Exhibit A(1)
STANDARD TERMS
AND
CONDITIONS OF THE
BLDRS INDEX FUNDS TRUST
AND
SUBSEQUENT AND SIMILAR
BLDRS INDEX FUNDS OF THE
BLDRS INDEX FUNDS TRUST
DATED AND EFFECTIVE AS OF NOVEMBER 8, 2002
between
NASDAQ FINANCIAL PRODUCTS SERVICES, INC.
as Sponsor
and
THE BANK OF NEW YORK
as Trustee
TABLE OF CONTENTS
ARTICLE I Definitions........................................................................2
ARTICLE II Declaration of Trust; Deposit of Index Securities; The Portfolio; Creation
and Issuance of Creation Units.....................................................10
Section 2.01. Declaration of Trust......................................................10
Section 2.02. Deposit of Index Securities...............................................10
Section 2.03. Creation and Issuance of Creation Units...................................11
Section 2.04. Portfolio and Portfolio Deposit Adjustments...............................14
Section 2.05. Bank Accounts.............................................................19
ARTICLE III Administration of Each BLDRS Index Fund.........................................19
Section 3.01. Collection of Income......................................................19
Section 3.02. Collection of Other Moneys................................................19
Section 3.03. Establishment of Reserves.................................................20
Section 3.04. Certain Deductions and Distributions......................................20
Section 3.05. Statements and Reports....................................................24
Section 3.06. Purchase and Sale of Index Securities.....................................24
Section 3.07. Substitute Securities.....................................................24
Section 3.08. Counsel...................................................................25
Section 3.09. Sale by Trustee...........................................................25
Section 3.10. Action by Trustee Regarding Voting........................................25
Section 3.11. Book-Entry-Only System; Global Security...................................25
ARTICLE IV Evaluation of BLDRS Index Fund Securities........................................28
Section 4.01. Evaluation of BLDRS Index Fund Securities.................................28
Section 4.02. Responsibility of the Trustee.............................................28
Section 4.03. Continued Qualification as Regulated Investment Company...................28
ARTICLE V BLDRS Index Fund Evaluation and Redemption of Creation Units......................29
Section 5.01. BLDRS Index Fund Evaluation...............................................29
Section 5.02. Redemption of Creation Units..............................................29
ARTICLE VI Transfer of BLDRS Index Fund Shares..............................................29
Section 6.01. Transfer of BLDRS Index Fund Shares.......................................32
ARTICLE VII Sponsor.........................................................................32
Section 7.01. Responsibility and Duties.................................................32
Section 7.02. Certain Matters Regarding Successor Sponsor...............................32
Section 7.03. Resignation of Sponsor; Successors........................................33
Section 7.04. Liability of Sponsor and Indemnification..................................33
ARTICLE VIII Trustee........................................................................34
Section 8.01. General Definition of Trustee's Rights, Duties and Responsibilities.......34
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Section 8.02. Books, Records and Reports................................................37
Section 8.03. Indenture and List of BLDRS Index Fund Securities on File.................37
Section 8.04. Compensation of Trustee...................................................37
Section 8.05. Indemnification of Trustee................................................38
Section 8.06. Resignation, Discharge or Removal of Trustee; Successors..................38
Section 8.07. Qualifications of Trustee.................................................39
Section 8.08. Trustee's Duties Expressly Provided for Herein............................40
ARTICLE IX Termination......................................................................40
Section 9.01. Procedure Upon Termination................................................40
Section 9.02. Moneys to Be Held Without Interest to Beneficial Owners...................42
Section 9.03. Dissolution of Sponsor Not to Terminate Trust.............................42
ARTICLE X Miscellaneous Provisions..........................................................42
Section 10.01. Amendment and Waiver.....................................................42
Section 10.02. Registration (Initial and Continuing) of BLDRS Index Fund Shares.........43
Section 10.03. License Agreement with the Licensor......................................43
Section 10.04. Right of Sponsor to Direct Trustee to Declare a Split of BLDRS Index
Fund Shares............................................................. 43
Section 10.05. Certain Matters Relating to Beneficial Owners............................44
Section 10.06. New York Law to Govern...................................................44
Section 10.07. Notices..................................................................44
Section 10.08. Severability.............................................................45
Section 10.09. Separate and Distinct BLDRS Index Funds..................................45
Section 10.10. Counterparts.............................................................45
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STANDARD TERMS
AND
CONDITIONS OF THE
BLDRS INDEX FUNDS TRUST
AND
SUBSEQUENT AND SIMILAR
BLDRS INDEX FUNDS OF THE
BLDRS INDEX FUNDS TRUST
STANDARD TERMS AND CONDITIONS OF THE BLDRS INDEX FUNDS TRUST
and for all or similar BLDRS Index Funds formed on
or subsequent to the effective date specified below
Dated and Effective November 8, 2002
These Standard Terms and Conditions of Trust dated and effective as of
November 8, 2002 are executed between Nasdaq Financial Products Services, Inc.,
as Sponsor, and The Bank of New York, as Trustee.
WITNESSETH THAT:
WHEREAS, the Sponsor desires to establish one or more unit investment
trusts pursuant to the provisions of the Investment Company Act of 1940 and the
laws of the State of New York and each such trust may issue redeemable
securities, each representing undivided interests in a BLDRS Index Fund (as
hereinafter defined) that will be composed primarily of Index Securities (as
hereinafter defined) included from time to time in the relevant Benchmark Index
(as hereinafter defined);
WHEREAS, the Sponsor desires to provide for the adjustment by the
Trustee of the BLDRS Index Fund Securities (as hereinafter defined) of each
BLDRS Index Fund to reflect the relevant Benchmark Index, the collection by the
Trustee of the dividends and other income of and capital gains on such BLDRS
Index Fund Securities held in each BLDRS Index Fund, and the distribution by the
Trustee of such dividends and other income of and capital gains on such BLDRS
Index Fund Securities to the Depository (as hereinafter defined) for
distribution to Beneficial Owners (as hereinafter defined) of BLDRS Index Fund
Shares (as hereinafter defined) as provided herein, and to provide for other
terms and conditions upon which such BLDRS Index Funds shall be established and
administered as hereinafter provided; and
WHEREAS, to facilitate the creation of various of unit investment trusts
as aforesaid, the terms and conditions of establishment and administration of
which will be in many respects substantially similar, it is desirable to set
forth standard terms and conditions of trust upon which such BLDRS Index Funds
will be established and administered, subject to the terms and provisions of
this Agreement (as hereinafter defined) and the terms and conditions of an
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Indenture (as hereinafter defined) into which this Agreement will be, as to each
BLDRS Index Fund , incorporated;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the Sponsor and the Trustee hereby agree as
follows:
INTRODUCTION
These Standard Terms and Conditions of Trust effective as of the day and
year first above written shall be applicable to BLDRS Index Funds Trust (a unit
investment trust) and to all BLDRS Index Funds (each a unit investment trust) of
the BLDRS Index Funds Trust formed on or subsequent to the date hereof for which
their applicability and their incorporation by reference is specified in the
applicable Indenture relating to such BLDRS Index Fund. For each BLDRS Index
Fund of the BLDRS Index Funds Trust to which these Standard Terms and Conditions
of Trust are to be applicable, the Sponsor and the Trustee shall execute an
Indenture (or supplement or amendment to such Indenture) incorporating by
reference these Standard Terms and Conditions of Trust and designating any
exclusion from or exception to such incorporation by reference for the purposes
of that BLDRS Index Fund or variation of the terms hereof for the purposes of
that BLDRS Index Fund and specifying for that BLDRS Index Fund: (i) the Initial
Portfolio Deposit to be deposited in trust pursuant to Section 2.02 and the
number of Creation Units to be delivered by the Trustee in exchange for the
Initial Portfolio Deposit so deposited; (ii) the initial undivided interest
represented by each Creation Unit; (iii) the number of BLDRS Index Fund Shares
which, when aggregated, constitute one Creation Unit; (iv) the Mandatory
Termination Date, and the date on which the Trustee will begin to distribute or
sell BLDRS Index Fund Securities pursuant to Section 9.01; (v) the Initial Date
of Deposit and the name of the BLDRS Index Fund; (vi) the fiscal year of the
BLDRS Index Fund; and (vii) any other terms specific to any BLDRS Index Fund of
the BLDRS Index Funds Trust.
ARTICLE I
Definitions
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
Accumulation Period
Shall mean any period during which BLDRS Index Fund Securities earn
their respective dividends, each such period being measured from one
Ex-Dividend Date to but not including the next succeeding Ex-Dividend
Date.
Adjustment Day
The day(s) specified in Section 2.04(h).
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Agreement
The Standard Terms and Conditions of Trust embodied in this instrument
and all amendments and supplements hereto.
Authorized Officer
Shall mean the President, any Vice President, any Secretary and any
other person or category of persons named in the resolution(s)
authorizing the Sponsor to establish the BLDRS Index Fund Trust or
authorizing the Trustee to act as such.
Balancing Amount
Shall have the meaning assigned to such term in Section 2.04(i).
Benchmark Index
The relevant American Depositary Receipt related index as created by the
Licensor, which Benchmark Index is a sub-index of The Bank of New York
ADR IndexSM , a composite of all Depositary Receipts in American, Global
or New York share form that are listed for trading on the New York Stock
Exchange, American Stock Exchange or any other national securities
exchange or in an organized OTC market, such as The Nasdaq Stock Market,
Inc.
Beneficial Owner
Shall have the meaning assigned to such term in Section 3.11(d).
Business Day
Any day that the New York Stock Exchange is open for business.
BLDRS Index Fund Clearing Process
The CNS System of NSCC, as such processes have been enhanced to effect
creations and redemptions of Creation Units.
BLDRS Index Fund
Shall mean the individual BLDRS Index Fund created by a particular
Indenture which shall consist of the Portfolio and all undistributed
income or other amounts received or receivable thereon and any
undistributed cash held or realized from the sale or liquidation of the
BLDRS Index Fund Securities, or from the deposit of Portfolio Deposits.
BLDRS Index Fund Evaluation
Shall have the meaning assigned to such term in Section 5.01.
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BLDRS Index Fund Securities
Publicly traded common stocks and other securities convertible into or
representing common stock of issuers, including contracts to purchase
securities; each an BLDR Index Fund Security, (a) that are listed or
referred to as securities in Schedule A to the Indenture, (b) that have
been received by the BLDRS Index Fund in subsequent Portfolio Deposits
pursuant to Section 2.02, (c) that have been acquired by the BLDRS Index
Fund as a result of the reinvestment of proceeds from any sale of
securities or as a result of purchases and sales of securities to
conform the Portfolio to the relevant Benchmark Index all pursuant to
Section 2.04, (d) that have been received by the BLDRS Index Fund as a
distribution or dividend in respect of any of the securities held by the
BLDRS Index Fund, or (e) that have been received by the BLDRS Index Fund
in exchange or substitution pursuant to Section 3.07, each as may from
time to time continue to be held as a part of the BLDRS Index Fund,
unless another meaning is assigned to such term in the Indenture.
BLDRS Index Fund Share
Each unit of fractional undivided interest in and ownership of a BLDRS
Index Fund, which shall be initially equal to the fraction specified in
the Indenture, the denominator of which shall be decreased by the number
of any BLDRS Index Fund Shares redeemed as provided in Section 5.02 and
shall be increased by the number of any BLDRS Index Fund Shares created
and issued pursuant to Section 2.02.
BLDRS Index Funds Trust
A unit investment trust consisting of BLDRS Index Funds.
Cash Component
Shall have the meaning assigned to such term in Section 2.03(c).
Cash Redemption Amount
Shall have the meaning assigned to such term in Section 5.02(c).
Cash Redemption Payment
Shall have the meaning assigned to such term in Section 5.02(d).
CNS System
The continuous net settlement system of NSCC.
CPI-U
The National Consumer Price Index for All Urban Consumers, as published
by the United States Department for Labor, or any successor index.
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Creation Unit
The minimum number of BLDRS Index Fund Shares that may be created at any
one time as described below in Section 2.03 is 50,000, unless otherwise
provided in the Indenture.
Depositor
Each person or organization having a Participant Agreement with the
Trustee and that may from time to time deposit Portfolio Deposits with
the Trustee, including, without limitation, the Depositor making the
Initial Portfolio Deposit on the Initial Date of Deposit.
Depository
The Depository Trust Company, New York, New York, or such other
depository as may be selected by the Trustee as specified herein.
Depository Agreement
The agreement or Letter of Representation among the Trustee, the Sponsor
and the Depository, dated as of November 8, 2002, as the same may be
from time to time amended in accordance with its terms.
