Borrower shall, on the date of the payment of such Income, or on such other date as the Parties may from time to time agree, (the "Relevant Payment Date") pay and deliver a sum of money or property equivalent to the same (with any such endorsements or assignments as shall be customary and appropriate to effect the delivery) to the Lender or its Nominee, irrespective of whether the Borrower received the same. The provisions of sub-paragraphs (ii) to (v) below shall apply in relation thereto. (ii) Subject to sub-paragraph (iii) below, in the case of any Income comprising a payment, the amount (the "Manufactured Dividend") payable by the Borrower shall be equal to the amount of the relevant Income together with an amount equivalent to any deduction, withholding or payment for or on account of tax made by the relevant issuer (or on its behalf) in respect of such Income together with an amount equal to any other tax credit associated with such Income unless a lesser amount is agreed between the Parties or an Appropriate Tax Voucher (together with any further amount which may be agreed between the Parties to be paid) is provided in lieu of such deduction, withholding tax credit or payment. (iii) Where either the Borrower, or any person to whom the Borrower has on-lent the Securities, is unable to make payment of the Manufactured Dividend to the Lender without accounting to the Inland Revenue for any amount of relevant tax (as required by Schedule 23A to the Income and Corporation Taxes Act 1988) the Borrower shall pay to the Lender or its Nominee, in cash, the Manufactured Dividend less amounts equal to such tax. The Borrower shall at the same time if requested supply Appropriate Tax Vouchers to the Lender. (iv) If at any time any Manufactured Dividend falls to be paid and neither of the Parties is an Approved UK Intermediary or an Approved UK Collecting Agent, the Borrower shall procure that the payment is paid through an Approved UK Intermediary or an Approved UK Collecting Agent agreed by the Parties for this purpose, unless the rate of relevant withholding tax in respect of any Income that would have been payable to the Lender but for the loan of the Securities would have been zero and no income tax liability under Section 123 of the Income and Corporation Taxes Act 1988 would have arisen in respect thereof. (v) In the event of the Borrower failing to remit either directly or by its Nominee any sum payable pursuant to this Clause, the Borrower hereby undertakes to pay a rate to the Lender (upon demand) on the amount due and outstanding at the rate provided for in Clause 13 hereof. Interest on such sum shall accrue daily commencing on and inclusive of the third Business Day after the Relevant Payment Date, unless otherwise agreed between the Parties. (vi) Each Party undertakes that where it holds securities of the same description as any securities borrowed by it or transferred to it by way of collateral at a time when a right to vote arises in respect of such securities, it will use its best endeavours to arrange for the voting rights attached to such securities to be exercised in accordance with the instructions of the Lender or Borrower (as the case may be) PROVIDED ALWAYS THAT each Party shall use its best endeavours to notify the other of its instructions in writing no later than seven Business Days prior to the date upon which such votes are exercisable or as otherwise agreed between the Parties and that the Party concerned shall not be obliged so to exercise the votes in respect of a number of Securities greater than the number so lent or transferred to it. For the avoidance of doubt the Parties agree that subject as hereinbefore provided any voting rights attaching to the relevant Securities, Equivalent Securities, Collateral and/or Equivalent Collateral shall be exercisable by the persons in whose name they are registered or in the case of Securities, Equivalent Securities, Collateral and/or Equivalent Collateral in bearer form, the persons by or on behalf of whom they are held, and not necessarily by the Borrower or the Lender (as the case may be). (vii) Where, in respect of any borrowed Securities or any Collateral, any rights relating to conversion, sub-division, consolidation, pre-emption, rights arising under a takeover offer or other rights, including those requiring election by the holder for the time being of such Securities or Collateral, become exercisable prior to the redelivery of Equivalent Securities or Equivalent Collateral, then the Lender or Borrower, as the case may be, may, within a reasonable time before the latest time for the exercise of the right or option give written notice to the other Party that on redelivery of Equivalent Securities or Equivalent Collateral, as the case may be, it wishes to receive Equivalent Securities or Equivalent Collateral in such form as will arise if the right is exercised or, in the case of a right which may be exercised in more than one manner, is exercised as is specified in such written notice. (viii) Any payment to be made by the Borrower under this Clause shall be made in a manner to be agreed between the Parties. 5. RATES ----- (A) In respect of each loan of Securities, the Borrower shall pay to the Lender, in the manner prescribed in sub-Clause (C), sums calculated by applying such rate as shall be agreed between the Parties from time to time to the daily Value of the relevant Securities. (B) Where Cash Collateral is deposited with the Lender in respect of any loan of Securities in circumstances where: (i) interest is earned by the Lender in respect of such Cash Collateral and that interest is paid to the Lender without deduction of tax, the Lender shall pay to the Borrower, in the manner prescribed in sub-Clause (C), an amount equal to the gross amount of such interest earned. Any such payment due to the Borrower may be set-off against any payment due to the Lender pursuant to sub-Clause (A) hereof if either the Borrower has warranted to the Lender in this Agreement that it is subject to tax in the United Kingdom under Case I of Schedule D in respect of any income arising pursuant to or in connection with the borrowing of Securities hereunder or the Lender has notified the Borrower of the gross amount of such interest or income; and (ii) sub-Clause (B)(i) above does not apply, the Lender shall pay to the Borrower, in the manner presented in sub-Clause (C), sums calculated by applying such rates as shall be agreed between the Parties from time to time to the amount of such Cash Collateral. Any such payment due to the Borrower may be set-off against any payment due to the Lender pursuant to sub-Clause (A) hereof. (C) In respect of each loan of Securities, the payments referred to in sub- Clauses (A) and (B) of this Clause shall accrue daily in respect of the period commencing on and inclusive of the Settlement Day and terminating on and exclusive of the Business Day upon which Equivalent Securities are redelivered or Cash Collateral is repaid. Unless otherwise agreed, the sums so accruing in respect of each calendar month shall be paid in arrears by the Borrower to the Lender or to the Borrower by the Lender (as the case may be) not later than the Business Day which is one week after the last Business Day of the calendar month to which such payments relate or such other date as the Parties shall from time to time agree. Any payment made pursuant to sub-Clauses (A) and (B) hereof shall be in such currency and shall be paid in such manner and at such place as shall be agreed between the Parties. 