Exhibit (g.1)
CUSTODIAN AGREEMENT
AGREEMENT made as of this 25th day of April, 2000, between iShares TRUST, a
business trust established under the laws of the state of Delaware (the "Fund"),
and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company on behalf of the series
listed on Appendix A hereto (as such Appendix A may be amended from time to
---------- ----------
time) (each an "Index Series" and collectively, the "Index Series"), desires to
place and maintain all of its portfolio securities and cash in the custody of
the Bank. The Bank has at least the minimum qualifications required by Section
17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to act as
custodian of the portfolio securities and cash of the Fund, and has indicated
its willingness to so act, subject to the terms and conditions of this
Agreement.
The Fund will issue and redeem shares of each Index Series only in
aggregations of shares known as "Creation Units" which may be purchased and
redeemed principally in-kind for portfolio securities of the respective Index
Series, as more fully described in the then current prospectus and statement of
additional information of the Fund (together, the "Prospectus") included in its
registration statement on Form N-1A (the "Registration Statement") Registration
Nos. 333-92935 and 811-09729.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as custodian
------------------------
of its portfolio securities and cash delivered to the Bank as hereinafter
described and the Bank agrees to act as such upon the terms and conditions
hereinafter set forth. For the services rendered pursuant to this Agreement the
Fund agrees to pay to the Bank the fees set forth on Appendix B hereto. As
----------
custodian, Bank shall have general responsibility for the safekeeping of all
securities, cash and other property of the Index Series that are delivered to
the Bank for custody.
2. Definitions. Whenever used herein, the terms listed below will have the
-----------
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
-----------------
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Trustees of the Fund.
-----
2.3 Security. The term security as used herein will have the same meaning
--------
assigned to such term in the Securities Act of 1933, as amended, including,
without limitation, any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or
participation in any profit sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share, investment
contract, voting-trust certificate, certificate of deposit for a security,
fractional undivided interest in oil, gas, or other mineral rights, any put,
call, straddle, option, or privilege on any security, certificate of deposit, or
group or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered into on
a national securities exchange relating to a foreign currency, or, in general,
any interest or instrument commonly known as a "security", or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to, or option contract to
purchase or sell any of the foregoing, and futures, forward contracts and
options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security owned by
------------------
the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
---------------------
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal Reserve-
-----------------
Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
----------
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i) instructions
-------------------
regarding the purchase or sale of Portfolio Securities, and payments and
deliveries in connection therewith, given by an Authorized Person (which shall
include the Fund's Distributor), such instructions to be given in such form and
manner as the Bank and the Fund shall agree upon from time to time, and (ii)
instructions (which may be continuing instructions) regarding other matters
signed or initialed by an Authorized Person. Oral instructions will be
considered Proper Instructions if the Bank reasonably believes them to have been
given by an Authorized Person. The Fund shall cause all oral instructions to be
promptly confirmed in writing. The Bank shall act upon and comply with any
subsequent Proper Instruction which modifies a prior instruction and the sole
obligation of the Bank with respect to any follow-up or confirmatory instruction
shall be to make reasonable efforts to detect any discrepancy between the
original instruction and such confirmation and to report such discrepancy to the
Fund. The Fund shall be responsible, at the Fund's expense, for taking any
action, including any reprocessing, necessary to correct any such discrepancy or
error, and to the extent such action requires the Bank to act, the Fund shall
give the Bank specific Proper Instructions as to the action required. Proper
Instructions shall include communication effected directly between electro-
mechanical or electronic devices, including information transmitted by the
Fund's Distributor. The Fund hereby authorizes such use of
electro-mechanical or electronic communication and the Fund and the Bank will
agree as to procedures which shall afford adequate safeguards for the Fund's
assets.
3. Separate Accounts. The Bank will segregate the assets of each Index
-----------------
Series to which this Agreement relates into a separate account for each such
Index Series containing the assets of such Index Series (and all investment
earnings thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its Index Series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
portfolio securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable Index Series, any duty or obligation of the
Bank hereunder to the Fund shall be deemed to refer to duties and obligations
with respect to such individual Index Series and any obligation or liability of
the Fund hereunder shall be binding only with respect to such individual Index
Series, and shall be discharged only out of the assets of such Index Series.