Discretionary Termination Amount
The amount specified in Section 9.01(a).
Distributor
ALPS Distributors, Inc., any successor corporation thereto and any other
corporation appointed by the Sponsor and the Trustee to act as the
Distributor hereunder, provided that such corporation is identified as
the Distributor in the current version of each Prospectus.
Dividend Equivalent Payment
The cash payment required to accompany a deposit of Index Securities
into the BLDRS Index Fund as specified in Section 2.03(b).
Dividend Payment Date
The date(s) specified in Section 3.04(k).
DTC Participants
Shall have the meaning assigned to such term in Section 3.11(c).
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Evaluation Time
Closing time for the regular trading session of the NASDAQ Stock Market
(currently 4:00 p.m. New York time) unless another meaning is assigned
to such term in the Indenture.
Ex-Dividend Date
The date(s) specified in Section 3.04(k).
Exchange
The national securities exchange as described in the Indenture.
Global Security
The global certificate issued to the Depository as provided in the
Depository Agreement, substantially in the form attached hereto as
Exhibit B.
Income
Any income or cash or other dividend distribution by an issuer of a
security, whether or not such payment or distribution is taxable to the
recipient thereof.
Indenture
The indenture into which this Agreement will be, as to each BLDRS Index
Fund, incorporated and all amendments and supplemental indentures
thereto.
Index Securities
The securities that comprise the relevant Benchmark Index; each an Index
Security.
Indirect Participants
Shall have the meaning assigned to such term in Section 3.11(c).
Initial Date of Deposit
The date so designated in the Indenture.
Initial Portfolio Deposit
The Portfolio Deposit(s) as in effect on the Initial Date of Deposit.
Internal Revenue Code
The Internal Revenue Code of 1986, as amended, or any successor
provisions.
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Licensor
The Bank of New York.
License Agreement
The Agreement dated November 8, 2002 among the Licensor, the Exchange
and the Sponsor under which the Sponsor has been granted the license to
use certain trademarks and service marks of the Licensor.
Mandatory Termination Date
This Agreement and the BLDRS Index Fund Trust and BLDRS Index Funds
created hereby shall terminate upon the maturity, redemption, sale, or
other disposition as the case may be, of the last Security held
hereunder in such BLDRS Index Funds' Portfolio.
Misweighting
Any time that the weighting of the BLDRS Index Fund Securities exceeds
the Misweighting Amount.
Misweighting Amount
Any time that the weighting of the BLDRS Index Fund Securities varies
from the weighting of such Index Security in the relevant Benchmark
Index in excess of 150% of a specified percentage. The Misweighting
Amounts vary depending on the net asset value of the BLDRS Index Fund
and are set forth in the table below:
Net Asset Value of the BNY ADR
Index Fund Misweighting Amount
---------- -------------------
Less than $25,000,000 0.25%
$25,000,000-$99,000,000 0.20%
$100,000,000-$499,999,999 0.10%
$500,000,000-$999,999,999 0.05%
$1,000,000,000 and over 0.02%
NAV Amount
The amount specified in Section 2.04(h).
NSCC
The National Securities Clearing Corporation.
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Participant Agreement
An agreement among the Distributor, the Trustee and either: (1) a
Participating Party; or (2) a DTC Participant, substantially in the form
set forth in Exhibit A hereto, as the same may be from time to time
amended in accordance with its terms.
Participating Party
A participant in the BLDRS Index Fund Clearing Process.
Portfolio
The BLDRS Index Fund Securities consisting of a portfolio of common
stocks or, in the case of securities not yet delivered on the Initial
Date of Deposit (or, subsequently, securities not yet delivered in
connection with purchases made by the BLDRS Index Fund or subsequent
Portfolio Deposits), confirmations of contracts to purchase such
securities.
Portfolio Deposit
Shall have the meaning assigned to such term in Section 2.03(c).
Portfolio Deposit Amount
Shall have the meaning assigned to such term in Section 2.04(i).
Prospectus
The prospectus relating to a particular BLDRS Index Fund as filed with
the SEC pursuant to Rule 424 of the Securities Act of 1933, as amended.
Record Date
The date(s) specified in Section 3.04(k).
Regulated Investment Company
A trust which qualifies as a "regulated investment company" under the
current provisions of the Internal Revenue Code of 1986, as amended or
successor provisions.
Request Day
Shall have the meaning assigned to such term in Section 2.04(h).
SEC
The Securities and Exchange Commission.
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Sponsor
Nasdaq Financial Products Services, Inc., or any corporation into which
it may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which it shall
be a party, or any corporation succeeding to all or substantially all of
its business as sponsor of unit investment trusts, or any successor
Sponsor designated as such by operation of law or any successor Sponsor
appointed as herein provided.
Sponsor Indemnified Party
Shall have the meaning assigned to such term in Section 7.04(b).
Transaction Fee
Shall have the meaning assigned to such term in Section 2.03(j).
Trustee
(a) The Bank of New York or its successor or (b) any successor Trustee
designated by operation of law or appointed as herein provided or (c)
any other bank, trust company, corporation or national banking
association designated as Trustee in the Indenture for the applicable
BLDRS Index Fund which bank, trust company, corporation or national
banking association shall be a party to such Indenture and whose
execution thereof shall subject such bank, trust company, corporation or
national banking association to all rights, duties and liabilities
hereunder and there under, in each case acting as Trustee and not
individually, unless otherwise indicated.
Trustee Indemnified Party
Shall have the meaning assigned to such term in Section 8.05.
Weighting Analysis
The Trustee shall examine the Portfolio on each Business Day, comparing
the weighting of each such BLDRS Index Fund Security and the weighting
of the corresponding Index Security, based on prices at the close of the
market on the preceding Business Day.
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ARTICLE II
Declaration of Trust;
Deposit of Index Securities;
The Portfolio;
Creation and Issuance
of Creation Units
Section 2.01. Declaration of Trust. The Trustee declares it holds and
will hold the BLDRS Index Fund as Trustee for the use and benefit of all present
and future Beneficial Owners and subject to the terms and conditions of the
Indenture and this Agreement. The Trustee hereby declares on behalf of the BLDRS
Index Fund that it elects the treatment for tax purposes as a Regulated
Investment Company and covenants to comply with the provisions of Section 4.03
hereof to continue the qualification of the BLDRS Index Fund as a Regulated
Investment Company. The Trustee is hereby directed to make such elections,
including any appropriate election to be taxed as a corporation, as shall be
necessary to effect such qualification.
Section 2.02. Deposit of Index Securities. (a) Concurrently with the
execution and delivery of the Indenture, a Depositor will deposit the Initial
Portfolio Deposit with the Trustee, and from time to time thereafter, Depositors
may make, as provided below in this Section 2.02, additional deposits of
Portfolio Deposits with the Trustee, and in each case the Trustee will be
granted and conveyed all right, title and interest in and to, and there will be
conveyed and deposited with the Trustee in an irrevocable trust, all cash and
securities so deposited in connection with each such Portfolio Deposit. With
respect to the Initial Portfolio Deposit made by a Depositor concurrently with
the execution and delivery of the Indenture, the securities portion of the
Initial Portfolio Deposit will be comprised of the securities listed in Schedule
A to the Indenture, and each of such securities will be duly endorsed in blank
or accompanied by all necessary instruments of assignment and transfer in proper
form, to be held and applied by the Trustee as herein provided. There also will
be a Cash Component (as hereinafter defined in Section 2.03(c)) included in the
Initial Portfolio Deposit, which is listed in Schedule A to the Indenture. The
first accrual period for dividends payable on the first Dividend Payment Date
will commence on the Business Day following the Initial Date of Deposit. Upon
the delivery of the Initial Portfolio Deposit, the Depositor will also deliver
to the Trustee one of the following: a certified check or checks, cash or cash
equivalent or an irrevocable letter or letters of credit or an irrevocable loan
commitment issued by a commercial bank or banks rated A or better (or other
equivalent rating) by a nationally recognized rating agency in an amount
necessary to satisfy applicable regulatory requirements.
(b) From time to time following the Initial Date of Deposit, the Trustee
is authorized to accept on behalf of the BLDRS Index Fund, additional deposits
of Portfolio Deposits, and all Index Securities deposited in connection
therewith shall be duly endorsed in blank or accompanied by all necessary
instruments of assignment and transfer in proper form, to be held and applied by
the Trustee as herein provided. The Trustee shall ensure that the securities
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portion of each Portfolio Deposit shall be comprised of such Index Securities
and in such numbers as specified in Section 2.04. The Trustee shall also ensure
that, in the event certain BLDRS Index Fund Securities are removed from the
relevant Benchmark Index or the composition of the relevant Benchmark Index
changes, or certain corporate actions relating to the Index Securities occur as
specified in Section 2.04, the Trustee shall recalculate the composition of the
Portfolio Deposit and adjust the composition of the Portfolio, in each case as
required by the provisions of Section 2.04.
(c) The Trustee is hereby irrevocably authorized to effect registration
or transfer of BLDRS Index Fund Securities in fully registered form to the name
of the Trustee or to the name of its nominee or the nominee of its agent.
Section 2.03. Creation and Issuance of Creation Units. (a) The Trustee
acknowledges that the Initial Portfolio Deposit specified in the Indenture
(which includes the Index Securities and Cash Component listed in Schedule A to
the Indenture) has been deposited with it by the Depositor on the Initial Date
of Deposit. The Trustee shall accept such Initial Portfolio Deposit and issue an
appropriate corresponding number of Creation Units in exchange therefore.
(b) The Portfolio Deposits accepted by the Trustee from time to time
thereafter shall include a portfolio of securities (initially the Index
Securities listed in Schedule A to the Indenture and thereafter, such securities
as the composition and number of shares thereof may be adjusted as required by
Section 2.04) together, in each case, with a cash payment, to the extent
applicable, equal to the Dividend Equivalent Payment (as hereinafter defined),
plus or minus, as the case may be, the Balancing Amount (as hereinafter defined
- - see Section 2.04). The "Dividend Equivalent Payment" enables the Trustee to
make a distribution of dividends on the next Dividend Payment Date (as
hereinafter defined), as if all of the BLDRS Index Fund Securities had been held
for the entire Accumulation Period for such distribution, and is an amount
equal, on a per Creation Unit basis, to the dividends accrued on all the BLDRS
Index Fund Securities for such Accumulation Period, net of expenses for such
period (including, without limitation, (x) taxes or other governmental charges
against the BLDRS Index Fund not previously deducted, if any and (y) accrued
fees of the Trustee and other expenses of the BLDRS Index Fund (including legal
and auditing expenses) and other expenses not previously deducted).
(c) The Dividend Equivalent Payment and the Balancing Amount are
collectively referred to herein as the "Cash Component" and the deposit of such
a portfolio of securities and the Cash Component are collectively referred to
herein as a "Portfolio Deposit." In the event that the Trustee determines, in
its discretion, that an Index Security is likely to be unavailable or available
in insufficient quantity for delivery to the BLDRS Index Fund upon the creation
or redemption of Creation Units, the cash equivalent value of such Index
Security may be included in the Portfolio Deposit as a part of the Cash
Component in lieu of the inclusion of such Index Security in the securities
portion of the Portfolio Deposit. The cash equivalent value of such Index
Security will be calculated in accordance with the provisions of Section 4.01.
(d) Requests to create Creation Units through the Distributor must be
made by or through a Participating Party or a DTC Participant as specified
below. The Participant Agreement shall set forth the procedures for requesting
the creation of Creation Units and
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delivering Portfolio Deposits, confirming requests for creations, and for
delivering Creation Units for redemption. A list of the entities that are party
to the Participant Agreement is available at the office of the Trustee at: 101
Barclay Street, New York, New York 10286 and the office of the Distributor at
1625 Broadway, Suite 2200, Denver, CO 80202 during normal business hours or at
such other address as may be specified to the other parties hereto in writing.
(e) Under certain circumstances, Creation Units may be created by or
through a DTC Participant through the Distributor outside the BLDRS Index Fund
Clearing Process. The Participant Agreement shall set forth the procedures for
requesting the creation of Creation Units and delivering Portfolio Deposits,
confirming requests for creations, and for delivering Creation Units for
redemption outside the BLDRS Index Fund Clearing Process.
(f) Creation Units also may be purchased in advance of the receipt by
the Trustee of all or a portion of the Portfolio Deposit relating to such
Creation Units, but only through the BLDRS Index Fund Clearing Process. The
Participant Agreement shall set forth the procedures for requesting the creation
of Creation Units in advance of the receipt by the Trustee of all or a portion
of the Portfolio Deposit.