6. COLLATERAL ---------- (A) (i) Subject to sub-Clauses (B), (C) and (E) below the Borrower undertakes to deliver Collateral to the Lender (or in accordance with the Lender's instructions) TOGETHER WITH appropriate instruments of transfer duly stamped where necessary and such other instruments as may be requisite to vest title thereto in the Lender simultaneously with delivery of the borrowed Securities and in any event no later than Close of Business on the Settlement Date. Collateral may be provided in any of the forms specified in the Schedule hereto (as agreed between the Parties); where Collateral is delivered to the Lender's Nominee any obligation under this Agreement to redeliver or otherwise account for Equivalent Collateral shall be an obligation of the Lender notwithstanding that any such redelivery may be effected in any particular case by the Nominee. (B) Where CGO Collateral is provided to the Lender or its Nominee by member-to-member delivery or delivery-by-value in accordance with the provisions of the CGO Rules from time to time in force, the obligation of the Lender shall be to redeliver Equivalent Collateral through the CGO to the Borrower in accordance with this Agreement. Any references, (howsoever expressed) in this Agreement, the Rules, and/or any other agreement or communication between the Parties to an obligation to redeliver such Equivalent Collateral shall be construed accordingly. If the loan of Securities in respect of which such Collateral was provided has not been discharged when the Collateral is redelivered, the Assured Payment obligation generated on such redelivery shall be deemed to constitute a payment of money which shall be treated as Cash Collateral until the loan is discharged, or further Equivalent Collateral is provided later during that Business Day. This procedure shall continue daily where CGO Collateral is delivered-by-value for as long as the relevant loan remains outstanding. (C) Where CGO Collateral or other collateral is provided by delivery-by-value to a Lender or its Nominee the Borrower may consolidate such Collateral with other Collateral provided by the same delivery to a third party for whom the Lender or its Nominee is acting. (D) Where Collateral is provided by delivery-by-value through an alternative book entry transfer system, not being the CGO, the obligation of the Lender shall be to redeliver Equivalent Collateral through such book entry transfer system in accordance with this Agreement. If the loan of Securities in respect of which such Collateral was provided has not been discharged when the Collateral is redelivered, any payment obligation generated within the book entry transfer system on such redelivery shall be deemed to constitute a payment of money which shall be treated as Cash Collateral until the loan is discharged, or further Equivalent Collateral is provided later during that Business Day. This procedure shall continue when Collateral is delivered-by-value for as long as the relevant loan remains outstanding; (E) Where Cash Collateral is provided the sum of money so deposited may be adjusted in accordance with Clause 6(H). Subject to Clause 6(H)(ii), the Cash Collateral shall be repaid at the same time as Equivalent Securities in respect of the Securities borrowed are redelivered, and the Borrower shall not assign, charge, dispose of or otherwise deal with its rights in respect of the Cash Collateral. If the Borrower fails to comply with its obligations for such redelivery of Equivalent Securities the Lender shall have the right to apply the Cash Collateral by way of set-off in accordance with Clause 8. (F) The Borrower may from time to time call for the repayment of Cash Collateral or the redelivery of Collateral equivalent to any Collateral delivered to the Lender prior to the date on which the same would otherwise have been repayable or redeliverable PROVIDED THAT at the time of such repayment or redelivery the Borrower shall have delivered or delivers Alternative Collateral acceptable to the Lender. (G) (i) Where Collateral (other than Cash Collateral) is delivered in respect of which any Income may become payable, the Borrower shall call for the redelivery of Collateral equivalent to such Collateral in good time to ensure that such Equivalent Collateral may be delivered prior to any such Income becoming payable to the Lender, unless in relation to such Collateral the Parties are satisfied before the relevant Collateral is transferred that no tax will be payable to the UK Inland Revenue under Schedule 23A of the Income and Corporation Taxes Act 1988. At the time of such redelivery the Borrower shall deliver Alternative Collateral acceptable to the Lender. (ii) Where the Lender receives any Income in circumstances where the Parties are satisfied as set out in Clause 6(G)(i) above, then the Lender shall on the date on which the Lender receives such Income or on such date as the Parties may from time to time agree, pay and deliver a sum of money or property equivalent to such Income (with any such endorsements or assignments as shall be customary and appropriate to effect the delivery) to the Borrower and shall supply Appropriate Tax Vouchers (if any) to the Borrower. (H) Unless the Schedule to this Agreement indicates that Clause 6(I) shall apply in lieu of this Clause 6(H), or unless otherwise agreed between the Parties, the Value of the Collateral delivered to or deposited with the Lender or its nominated bank or depositary (excluding any Collateral repaid or redelivered under sub-Clauses (H)(ii) or (I)(ii) below (as the case may be) ("Posted Collateral")) in respect of any loan of Securities shall bear from day to day and at any time the same proportion to the Value of the Securities borrowed under such loan as the Posted Collateral bore at the commencement of such loan. Accordingly: (i) the Value of the Posted Collateral to be delivered or deposited while the loan of Securities continues shall be equal to the Value of the borrowed Securities and the Margin applicable thereto (the "Required Collateral Value"); (ii) if on any Business Day the Value of the Posted Collateral in respect of any loan of Securities exceeds the Required Collateral Value in respect of such loan, the Lender shall (on demand) repay such Cash Collateral and/or redeliver to the Borrower such Equivalent Collateral as will eliminate the excess; and (iii) if on any Business Day the Value of the Posted Collateral falls below the Required Collateral Value, the Borrower shall (on demand) provide such further Collateral to the Lender as will eliminate the deficiency. (I) Subject to Clause 6(J), unless the Schedule to this Agreement indicates that Clause 6(H) shall apply in lieu of this Clause 6(I), or unless otherwise agreed between the Parties:- (i) the aggregate Value of the Posted Collateral in respect of all loans of Securities outstanding under this Agreement shall equal the aggregate of the Required Collateral Values in respect of such loans; (ii) if at any time the aggregate Value of the Posted Collateral in respect of all loans of Securities outstanding under this Agreement exceeds the aggregate of the Required Collateral Values in respect of such loans, the Lender shall (on demand) repay such Cash Collateral and/or redeliver to the Borrower such Equivalent Collateral as will eliminate the excess; (iii) if at any time the aggregate Value of the Posted Collateral in respect of all loans of Security outstanding under this Agreement falls below the aggregate of Required Collateral Values in respect of all such loans, the Borrower shall (on demand) provide such further Collateral to the Lender as will eliminate the deficiency. (J) Where Clause 6(I) applies, unless the Schedule to this Agreement indicates that this Clause 6(J) does not apply, if a Party (the "first Party") would, but for this Clause 6(J), be required under Clause 6(I) to repay Cash Collateral, redeliver Equivalent Securities or provide further Collateral in circumstances where the other Party (the "second Party") would, but for this Clause 6(J), also be required to repay Cash Collateral or provide or redeliver Equivalent Collateral under Clause 6(I), then the Value of the Cash Collateral or Equivalent Collateral deliverable by the first Party ("X") shall be