4. Certification as to Authorized Persons. The Secretary or Assistant
--------------------------------------
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
---------------
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the Fund,
----------------------
against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or
receipt for the account of the Bank pursuant to the provisions of Section 6
below, each such payment to be made at the purchase price shown on a broker's
confirmation (or transaction report in the case of Book Entry Paper (as that
term is defined in Section 6.6 hereof)) of purchase of the securities received
by the Bank before such payment is made, as confirmed in the Proper Instructions
received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary in connection with the
-----------
repurchase or redemption of Creation Units of an Index Series offered for
repurchase or redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account of
----------------------------------
the Fund of dividends or other distributions to shareholders as may from time to
time be declared by the Board, interest, taxes, management or supervisory fees,
distribution fees, fees of the Bank for its services hereunder and reimbursement
of the expenses and liabilities of the Bank as provided hereunder, fees of any
transfer agent, fees for legal, accounting, and auditing services, or other
operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with the
--------------------------------
conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but, in
------------------
the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
-----------------
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
-----------------------------
(a) For payments in connection with foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements") which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of
-------------------------
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as hereinafter
-----------
set forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
----------
6.1 Segregation and Registration. Except as otherwise provided
----------------------------
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. The Bank will vote the Portfolio Securities
------------------
held hereunder, only in accordance with Proper Instructions or an Officers'
Certificate. The Bank will execute and deliver, or cause to be executed and
delivered, to the Fund all notices, proxies and proxy soliciting materials
delivered to the Bank with respect to such Securities, such proxies to be
executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an
----------------
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action in accordance with the
procedures set forth in the Service Level Agreement between the Bank and the
Fund (the "SLA"), the Response required in connection with the Corporate Action
and the Bank's deadline for receipt from the Fund of Proper Instructions
regarding the Response (the "Response Deadline"). The Bank shall forward to the
Fund via telecopier, overnight courier or any other manner agreed to by the
parties all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank.
(a) Except as provided below, the Bank shall act upon a required
Response only after receipt by the Bank of Proper Instructions from the Fund no
later than 5:00 p.m. on the date specified as the Response Deadline and only if
the Bank (or its agent or subcustodian hereunder) has actual possession of all
necessary Securities, consents and other materials no later than 5:00 p.m. on
the date specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response
if Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank no later than 5:00 p.m. on the date specified as the Response Deadline,
provided that the Bank has acted in accordance with the procedures set forth in
this Agreement and in the SLA regarding such Corporate Action. Notwithstanding,
the Bank may, in its reasonable discretion, use its best efforts to act upon a
Response for which Proper Instructions and/or necessary Securities, consents or
other materials are received by the Bank after 5:00 p.m. on the date specified
as the Response Deadline, it being acknowledged and agreed by the parties that
any undertaking by the Bank to use its best efforts in such circumstances shall
in no way create any duty upon the Bank to complete such Response prior to its
expiration. Notwithstanding the foregoing sentence, if the Bank has, by its
negligence or failure to act in accordance with the procedures set forth in this
Agreement or the SLA, caused the Fund to provide a Response on a Corporate
Action after 5:00 p.m. on the date specified as the Response Deadline for such
Corporate Action, the Bank will use its best efforts to act upon such Response.
(c) In the event that the Fund notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no other notice of such
Corporate Action, the Response Deadline shall be 48 hours prior to the Response
expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by an Eligible Foreign
Custodian (as defined below).
6.4 Book-Entry System. The Fund acknowledges and agrees that:
-----------------
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of securities loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advices from the Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers
to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
6.5 Use of a Depository. The Fund acknowledges and agrees that:
-------------------
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of
any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment therefor or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded immediately to
the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. The Fund acknowledges
---------------------------------------------
and agrees that, upon receipt of Proper Instructions and upon receipt of
confirmation from an Issuer (as defined below) that the Fund has purchased such
Issuer's Book-Entry Paper, the Bank shall issue and hold in book-entry form, on
behalf of the Fund, commercial paper issued by issuers with whom the Bank has
entered into a book-entry agreement (the "Issuers"). In maintaining procedures
for Book-Entry Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund
in an account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Fund's purchase
of Book-Entry Paper through the Bank will identify, by book-entry, commercial
paper belonging to the Fund which is included in the Book-Entry System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund; and
(e) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the Fund may
reasonably request from time to time.
6.7 Options and Futures Transactions.
--------------------------------
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts")
and call options ("calls") purchased or sold (written) by the Fund regarding
escrow or other arrangements (i) in accordance with the provisions of any
agreement entered into upon receipt of Proper Instructions among the Bank, any
broker-dealer that is a member of the National Association of Securities
Dealers, Inc. (the "NASD"), and, if necessary, the Fund, relating to the
compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.8 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held in a
Segregated Account is
sufficient to protect such broker or the Fund against any loss; (ii) cause the
return of any collateral delivered to a broker; or (iii) advise the Fund that
any option it holds, has or is about to expire. Such duties or obligations shall
be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement entered into upon the receipt of Proper Instructions
among the Fund, the Bank and a Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund.
(ii) The responsibilities of the Bank as to futures, puts and
calls traded on commodities exchanges, any Futures Commission Merchant account
and the Segregated Account shall be limited as set forth in subparagraph (a)(ii)
of this Section 6.7 as if such subparagraph referred to Futures Commission
Merchants rather than brokers, and Futures and puts and calls thereon instead of
options.
6.8 Segregated Account. The Bank shall upon receipt of Proper
------------------
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement among
the Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in the case
of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the executive committee of
the Board signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v) above,
in accordance with the purposes of such account as set forth in Proper
Instructions.