(g) Upon receipt of such Portfolio Deposits following acceptance by the
Distributor of an order to create Creation Units, the Trustee will deliver
Creation Units to the Depository in the name of Cede & Co. for the account of
such Depositor, if such Depositor is a DTC Participant, or for the account of
the DTC Participant acting on behalf of such Depositor. The Trustee shall
acknowledge the deposit of such Portfolio Deposits by recording on its books the
name of the Depositor and the aggregate number of Creation Units created in
respect of the Portfolio Deposits so deposited. The Trustee shall also credit:
(a) the Dividend Equivalent Payment, if any, accompanying such Portfolio Deposit
to the BLDRS Index Fund, to be added to dividends to be received on the
deposited Index Securities for distribution pursuant to Section 3.04, and (b)
the Balancing Amount, if any, to the BLDRS Index Fund to be applied or
distributed as provided in this Agreement.
(h) The identity and number of shares of the Index Securities required
for a Portfolio Deposit, which will change as the composition and number of
shares of the Index Securities change, shall be determined in the manner
specified in Section 2.04. The Trustee shall, as set forth in this Agreement,
determine the number of shares of each of the Index Securities and the Cash
Component in each Portfolio Deposit. Such determination by the Trustee shall be
final and binding in connection with all Portfolio Deposits.
(i) The Trustee may reject an order to create Creation Units transmitted
to it by the Distributor if the Depositor or group of Depositors, upon obtaining
the Creation Units ordered, would own or appear to own eighty percent (80%) or
more of the outstanding BLDRS Index Fund Shares and if pursuant to Section 351
of the Internal Revenue Code, such circumstance would result in the BLDRS Index
Fund having a basis in the Index Securities deposited different from the market
value of such Index Securities on the date of such deposit. The Trustee shall
have the right to require information regarding BLDRS Index Fund Share ownership
pursuant to the Participant Agreement and from the Depository and to rely
thereon to the extent necessary to make the foregoing determination as a
condition to the acceptance of an order to create Creation Units. The Trustee
further reserves the absolute right to reject any Portfolio Deposit or any
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component thereof (a) determined by it not to be in proper form; (b) that the
Trustee believes would have adverse tax consequences to the BLDRS Index Fund or
to Beneficial Owners; (c) the acceptance for deposit of which would, in the
opinion of counsel, be unlawful; (d) that would otherwise, in the discretion of
the Trustee, have an adverse effect on the BLDRS Index Fund or the rights of
Beneficial Owners; or (e) in the event of the inability of the creator to
deliver or cause to be delivered the Portfolio Deposit through the Depository or
otherwise in the event that circumstances outside the control of the Trustee
make it for all practical purposes not feasible to process creations of Creation
Units.
(j) The Trustee will not issue certificates for Creation Units, other
than the Global Security issued to the Depository. The Trustee and the Sponsor
are under no duty to give notification of any defects or irregularities in the
delivery of Portfolio Deposits or any component thereof nor shall either of them
incur any liability for the failure to give any such notification. A transaction
fee will be payable to the Trustee for its own account in connection with each
creation and each redemption of Creation Units ("Transaction Fee").
(k) The Transaction Fee charged in connection with each purchase and
each redemption made through the BLDRS Index Fund Clearing Process shall be $10
per each security "name" in the Portfolio Deposit, rounded to the nearest $500
per Participating Party per day, regardless of the number of Creation Units
purchased or redeemed on such day by such Participating Party.
(l) The Transaction Fee may subsequently be waived, modified, reduced,
increased or otherwise changed by the Trustee in consideration of the advice of
the Sponsor but in the Trustee's sole discretion, but will not in any event
exceed 20/100ths of one percent (twenty basis points) of the value of a Creation
Unit at the time of creation or redemption, as the case may be. Prior to
implementing such change, the Sponsor shall cause the current Prospectus for the
BLDRS Index Fund to be amended to reflect any such changes in the Transaction
Fee. The amount of the Transaction Fee in effect at any given time shall be made
available upon request to the Trustee. If one or more Creation Units are created
or redeemed outside the BLDRS Index Fund Clearing Process or in the event
creations within the BLDRS Index Fund Clearing Process where the cash equivalent
value of one or more Index Securities is being deposited in lieu of the
inclusion of such Index Security in the securities portion of the Portfolio
Deposit because the Participating Party is restricted by regulation or otherwise
from investing or engaging in a transaction in such security, an additional
amount not to exceed three (3) times the Transaction Fee applicable for a
Creation Unit will be charged to the creator or redeeming beneficial owner in
part due to the increased expense associated with settlement outside the BLDRS
Index Fund Clearing Process.
(m) So long as the Depository Agreement is in effect, Creation Units and
BLDRS Index Fund Shares will be transferable solely through the book-entry
system of the Depository. The Depository may determine to discontinue providing
its service with respect to Creation Units and/or BLDRS Index Fund Shares by
giving notice to the Trustee and the Sponsor pursuant to and in conformity with
the provisions of the Depository Agreement and discharging its responsibilities
with respect thereto under applicable law. Under such circumstances, the Trustee
and the Sponsor shall take action either to find a replacement for the
Depository to perform its functions at a comparable cost or, if such a
replacement is unavailable, to terminate the BLDRS Index Fund.
13
Section 2.04. Portfolio and Portfolio Deposit Adjustments. (a) The
Trustee will adjust the composition of the Portfolio from time to time to
conform, to the extent practicable, to changes in the composition and/or price
weightings of the relevant Benchmark Index. The Trustee will aggregate certain
of these adjustments and make conforming changes to the Portfolio quarterly;
however adjustments will be made more frequently in response to changes to a
Benchmark Index that are significant. Specifically, the Trustee will be required
to adjust the composition of the Portfolio at any time that there is a change in
the identity of any Index Security (i.e., a substitution of one security
comprising the relevant Benchmark Index in replacement of another), which
adjustment shall be made within three (3) Business Days before or after the day
on which the change in the identity of such Index Security is scheduled to take
effect at the close of the market. In addition, the Trustee will be required to
adjust, to the extent practicable, the composition of the Portfolio any time a
Misweighting occurs. On a daily basis, the Trustee shall perform a Weighting
Analysis for the BLDRS Index Fund Securities, and in any case where there exists
a Misweighting exceeding one hundred percent (100%) of the applicable
Misweighting Amount, the Trustee shall calculate an adjustment to the BLDRS
Index Fund Securities in order to bring the Misweighting of such BLDRS Index
Fund Securities within the applicable Misweighting Amount, based on price at the
Evaluation Time on the day such Misweighting occurs. If the Trustee is required
to adjust the Portfolio to track the adjusted relevant Benchmark Index, such
adjustment will be made within three (3) Business Days of the day on which such
Misweighting is determined. In addition to the foregoing adjustments, the
Trustee reserves the right to make additional adjustments periodically to the
BLDRS Index Fund Securities that may be misweighted by an amount within the
applicable Misweighting Amount in order to reduce the overall Misweighting of
the BLDRS Index Fund Securities. The number of shares of each of the Index
Securities in a Portfolio Deposit of a particular BLDRS Index Fund as of the
date of its Portfolio Deposit will be determined by: (i) multiplying the then
current relevant Benchmark Index share weight of each of the Index Securities by
the fixed multiplier applicable to such BLDRS Index Fund and (2) dividing the
product by the then current applicable relevant Benchmark Index divisor. The
resulting number will be rounded to the nearest whole share, with a fraction of
0.50 being rounded up. The Sponsor intends to make available itself, or may
designate other persons to make available on each Business Day, a list of the
names and the required number of shares for each of the Index Securities in the
current Portfolio Deposit, as well as the Dividend Equivalent Payment effective
through and including the previous Business Day, per outstanding BLDRS Index
Fund Share. The Sponsor may choose within its discretion to make available,
frequently throughout each Business Day, a number representing, or a per BLDRS
Index Fund Share basis, the sum of the Dividend Equivalent Payment effective
through and including the previous Business Day plus the current value of the
Index Securities as in effect on such day (which value will occasionally include
a cash-in-lieu amount to compensate for the omission of a particular Index
Security from such Portfolio Deposit). If the Sponsor elects to make such
information available, it would be calculated based upon the best information
available, it would be calculated based upon the best information available to
the Sponsor and may be calculated by other persons designated to do by the
Sponsor. If the Sponsor elects to make such information available, the inability
of the Sponsor or its designee to provide such information for any period of
time will not in itself result in a halt in the trading of BLDRS Index Fund
Shares on the Exchange.
(b) From time to time Licensor may make adjustments to the composition
of the relevant Benchmark Index as a result of a merger or acquisition involving
one or more of the
14
Index Securities. In such cases, the BLDRS Index Fund, as shareholder of
securities of an issuer that is the object of such merger or acquisition
activity, may receive various offers from would-be acquirers of the issuer. The
Trustee will not be permitted to accept any such offers until such time as it
has been determined that the securities of the issuer will be removed from the
relevant Benchmark Index. Since securities of an issuer are often removed from
the relevant Benchmark Index only after the consummation of a merger or
acquisition of such issuer, in selling the securities of such issuer the BLDRS
Index Fund may receive, to the extent that market prices do not provide a more
attractive alternative, whatever consideration is being offered to the
shareholders of such issuer that have not tendered their shares prior to such
time. Any cash received in such transactions will be reinvested in Index
Securities in accordance with the criteria set forth in subparagraph (a) above.
Any securities received as a part of the consideration that are not Index
Securities will be sold as soon as practicable and the cash proceeds of such
sale will be reinvested in Index Securities in accordance with the criteria set
forth in subparagraph (a) above.
(c) Purchases and sales of securities resulting from the adjustments
described herein will be made in the share amounts dictated by the
specifications set forth herein, whether round lot or odd lot. All Portfolio
adjustments will be made as described herein unless such adjustments would cause
the BLDRS Index Fund to lose its status as a Regulated Investment Company.
(d) Pursuant to these guidelines the Trustee will calculate the required
adjustments and will purchase and sell the appropriate securities. As a result
of the purchase and sale of securities in accordance with these requirements, or
the creation of Creation Units, the BLDRS Index Fund may hold some amount of
residual cash (other than cash held temporarily due to timing differences
between the sale and purchase of securities or cash delivered in lieu of Index
Securities or undistributed income (including but not limited to Dividend
Equivalent Payments or undistributed capital gains) as a result of such
transactions, which amount shall not exceed for more than five (5) consecutive
Business Days 5/10ths of 1 percent of the aggregate value of the BLDRS Index
Fund Securities. In the event that the Trustee has made all required adjustments
and is left with cash in excess of 5/10ths of 1 percent of the aggregate value
of the BLDRS Index Fund Securities, the Trustee shall use such cash to purchase
additional Index Securities that are under-weighted in respect of the Portfolio
as compared to their relative weighting in the relevant Benchmark Index, even
though the Misweighting of such Index Securities may not be in excess of the
applicable Misweighting Amount.
(e) All adjustments to the Portfolio held by the Trustee will be made by
the Trustee pursuant to the foregoing specifications and as set forth in the
Agreement and will be non-discretionary. In addition, the Trustee shall have the
power and shall be required to adjust the composition of the Portfolio at any
time if it determines that if such action is necessary to insure the continued
qualification of the BLDRS Index Fund as a Regulated Investment Company, even if
such adjustment will cause the composition of the Portfolio to deviate from that
of the relevant Benchmark Index. The adjustments provided herein are intended to
conform the composition and security weightings of the Portfolio, to the extent
practicable, to the composition and security weightings of the relevant
Benchmark Index. Such adjustments are based upon the relevant Benchmark Index as
it is determined by the Licensor. To the extent that the method of determining
the relevant Benchmark Index is changed by the Licensor in a manner that would
15
affect the adjustments provided for herein, the Trustee and the Sponsor shall
have the right to amend the Agreement, without the consent of the Depository or
Beneficial Owners, to conform the adjustments provided herein and in the
Agreement to such changes so that the objective of tracking the relevant
Benchmark Index is maintained.
(f) At such time as the Trustee gives written notice of the termination
of the BLDRS Index Fund as provided in Section 9.01, from and after the date of
such notice the Trustee shall use the composition and weightings of the BLDRS
Index Fund Securities as of such date for the purpose and determination of all
redemptions or other required uses of the basket.
(g) The Trustee will direct its securities transactions only to brokers
or dealers, which may include affiliates of the Trustee, from whom it expects to
obtain the most favorable prices for execution of orders. The net proceeds of
any sales of BLDRS Index Fund Securities shall either be reinvested in
accordance with Section 2.04 or distributed in accordance with Section 3.07.