set-off against the Value of the Cash Collateral, or Equivalent Collateral or further Collateral deliverable by the second Party ("Y") and the only obligation of the Parties under Clause 6(I) shall be, where X exceeds Y, an obligation of the first Party, or where Y exceeds X, an obligation of the second Party, to repay Cash Collateral, redeliver Equivalent Collateral or to deliver further Collateral having a Value equal to the difference between X and Y. (K) Where Cash Collateral is repaid, Equivalent Collateral is redelivered or further Collateral is provided by a Party under Clause 6(I), the Parties shall agree to which loan or loans of Securities such repayment, redelivery or further provision is to be attributed and failing agreement it shall be attributed, as determined by the Party making such repayment, redelivery or further provision to the earliest outstanding loan and, in the case of a repayment or redelivery up to the point at which the Value of Collateral in respect of such loan is reduced to zero and, in the case of a further provision up to the point at which the Value of the Collateral in respect of such loan equals the Required Collateral Value in respect of such loan, and then to the next earliest outstanding loan up to the similar point and so on. (L) Where any Cash Collateral falls to be repaid or Equivalent Collateral to be redelivered or further Collateral to be provided under this Clause 6, it shall be delivered within the minimum period after demand specified in the Schedule or if no appropriate period is there specified within the standard settlement time for delivery of the relevant type of Cash Collateral, Equivalent Collateral or Collateral, as the case may be. 7. REDELIVERY OF EQUIVALENT SECURITIES ----------------------------------- (A) The Borrower undertakes to redeliver Equivalent Securities in accordance with this Agreement and the terms of the relevant Borrowing Request. For the avoidance of doubt any reference herein or in any other agreement or communication between the Parties (howsoever expressed) to an obligation to redeliver or account for or act in relation to borrowed Securities shall accordingly be construed as a reference to an obligation to redeliver or account for or act in relation to Equivalent Securities. (B) Subject to Clause 8 hereof and the terms of the relevant Borrowing Request the Lender may call for the redelivery of all or any Equivalent Securities at any time by giving notice on any Business Day of not less than the standard settlement time for such Equivalent Securities on the exchange or in the clearing organisation through which the relevant borrowed Securities were originally delivered. The Borrower shall as hereinafter provided redeliver such Equivalent Securities not later than the expiry of such notice in accordance with the Lender's instructions. Simultaneously with the redelivery of the Equivalent Securities in accordance with such call, the Lender shall (subject to Clause 6(I), if applicable) repay any Cash Collateral and redeliver to the Borrower Collateral equivalent to the Collateral delivered pursuant to Clause 6 in respect of the borrowed Securities. For the avoidance of doubt any reference herein or in any other agreement or communication between the Parties (however expressed) to an obligation to redeliver or account for or act in relation to Collateral shall accordingly be construed as a reference to an obligation to redeliver or account for or act in relation to Equivalent Collateral. (C) If the Borrower does not redeliver Equivalent Securities in accordance with such call, the Lender may elect to continue the loan of Securities PROVIDED THAT if the Lender does not elect to continue the loan the Lender may by written notice to the Borrower elect to terminate the relevant loan. Upon the expiry of such notice the provisions of Clauses (8) (B) to (F) shall apply as if upon the expiry of such notice an Event of Default had occurred in relation to the Borrower (who shall thus be the Defaulting Party for the purposes of this Agreement) and as if the relevant loan were the only loan outstanding. (D) In the event that as a result of the failure of the Borrower to redeliver Equivalent Securities to the Lender in accordance with this Agreement a "buy-in" is exercised against the Lender then provided that reasonable notice has been given to the Borrower of the likelihood of such a "buy-in", the Borrower shall account to the Lender for the total costs and expenses reasonably incurred by the Lender as a result of such "buy-in". (E) Subject to the terms of the relevant Borrowing Request, the Borrower shall be entitled at any time to terminate a particular loan of Securities and to redeliver all and any Equivalent Securities due and outstanding to the Lender in accordance with the Lender's instructions. The Lender shall accept such redelivery and simultaneously therewith (subject to Clause 6(I) if applicable) shall repay to the Borrower any Cash Collateral or, as the case may be, redeliver Collateral equivalent to the Collateral provided by the Borrower pursuant to Clause 6 in respect thereof. (F) Where a TALISMAN short term certificate (as described in paragraph C of the Schedule) is provided by way of Collateral, the obligation to redeliver Equivalent Collateral is satisfied by the redelivery of the certificate to the Borrower or its expiry as provided for in the Rules applying to such certificate. (G) Where a Letter of Credit is provided by way of Collateral, the obligation to redeliver Equivalent Collateral is satisfied by the Lender redelivering for cancellation the Letter of Credit so provided, or where the Letter of Credit is provided in respect of more than one loan, by the Lender consenting to a reduction in the value of the Letter of Credit. 8. SET-OFF ETC. ------------ (A) On the date and time (the "Performance Date") that Equivalent Securities are required to be redelivered by the Borrower in accordance with the provisions of this Agreement the Lender shall simultaneously redeliver the Equivalent Collateral and repay any Cash Collateral held (in respect of the Equivalent Securities to be redelivered) to the Borrower. Neither Party shall be obliged to make delivery (or make a payment as the case may be) to the other unless it is satisfied that the other Party will make such delivery (or make an appropriate payment as the case may be) to it simultaneously. If it is not so satisfied (whether because an Event of Default has occurred in respect of the other Party or otherwise) it shall notify the other party and unless that other Party has made arrangements which are sufficient to assure full delivery (or the appropriate payment as the case may be) to the notifying Party, the notifying Party shall (provided it is itself in a position, and willing, to perform its own obligations) be entitled to withhold delivery (or payment, as the case may be) to the other Party. (B) If an Event of Default occurs in relation to either Party, the Parties' delivery and payment obligations (and any other obligations they have under this Agreement) shall be accelerated so as to require performance thereof at the time such Event of Default occurs (the date of which shall be the "Performance Date" for the purposes of this clause) and in such event: (i) the Relevant Value of the Securities to be delivered (or payment to be made, as the case may be) by each Party shall be established in accordance with Clause 8(C); and (ii) on the basis of the Relevant Values so established, an account shall be taken (as at the Performance Date) of what is due from each Party to the other and (on the basis that each Party's claim against the other in respect of delivery of Equivalent Securities or Equivalent Collateral or any cash payment equals the Relevant Value thereof) the sums due from one Party shall be set-off against the sums due from the other and only the balance of the account shall