6.9 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt
--------------------------------------
of Proper Instructions relating to the purchase by the Fund of interest-bearing
fixed-term and call deposits, transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of
the Bank therefore shall be the same as and no greater than the Bank's
responsibility in respect of other Portfolio Securities of the Fund.
6.10 Transfer of Securities. The Bank will transfer, exchange, deliver or
----------------------
release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, only upon receipt of Proper Instructions. The
Proper Instructions shall state that such transfer, exchange or delivery is for
a purpose permitted under the terms of this Section 6.10, and shall specify the
applicable subsection, or describe the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection. After receipt of such Proper Instructions, the Bank will transfer,
exchange, deliver or release Portfolio Securities only in the following
circumstances:
(a) Upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full, or
against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided,
however, that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, except to the extent caused by negligence, bad faith, willful
misconduct or a material breach of this Agreement on the part of the Bank in
connection with such offer of exchange, tender offer, or other exercise of
rights, the Bank shall have no liability for failure to so tender in a timely
manner unless such Proper Instructions are received by the Bank at least two
business days prior to the date required for tender, and unless the Bank (or its
agent or subcustodian hereunder) has actual possession of such Security at least
two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their terms
into other securities;
(d) For the purpose of redeeming in-kind Shares of the Fund upon
authorization from the Fund or its authorized agent, as may be described from
time to time in the Prospectus. It is understood and agreed that, in accordance
with generally accepted settlement practices and customs in certain
jurisdictions or markets in which Portfolio Securities may be held, the Bank may
deliver Portfolio Securities prior to the receipt of Shares of the Index Series
the redemption for which such Portfolio Securities were being delivered. Any
loss resulting from such "free" delivery of Portfolio Securities will be for the
account of the Fund and the Fund will hold the Bank harmless and indemnify the
Bank for any such losses, except to the extent caused by negligence or a
material breach of this Agreement on the part of the Bank;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to
a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.10,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. The Bank shall, upon receipt of notification and
-----------
instructions by the Fund's transfer agent of receipt of a request for redemption
of Creation Units of an Index Series in proper form, make cash and the
applicable Portfolio Securities available for payment to, or in
accordance with instructions of, the relevant Authorized Participant (as defined
in the Prospectus). The Bank shall transfer the applicable Portfolio Securities
to or on the order of the Authorized Participant through the Clearing Process
(as defined in the Prospectus) or, at the election of the Authorized
Participant, outside of the Clearing Process through the DTC system. Any cash
redemption payment (less any applicable cash redemption transaction fees) due to
the Authorized Participant on redemption shall be effected through the Clearing
Process or through wire transfer in the case of redemptions effected outside the
Clearing Process through DTC. All payments shall be made in accordance with the
Declaration of Trust and By-laws of the Fund (the "Articles"), any applicable
votes of the Board of Trustees of the Fund and the Prospectus, from assets
available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
---------------------------------
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees through
the end of the then current term of this Agreement, and disbursements and
expenses of the Bank, and provided that at such time the Bank is not in material
breach of this Agreement or owing money to the Fund, this Agreement will
terminate and the Bank shall be released from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
-------------------------------------------
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the Fund's transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities received
as a distribution on Portfolio Securities as a result of a stock dividend, share
split-up, reorganization, recapitalization, merger, consolidation, readjustment,
distribution of rights and similar securities issued with respect to any
Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the
Treasury Department issued thereunder, or by the laws of any state, now or
hereafter in effect, inserting the Fund's name on such certificates as the owner
of the securities covered thereby, to the extent it may lawfully do so and as
may be required to obtain payment in respect thereof. The Bank will execute and
deliver such certificates in connection with Portfolio Securities delivered to
it or by it under this Agreement as may be required under the provisions of the
Internal Revenue Code and any Regulations of the Treasury Department issued
thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
------------------------
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay in
accordance with the time limits set forth in the SLA.
11. Maintenance of Records and Accounting Services. The Bank will
----------------------------------------------
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act. Such books and records
shall be the property of the Fund.
The Bank shall perform the fund accounting services listed on Appendix C
hereto and shall keep the books of account and render statements or copies from
time to time as reasonably requested by the Treasurer or any executive officer
of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Yield Calculation
-------------------------------------
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
---------------
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a
share of capital stock of the Fund, such determination to be made in accordance
with the provisions of the Articles and By-laws of the Fund and the Prospectus
and Statement of Additional Information relating to the Fund, as they may from
time to time be amended, and any applicable resolutions of the Board at the time
in force and applicable; and promptly to notify the Fund, the proper exchange
and the NASD or such other persons as the Fund may request of the results of
such computation and determination. In computing the net asset value hereunder,
the Bank may rely in good faith upon information furnished to it by any
Authorized Person in respect of (i) the manner of accrual of the liabilities of
the Fund and in respect of liabilities of the Fund not appearing on its books of
account kept by the Bank, (ii) reserves, if any, authorized by the Board or that
no such reserves have been authorized, (iii) the source of quotations or the
quotations to be used in computing the net asset value, (iv) the value to be
assigned to any security for which no price quotations are available, and (v)
the method of computation of the public offering price on the basis of the net
asset value of the shares.