(h) After the Initial Date of Deposit, on each Business Day thereafter
(each such day an "Adjustment Day"), the number of shares and/or identity of
each of the Index Securities in a Portfolio Deposit will be adjusted in
accordance with the following procedure. At the close of the market, on each
Adjustment Day, the Trustee will calculate the net asset value of the Portfolio
as provided in Section 5.01. The net asset value will be divided by the number
of outstanding Creation Units, resulting in a net asset value per Creation Unit
(the "NAV Amount"). The Trustee will then calculate the number of shares
(without rounding) of each of the Index Securities in a Portfolio Deposit for
the following Business Day ("Request Day"), such that: (1) the market value at
the close of the market on Adjustment Day of the securities to be included in
the Portfolio Deposit on Request Day, together with the Dividend Equivalent
Payment effective for requests to create or redeem on Adjustment Day, will equal
the NAV Amount and (2) the identity and price weighting of each of the
securities in a Portfolio Deposit will mirror proportionately, to the extent
practicable, the identity and price weighting of the Index Securities, each as
in effect on Request Day. For each Index Security, the number resulting from
such calculation will be rounded down to the nearest whole share with a fraction
of 0.50 being rounded up. The identities and number of shares of the securities
so calculated will constitute the securities portion of the Portfolio Deposit
effective on Request Day and thereafter until the next subsequent Adjustment
Day, as well as the BLDRS Index Fund Securities ordinarily to be delivered by
the Trustee in the event of request for redemption of Creation Units on Request
Day and thereafter until the following Adjustment Day pursuant to Section 5.02.
In addition to the foregoing adjustments, in the event that there shall occur a
stock split, stock dividend, or reverse stock split with respect to any Index
Security, the Portfolio Deposit shall be adjusted to take account of such stock
split, stock dividend, or reverse split multiple, in each case rounded to the
nearest whole share, with a fraction of 0.50 being rounded up.
(i) On Request Day and on each day that a request for the creation or
redemption of Creation Units is deemed received, the Trustee will calculate the
market value of the securities portion of the Portfolio Deposit as in effect on
Request Day as of the close of the market and add to that amount the Dividend
Equivalent Payment effective for requests to create or redeem on Request Day
(such market value and Dividend Equivalent Payment are collectively referred to
herein as the "Portfolio Deposit Amount"). The Trustee will then calculate the
NAV Amount,
16
based on the close of the market on Request Day. The difference
between the NAV Amount so calculated and the Portfolio Deposit Amount shall be
the "Balancing Amount." The Balancing Amount serves the function of compensating
for any differences between the value of the Portfolio Deposit Amount and the
NAV Amount at the close of trading on Request Day due to, for example, (1)
differences in the market value of the securities in the Portfolio Deposit and
the market value of the Securities on Request Day and (2) any variances of the
actual Portfolio Deposit.
(j) Notwithstanding the foregoing, on any Adjustment Day on which (a) no
change in the identity and/or share weighting of any Index Security is scheduled
to take effect that would cause the relevant Benchmark Index divisor to be
adjusted after the close of the market on such Business Day,(1) and (b) no stock
split, stock dividend, or reverse stock split with respect to any Index Security
has been declared to take effect on the corresponding Request Day, the Trustee
reserves the right to forego making any adjustment to the securities portion of
the Portfolio Deposit and to use the composition and price weighting of the
Index Securities of the most recently effective Portfolio Deposit for the
Request Day following such Adjustment Day. Notwithstanding the foregoing, the
amount of the Cash Component shall at all times be determined in accordance with
the procedures set forth above. In addition, the Trustee further reserves the
right to calculate the adjustment to the number of shares and/or identity of the
securities portion of the Portfolio Deposit as described above.
(k) As previously described, the sum of the Dividend Equivalent Payment
and the Balancing Amount in effect at the close of business on Request Day are
collectively referred to as the Cash Component (with respect to purchases of
Creation Units) or the Cash Redemption Amount (with respect to redemptions of
Creation Units). If the resulting Cash Component has a positive value, the
purchaser of Creation Units will be obligated to pay such cash to the Trustee in
connection with orders to purchase Creation Units; if the resulting Cash
Component has a negative value, then such cash shall be paid by the Trustee on
behalf of the BLDRS Index Fund to the purchaser of Creation Units. Similarly, if
the resulting Cash Redemption Amount has a positive value, then such cash shall
be transferred to a redeeming beneficial owner by the Trustee on behalf of the
BLDRS Index Fund in connection with orders to redeem Creation Units; if the
resulting Cash Redemption Amount has a negative value, then such cash shall be
paid by the redeeming beneficial owner of Creation Units to the Trustee on
behalf of the BLDRS Index Fund.
(l) The foregoing guidelines with respect to Misweighting shall also
apply to any Index Security that: (1) is likely to be unavailable for delivery
or available in insufficient quantity for delivery or (2) cannot be delivered to
the Trustee due to restrictions prohibiting a purchaser from engaging in a
transaction involving such Index Security or (3) is not eligible to be processed
through the BLDRS Index Fund Creation Process. Upon receipt of an order for
Creation Units that will involve such an Index Security, the Trustee shall
determine whether the substitution of cash for such Index Security will cause a
Misweighting in the Securities with respect to such Index Security. If a
Misweighting results, the Trustee shall purchase the required number of shares
of such Index Security on the open of the market on the following Business Day.
If a Misweighting does not result and the Trustee would not hold cash in excess
of the permitted amounts described below, the Trustee may hold such cash or, if
- ------------
(1) The Licensor normally publicly announces any changes in the identity
and/or weighting of the Index Securities in advance of the actual changes.
17
such an excess would result, make the required adjustments to the Securities in
accordance with the procedures described herein.
(m) In making the adjustments described above, the Trustee will rely on
industry sources generally available for information as to the composition and
price weightings of the Index Securities. If the Trustee becomes incapable of
obtaining or processing such information or NSCC is unable to receive such
information from the Trustee on any Business Day, then the Trustee shall use the
composition and price weightings of the Index Securities for the most recently
effective Portfolio Deposit for the purposes of all adjustments and
determinations described herein (including, without limitation determination of
the securities portion of the Portfolio Deposit) until the earlier of (a) such
time as current information with respect to the Index Securities is available or
(b) three (3) consecutive Business Days have elapsed. If such current
information is not available and three (3) consecutive Business Days have
elapsed, the composition and price weightings of the Securities shall be used
for the purposes of all adjustments and determinations herein (including,
without limitation, determination of the securities portion of the Portfolio
Deposit) until current information with respect to the Index Securities is
available.
(n) If the Trustee shall determine, in its discretion, that an Index
Security is likely to be unavailable or available in insufficient quantity for
delivery upon the creation of Creation Units for the following Business Day or
for any period thereafter, the Trustee shall have the right to include the cash
equivalent value of such Index Security determined in accordance with the
protocols listed in Section 4.01 hereof in the Portfolio Deposit as a part of
the Cash Component, in lieu of the inclusion of such Index Security in the
securities portion of such Portfolio Deposit. In the event that such a
determination is made, the Portfolio Deposit so constituted shall dictate the
Index Securities to be delivered in connection with the creation of Creation
Units for all purposes hereunder until such time as the securities portion of
the Portfolio Deposit is subsequently adjusted.
(o) In connection with the creation of Creation Units, if an investor is
restricted by regulation or otherwise from investing or engaging in a
transaction in one or more Index Securities, the Trustee, in its discretion,
shall have the right to include the cash equivalent value of such Index
Securities (determined in accordance with the protocols listed in Section 4.01
hereof) in the Portfolio Deposit as part of the Cash Component in lieu of the
inclusion of such Index Securities in the securities portion of the Portfolio
Deposit for the affected investor. The amount of such cash equivalent payment
shall be used by the Trustee in accordance with the foregoing guidelines
regarding permissible amounts of cash. In such cases, the Trustee, to effectuate
the policy described above, may purchase the appropriate number of shares of the
Index Security that the investor was unable to purchase. In any such case an
investor shall pay the Trustee the standard Transaction Fee plus an additional
amount not to exceed three (3) times the standard Transaction Fee.
Section 2.05. Bank Accounts. The Trustee shall open and maintain a
separate bank account or accounts in the banking department of the Trustee in
the name, and for the benefit, of the BLDRS Index Fund, subject only to draft or
order by the Trustee acting pursuant to the terms of this Agreement, and shall
hold in such account or accounts all cash received by it from or for
18
the account of the BLDRS Index Fund. Each BLDRS Index Fund shall be separately
identified and shall have an account or accounts unique to it.
ARTICLE III
Administration of Each BLDRS Index Fund
Section 3.01. Collection of Income. (a) The Trustee shall collect, or
claim on, any Income on the BLDRS Index Fund Securities as it becomes payable
(including the Dividend Equivalent Payment and that part of the proceeds of the
sale or liquidation of any of the BLDRS Index Fund Securities which represents
accrued dividends or distributions and capital gains thereon). Income so
collected shall be held uninvested until distributed pursuant to the provisions
of this Agreement. The Trustee shall accrue all Income to the BLDRS Index Fund
as of the date on which the BLDRS Index Fund is entitled to such Income as a
holder of record of the BLDRS Index Fund Securities.
(b) The Trustee may, in its discretion, sell BLDRS Index Fund Securities
pursuant to Section 3.06 or advance out of its own funds such amounts as may be
necessary to permit distributions pursuant to Section 3.04 and payments in
respect of the redemption of Creation Units pursuant to Section 5.02. The
Trustee will reimburse itself in the amount of such advance, plus Federal
Reserve Board requirements, together with interest thereon at a percentage rate
equal to then current overnight federal funds rate, by deducting such amounts
from: (1) dividend payments or other income of the BLDRS Index Fund when such
payments or other income is received, (2) the amounts earned or benefits derived
by the Trustee on cash held by the Trustee for the benefit of the BLDRS Index
Fund, and (3) the sale of BLDRS Index Fund Securities. In the event any such
advance remains outstanding for more than forty-five (45) Business Days, the
Trustee shall sell BLDRS Index Fund Securities to reimburse itself for such
advance and any accrued interest thereon. The Trustee shall be deemed to be the
beneficial owner of the Income payments in question to the extent of all amounts
advanced by it pursuant to this Section 3.01(b), and such advances shall be
secured by a lien on the BLDRS Index Fund.
Section 3.02. Collection of Other Moneys. All moneys other than amounts
received by the Trustee in respect of the BLDRS Index Fund Securities under this
Agreement as described in Section 3.01 or reinvested in the purchase of Index
Securities as provided in Section 2.04 (including, but not limited to, the
Balancing Amount and all moneys realized by the Trustee from the sale of
options, warrants or other similar rights received in respect of the BLDRS Index
Fund Securities representing dividends or distributions thereon), including any
capital gains dividends, shall be credited to the BLDRS Index Fund in accordance
with generally accepted accounting principles; provided, however, that moneys
which are required to cover the price of securities purchased by the BLDRS Index
Fund but not yet delivered shall be held for such purchase. Moneys so collected
shall be held uninvested. Any moneys collected other than amounts collected
pursuant to Section 3.01 in respect of the Securities may be reinvested in
additional BLDRS Index Fund Securities in lieu of distributions of dividend
payments and other income, if necessary, as provided in Section 3.04.
19
Section 3.03. Establishment of Reserves. From time to time the Trustee
may, as required by generally accepted accounting principles, establish reserves
for any applicable taxes or other governmental charges that may be payable out
of the BLDRS Index Fund. The Trustee shall not be required to transmit to the
Depository for distribution to Beneficial Owners as described in Section 3.11
any of the amounts held in such reserves; provided, however, that if the
Trustee, in its sole discretion, determines that such amounts are no longer
necessary for payment of any applicable taxes or other governmental charges,
then such amounts shall no longer be considered to be held in such reserves. If
the BLDRS Index Fund has been terminated or is in the process of termination,
the Trustee shall transmit to the Depository for distribution to Beneficial
Owners as described in Section 3.11 such Beneficial Owners' interest in the
amounts previously reserved in accordance with Section 9.01.
Section 3.04. Certain Deductions and Distributions. (a) On each Business
Day, the Trustee shall deduct from moneys held as described above and pay to
itself individually the amounts that it is at the time entitled to receive
pursuant to Sections 8.01 and 8.04 on account of its services performed, in
accordance with the fee schedule set forth below (based on the net asset value
of the BLDRS Index Fund on such Business Day). Expenses of the BLDRS Index Fund
will be annualized and accrued on each Business Day.