be payable (by the Party having the claim valued at the lower amount pursuant to the foregoing) and such balance shall be payable on the Performance Date. (C) For the purposes of Clause 8(B) the Relevant Value:- (i) of any cash payment obligation shall equal its par value (disregarding any amount taken into account under (ii) or (iii) below); (ii) of any securities to be delivered by the Defaulting Party shall, subject to Clause 8(E) below, equal the Offer Value thereof; and (iii) of any securities to be delivered to the Defaulting Party shall, subject to Clause 8(E) below, equal the Bid Value thereof. (D) For the purposes of Clause 8(C), but subject to Clause 8(E) below, the Bid Value and Offer Value of any securities shall be calculated as at the Close of Business in the most appropriate market for securities of the relevant description (as determined by the Non-Defaulting Party) on the first Business Day following the Performance Date, or if the relevant Event of Default occurs outside the normal business hours of such market, on the second Business Day following the Performance Date (the "Default Valuation Time"); (E) (i) Where the Non-Defaulting Party has following the occurrence of an Event of Default but prior to the Default Valuation Time purchased securities forming part of the same issue and being of an identical type and description to those to be delivered by the Defaulting Party and in substantially the same amount as those securities or sold securities forming part of the same issue and being of an identical type and description to those to be delivered by him to the Defaulting Party and in substantially the same amount as those securities, the cost of such purchase or the proceeds of such sale, as the case may be, (taking into account all reasonable costs, fees and expenses that would be incurred in connection therewith) shall be treated as the Offer Value or Bid Value, as the case may be, of the relevant securities for the purposes of this Clause 8. (i) Where the amount of any securities sold or purchased as mentioned in (E)(i) above is not in substantially the same amount as those securities to be valued for the purposes Clause 8(C) the Offer Value or the Bid Value (as the case may be) of those securities shall be ascertained by dividing the net proceeds of sale or cost of purchase by the amount of the securities sold or purchased so as to obtain a net unit price and multiplying that net unit price by the amount of the securities to be valued. (F) Any reference in this Clause 8 to securities shall include any asset other than cash provided by way of Collateral. (G) If the Borrower or the Lender for any reason fail to comply with their respective obligations under Clauses 6(F) or 6(G) in respect of redelivery of Equivalent Collateral or repayment of Cash Collateral such failure shall be an Event of Default for the purposes of this Clause 8, and the person failing to comply shall thus be the Defaulting Party. (H) Subject to and without prejudice to its rights under Clause 8(A) either Party may from time to time in accordance with market practice and in recognition of the practical difficulties in arranging simultaneous delivery of Securities, Collateral and cash transfers waive its right under this Agreement in respect of simultaneous delivery and/or payment PROVIDED THAT no such waiver in respect of one transaction shall bind it in respect of any other transaction. 9. TAXATION -------- (A) The Borrower hereby undertakes promptly to pay and account for any transfer or similar duties or taxes chargeable in connection with any transaction effected pursuant to or contemplated by this Agreement, and shall indemnify and keep indemnified the Lender against any liability arising in respect thereof as a result of the Borrower's failure to do so. (B) The Borrower shall only make a Borrowing Request where the purpose of the loan meets the requirements of the Rules regarding the conditions that must be fulfilled for Section 129 of the Income and Corporation Taxes Act 1988 (or any statutory modification or re-enactment thereof for the time being in force) to apply to the arrangement concerning the loan, unless the Lender is aware that the transaction is unapproved for the purposes of the Rules of the UK Inland Revenue or such purpose is not met. (C) A Party undertakes to notify the other Party if it becomes or ceases to be an Approved UK Intermediary or an Approved UK Collecting Agent. 10. LENDER'S WARRANTIES ------------------- Each Party hereby warrants and undertakes to the other on a continuing basis to the intent that such warranties shall survive the completion of any transaction contemplated herein that, where acting as a Lender: (A) it is duly authorised and empowered to perform its duties and obligations under this Agreement; (B) it is not restricted under the terms of its constitution or in any other manner from lending Securities in accordance with this Agreement or from otherwise performing its obligations hereunder; (C) it is absolutely entitled to pass full legal and beneficial ownership of all Securities provided by it hereunder to the Borrower free from all liens, charges and encumbrances; (D) where the Schedule to this Agreement specifies that this Clause 10(D) applies, it is not resident in the United Kingdom for tax purposes and either is not carrying on a trade in the United Kingdom through a branch or agency or if it is carrying on such a trade the loan is not entered into in the course of the business of such branch or agency, and it has (i) delivered or caused to be delivered to the Borrower a duly completed and certified Certificate (MOD2) or a photocopy thereof bearing an Inland Revenue acknowledgement and unique number and such Certificate or photocopy remains valid or (ii) has taken all necessary steps to enable a specific authorisation to make gross payment of the Manufactured Dividend to be issued by the Inland Revenue; 11. BORROWER'S WARRANTIES --------------------- Each Party hereby warrants and undertakes to the other on a continuing basis to the intent that such warranties shall survive the completion of any transaction contemplated herein that, where acting as a Borrower: (A) it has all necessary licenses and approvals, and is duly authorised and empowered, to perform its duties and obligations under this Agreement and will do nothing prejudicial to the continuation of such authorisation, licences or approvals; (B) it is not restricted under the terms of its constitution or in any other manner from borrowing Securities in accordance with this Agreement or from otherwise performing its obligations hereunder; (C) it is absolutely entitled to pass full legal and beneficial ownership of all Collateral provided by it hereunder to the Lender free from all liens, charges and encumbrances; (D) it is acting as principal in respect of this Agreement; (E) where the Schedule to this Agreement specifies this Clause 11(E) applies, it is subject to tax in the United Kingdom under Case I of Schedule D in respect of any income arising pursuant to or in connection with the borrowing of Securities hereunder. 