12.2. Yield Calculation. The Bank will compute the performance results
------------------
of the Fund (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Fund for the
stated periods of time as shall be mutually agreed upon, and communicate in a
timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, the Bank will derive the
items of data necessary for the computation from the records it generates and
maintains for the Fund pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
(c) At the request of the Bank, the Fund shall provide, and the Bank
shall be entitled to rely on, written standards and guidelines to be followed by
the Bank in interpreting and applying the computation methods set forth in the
Releases or any Subsequent Staff Positions as they specifically apply to the
Fund. In the event that the computation methods in the Releases or the
Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Fund, the
Fund or its designated agent shall have the full responsibility for making the
determination of how the security or payment is to be treated for purposes of
the computation and how the computation is to be made and shall inform the Bank
thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is
covered by this Section, and shall not be responsible for its computations made
in accordance with such determinations so long as such computations are
mathematically correct.
(d) The Fund shall keep the Bank informed of all publicly available
information and of any non-public advice, or information obtained by the Fund
from its independent auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related to the computations to
be undertaken by the Bank pursuant to this Agreement and the Bank shall not be
deemed to have knowledge of such information (except as contained in the
Releases) unless it has been furnished to the Bank in writing.
12.3 Determination of Cash Component, etc. Subject to and in accordance
------------------------------------
with the directions of the Fund's investment advisor, the Bank shall determine
for each Index Series after the close of each day on which the Fund is open to
accept orders, in accordance with the respective Index Series' policies as
adopted from time to time by the Fund's Board of Trustees and in accordance with
the procedures set forth in the Prospectus, the Cash Component (as defined in
the Prospectus). Such determination shall be based on the best information
reasonably available to the Bank as of 4:00 p.m. Eastern time on each day such
determination is to be made. The Bank shall provide (or cause to be provided)
this information to the Fund's investment advisor, the Fund's distributor and
other persons in accordance with policies to be adopted by the Fund's Board of
Trustees and shall disseminate such information on each day that the [American
Stock Exchange LLC ("AMEX")] is open, including through the facilities of the
National Securities Clearing Corporation, prior to the opening of trading on the
[AMEX]. It is understood and agreed that the Bank shall not be responsible for
the determination of the Deposit Securities.
13. Additional Services. The Bank shall perform the additional services
-------------------
for the Fund as are set forth on Appendix C hereto. Appendix C may be amended
---------- ----------
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix B shall be appropriately increased.
----------
14. Duties of the Bank.
------------------
14.1 Performance of Duties and Standard of Care. In performing its
------------------------------------------
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities purchased
by or for the Fund, the legality of the purchases thereof or the propriety of
the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for
the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the Fund
or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the Fund
or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in kind
of such dividend; and
(f) any property or moneys of the Fund unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund Held in
---------------------------------------------------------------------
the United States. The Bank may employ agents of its own selection in the
-----------------
performance of its duties hereunder and shall be responsible for the acts and
omissions of such agents as if performed by the Bank hereunder. Without
limiting the foregoing, certain duties of the Bank hereunder may be performed by
one or more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Fund, provided that any such subcustodian
meets at least the minimum qualifications required by Section 17(f)(1) of the
1940 Act to act as a custodian of the Fund's assets with respect to property of
the Fund held in the United States. The Bank shall have no liability to the Fund
or any other person by reason of any act or omission of any subcustodian
(including any act or omission in connection with corporate actions) selected by
or at the direction of the Fund and the Fund shall indemnify the Bank and hold
it harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any subcustodian, except to the
extent caused by the negligence, bad faith, willful misconduct or material
breach of this Agreement on the part of the Bank. Upon request of the Bank, the
Fund shall assume the entire defense of any action, suit, or claim subject to
the foregoing indemnity. The Fund shall pay all fees and expenses of any
subcustodian selected by or at the direction of the Fund.
14.3 Duties of the Bank with Respect to Property of the Fund Held Outside
--------------------------------------------------------------------
of the United States.
--------------------
(a) Appointment of Foreign Custody Manager.
--------------------------------------
(i) If the Fund has appointed the Bank Foreign Custody Manager
(as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's duties
and obligations with respect to the Fund's Portfolio Securities and other assets
maintained outside the United States shall be, to the extent not set forth
herein, as set forth in the Delegation Agreement between the Fund and the Bank
(the "Delegation Agreement").