(b) The following charges are or may be accrued and paid by the BLDRS
Index Fund:
The (1) Trustee's fees as set forth below, (2) fees payable to transfer
agents for the provision of transfer agency services, if any, (3) fees of the
Trustee for extraordinary services performed under this Agreement; (4) various
governmental charges; (5) any taxes, fees and charges payable by the Trustee
with respect to BLDRS Index Fund Shares; (6) expenses and costs of any action
taken by the Trustee Indemnified Party or the Sponsor Indemnified Party to
protect the BLDRS Index Fund and the rights and interests of Beneficial Owners
of BLDRS Index Fund Shares; (7) indemnification of the Trustee or the Sponsor
for any losses, liabilities or expenses incurred by it in the administration of
the BLDRS Index Fund without gross negligence, bad faith, willful misconduct,
willful malfeasance on their part or reckless disregard of their obligations and
duties; (8) expenses incurred in contacting Beneficial Owners of BLDRS Index
Fund Shares upon termination of the BLDRS Index Fund; and (9) other
out-of-pocket expenses of the BLDRS Index Fund not otherwise stated above
incurred pursuant to actions permitted or required under this Agreement or the
Indenture.
(c) In addition to those discussed above, the following expenses will be
charged to the BLDRS Index Fund: (i) reimbursement to the Sponsor of amounts
paid by it to the Licensor in respect of annual licensing fees due under the
License Agreement pursuant to Section 10.03, (ii) federal and state annual fees
in keeping the registration of BLDRS Index Fund Shares on a current basis
pursuant to Section 10.02 for the issuance of Creation Units, (iii) expenses of
the Sponsor relating to the printing and distribution of marketing materials
describing the BLDRS Index Fund and BLDRS Index Fund Shares (including but not
limited to, associated legal, consulting, advertising and marketing costs and
other out-of-pocket expenses).
20
(d) In accordance with the provisions of the exemptive order granted by
the SEC in Release ________ dated November 8, 2002 ("Order"), the expenses
listed in clauses (i), (ii) and (iii) above may only be charged by the Trustee
to a BLDRS Index Fund in an amount equal to their actual costs, but in no case
may exceed 30 basis points (30/100 of 1%) of the net asset value of the BLDRS
Index Fund per year.
(e) Until further notice from the Sponsor, the Sponsor has undertaken
that on each day during the fiscal year ending September 30, 2003, the ordinary
operating expenses of each BLDRS Index Fund as calculated by the Trustee will
not exceed an amount which is 0.30% per year of the daily NAV of such BLDRS
Index Fund. Further, if in any one year such cost exceeds such 30 basis point
limit, the Licensor will first waive licensing fees applicable to that BLDRS
Index Fund and, if such waiver is insufficient, the Sponsor will thereafter
reimburse that BLDRS Index Fund for or assume such excess ordinary operating
expenses. Ordinary operating expenses of a Fund will not include taxes,
brokerage commissions and such extraordinary non-recurring expenses as may
arise, including the cost of any litigation to which a BLDRS Index Fund or
Trustee may be a party. The Licensor and the Sponsor may be repaid by a Fund
for, respectively, licensing fees so waived or expenses so reimbursed or
assumed, in each case to the extent that subsequently during the year expenses
fall below the 0.30% per year level on any given day.
(f) The Sponsor reserves the right to charge the BLDRS Index Fund a
special sponsor fee from time to time, pursuant to the provisions of Section
8.01(k), in reimbursement for certain services it may provide to the BLDRS Index
Fund which would otherwise be provided by the Trustee in an amount not to exceed
the actual cost of providing such services. [INSERT AS FOOTNOTE: THE SPECIAL
SPONSOR FEE IS SUBJECT TO THE EXPENSE LIMITATION OF THE ORDER REFERENCED IN
SUBSECTION (d) ABOVE.] The Sponsor or the Trustee from time to time may
voluntarily assume some expenses or reimburse the BLDRS Index Fund so that total
expenses of the BLDRS Index Fund are reduced, although neither the Sponsor nor
the Trustee is obligated to do so and either one or both parties may discontinue
such voluntary assumption of expenses or reimbursement at any time without
notice.
(g) The Sponsor intends to monitor the actual expenses of the BLDRS
Index Fund, and may choose to reimburse the BLDRS Index Fund for or assume some
or all of the expenses and charges mentioned above in order to assure that the
BLDRS Index Fund remains economically attractive to current as well as
prospective investors, but the Sponsor is not obligated to do so for any period
of time. In the event the Sponsor chooses to so reimburse or assume certain
expenses on behalf of the BLDRS Index Fund, the Sponsor shall have the right to
be repaid the amount of any such reimbursement or assumption to the extent that
subsequently during the year expenses fall below the 30/100 of 1% per annum
level on any given day.
(h) The Trustee shall charge the BLDRS Index Fund for those expenses and
disbursements incurred pursuant to this Section 3.04, provided however, that the
amount of any such charge which has not been finally determined as of any
Dividend Payment Date may be estimated and any necessary adjustments shall be
made in the succeeding month. The Trustee may direct that all such expenses and
disbursements shall be paid directly from the assets of the BLDRS Index Fund. If
the income received in the form of dividends and other distributions on the
BLDRS Index Fund Securities or cash balances of the BLDRS Index Fund shall be
insufficient to provide for amounts payable pursuant to this Section 3.04, the
Trustee may, in its discretion, advance out of its own funds such amounts as are
payable and reimburse itself for such advances as funds become available or from
the proceeds of BLDRS Index Fund Securities sold to reimburse such advances. The
Trustee will reimburse itself in the amount of any such advance, including those
advances made pursuant to Section 3.01(b), together with interest thereon at a
percentage rate equal to the then current overnight federal funds rate plus
Federal Reserve Board requirements, by deducting such amounts from (1) dividend
payments or other
21
income of the BLDRS Index Fund when such payments or other income is received,
(2) the amounts earned or benefits derived by the Trustee on cash held by the
Trustee for the benefit of the BLDRS Index Fund , and (3) the sale of BLDRS
Index Fund Securities. Notwithstanding the foregoing, in the event that any
advance remains outstanding for more than forty-five (45) Business Days, the
Trustee shall sell BLDRS Index Fund Securities to reimburse itself for the
amount of such advance and any accrued interest thereon. Such advances will be
secured by a lien on the assets of the BLDRS Index Fund in favor of the Trustee.
The expenses of the BLDRS Index Fund will be reflected in the net asset value of
the BLDRS Index Fund.
(i) For services performed under the Agreement, the Trustee will be paid
by the BLDRS Index Fund a fee at an annual rate of 6/100 of 1% to 10/100 of 1%
of the net asset value of the BLDRS Index Fund, as shown below, such percentage
amount to vary depending on the net asset value of the BLDRS Index Fund. Such
compensation will be computed on each Business Day on the basis of the net asset
value of the BLDRS Index Fund on such day, and the amount thereof shall be
accrued daily and paid monthly.
TRUSTEE FEE SCALE
Net Asset Value
of the BLDRS Index Fund Fee as a Percentage of Net
(in U.S. Dollars) Asset Value of the BLDRS Index Fund
----------------- -----------------------------------
$0-499,999,999 10/100 of 1% per annum*
$500,000,000-$2,499,999,999 8/100 of 1% per annum*
$2,500,000,000 and above 6/100 of 1% per annum*
- ----------------
* The fee indicated applies to that portion of the net asset value of the BLDRS
Index Fund that falls in the size category indicated.
(j) In addition to adjustments to the Portfolio from time to time to
conform to changes in the composition or weighting of the Index Securities, the
Trustee is also ordinarily required to sell BLDRS Index Fund Securities to
obtain sufficient cash proceeds for the payment of BLDRS Index Fund fees and
expenses at any time that projected annualized fees and expenses accrued on a
daily basis exceed projected annualized dividends and other BLDRS Index Fund
income accrued on a daily basis by more than 1/100th of one percent (0.01%) of
the net asset value of the BLDRS Index Fund. Whenever the 0.01% threshold is
exceeded, the Trustee will sell sufficient BLDRS Index Fund Securities to cover
such excess by no later that the next occasion it is required to make
adjustments to the Portfolio due to a Misweighting, unless the Trustee
determines, in its discretion, that such a sale is unnecessary because the cash
to be generated is not needed by the BLDRS Index Fund at that time for payment
of expense then due or because the Trustee otherwise determines that such a sale
is not warranted or advisable. At the time of the sale, the Trustee shall first
sell BLDRS Index Fund Securities that are over-weighted as compared the their
relative weighting in the relevant Benchmark Index.
(k) Distributions by each BLDRS Index Fund will be made quarterly in the
event that dividends accumulated in respect of the BLDRS Index Fund Securities
and other income, if any,
22
received by the BLDRS Index Fund exceed BLDRS Index Fund fees and expenses
accrued during the quarterly Accumulation Period. The regular quarterly
ex-dividend date, if any, for BLDRS Index Fund Shares will be the third Friday
of each March, June, September and December, unless such day is not a Business
Day, in which case the ex-dividend date will be the immediately preceding
Business Day (the "Ex-Dividend Date"). Beneficial Owners as reflected on the
records of the Depository and the DTC Participants on the second (2nd) Business
Day following the Ex-Dividend Date (the "Record Date") will be entitled to
receive an amount, if any, representing dividends accumulated on the Securities
through such Ex-Dividend Date, net of fees and expenses, accrued daily for such
period. For the purposes of all dividend distributions, dividends per BLDRS
Index Fund Share will be calculated at least to the nearest 1/100th of $0.01.
However, there shall be no net dividend distribution in any given quarter, and
any net dividend amounts will be rolled into the next Accumulation Period, if
the aggregate net dividend distributions would be in an amount less than
5/100ths of one percent (0.05%) of the net asset value of the BLDRS Index Fund
as of the Friday in the week immediately preceding the Ex-Dividend Date, unless
the Trustee determines that such net dividend distribution is required to be
made in order to maintain the BLDRS Index Fund's status as a Regulated
Investment Company or to avoid the imposition of income or excise taxes on
undistributed income. When net dividend payments are to be made by the BLDRS
Index Fund, payment will be made on the last Business Day in the calendar month
following each Ex-Dividend Date (the "Dividend Payment Date") as disclosed in
the prospectus for the BLDRS Index Fund. Dividend payments will be made through
the Depository and the DTC Participants to Beneficial Owners then of record with
funds received from the Trustee. Creation Units, will be registered in book
entry form only, which records will be kept by the Depository.
(l) The Trustee intends to make additional distributions with respect to
moneys received by the BLDRS Index Fund other than Income to the minimum extent
necessary to: (i) distribute the entire annual investment company taxable income
of the BLDRS Index Fund, plus any net capital gains (from sales of BLDRS Index
Fund Securities in connection with adjustments to the Portfolio or to generate
cash for such distributions); and (ii) avoid imposition of the excise tax
imposed by section 4982 of the Internal Revenue Code or any successor provision
or any similarly imposed tax on income or gains.
(m) The Trustee reserves the right to declare special dividends if, in
its reasonable discretion, such action is necessary or advisable to preserve the
status of the BLDRS Index Fund as a Regulated Investment Company or to avoid
imposition of income or excise taxes on undistributed income.
(n) The Trustee further reserves the right to vary the frequency with
which periodic net dividend distributions, if any, are to be made from the BLDRS
Index Fund (e.g., from quarterly to semi-annually) if it is determined by the
Sponsor and the Trustee, in their discretion, that such a variance would be
advisable to facilitate compliance with the rules and regulations applicable to
regulated investment companies or would otherwise be advantageous to the BLDRS
Index Fund. In addition, the Trustee reserves the right to change the regular
Ex-Dividend Date for BLDRS Index Fund Shares to another regular date if it is
determined by the Sponsor and the Trustee, in their discretion, that such a
change would be advantageous to the BLDRS Index Fund. Notice of any such
variance (which notice shall include changes to the
23
Record Date, the Ex-Dividend Date and the Accumulation Period resulting from
such variance) shall be provided to Beneficial Owners via the Depository and the
DTC Participants.
Section 3.05. Statements and Reports. After the end of each fiscal year
and within the time period required by applicable laws, rules and regulations,
the Trustee will furnish to the DTC Participants for distribution to each person
who was a Beneficial Owner of BLDRS Index Fund Shares at the end of such fiscal
year, an annual report of the BLDRS Index Fund containing financial statements
audited by independent accountants of nationally recognized standing and such
other information as may be required by such laws, rules and regulations.
Section 3.06. Purchase and Sale of Index Securities. (a) The Trustee
shall be required to purchase or sell Index Securities to conform the Portfolio
to changes in the relevant Benchmark Index as described in Section 2.04. The
Trustee shall calculate the adjustments to the Portfolio and place the
appropriate buy or sell orders at such times and in the manner so prescribed in
Section 2.04.