12. EVENTS OF DEFAULT ----------------- Each of the following events occurring in relation to either Party (the "Defaulting Party", the other Party being the "Non-Defaulting Party") shall be an Event of Default for the purpose of Clause 8:- (A) the Borrower or Lender failing to pay or repay Cash Collateral or deliver or redeliver Collateral or Equivalent Collateral upon the due date, and the Non-Defaulting Party serves written notice on the Defaulting Party; (B) the Lender or Borrower failing to comply with its obligations under Clause 6, and the Non-Defaulting Party serves written notice on the Defaulting Party; (C) the Borrower failing to comply with Clause 4(B)(i), (ii) or (iii) hereof, and the Non-Defaulting Party serves written notice on the Defaulting Party; (D) an Act of Insolvency occurring with respect to the Lender or the Borrower and (except in the case of an Act of Insolvency which is the presentation of a petition for winding up or any analogous proceeding or the appointment of a liquidator or analogous officer of the Defaulting Party in which case no such notice shall be required) the Non-Defaulting Party serves written notice on the Defaulting Party; (E) any representations or warranties made by the Lender or the Borrower being incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated, and the Non-Defaulting Party serves written notice on the Defaulting Party; (F) the Lender or the Borrower admitting to the other that it is unable to, or it intends not to, perform any of its obligations hereunder and/or in respect of any loan hereunder, and the Non-Defaulting Party serves written notice on the Defaulting Party; (G) the Lender (if appropriate) or the Borrower being declared in default by the appropriate authority under the Rules or being suspended or expelled from membership of or participation in any securities exchange or association or other self-regulatory organisation, or suspended from dealing in securities by any government agency, and the Non-Defaulting Party serves written notice on the Defaulting Party; (H) any of the assets of the Lender or the Borrower or the assets of investors held by or to the order of the Lender or the Borrower being transferred or ordered to be transferred to a trustee by a regulatory authority pursuant to any securities regulating legislation and the Non-Defaulting Party serves written notice on the Defaulting Party, or (I) the Lender or the Borrower failing to perform any other of its obligations hereunder and not remedying such failure within 30 days after the Non- Defaulting Party serves written notice requiring it to remedy such failure, and the Non-Defaulting Party serves a further written notice on the Defaulting Party. Each Party shall notify the other if an Event of Default occurs in relation to it. 13. OUTSTANDING PAYMENTS -------------------- In the event of either Party failing to remit either directly or by its Nominee sums in accordance with this Agreement such Party hereby undertakes to pay a rate to the other Party upon demand on the net balance due and outstanding of 1% above the Barclays Bank PLC base rate from time to time in force. 14. TRANSACTIONS ENTERED INTO AS AGENT ---------------------------------- (A) Subject to the following provisions of this Clause, the Lender may enter into loans as agent (in such capacity, the "Agent") for a third person (a "Principal"), whether as custodian or investment manager or otherwise (a loan so entered into being referred to in this clause as an "Agency Transaction"). (B) A Lender may enter into an Agency Transaction if, but only if:- (i) if specifies that loan as an Agency Transaction at the time when it enters into it; (ii) it enters into that loan on behalf of a single Principal whose identity is disclosed to the Borrower (whether by name or by reference to a code or identifier which the Parties have agreed will be used to refer to a specified Principal) at the time when it enters into the loan; and (iii) it has at the time when the loan is entered into actual authority to enter into the loan and to perform on behalf of that Principal all of that Principal's obligations under the agreement referred to in (D)(ii) below. (C) The Lender undertakes that, if it enters as agent into an Agency Transaction, forthwith upon becoming aware:- (i) of any event which constitutes an Act of Insolvency with respect to the relevant Principal; or (ii) of any breach of any of the warranties given in Clause 14(E) below or of any event or circumstance which has the result that any such warranty would be untrue if repeated by reference to the current facts; it will inform the Borrower of that fact and will, if so required by the Borrower, furnish it with such additional information as it may reasonably request. (D) (i) Each Agency Transaction shall be a transaction between the relevant Principal and the Borrower and no person other than the relevant Principal and the Borrower shall be a party to or have any rights or obligations under an Agency Transaction. Without limiting the foregoing, the Lender shall not be liable as principal for the performance of an Agency Transaction or for breach of any warranty contained in Clause 10(D) or 11(E) of this Agreement, but this is without prejudice to any liability of the Lender under any other provision of this Clause. (ii) All the provisions of the Agreement shall apply separately as between the Borrower and each Principal for whom the Agent has entered into an Agency transaction or Agency Transactions as if each such Principal were a party to a separate agreement with the Borrower in all respects identical with this Agreement other than this paragraph and as if the Principal were Lender in respect of that agreement. PROVIDED THAT if there occurs in relation to the Agent an Event of Default or an event which would constitute an Event of Default if the Borrower served written notice under any sub-Clause of Clause 12, the Borrower shall be entitled by giving written notice to the Principal (which notice shall be validly given if given to the Lender in accordance with Clause 20) to declare that by reason of that event an Event of Default is to be treated as occurring in relation to the Principal. If the Borrower gives such a notice then an Event of Default shall be treated as occurring in relation to the Principal at the time when the notice is deemed to be given; and if the Principal is neither incorporated nor has established a place of business in Great Britain, the Principal shall for the purposes of the agreement referred to in (D)(ii) be deemed to have appointed as its agent to receive on its behalf service of process in the courts of England the Agent, or if the Agent is neither incorporated nor has established a place of business in the United Kingdom, the person appointed by the Agent for the purposes of this Agreement, or such other person as the Principal may from time to time specify in a written notice given to the other party. (iii) The foregoing provisions of this Clause do not affect the operation of the Agreement as between the Borrower and the Lender in respect of any transactions into which the Lender may enter on its own account as principal. (D) The Lender warrants to the Borrower that it will, on every occasion on which it enters or purports to enter into a transaction as an Agency Transaction, have been duly authorised to enter into that loan and perform the obligations arising thereunder on behalf of the person whom it specifies as the Principal in respect of that transaction and to perform on behalf of that person all the obligations of that person under the agreement referred to in (D)(ii). 15. TERMINATION OF COURSE OF DEALINGS BY NOTICE ------------------------------------------- Each Party shall have the right to bring the course of dealing contemplated under this Agreement to an end by giving not less than 15 Business Days' notice in writing to the other Party (which notice shall specify the date of termination) subject to an obligation to ensure that all loans and which have been entered into but not discharged at the time such notice is given are duly discharged in accordance with this Agreement and with the Rules. 16. GOVERNING PRACTICES ------------------- The Borrower shall use its best endeavours to notify the Lender (in writing) of any changes in legislation or practices governing or affecting the Lender's rights or obligations under this Agreement or the treatment of transactions effected pursuant to or contemplated by this Agreement. 