(ii) If the Fund has appointed any other person or entity Foreign
Custody Manager, the Bank shall act only upon Proper Instructions from the Fund
with regard to any of the Fund's Portfolio Securities or other assets held or to
be held outside of the United States, and the Bank shall be without liability
for any Claim (as that term is defined in Section 15 hereof) arising out of
maintenance of the Fund's Portfolio Securities or other assets outside of the
United States. The Fund also agrees that it shall enter into a written
agreement with such Foreign Custody Manager that shall obligate such Foreign
Custody Manager to provide to the Bank in a timely manner all information
required by the Bank in order to complete its obligations hereunder. The Bank
shall not be liable for any Claim arising out of the failure of such Foreign
Custody Manager to provide such information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its books
-------------------------
as belonging to the Fund the Foreign Portfolio Securities held by each foreign
sub-custodian (each an "Eligible Foreign Custodian") selected by the Foreign
Custody Manager, subject to receipt by the Bank of the necessary information
from such Eligible Foreign Custodian if the Foreign Custody Manager is not the
Bank.
(c) Access of Independent Accountants of the Fund. If the Bank is the
---------------------------------------------
Fund's Foreign Custody Manager, upon request of the Fund, the Bank will use its
best efforts to arrange for the independent accountants of the Fund to be
afforded access to the books and records of any foreign banking institution
employed as an Eligible Foreign Custodian insofar as such books and records
relate to the performance of such foreign banking institution with regard to the
Fund's Portfolio Securities and other assets.
(d) Reports by Bank. If the Bank is the Fund's Foreign Custody
---------------
Manager, the Bank will supply to the Fund the reports required under the
Delegation Agreement. In addition, the Bank shall use reasonable efforts to
notify the Fund promptly of any changes in foreign subcustodians used by the
Fund and any change in the indemnification provided to the Bank by such foreign
subcustodians.
(e) Transactions in Foreign Custody Account. Transactions with
---------------------------------------
respect to the assets of the Fund held by an Eligible Foreign Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable agreement between the Foreign Custody
Manager and such Eligible Foreign Custodian. If at any time any Foreign
Portfolio Securities shall be registered in the name of the nominee of the
Eligible Foreign Custodian, the Fund agrees to hold any such nominee harmless
from any liability to the extent arising by reason of the registration of such
securities in the name of such nominee, except to the extent caused by the
Bank's negligence, bad faith, willful misconduct or material breach of this
Agreement.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the
account of the Fund and delivery of Foreign Portfolio Securities maintained
for the account of the Fund may be effected in accordance with the
customary established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Fund pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) Tax Law. The Bank shall have no responsibility or liability for
-------
any obligations now or hereafter imposed on the Fund or the Bank as custodian of
the Fund by the tax laws of any jurisdiction, and it shall be the responsibility
of the Fund to notify the Bank of the obligations imposed on the Fund or the
Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Eligible Foreign Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
14.4 Insurance.
---------
(a) The Bank shall, during the period that this Agreement remains in
effect, (i) maintain an Errors & Omissions policy of at least $50 million, which
policy will insure against all claims sustained by any party (including the
Fund) as a result of any actual or alleged wrongful act by the Bank, or error or
omission in the Bank's rendering of or failure to render services in accordance
with the terms set forth in the Bank's agreements with its clients, and (ii)
maintain a separate Errors & Omissions policy of at least $25 million, which
policy will insure against claims sustained solely by the Fund as a result of
any actual or alleged wrongful act, error
or omission in the Bank's rendering of or failure to render services in
accordance with the terms set forth in this Agreement.
(b) Upon the Fund's written request, the policy referred to in clause
(a)(ii) above will be expanded to $50 million when the Fund's total assets reach
$25 billion. The Fund will reimburse (or cause its agent to reimburse) the Bank
in advance for the cost of the policy referred to in clause (a)(ii) above. When
the policy is expanded to $50 million, the Fund will reimburse (or cause its
agent to reimburse) the Bank in advance for the total cost of such expanded
policy.
14.5. Fees and Expenses of the Bank. The Fund will pay or reimburse the
-----------------------------
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay or reimburse
to the Bank such compensation or fees and expenses at such rates as shall be
agreed upon in writing by the parties from time to time. The Fund shall pay all
such fees and reimburse all such expenses on a monthly basis on the last day of
each month and the Bank is hereby authorized to deduct such fees and expenses
from the Fund's accounts. The Bank will also be entitled to reimbursement by
the Fund for all reasonable expenses incurred in conjunction with termination of
this Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion, advance
--------------------
funds on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such payments
by the Fund. Should such a payment or payments, with advanced funds, result in
an overdraft (due to insufficiencies of the Fund's account with the Bank, or for
any other reason) this Agreement deems any such overdraft or related
indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness and to the
extent required by law, in and to any property at any time held by it for the
Fund's benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, to charge any overdraft or indebtedness, together with interest due
thereon, against any balance of account standing to the credit of the Fund on
the Bank's books in accordance with the procedures set forth in the SLA.