(b) The Trustee is empowered, in its discretion, to sell the requisite
amount of Securities held in the BLDRS Index Fund to permit the payment of
distributions pursuant to Section 3.04 in the event that the Trustee has
insufficient amounts available in the BLDRS Index Fund to make such
distributions. The Trustee shall not be responsible in any way for depreciation
or loss incurred by reason of such sale.
Section 3.07. Substitute Securities. In the event that an offer by the
issuer of any of the Securities shall be made to issue new securities in
exchange or substitution for any issue of Securities, the Trustee shall not
accept such offer or take any other action with respect thereto until such time
as it has been determined that the securities of the issuer will be removed from
the relevant Benchmark Index. In the event that a security of an issuer is
removed from the relevant Benchmark Index as a result of the consummation of
merger or acquisition activity of such issuer and the BLDRS Index Fund receives
cash in exchange for the security of such issuer held in the Portfolio, the
Trustee shall reinvest such cash in Index Securities as provided in Section
2.04. If the BLDRS Index Fund receives any securities in exchange for the
security of the issuer held in the Portfolio and removed from the relevant
Benchmark Index, and such securities received in exchange are not included in
the relevant Benchmark Index, the Trustee shall sell such securities as soon as
practicable and reinvest the proceeds of the sale in the new Index Securities as
provided in Section 2.04. The purchases and sales of BLDRS Index Fund Securities
for the Portfolio pursuant to this Section 3.07 shall be subject to the terms
and conditions of this Agreement to the same extent as Portfolio Deposits. The
Trustee shall not be liable or responsible in any way for any loss incurred by
reason of a purchase or sale pursuant to this Section 3.07.
Section 3.08. Counsel. The Trustee may employ from time to time counsel
to act on behalf of the BLDRS Index Fund and perform any legal services in
connection with the BLDRS Index Fund Securities and the BLDRS Index Fund,
including any legal matters relating to the possible disposition or acquisition
of any BLDRS Index Fund Securities pursuant to any provision hereof. The fees
and expenses of such counsel shall be paid by the Trustee from the assets of the
BLDRS Index Fund.
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Section 3.09. Sale by Trustee. (a) Notwithstanding any provision
contained in this Agreement, the Trustee shall not sell any BLDRS Index Fund
Securities unless such sale is required as a Portfolio Adjustment pursuant to
and in accordance with Section 2.04 or is otherwise permitted in accordance with
the provisions of Sections 3.01, 3.04, 3.06, 3.07, 5.02 or 8.04.
(b) If at any time the issuer of any BLDRS Index Fund Security fails
to pay or declare an anticipated dividend or interest and provision for such
payment has not been duly made, or there has been a material event affecting a
BLDRS Index Fund Security, the Trustee may not sell such BLDRS Index Fund
Security unless and until such BLDRS Index Fund Security is removed from the
relevant Benchmark Index or as otherwise permitted in accordance with Sections
3.06 and 3.07. The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of such sale or the failure to make such
a sale.
Section 3.10. Action by Trustee Regarding Voting. The Trustee shall have
the exclusive right to vote all of the voting BLDRS Index Fund Securities of the
BLDRS Index Fund, and shall vote each of the BLDRS Index Fund Securities in the
same proportion as all shares of each such BLDRS Index Fund Security are voted
by all the shareholders of each such BLDRS Index Fund Security to the extent
permissible, but if not permitted, shall abstain from voting. The Trustee shall
not be liable to any person for any action or failure to take action with
respect to this Section 3.10.
Section 3.11. Book-Entry-Only System; Global Security. (a) The
Depository will act as securities depository for BLDRS Index Fund Shares.
Creation Units will be represented by a single Global Security, which will be
registered in the name of Cede & Co., as nominee for the Depository and
deposited with, or on behalf of, the Depository. Certificates will not be issued
for BLDRS Index Fund Shares. The Global Security shall be in the form attached
hereto as Exhibit B shall represent such BLDRS Index Fund Shares as shall be
specified therein and may provide that it shall represent the aggregate amount
of outstanding BLDRS Index Fund Shares from time to time endorsed thereon and
that the aggregate amount of outstanding BLDRS Index Fund Shares represented
thereby may from time to time be reduced or increased to reflect exchanges. Any
endorsement of a Global Security to reflect the amount, or any increase or
decrease in the amount, of outstanding BLDRS Index Fund Shares represented
thereby shall be made in such manner and upon instructions given by the Trustee
as specified in the Depository Agreement.
(b) The Trustee shall authenticate and deliver one or more Global
Securities that: (i) shall represent and shall be denominated in an aggregate
amount equal to the aggregate principal amount of the outstanding BLDRS Index
Fund Shares to be represented by one or more Global Securities, (ii) shall be
registered in the name of the Depository for such Global Security or Global
Securities or the nominee of such Depository, (iii) shall be delivered by the
Trustee to such Depository or pursuant to such Depository's instruction, and
(iv) shall bear a legend substantially to the following effect: "Unless this
certificate is presented by an authorized representative of The Depository Trust
Company, a New York corporation ("DTC"), to Issuer or its agent for registration
of transfer, exchange, or payment, and any certificate issued is registered in
the name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is required by an authorized representative of DTC), ANY TRANSFER,
PLEDGE, OR OTHER
25
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein."
(c) The Depository has advised the Sponsor and the Trustee as
follows: The Depository 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 Securities Exchange Act of 1934, as amended. The Depository 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 the Depository.
Access to the Depository 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 ("Indirect
Participants"). The Depository 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.
(d) Upon the settlement date of any creation, transfer or redemption
of BLDRS Index Fund Shares, the Depository will credit or debit, on its
book-entry registration and transfer system, the amount of BLDRS Index Fund
Shares so created, transferred or redeemed to the accounts of the appropriate
DTC Participants. The accounts to be credited and charged shall be designated by
the Trustee to NSCC, in the case of a creation or redemption through the BLDRS
Index Fund Clearing Process, or by the Trustee and the DTC Participant, in the
case of a creation or redemption transacted outside of the BLDRS Index Fund
Clearing Process. Beneficial ownership of BLDRS Index Fund Shares will be
limited to DTC Participants, Indirect Participants and persons holding interests
through DTC Participants and indirect Participants. Owners of beneficial
interests in BLDRS Index Fund Shares ("Beneficial Owners") will be shown on, and
the transfer of ownership will be effected only through, records maintained by
the Depository (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 or indirect Participants). Beneficial Owners are
expected to receive from or through the DTC Participant a written confirmation
relating to their purchase of BLDRS Index Fund Shares.
(e) So long as Cede & Co., as nominee of the Depository, is the
registered owner of BLDRS Index Fund Shares, references herein to the registered
or record owners of BLDRS Index Fund Shares shall mean Cede & Co. and shall not
mean the Beneficial Owners of BLDRS Index Fund Shares. Beneficial Owners of
BLDRS Index Fund Shares will not be entitled to have BLDRS Index Fund Shares
registered in their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form and will not be considered the
record or registered holder thereof under the Agreement and Indenture.
Accordingly, each Beneficial Owner must rely on the procedures of the DTC
Participant or Depository and, if such Beneficial Owner is not a DTC
Participant, on the procedures of the indirect Participant through which such
Beneficial Owner holds its interests, to exercise any rights of a holder of
BLDRS Index Fund Shares under the Agreement and Indenture. The Trustee and the
Sponsor understand that under
26
existing industry practice, in the event the Trustee requests any action of a
Beneficial Owner, or a Beneficial Owner desires to take any action that the
Depository, as the record owner of all outstanding BLDRS Index Fund Shares, is
entitled to take, the Depository 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 or would otherwise act upon the instructions of Beneficial Owners
owning through them.
(f) As described above, the Trustee will recognize the Depository or
its nominee as the owner of all BLDRS Index Fund Shares for all purposes except
as expressly set forth in this Agreement. Conveyance of all notices, statements
and other communications to Beneficial Owners will be affected as follows.
Pursuant to the Depository Agreement, the Depository is required to make
available to the Trustee upon request and for a fee to be charged to the BLDRS
Index Fund a listing of the BLDRS Index Fund Share holdings of each DTC
Participant. The Trustee shall inquire of each such DTC Participant as to the
number of Beneficial Owners holding BLDRS Index Fund Shares, directly or
indirectly, through such DTC Participant. The Trustee shall provide each such
DTC Participant with sufficient 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 BLDRS Index Fund shall pay to each such DTC
Participant an amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
(g) BLDRS Index Fund Share distributions shall be made to the
Depository or its nominee, Cede & Co., as the registered owner of all BLDRS
Index Fund Shares. The Trustee and the Sponsor expect that the Depository or its
nominee, upon receipt of any payment of distributions in respect of BLDRS Index
Fund Shares, shall credit immediately DTC Participants' accounts with payments
in amounts proportionate to their respective beneficial interests in Creation
Units as shown on the records of the Depository or its nominee. The Trustee and
the Sponsor also expect that payments by DTC Participants to indirect
Participants and Beneficial Owners 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.
Neither the Trustee nor the Sponsor will have any 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 BLDRS Index Fund
Shares, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests or for any other aspect of the relationship
between the Depository and the DTC Participants or the relationship between such
DTC Participants and the indirect Participants and Beneficial Owners owning
through such DTC Participants.
(h) The Depository may determine to discontinue providing its
services with respect to BLDRS Index Fund Shares at any time by giving notice to
the Trustee and the Sponsor and discharging its responsibilities with respect
thereto under applicable law. Under such circumstances, the Trustee and the
Sponsor shall take action either to find a replacement for the Depository to
perform its functions at a comparable cost or, if such a replacement is
unavailable, to terminate the BLDRS Index Fund as provided in Article IX.
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ARTICLE IV
Evaluation of BLDRS Index Fund Securities
Section 4.01. Evaluation of BLDRS Index Fund Securities. The Trustee
shall make available to NSCC prior to the commencement of trading on each
Business Day a list of the names and required number of shares of each of the
Index Securities in the current Portfolio Deposit as well as the amount of the
Dividend Equivalent Payment for the previous Business Day. Under certain
extraordinary circumstances which may make it impossible for the Trustee to
provide such information to NSCC on a given Business Day, NSCC shall use the
information regarding the identity and required number of shares of the Index
Securities of the Portfolio Deposit on the previous Business Day. Any such
determination shall be effective for all creations and redemptions made at the
close of the Business Day of such creations and redemptions. The evaluation with
respect to the aggregate value of the BLDRS Index Fund Securities as used in
calculating the net asset value of the BLDRS Index Fund shall be made as
follows: If the BLDRS Index Fund Securities are listed on one or more national
securities exchanges, such evaluation shall generally be based on the closing
sale price on that day (unless the Trustee deems such price inappropriate as a
basis for evaluation) on the exchange which is deemed to be the principal market
therefore (the New York or American Stock Exchange, any other national
securities exchange or in an organized OTC market, such as The Nasdaq Stock
Market, Inc. if the securities are listed thereon) or, if there is no such
appropriate closing sale price on such exchange, at the closing bid price
(unless the Trustee deems such price inappropriate as a basis for evaluation).
If the BLDRS Index Fund Securities are not so listed or, if so listed and the
principal market therefore is other than on such exchange or there is no such
closing bid price available, such evaluation shall generally be made by the
Trustee in good faith based on the closing price on the over-the-counter market
(unless the Trustee deems such price inappropriate as a basis for evaluation) or
if there is no such appropriate closing price, (a) on current bid prices, (b) if
bid prices are not available, on the basis of current bid prices for comparable
securities, (c) by the Trustee's appraising the value of the securities in good
faith on the bid side of the market, or (d) by any combination thereof.
Section 4.02. Responsibility of the Trustee. The Sponsor and the
Beneficial Owners may rely on any evaluation furnished by the Trustee and the
Sponsor shall have no responsibility for the accuracy thereof. The
determinations made by the Trustee hereunder shall be made in good faith upon
the basis of, and the Trustee shall not be liable for any errors contained in,
information reasonably available to it. The Trustee shall be under no liability
to the Sponsor, or to Beneficial Owners, for errors in judgment, provided,
however, that this provision shall not protect the Trustee against any liability
to which it would otherwise be subject by reason of willful misfeasance, willful
misconduct, bad faith or gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties hereunder.
Section 4.03. Continued Qualification as Regulated Investment Company.
The Trustee shall perform such reviews, file such reports or take any and all
such action as it is advised by counsel or accountants employed by the Trustee
as required in order to continue the qualification of the BLDRS Index Fund as a
Regulated Investment Company.