17. OBSERVANCE OF PROCEDURES ------------------------ Each of the Parties hereto agrees that in taking any action that may be required in accordance with this Agreement it shall observe strictly the procedures and timetable applied by the Rules and, further, shall observe strictly any agreement (oral or otherwise) as to the time for delivery or redelivery of any money, Securities, Equivalent Securities, Collateral or Equivalent Collateral entered into pursuant to this Agreement. 18. SEVERANCE --------- If any provision of this Agreement is declared by any judicial or other competent authority to be void or otherwise unenforceable, that provision shall be severed from the Agreement and the remaining provisions of this Agreement shall remain in full force and effect. The Agreement shall, however, thereafter be amended by the Parties in such reasonable manner so as to achieve, without illegality, the intention of the Parties with respect to that severed provision. 19. SPECIFIC PERFORMANCE -------------------- Each Party agrees that in relation to legal proceedings it will not seek specific performance of the other Party's obligation to deliver or redeliver Securities, Equivalent Securities, Collateral or Equivalent Collateral but without prejudice to any other rights it may have. 20. NOTICES ------- All notices issued under this Agreement shall be in writing (which shall include telex or facsimile messages) and shall be deemed validly delivered if sent by prepaid first class post to or left at the addresses or sent to the telex or facsimile number of the Parties respectively or such other addresses or telex or facsimile numbers as each Party may notify in writing to the other. 21. ASSIGNMENT ---------- Neither Party may charge assign or transfer all or any of its rights or obligations hereunder without the prior consent of the other Party. 22. NON-WAIVER ---------- No failure or delay by either Party to exercise any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege as herein provided. 23. ARBITRATION AND JURISDICTION ---------------------------- (A) All claims, disputes and matters of conflict between the Parties arising hereunder shall be referred to or submitted for arbitration in London in accordance with English Law before a sole arbitrator to be agreed between the Parties or in default of agreement by an arbitrator to be nominated by the Chairman of The Stock Exchange on the application of either Party, and this Agreement shall be deemed for this purpose to be a submission to arbitration within the Arbitration Acts 1950 and 1979, or any statutory modification or re-enactment thereof for the time being in force. (B) This Clause shall take effect notwithstanding the frustration or other termination of this Agreement. (C) No action shall be brought upon any issue between the Parties under or in connection with this Agreement until the same has been submitted to arbitration pursuant hereto and an award made. 24. TIME ---- Time shall be of the essence of the Agreement. 25. RECORDING --------- The Parties agree that each may electronically record all telephonic conversations between them. 26. GOVERNING LAW ------------- This Agreement is governed by, and shall be construed in accordance with, English Law. IN WITNESS WHEREOF this Agreement has been executed on behalf of the Parties hereto the day and year first before written. SIGNED BY ) ) ) ON BEHALF OF ) The Chase Manhattan ) Bank (London branch) ) IN THE PRESENCE OF: ) SIGNED BY ) ) ) ON BEHALF OF ) ) IN THE PRESENCE OF: ) SCHEDULE -------- COLLATERAL - ---------- Types - ----- Collateral acceptable under this Agreement may include the following or otherwise, as agreed between the Parties from time to time whether transferable by hand or within a depositary:- A. British Government Stock and other stock registered at the Bank of England which is transferable through the CGO to the Lender or its Nominee against an Assured Payment, hereinbefore referred to as CGO Collateral. B. (i) British Government Stock and Sterling Issues by foreign governments (transferable through the CGO), in the form of an enfaced transfer deed or a long term collateral certificate or overnight collateral chit issued by the CGO accompanied (in each case) by an executed unenfaced transfer deed; (ii) Corporation and Commonwealth Stock in the form of registered stock or allotment letters duly renounced; (iii) UK Government Treasury Bills; (iv) U.S. Government Treasury Bills; (v) Bankers' Acceptances; (vi) Sterling Certificates of Deposit; (vii) Foreign Currency Certificates of Deposit; (viii) Local Authority Bonds; (ix) Local Authority Bills; (x) Letters of Credit; (xi) Bonds or Equities in registrable form or allotment letters duly renounced; (xii) Bonds or Equities in bearer form. C. Unexpired TALISMAN short-term certificates issued by The Stock Exchange; and D. Cash Collateral. Valuation of Collateral - ----------------------- Collateral provided in accordance with this Agreement shall be evaluated by reference to the following, or by such means as the Parties may from time to time agree:- (A) in respect of Collateral types A(i) and B(i), the current CGO value calculated by reference to the middle market price of each stock as determined daily by the Bank of England, adjusted to include the accumulated interest thereon (the CGO Reference Price); (B) in respect of Collateral types B(ii) to (ix), (xi) and (xii) the Reference Price thereof; (C) in respect of Collateral types B(x) and C the value specified therein. Margin - ------ The Value of the Collateral delivered pursuant to Clause 6 by the Borrower to the Lender under the terms and conditions of this Agreement shall on each Business Day represent not less than the Value of the borrowed Securities TOGETHER WITH the following additional percentages hereinbefore referred to as ("the Margin") unless otherwise agreed between the Parties:- (i) in the case of Collateral types B(i) to (x) and D: %, (for Certificates of Deposit the Margin shall be the accumulated interest thereon); or (ii) in the case of Collateral types B(xi), (xii) and C: % If the Value of the borrowed Securities includes any margin over the mid market price of the borrowed Securities this shall be taken into account in determining the Margin applicable. Basis of Margin Maintenance - --------------------------- Clause 6(H) (transaction by transaction margining)*/Clause 6 (I)(global margining) * shall apply. Clause 6(J) (netting of margin where one party both a Borrower and Lender) shall/shall not * apply, Minimum period after demand for transferring Cash Collateral or Equivalent Collateral: BASE CURRENCY - ------------- The Base Currency applicable to this Agreement is LENDER'S WARRANTIES - ------------------- Clause 10(D) shall/shall not * apply. BORROWER'S WARRANTIES - --------------------- Clause 11/(E) shall/shall not * apply. [NB * Delete as appropriate.] CHASE OVERSEAS SECURITIES LENDER'S AGREEMENT APPENDIX The terms of this Appendix amend various of the provisions of the Overseas Securities Lender's Agreement entered into between the Parties (the "Agreement"). This Appendix supplements and forms part of the Agreement and accordingly the Appendix and Agreement shall be treated as one single agreement between the Parties. Capitalised words in this Appendix bear the same meaning (save as otherwise amended herein) as in the Agreement. 1. Recital 1 on page 1 shall be replaced with the following:- "From time to time the Parties hereto may enter into transactions in which one (the "Lender") agrees to lend to the other (the "Borrower") from time to time Securities (as hereinafter defined), subject to any Inland Revenue provisions then in force." 2. The following shall be inserted as Recital 3:- The Lender shall enter into loans of Securities as agent on behalf of third party beneficial owners and clause 14 shall take effect in accordance therewith. 