15. Limitation of Liability.
-----------------------
15.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including reasonable legal fees, (a "Claim")
arising as a result of any act or omission of the Bank or any Indemnified Party
under this
Agreement, except for any Claim to the extent such Claim results from the
material breach of this Agreement by or negligence, willful misfeasance or bad
faith of the Bank or any Indemnified Party.
15.2 The Bank shall indemnify and hold the Fund, its Board of Trustees,
officers and employees and its agents harmless from and against any and all
Claims to the extent any such Claim arises out of the negligent acts or
omissions, bad faith, willful misconduct or material breach of this Agreement by
the Bank, its officers, directors or employees or any of its agents or
subcustodians in connection with the activities undertaken pursuant to this
Agreement, provided that the Bank's indemnification obligation with respect to
the acts or omissions of its subcustodians shall not exceed the indemnification
provided by the applicable subcustodian to the Bank.
15.3 Notwithstanding anything to the contrary in this Agreement, in no
event shall a party to this Agreement be liable to the other party or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
15.4 Notwithstanding anything to the contrary in this Agreement, in no
event shall a party to this Agreement be liable to the other party or any third
party for losses resulting from (i) any acts of God, fires, floods, or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, or insurrection, and (ii) other happenings
or events beyond the reasonable control or anticipation of the party effected,
provided that (A) the effected party has in place appropriate business
resumption procedures, systems and facilities and (B) the effected party uses
its best efforts to avoid or remove the cause of such losses.
15.5 In performing its duties hereunder, the Bank will be entitled to
receive and act upon the advice of independent counsel of its own selection,
which may be counsel for the Fund.
15.6 The Bank may rely upon any Proper Instruction which it reasonably
believes to be genuine and to be signed or presented by any Authorized Person.
The Bank shall not be held to have notice of any change of authority of any
Authorized Person until receipt of appropriate written notice thereof has been
received by the Bank from the Fund.
15.7 In order that the indemnification provisions contained in this
Article 14 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
seeking indemnification shall give the indemnifying party full and complete
authority, information and assistance to defend such claim or proceeding, and
the indemnifying party shall have, at its option, sole control of the defense of
such claim or proceeding and all negotiations for its compromise or settlement.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written
consent, which consent shall not be unreasonably withheld.
16. Termination.
-----------
16.1 The term of this Agreement shall be three years commencing upon the
date hereof (the "Initial Term"), unless earlier terminated as provided herein.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party breaches any
material provision of this Agreement, provided that the non-breaching party
gives written notice of such breach to the breaching party and the breaching
party does not cure such violation within 90 days of receipt of such notice.
(b) The Fund may terminate this Agreement prior to the expiration
of the Initial Term upon ninety days' prior written notice in the event that:
(i) the Bank's parent, Investors Financial Services Corp.
("IFSC"), fails to maintain a minimum capital level as
follows: (i) total stockholders' equity, as set forth in
IFSC's most recent annual or quarterly financial statements,
shall be equal to no less than $100 million, and (ii) the sum
of (x) total stockholders' equity and (y) the outstanding
amount of company-obligated, manditorily redeemable, preferred
securities, each as set forth in IFSC's most recent annual or
quarterly financial statements, shall be equal to no less than
$125 million; or
(ii) the Board of the Fund votes to liquidate the Fund and
terminate its registration with the Securities and Exchange
Commission other than in connection with a merger or
acquisition of the Fund or the Fund's investment adviser.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund ("Transfer"). The obligation of the Bank to deliver and transfer over the
assets of the Fund held by it directly to such successor custodian will commence
as soon as such successor is appointed and will continue until completed as
aforesaid. If the Fund does not select a successor custodian within ninety (90)
days from the date of delivery of notice of termination the Bank may, subject to
the provisions of subsection 16.3, deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or
trust company so selected by the Bank will become the successor custodian of
such assets of the Fund with the same effect as though selected by the Board.
Thereafter, the Bank shall be released from any and all obligations under this
Agreement. Notwithstanding anything to the contrary in this Agreement, each
party's obligations under Section 15 hereof shall continue and remain in full
force and effect after the termination of this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 If this Agreement is terminated by the Bank under 16.1(a) or the
Fund under 16.1(b), the Fund shall reimburse the Bank for any reasonable
expenses incurred by the Bank in connection with the Transfer.
16.5 At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of the Bank relating
to its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
---------------
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
-------
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
iShares Trust
c/o Fund Administration
Barclays Global Fund Advisers
00 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
With a copy to: Legal Department
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
000 Xxxxxxxxx Xxxxxx, X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Attention: Xxxxxx Xxxxxxx, Director - Client Management
With a copy to: Xxxx X. Xxxxx, General Counsel
or at such other place as such party may from time to time
designate in writing.
19. Binding Effect; Amendments. This Agreement shall extend to and shall
--------------------------
be binding upon the parties hereto and their respective successors and assigns.