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ARTICLE V
BLDRS Index Fund Evaluation and Redemption of Creation Units
Section 5.01. BLDRS Index Fund Evaluation. As of the Evaluation Time (1)
on each Business Day and (2) upon termination of the BLDRS Index Fund, the
Trustee shall, in determining the net asset value of the BLDRS Index Fund:
(a) subtract all Liabilities (including accrued expenses and dividends
payable) from the total value of the BLDRS Index Fund 's investments and other
assets and (b) divide the resulting figure by the total number of outstanding
BLDRS Index Fund Shares. The resulting figure is herein called a "BLDRS Index
Fund Evaluation." The amount of cash held by the BLDRS Index Fund (including
dividends receivable on stocks trading ex-dividend) is computed as of such
Evaluation Time (a) on each day on which Creation Units are tendered for
redemption and (b) on any other day desired by the Trustee.
Section 5.02. Redemption of Creation Units. (a) Creation Units will be
redeemable in kind when such Creation Units are in the account of a single
Participating Party or a single DTC Participant by submitting a request for
redemption to the Trustee in the manner specified in the Participant Agreement.
(b) Requests for redemptions of Creation Units may be made on any
Business Day to the Trustee through the BLDRS Index Fund Clearing Process.
Requests for redemptions of Creation Units may also be made directly to the
Trustee outside the BLDRS Index Fund Clearing Process. Requests for redemption
shall not be made to the Distributor. In the case of redemptions made through
the BLDRS Index Fund Clearing Process, the Transaction Fee will be deducted from
the amount delivered to the redeeming beneficial owner or added to the amount
owed by the redeeming beneficial owner to the Trustee, as applicable. In case of
redemptions tendered directly to the Trustee outside the BLDRS Index Fund
Clearing Process, a total fee will be charged equal to the Transaction Fee plus
an additional amount not to exceed three (3) times the Transaction Fee
applicable per BLDRS Index Fund Share, will be deducted from the amount
delivered to the redeeming beneficial owner due in part to the increased expense
associated with delivery outside the BLDRS Index Fund Clearing Process and such
amount will be deducted from the amount delivered to the redeeming beneficial
owner or added to the amount owed by the redeeming beneficial owner to the
Trustee on behalf of the BLDRS Index Fund, as applicable. In all cases, both the
tender of Creation Units for redemption and distributions to the redeeming
beneficial owner (or payments to the Trustee, as applicable) in respect of
Creation Units redeemed will be effected through the Depository and the relevant
DTC Participant(s) to the Beneficial Owner thereof as recorded on the book entry
system of the Depository or the relevant DTC Participant, as the case may be.
(c) The Trustee will transfer to the redeeming Beneficial Owner via
the Depository and the relevant DTC Participant(s) a portfolio of securities for
each Creation Unit delivered, typically identical in composition and weighting
to the Index Securities required to be deposited in connection with a Portfolio
Deposit as in effect (1) on the date a request for redemption is deemed received
by the Trustee as described below, in the case of redemptions made either
through the BLDRS Index Fund Clearing Process or outside the BLDRS Index Fund
Clearing Process or (2) on the date that notice of the termination of the BLDRS
Index Fund is given, in
29
the case of the termination of the BLDRS Index Fund. Each redemption also
includes a cash amount, the "Cash Redemption Amount," which will either be paid
to the Trustee on behalf of the BLDRS Index Fund by the redeeming beneficial
owner or paid to the redeeming beneficial owner by the Trustee on behalf of the
BLDRS Index Fund as described below. On any given Business Day, the Cash
Redemption Amount is typically an amount identical to the amount of the Cash
Component and is equal, on a BLDRS Index Fund Share basis, to the dividends on
all the BLDRS Index Fund Securities with ex-dividend dates for the period
beginning on the most recent ex-dividend date for Creation Units through and
including the current Business Day, net of accrued expenses and liabilities for
such period not previously deducted (including, without limitation, (x) taxes or
other governmental charges against the BLDRS Index Fund not previously deducted,
if any, and (y) accrued fees of the Trustee and other expenses of the BLDRS
Index Fund (including legal and auditing expenses) and other expenses not
previously deducted), plus or minus the Balancing Amount. To the extent the sum
of dividends on all BLDRS Index Fund Securities with ex-dividend dates within
the Accumulation Period, plus or minus the Balancing Amount, exceeds the accrued
expenses and liabilities of the BLDRS Index Fund for such period (i.e., the Cash
Redemption Amount has a positive value), then the Trustee on behalf of the BLDRS
Index Fund will transfer payment thereof via the relevant DTC Participant(s) to
the redeeming Beneficial Owner. Conversely, to the extent the sum of dividends
on all Securities with ex-dividend dates within the Accumulation Period, plus or
minus the Balancing Amount, is less than the accrued expenses and liabilities of
the BLDRS Index Fund for such period (i.e., the Cash Redemption Amount has a
negative value), then such Beneficial Owner shall be required to deliver payment
thereof via the relevant DTC Participant(s) to the Trustee on behalf of the
BLDRS Index Fund. In the case of redemptions made through the BLDRS Index Fund
Clearing Process, the Trustee on behalf of the BLDRS Index Fund will effect a
transfer of the Cash Redemption Amount (if required) and the BLDRS Index Fund
Securities to the redeeming Beneficial Owner by the third (3rd) NSCC Business
Day following the date on which request for redemption is deemed received. In
the case of redemptions made outside the BLDRS Index Fund Clearing Process, the
Trustee on behalf of the BLDRS Index Fund will transfer the Cash Redemption
Amount (if required) and the securities to the redeeming Beneficial Owner by the
third (3rd) Business Day following the date on which the request for redemption
is deemed received, in cases in which the Cash Redemption Amount is payable by
the redeeming beneficial owner to the Trustee, the redeeming beneficial owner
(via the Depository and the relevant DTC participant(s)) is required to make
payment of such cash amount by the third (3rd) NSCC Business Day, for
redemptions made through the BLDRS Index Fund Clearing Process, or the third
(3rd) Business Day, for redemptions outside the BLDRS Index Fund Clearing
Process, following the date on which the request for redemption is deemed
received. The Trustee will cancel all Creation Units delivered upon redemption.
(d) In the event that the Trustee determines, in its discretion,
that an Index Security is likely to be unavailable or available in insufficient
quantity for delivery by the BLDRS Index Fund upon the redemption of Creation
Units, the Trustee shall have the right in its discretion to include the cash
equivalent value of such Index Security or Index Securities (determined in
accordance with the protocols listed in Section 4.01 hereof), at the close of
the market on the date redemption is requested may be included in the Portfolio
Deposit as a part of the Cash Redemption Payment, in lieu of the inclusion of
such Index Security in the securities portion of the Portfolio Deposit.
30
(e) If the income received by the BLDRS Index Fund in the form of
dividends and other distributions on the BLDRS Index Fund Securities is
insufficient to allow distribution of the Cash Redemption Payment, the Trustee
may advance out of its own funds any amounts necessary in respect of redemptions
of Creation Units pursuant to Section 3.01(b); otherwise, the Trustee may sell
BLDRS Index Fund Securities in an amount sufficient to effect such redemptions.
The Trustee will reimburse itself in the amount of such advance plus Federal
Reserve Board reserve requirements together with interest thereon at a
percentage rate equal to then current overnight federal funds rate by deducting
such amounts from (1) dividend payments or other income of the BLDRS Index Fund
when such payments or other income is received, (2) the amounts earned or
benefits derived by the Trustee on cash held by the Trustee for the benefit of
the BLDRS Index Fund, and (3) the sale of BLDRS Index Fund Securities.
Notwithstanding the foregoing, in the event that any advance remains outstanding
for more than forty-five (45) Business Days, the Trustee shall sell BLDRS Index
Fund Securities to reimburse itself for such advance and any accrued interest
thereon. Such advances will be secured by a lien on the assets of the BLDRS
Index Fund in favor of the Trustee.
(f) The Trustee may, in its discretion, and will when so directed by
the Sponsor, suspend the right of redemption, or postpone the date of payment of
the net asset value for more than five (5) Business Days following the date on
which request for redemption is made, for any period during which the New York
Stock Exchange is closed or trading is suspended; for any period during which an
emergency exists as a result of which disposal or evaluation of the BLDRS Index
Fund Securities is not reasonably practicable; or for such other period as the
SEC may by order permit for the protection of Beneficial Owners. Neither the
Sponsor nor the Trustee is liable to any person or in any way for any loss or
damages that may result from any such suspension or postponement.
(g) Upon the specific request of a redeeming beneficial owner, the
Trustee may, in its discretion, redeem Creation Units delivered by such
redeeming beneficial owner, either in whole or in part, by providing such
redeeming beneficial owner with a portfolio of BLDRS Index Fund Securities then
held by the BLDRS Index Fund which (1) differs in exact composition and/or
weighting from the Index Securities held in the relevant Benchmark Index at such
time (2) but does not differ in net asset value from the then-current Portfolio
Deposit. The Trustee may agree to such redemption if the Trustee were to
determine that such differing portfolio of BLDRS Index Fund Securities would be
appropriate in order to maintain the Portfolio's correspondence to the price
weighted composition of the relevant Benchmark Index, for example, when a stock
split of one or more of the Index Securities occurs.
(h) In connection with redemption of Creation Units, if an investor
states its belief that it is restricted by regulation or otherwise from
investing or engaging in a transaction in one or more Index Securities, the
Trustee, in its discretion, shall have the right to include the cash equivalent
value of such Index Securities (determined in accordance with the protocols
listed in Section 4.01 hereof) in the Portfolio Deposit as part of the Cash
Redemption Payment, in lieu of the inclusion of such Index Securities in the
securities portion of the Portfolio Deposit for the affected investor. In any
such case an investor shall pay the Trustee the standard Transaction Fee plus an
additional amount not to exceed three (3) times the standard Transaction Fee.
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ARTICLE VI
Transfer of BLDRS Index Fund Shares
Section 6.01. Transfer of BLDRS Index Fund Shares. BLDRS Index Fund
Shares may be transferred only through the book-entry system of the Depository
as provided in Section 3.11. Beneficial Owners have the rights accorded to
holders of "book-entry" securities under applicable law. Beneficial Owners may
transfer BLDRS Index Fund Shares through the Depository by instructing the DTC
Participant holding the BLDRS Index Fund Shares for such Beneficial Owner in
accordance with standard securities industry practice.
ARTICLE VII
Sponsor
Section 7.01. Responsibility and Duties. The Sponsor shall be liable in
accordance herewith for the obligations imposed upon and undertaken by the
Sponsor hereunder. The Sponsor will make available itself, or may designate
other persons to make available to NSCC prior to the commencement of trading on
each Business Day a list of the names and required number of shares of each of
the Index Securities in the current Portfolio Deposit as well as the amount of
the Dividend Equivalent Payment effective through and including the previous
Business Day. The Sponsor presently intends, but is not obligated, to determine
and cause to be announced (a) on a daily basis, the Dividend Equivalent Payment
effective through and including the previous Business Day, per outstanding BLDRS
Index Fund Share, and (b) throughout the day at the Exchange a number
representing, on a per BLDRS Index Fund Share basis, the sum of the Dividend
Equivalent Payment effective through and including the previous Business Day,
plus the current value of the securities portion of a Portfolio Deposit as in
effect on such day (which value will occasionally include a cash in lieu amount
to compensate for the omission of a particular Index Security from such
Portfolio Deposit). Such information will be calculated based upon the best
information available to the Sponsor and may be calculated by other persons
designated to do so by the Sponsor.
Section 7.02. Certain Matters Regarding Successor Sponsor. The
covenants, provisions and agreements herein contained shall in every case be
binding upon any successor to the business of the Sponsor, except that no
successor Sponsor may be a partnership. The Sponsor may transfer all or
substantially all of its assets to a corporation which carries on the business
of the Sponsor, if at the time of such transfer such successor duly assumes all
the obligations of the Sponsor under this Agreement, and in such event, the
Sponsor shall be relieved of all further liability under this Agreement.
Section 7.03. Resignation of Sponsor; Successors. If at any time the
Sponsor desires to resign its position as Sponsor hereunder, it may resign by
delivering to the Trustee an instrument of resignation executed by the Sponsor.