3. The definition of "Collateral" shall be replaced with the following:- "Collateral" shall mean, collectively, all cash, Approved Securities and Letters of Credit from time to time paid or delivered by the Borrower to the Lender pursuant to Clause 6 and shall include the certificates and other documents of or evidencing title and transfer with respect to the foregoing (as appropriate) and shall include Alternative Collateral. For the purposes of this definition a Letter of Credit shall mean an irrevocable letter of credit issued by a bank acceptable to the Lender for the account of the Borrower or any other person acceptable to the Lender and which contains such terms and provisions as are required by or acceptable to the Lender in its discretion. Approved Securities shall mean securities of such class or classes falling within Paragraph B of the Schedule hereto but only in so far as any such class has been designated by notice in writing given by the Lender to the Borrower from time to time hereafter as capable of being Approved Securities for the purposes of this Agreement and which are acceptable to the Lender for the purposes hereof in its sole discretion and such term shall include the certificates and other documents of or evidencing title and transfer with respect to such securities." 4. The definition of "Securities" shall be replaced with the following:- "Securities means Overseas Securities as defined in paragraph 1(1) of Schedule 23A to the Income and Corporation Taxes Act 1988." 5. The following definitions shall be added to Clause 1 of the Agreement:- "Relevant Bank" shall mean, with respect to any loan, a bank which has issued a Letter of Credit which, or a portion of which, is for the time being allocated as Collateral for such Loan; "Relevant Organisation" shall mean any governmental agency, bureau, commission or department and any self-regulatory or other organisation concerned with dealings, and any association of dealers, in securities of any description; 6. Clause 4(B)(viii) shall be replaced by the following provisions (which shall take effect as sub-clauses (viii), (ix) and (x) respectively) and existing sub-clause (viii) of the Agreement shall be renumbered as sub- clause (xi):- "(viii) any distribution of securities made in exchange for loaned Securities shall be considered as substituted for such loaned Securities and need not be delivered to the Lender until the relevant loan of Securities is terminated hereunder; (ix) any distribution solely in the form of securities with respect to any loaned Securities shall be added to such loaned Securities (and shall constitute loaned Securities, and be part of the relevant loan of Securities, for all purposes hereof) and need not be delivered to the Lender until the relevant loan of Securities is terminated hereunder, if at or before the making of such distribution the Borrower shall have delivered such additional Collateral for the relevant loan to the Lender for the account of the relevant Principal as shall be necessary to make the aggregate of the Collateral for such Loan, determined on the date of such distribution, at least equal to the Margin with respect to such Loan (after giving effect to the addition of the securities being distributed) determined on such date; and (x) any distributions of warrants or rights to purchase shares made with respect to any loaned Securities shall be deemed to be, and shall be, a new loan of Securities made to the Borrower by the Principal which loaned to the Borrower the loaned Securities with respect to which such distribution is made (and shall be treated as Loaned Securities, and as a separate loan, for all purposes hereof) and need not be delivered to the Lender until such new loan is terminated in accordance herewith, if at or before the making of such distribution the Borrower and the Lender shall have agreed upon the Margin for such new loan and the Borrower shall have delivered to the Lender Collateral for such new Loan having a value acceptable to the Lender". 7. The following shall be substituted for clause 6(A)(i):- "(A)(i) Unless the Parties agree otherwise and subject to sub-clauses (B), (C) and (E) below the Borrower agrees that, as a condition precedent to the making of any Loan, it shall deliver Collateral to the Lender (or in accordance with the Lender's instructions) TOGETHER WITH appropriate instruments of transfer duly stamped where necessary and such other instruments as may be requisite to vest title thereto in the Lender." 8. The words commencing "... unless in relation to ..." in the fifth line down in clause 6(G)(i) to the end of that clause shall be deleted and the whole of clause 6(G)(ii) shall be deleted. 9. The following shall be inserted as clause 6(M):- "(M) The delivery of a Letter of Credit shall be effected for the purposes of this Agreement by physical delivery of the original executed Letter of Credit by the issuing, confirming or advising bank to the Lender at its address for delivery of notices or as the Lender may otherwise agree, provided, however, that no such delivery shall be effective until one Business Day after the receipt of a Letter of Credit by the Lender (or, if the relevant Letter of Credit is received by the Lender prior to 3 p.m. (London time) on a Business Day, until 5.30 p.m. (London time) on such Business Day), during which period the Lender may reject such Letter of Credit, by oral notice to the Borrower, if such Letter of Credit is not in the form required by or acceptable to the Lender." 10. Clause 7B shall be amended as follows:- (i) by the insertion of the following words at the end of the first sentence:- "(and where there is a difference between the settlement time for sales and purchases on the relevant exchange or clearing organisation, the standard settlement time shall be the shorter of the two times)." (ii) in the third sentence, by the insertion of the following words after "Simultaneously with the redelivery of the Equivalent Securities in accordance with such call,":- "or at such other time as may be agreed by the Parties," 11. The requirements pursuant to clause 9(B) shall not apply as between the Parties. 12. The following shall be inserted as clause 11(F):- "(F) The Borrower has heretofore delivered to the Lender a copy of the annual [consolidated] financial statements of the Borrower [and its consolidated subsidiaries] for its [fiscal/financial] year ended [ ], 19[ ] duly audited by independent [certified public accountants/internationally recognised auditors], including a balance sheet as at the end of such [fiscal/financial] year [and the related statement of income and changes in financial position for such fiscal year], and a copy of the unaudited [consolidated] financial statements of the Borrower [and its consolidated subsidiaries] for the [ ] month period ended [ ], 19[ ] including a balance sheet as at the end of such period [and the related statement of income and changes in financial position for such period], and each of the said statements and related notes thereto are complete and correct and fairly present the [consolidated] financial condition and results of operation of the Borrower [and its consolidated subsidiaries] as at the said dates and for such periods, all in conformity with generally accepted accounting principles consistently applied;" 13. The following shall be inserted as Clause 11(G):- "(G) it is an Approved Intermediary." 14. Clause 12 shall be amended as follows:- (i) by the deletion of "or" at the end of Sub-clause (H); (ii) in Sub-clause (I) by the deletion of all the words after "hereunder" and the substitution therefor of "and the Non-Defaulting Party serves written notice on the Defaulting Party"; (iii) by the addition of the following Sub-clauses:- "(J) a violation by the Borrower in connection with any Securities the subject of a loan hereunder or the holding or disposition thereof by the Borrower, of any applicable law, regulation or rule of any jurisdiction, or of any Relevant Organisation to the requirements of which the Borrower may be subject; (K) the occurance of any other event which the Borrower is required to notify to the Lender pursuant to Clause 27(B) hereof; or (L) an Act of Insolvency occuring with respect to ant Relevant Bank and (except in the case of an Act of Insolvency which is the presentation of a petition for winding up or any analogous officer of the Relevant Bank in which case no such notice shall be required) the Lender serves written notice on the Borrower." 