This Agreement may not be altered or amended, except by an instrument in
writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
-------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
-------------
governed by the laws of the State of New York, without regard to conflict of
laws provisions.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices,
----------------
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. Fund Liability. The Bank agrees that the obligations assumed by the
--------------
Fund hereunder shall be limited in all cases to the assets of the Fund and that
the Bank shall not seek satisfaction
of any such obligation from the officers, agents, employees, trustees, or
shareholders of the Fund.
25. Several Obligations of the Index Series. This Agreement is an
---------------------------------------
agreement entered into between the Bank and the Fund with respect to each Index
Series. With respect to any obligation of the Fund on behalf of any Index Series
arising out of this Agreement, the Bank shall look for payment or satisfaction
of such obligation solely to the assets of the Index Series to which such
obligation relates as though the Bank had separately contracted with the Fund by
separate written instrument with respect to each Index Series.
26. Use of Name. A party shall not use the name of the other party or any
-------------
of its affiliates in any prospectus, sales literature or other material relating
to the Fund in a manner not approved by the other party prior thereto in
writing; provided however, that such approval shall not be required for any use
of its name which merely refers in accurate and factual terms to the Bank's
appointment hereunder or which is required by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided further, that in no
----------------
event shall such approval be unreasonably withheld or delayed.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
iShares TRUST
By: /s/ Xxxxxx Most
-------------------------------
Name: Xxxxxx Most
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Xxxxx Xxxxxxx
-------------------------------
Name: Xxxxx Xxxxxxx
Title: President
Appendices
----------
Appendix A................................ Index Series
Appendix B................................ Fee Schedule
Appendix C................................ Additional Services (N/A)
APPENDIX A
LIST OF FUNDS
iShares S&P 500 iShares Dow Xxxxx U.S. Total Market iShares Xxxxxxx 3000
Index Fund Index Fund Index Fund
iShares S&P 500/BARRA iShares Dow Xxxxx U.S. Basic Materials iShares Xxxxxxx 3000 Growth
Growth Index Fund Sector Index Fund Index Fund
iShares S&P 500/BARRA iShares Dow Xxxxx U.S. Consumer Cyclical iShares Xxxxxxx 3000 Value
Value Index Fund Sector Index Fund Index Fund
iShares S&P MidCap 400 iShares Dow Xxxxx U.S. Consumer iShares Xxxxxxx 2000
Index Fund Non-Cyclical Sector Index Fund Index Fund
iShares S&P MidCap iShares Dow Xxxxx U.S. Energy iShares Xxxxxxx 2000 Growth
400/BARRA Growth Index Sector Index Fund Index Fund
Fund
iShares S&P MidCap iShares Dow Xxxxx U.S. Financial iShares Xxxxxxx 2000 Value
400/BARRA Value Index Sector Index Fund Index Fund
Fund
iShares S&P SmallCap 600 iShares Dow Xxxxx U.S. Healthcare iShares Xxxxxxx 1000
Index Fund Sector Index Fund Index Fund
iShares S&P SmallCap iShares Dow Xxxxx U.S. Industrial iShares Xxxxxxx 1000 Growth
600/BARRA Growth Index Sector Index Fund Index Fund
Fund
iShares S&P SmallCap iShares Dow Xxxxx U.S. Technology iShares Xxxxxxx 1000 Value
600/BARRA Value Index Sector Index Fund Index Fund
Fund
iShares S&P Europe 350 iShares Dow Xxxxx U.S.
Index Fund Telecommunications Sector Index Fund
iShares S&P/TSE 60 iShares Dow Xxxxx U.S. Utilities
Index Fund Sector Index Fund
iShares Dow Xxxxx U.S. Chemicals
Index Fund
iShares Dow Xxxxx U.S. Financial
Services Composite Index Fund
iShares Dow Xxxxx U.S. Internet
Index Fund
iShares Dow Xxxxx U.S. Real Estate
Index Fund
Schedule B
Fee Schedule*
Exchange Traded Funds
March 8, 2000
============================================================================
CUSTODY, FUND ACCOUNTING, ADMINISTRATION, and
INSTITUTIONAL TRANSFER AGENCY
============================================================================
Assumptions used in developing the fee schedule:
-The launch of the 36 new funds will begin around May 1, 2000.
-BGI will use IBT for securities lending for a minimum of 2.5 years from
the date that at least 14 funds are serviced by Investors Bank.
-BGI will use IBT for foreign exchange.
-BGI will use IBT for custody, fund accounting, administration and
transfer agency services.
-IBT will provide accounting information to BGI for the PCF file.
============================================================================
CUSTODY
============================================================================
A. Transactions**
--------------
. DTC/Fed Book Entry $ 3***
. Physical Securities 35
. Options and Futures 18
. GNMA Securities 30
. Principal Paydown 5
. Foreign Currency 18****
. Outgoing Wires 7
. Incoming Wires 5
** These fees assume that trade information is sent to Investors Bank
electronically utilizing the same format as we are using today or electronically
from NSCC. For non-automated DTC/Fed Book trades the per trade fee will be
$10.00.