15. The following shall take effect as clause 27 of the Agreement:- "Covenants of the Borrower: The Borrower hereby covenants and agrees with the Lender as follows: (A) The Borrower will furnish to the Lender (i) as soon as available and in any event within [ ] days after the end of each of its [fiscal/financial] years, a copy of the annual [consolidated] financial statements of the Borrower [and its consolidated subsidiaries] duly audited by independent [certified public accountants/internationally recognised auditors], including a balance sheet as at the end of such [fiscal/financial] year [and the related statement of income and changes in financial position for such fiscal year], prepared in accordance with generally accepted accounting principles consistently applied, (ii) as soon as available and in any event within [ ] days after the end of each of the first three quarters of each of its [fiscal/financial] years, a copy of the [consolidated] financial statements of the Borrower [and its consolidated subsidiaries] for the period then ended, including a balance sheet as at the end of such period [and the related statement of income and changes in financial position for such period], prepared in accordance with generally accepted accounting principles on a basis consistent with that used in the preparation of the financial statements referred to in sub-paragraph (i) above and certified by an appropriate officer of the Borrower, (iii) promptly after the occurrence of any default under this Agreement, a written notice setting forth the nature of such default and the steps being taken by the Borrower to remedy such default, and (iv) from time to time such further information (whether or not of the kind mentioned above) regarding the business, affairs and financial condition of the Borrower as the Lender may reasonably request. (B) The Borrower will give the Lender immediate notice if at any time any order, decree, determination or instruction is issued on the authority of any rule, regulation or proceeding of any Relevant Organisation in relation to the Borrower, or any litigation, arbitration or similar proceeding against or affecting the Borrower is commenced, which in any such case could have a material adverse effect on the ability of the Borrower to perform its obligations under this Agreement or to carry on its business as conducted as at the date of this Agreement or which might adversely affect the borrowing of securities by the Borrower. Any such notice shall set forth in reasonable detail a description of the event which has occurred and of the action, if any which the Borrower proposes to take with respect thereto." 16. The Schedule shall be deleted and replaced by the following:- "Types ----- The following types of collateral shall unless otherwise agreed constitute Collateral acceptable under this Agreement; (i) US Government securities which shall mean book-entry securities issued by the U.S. Treasury (as defined in Subpart O of Treasury Department Circular No. 300 and any successor provisions) and any other securities issued or fully guaranteed by the United States government or any agent, instrumentality or establishment of the U.S. government, including without limitation, securities commonly known as "Ginnie Maes", Sally Maes" and "Freddie Maes". (ii) Letters of Credit; (iii) Cash Collateral. Valuation of Collateral ----------------------- Collateral provided in accordance with this Agreement shall be evaluated by reference to the following, or by such means as the Parties may from time to time agree:- (a) in respect of Collateral type (i) above, the Reference Price thereof; (b) in respect of Collateral type (ii) above, the value specified therein. Margin ------ "The Value of the Collateral delivered pursuant to Clause 6 by the Borrower to the Lender under the terms and conditions of this Agreement shall on each Business Day represent not less than 100% of the Value of the borrowed Securities, and otherwise as agreed between the Parties with respect to each loan". Basis of Margin Maintenance --------------------------- "Clause 6(H) (transaction by transaction margining) shall apply in lieu of Clause 6(I); however, the Lender shall have the right at its sole election, at any time from time to time, to allocate and/or reallocate any Collateral held by it hereunder to or among any outstanding loans. Clause 6(J) (netting of Margin where one party both a Borrower and Lender) shall apply, notwithstanding that Clause 6(I) does not apply. The minimum period after demand for transferring Cash Collateral or Equivalent Collateral shall be the same Business Day if demand is made before 11.00 am, and otherwise as agreed between the parties". Base Currency ------------- The Base Currency applicable to this Agreement is United States Dollars (US$). Lenders' Warranties ------------------- Clause 10(D) shall apply. Borrowers' Warranties --------------------- Clause 11(E) shall apply. iShares, Inc. Appendix 4 Authorized Investments A. US Government Securities (defined as follows): US Treasury Securities -------------------------------------------------------------------------- US Treasury Bills US Treasury Notes US Treasury Bonds US Government Agency Discount Notes -------------------------------------------------------------------------- Federal Home Loan Bank Federal Home Loan Mortgage Corporation Federal National Mortgage Association Regular Agency Mortgage Pass-Throughs -------------------------------------------------------------------------- Freddie Mac Mortgage Gold PCs Freddie Mac Adjustable Rate PCs Fannie Mae Fixed Rate MBS Fannie Mae Adjustable Rate MBS GNMA Single Family Loan Pool 15-30 Years (I and II) GNMA Single Family Loan Pool 15 Years (I and II) GNMA Singe Family Platinum Pool 30 Years (I and II) GNMA II Single Family Adjustable Rate MBS B. Repurchase Agreements with the below-named counterparties, in amounts not to exceed the specified limit with respect to each such counterparty. Securities that are eligible as collateral under such Repurchase Agreements shall be limited to the US Government Securities listed under Section A of this Appendix above. Repo Counterparties Credit Limits ------------------- -------------- Credit Suisse First Boston Corp USD300mm. Donaldson, Lufkin & Jenrette Sec. Corp. USD300mm. Goldman Sachs & Co. USD500mm. JP Morgan Securities Inc. USD400mm. Lehman Brothers Inc. USD320mm. Merrill Lynch, Pierce, Fenner & Smith USD300mm. PaineWebber, Inc. USD300mm. Salomon Smith Barney Inc. USD400mm. C. Money Market Investments in the following funds: Dreyfus Cash Management Dreyfus Treasury Cash Management Goldman Sachs Financial Square Money Market Fund Goldman Sachs Financial Square Prime Obligation Fund S-T Investments Co. Liquid Assets Portfolio S-T Investments Co. Prime Portfolio TempCash TempFund (continued next page) iShares, Inc. Appendix 4 Authorized Investments (continued) D. The maximum maturity for any security will be one year. No more than 5% of each Lender's total assets will be invested in any one issuer, with the exception of US Government Securities. All investments shall be made in compliance with the Investment Company Act of 1940, as amended, including without limitation Section 12(d)(1) thereof, and other applicable law. iShares, Inc. Appendix 5 Acceptable Collateral 1. US Dollars (USD) 2. Letters of Credit issued by with banks approved by BGFA as set forth on Appendix 2 hereto 3. US Government Securities as defined in the Authorized Investments Appendix (Appendix 4 hereto) -----END PRIVACY-ENHANCED MESSAGE-----