***There are no transaction charges for the use of Investors Bank Repo product.
****There are no transaction charges for F/X contracts executed by Investors
Bank.
B. Foreign Subcustodian Fees
-------------------------
. Incremental basis point and transaction fees will be charged for all
foreign assets for which we are custodian. The asset based fees and
transaction fees vary by country, based upon the global custody fees
below. Local duties, script fees, reclaims, registration, exchange fees,
and other market charges are out-of-pocket.
. Investors Bank will require the fund to hold all international assets at
the subcustodian of our choice.
Basis Point Per
Country Charge Trade
------- ------
Charge
------
Australia 2.5 $40
Austria 3.5 $35
Belgium 3.5 $40
Canada 2.5 $20
Euroclear 2.5 $20
France 2.5 $43
Germany 2.5 $23
Hong Kong 3.0 $60
Italy 2.5 $30
Japan 2.0 $20
Malaysia 8 $60
Mexico 6 $24
Netherlands 3.5 $30
Singapore 7 $60
Spain 4 $43
Sweden 2.5 $35
Switzerland 4 $45
UK 3.0 $30
Brazil 22 $60
Korea 8 $50
South Africa 5 $30
Taiwan 11 $50
Thailand 7.5 $50
Denmark 2.5 $43
Finland 3.5 $50
Ireland 4 $56
Norway 2.5 $35
Portugal 14 $90
================================================================================
FUND ACCOUNTING, ADMINISTRATION and TRANSFER AGENCY
================================================================================
A. Fund Accounting, Calculation of N.A.V., Administration and Transfer
-------------------------------------------------------------------
Agency
------
. The following basis point fee is based on all assets for which we are
fund accountant, administrator and transfer agent. This amount does not
include transactions.
Annual Fee
-----------------
First $4 billion in assets 4.5 Basis Points
Next $8 billion in assets 4.0 Basis Points
Next $8 billion in assets 3.0 Basis Points
Assets in excess of $20 billion 1.5 Basis Points
. There will be an incremental .5 basis point fee on each global
portfolio.
. There will be a yearly complex minimum of $3,600,000 which includes 36
funds. For each new fund beyond 36 the complex minimum will increase by
$100,000 (This fee does not include transactions or global custody). The
$3.6 million complex minimum will be billed monthly beginning on May 1,
2000. Any additional basis point fees owed to Investors Bank will be
calculated at the end of the first 12 month period (April 31, 2001)
based on the above fee schedule and the end of month assets for each of
the previous 12 months (May 1, 2000 to April 31, 2001). After the
initial 12 months, the complex minimum or basis points, whichever is
larger, will be billed on a monthly basis.
. The monthly minimum fee of $300,000 will be billed starting on May 1,
2000. Also, Barclays Global Investors agrees to pay Investors Bank $2.4
million in calendar year 2000.
================================================================================
MISCELLANEOUS
================================================================================
A. Out-of-Pocket
-------------
. The charges next to each section are for proforma purposes only. Actual
charges may vary.
. These charges consist of:
-Third Party Review ($250/fd/yr) -InvestView
-Legal Expenses -Customized Reporting
-Printing, Delivery & Postage -Non-Standard Transmissions/Extracts
-Extraordinary Travel Expenses -Blue Sky ($100/permit)
-Forms and Supplies -Microfiche
-Pricing (per security/fund/day $.035 equities, $.40 bonds, $.45
int'l)
-Telecommunications (Per month/fund dom $61.25, int'l $77.06)
-International Verification ($.50/security/fund/month)
-Printing of shareholder reports -Copy fitting
-Financial statement report modification (after initially agreed upon
parameters) as to style, layout or format.
-Board meeting attendance -Data Transmissions
-Ad Hoc Reporting -Customized Statements
B. Domestic Balance Credit
-----------------------
. We allow use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship. The
monthly earnings allowance is equal to 75% of the 90-day T-xxxx rate.
C. Securities Lending, Cash Management and Foreign Exchange
--------------------------------------------------------
. The fee schedule is predicated on Investors Bank performing cash
management, foreign exchange and securities lending for the portfolios.
Securities lending revenue is split with the funds and Investors Bank as
follows:
$0-$15 billion in assets 60%/40%. 60% going to the funds
Assets in excess of $15 billion 70%/30%. 70% going to the funds
D. Systems
-------
. The details of any systems work will be determined after a thorough
business analysis. Any systems work will be billed on a time and material
basis. Investors Bank provides an allowance of 10 system hours for data
extract set-up and reporting extract set-up.
E. Payment
-------
. The above fees will be charged against the fund's custodian checking
account on the last business day of the month. All fees will be billed
monthly.
* This fee schedule assumes the execution of our standard contractual
agreements for a term of 3 years and utilizing Investors Bank for
custody, fund accounting, transfer agent, administration and ancillary
services mentioned above.