Such resignation shall not become effective until the earlier of (i) the
appointment by the Trustee of a successor Sponsor to assume, with such
compensation from the BLDRS Index Fund as the Trustee may deem reasonable under
the circumstances, but not exceeding the amounts prescribed by the SEC, the
duties and obligations of the resigning Sponsor hereunder by an instrument of
appointment and assumption executed by
32
the Trustee and the successor Sponsor; or (ii) the Trustee shall have agreed to
act as Sponsor hereunder succeeding to all the rights and duties of the
resigning Sponsor without appointing a successor Sponsor and without terminating
this Agreement or the Indenture; or (iii) the Trustee shall have terminated this
Agreement and liquidated the BLDRS Index Fund , which action the Trustee shall
have taken if, within sixty (60) days following the date on which a notice of
resignation shall have been delivered by the Sponsor, a successor Sponsor has
not been appointed or the Trustee has not agreed to act as Sponsor hereunder. If
the Sponsor shall fail to undertake or perform or become incapable of
undertaking or performing its duties hereunder or shall become bankrupt or its
affairs shall be taken over by public authorities, the Trustee shall act in
accordance with the provisions set forth in Section 8.01(g). Any such successor
Sponsor shall be satisfactory to the Trustee. Upon effective resignation
hereunder, the resigning Sponsor shall be discharged and shall no longer be
liable in any manner hereunder except as to acts or omissions occurring prior to
such resignation, and the new Sponsor shall thereupon undertake and perform all
duties and be entitled to all rights and compensation as Sponsor under this
Agreement. The successor Sponsor shall not be under any liability hereunder for
occurrences or omissions prior to the execution of such instrument.
Section 7.04. Liability of Sponsor and Indemnification. (a) The Sponsor
shall not be under any liability to the BLDRS Index Funds Trust, the BLDRS Index
Fund, the Trustee, or any Beneficial Owner for any action taken or for
refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment or for depreciation or loss incurred by
reason of the purchase or sale of any BLDRS Index Fund Securities; provided,
however, that this provision shall not protect the Sponsor against any liability
to which it would otherwise be subject by reason of its own gross negligence,
bad faith, willful misconduct or willful malfeasance in the performance of its
duties hereunder or reckless disregard of its obligations and duties hereunder.
The Sponsor may rely in good faith on any paper, order, notice, list, affidavit,
receipt, evaluation, opinion, endorsement, assignment, draft or any other
document of any kind prima facie properly executed and submitted to it by the
Trustee, the Trustee's counsel or by any other person for any matters arising
hereunder. The Sponsor shall in no event be deemed to have assumed or incurred
any liability, duty, or obligation to any Beneficial Owner or to the Trustee
other than as expressly provided for herein.
(b) The Sponsor and its directors, shareholders, officers,
employees, affiliates (as such term is defined in Regulation S-X) and
subsidiaries (each a "Sponsor Indemnified Party") shall be indemnified from the
BLDRS Index Fund and held harmless against any loss, liability or expense
incurred without (1) gross negligence, bad faith, willful misconduct or willful
malfeasance on the part of such Sponsor Indemnified Party arising out of or in
connection with the performance of its obligations hereunder or any actions
taken in accordance with the provisions of this Agreement or the Indenture or
(2) reckless disregard on the part of such Sponsor Indemnified Party of its
obligations and duties under this Agreement or the Indenture. Such indemnity
shall include payment from the BLDRS Index Fund of the costs and expenses
incurred by such Sponsor Indemnified Party in defending itself against any claim
or liability in its capacity as Sponsor hereunder. Any amounts payable to a
Sponsor Indemnified Party under this Section 7.04 may be payable in advance or
shall be secured by a lien on the BLDRS Index Fund. The Sponsor shall not be
under any obligation to appear in, prosecute or defend any legal action which in
its opinion may involve it in any expense or liability; provided, however, that
if in the Sponsor's opinion action is required with respect to an event or
condition which would
33
have a material adverse effect on the BLDRS Index Fund, the Sponsor shall notify
the Trustee of such event or condition. If the Trustee does not act within ten
days after receipt of such notice, the Sponsor may undertake any such action it
may deem necessary or desirable in respect of this Agreement and the rights and
duties of the parties hereto and the interests of the Beneficial Owners and, in
such event, the legal expenses and costs of any such action shall be expenses
and costs of the BLDRS Index Fund and the Sponsor shall be entitled to be
reimbursed therefore by the BLDRS Index Fund.
(c) The Sponsor shall not be liable except by reason of its own
gross negligence, bad faith, willful misconduct or willful malfeasance for any
action taken or suffered to be taken by it in good faith and believed by it to
be authorized or within the discretion, rights or powers conferred upon it by
this Agreement, or reckless disregard of its obligations and duties hereunder or
under the Indenture.
ARTICLE VIII
Trustee
Section 8.01. General Definition of Trustee's Rights, Duties and
Responsibilities. In addition to and notwithstanding the other duties, rights,
privileges and liabilities of the Trustee as otherwise set forth in this
Agreement, the duties, rights, privileges and liabilities of the Trustee are
further defined as follows:
(a) All moneys deposited with or received by the Trustee hereunder
shall be held by it, without interest other than as provided in Section 3.04, as
a deposit for the account of the BLDRS Index Fund in accordance with the
provisions of Section 2.05, until required to be disbursed in accordance with
the provisions of this Agreement. Such monies shall be deemed segregated by
maintaining such monies in an account for the exclusive benefit of the BLDRS
Index Fund in accordance with the provisions of Section 2.05.
(b) The Trustee shall not be under any liability for any action
taken in good faith reliance on any appraisal, paper, certification, order,
list, demand, request, consent, affidavit, notice, opinion, direction,
valuation, endorsement, assignment, resolution, draft or other documents prima
facie properly executed, provided, however that where a list of authorized
officials and their signatures are on file with the Trustee, the Trustee shall
be required to compare such manual signatures to the signature on any such
documents. Such requirement shall not apply to "personal identification numbers"
or "PINS" or other forms of electronic security devices which function as a
proxy for a manual signature.
(c) The Trustee shall not be under any liability for the disposition
of moneys, or of any of the BLDRS Index Fund Securities, or in respect of any
evaluation which it is required to make under this Agreement or otherwise,
except by reason of its own gross negligence, bad faith, willful misconduct or
willful malfeasance, or reckless disregard of its duties and obligations
hereunder and the Trustee may construe any of the provisions of this Agreement,
insofar as the same may be ambiguous or inconsistent with any other provisions
hereof, and any reasonable construction of any such provision hereof by the
Trustee in good faith shall be binding upon the parties hereto and all
Beneficial Owners.
34
(d) The Trustee shall not be responsible for the due execution
hereof by the Sponsor or for the form, character, genuineness, sufficiency,
value or validity of any of the Securities, or for the due execution thereof by
any Depositor, and the Trustee shall in no event assume or incur any liability,
duty or obligation to any Beneficial Owner or the Sponsor, other than as
expressly provided for herein.
(e) The Trustee shall not be under any obligation to appear in,
prosecute or defend any action that in its opinion may involve it in expense or
liability, unless it shall be furnished with reasonable security and indemnity
against such expense or liability. Any pecuniary cost of the Trustee resulting
from the Trustee's appearance in, prosecution of or defense of any such actions
shall be deductible from and constitute a lien against the assets of the BLDRS
Index Fund. Subject to the foregoing, the Trustee shall, in its discretion,
undertake such action as it may deem necessary at any and all times to protect
the BLDRS Index Fund and the rights and interest of all Beneficial Owners
pursuant to the terms of this Agreement; provided, however, that the expenses
and costs of such actions, undertakings or proceedings shall be deductible from
the assets of the BLDRS Index Fund or otherwise reimbursable to the Trustee
from, and shall constitute a lien against, the assets of the BLDRS Index Fund.
(f) The Trustee may employ agents, attorneys, accountants, auditors
and other professionals and shall not be answerable for the default or
misconduct of any such agents, attorneys, accountants, auditors and other
professionals if such agents, attorneys, accountants, auditors or other
professionals shall have been selected with reasonable care. The Trustee shall
not be liable in respect of any action taken under this Agreement or the
Indenture, or suffered, in good faith by the Trustee, in accordance with the
opinion of its counsel. The accounts of the BLDRS Index Fund shall be audited,
as required by law, by independent certified public accountants designated from
time to time by the Trustee, and the report of such accountants shall be
furnished by the Trustee to Beneficial Owners as described in Section 3.11 upon
request. The fees and expenses charged by such agents, attorneys, accountants,
auditors or other professionals shall constitute an expense of the BLDRS Index
Fund.
(g) If the Sponsor shall fail to undertake or perform or shall
become incapable of undertaking or performing any of the duties which by the
terms of this Agreement are required to be undertaken or performed by it, and
such failure shall not be cured within fifteen (15) Business Days following
receipt of notice from the Trustee of such failure, or if the Sponsor shall be
adjudged bankrupt or insolvent, or a receiver of the Sponsor or of its property
shall be appointed, or a trustee or liquidator or any public officer shall take
charge or control of the Sponsor or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation, then in any such case, the
Trustee may do any one or more of the following: (1) appoint a successor Sponsor
to assume, with such compensation from the BLDRS Index Fund as the Trustee may
deem reasonable under the circumstances, but not exceeding the reasonable
amounts prescribed by the SEC in accordance with Section 26(a)(2)(C) of the
Investment Company Act of 1940, or any successor provision, the duties and
obligations of the resigning Sponsor hereunder by an instrument of appointment
and assumption executed by the Trustee and the successor Sponsor; or (2) agree
to act as Sponsor hereunder without appointing a successor Sponsor and without
terminating this Agreement or the Indenture; or (3) terminate this Agreement and
Indenture and liquidate the BLDRS Index Fund pursuant to Section 9.01.
35
(h) If the evaluation of the BLDRS Index Fund as shown by any BLDRS
Index Fund Evaluation shall be less than the Discretionary Termination Amount,
the Trustee shall, only when so directed in writing by the Sponsor, terminate
this Agreement and the Indenture with regard to the relevant BLDRS Index Fund
and the BLDRS Index Fund created hereby and thereby and liquidate such BLDRS
Index Fund, all in the manner provided in Section 9.01.
(i) In no event shall the Trustee be personally liable for any taxes
or other governmental charges imposed upon or in respect of the BLDRS Index Fund
Securities or upon the Income thereon or upon it as Trustee hereunder or upon or
in respect of the BLDRS Index Fund which it may be required to pay under any
present or future law of the United States of America or of any other taxing
authority having jurisdiction in the premises. For all such taxes and charges
and for any expenses, including counsel's fees, which the Trustee may sustain or
incur with respect to such taxes or charges, the Trustee shall be reimbursed and
indemnified out of the assets of the BLDRS Index Fund and the payment of such
amounts shall be secured by a lien on the BLDRS Index Fund.
(j) The Trustee shall not be liable except by reason of its own
gross negligence, bad faith, willful misconduct or willful malfeasance for any
action taken or suffered to be taken by it in good faith and believed by it to
be authorized or within the discretion, rights or powers conferred upon it by
this Agreement or reckless disregard of its obligations and duties hereunder or
under the Indenture.
(k) So long as required by Section 26(a)(2)(C) of the Investment
Company Act of 1940, or any successor provision, and the rules promulgated there
under, no payment to the Sponsor or to any affiliated person (as so defined) or
agent of the Sponsor shall be allowed as an expense of the BLDRS Index Fund
except for payment not in excess of such reasonable amounts as the SEC may
prescribe as compensation for performing bookkeeping and other administrative
services of a character normally performed by the Trustee itself and except as
the SEC may permit by order.
(l) The Trustee in its individual or any other capacity may become
an owner or pledgee of, or be an underwriter or dealer in respect of, bonds or
other obligations issued by the same issuer (or an affiliate of such issuer) of
any BLDRS Index Fund Securities at any time held as part of the BLDRS Index Fund
or Creation Units and may deal in any manner with the same or with the issuer
(or an affiliate of the issuer) with the same rights and powers as if it were
not the Trustee hereunder, including, but not limited to making loans or
maintaining other banking relationships with any such issuer.
(m) The Trustee shall discharge all of its obligations and perform
all of its duties under the Participant Agreement.
(n) The Trustee shall not be under any liability for the disposition
of information provided by it to the Sponsor and subsequently distributed, on an
intraday basis, to Beneficial Owners or potential Beneficial Owners of BLDRS
Index Fund Shares except by reason of its own gross negligence, bad faith,
willful misconduct or willful malfeasance, or reckless disregard of its duties
and obligations hereunder. Subject to the foregoing, the Trustee shall undertake
to provide to the Sponsor information necessary for the Sponsor to compute an
estimate of the net
36
asset value, on an intraday basis, and provide such estimate to Beneficial
Owners of BLDRS Index Fund Shares.
Section 8.02. Books, Records and Reports. (a) The Trustee shall keep
proper books of record and account of all the transactions under this Agreement
at its office located in New York or such office as it may subsequently
designate upon notice to the other parties hereto. The books and records of the
BLDRS Index Fund shall be open to inspection by any Beneficial Owner at all
reasonable times during the usual business hours of the Trustee. The Trustee
shall keep proper record of the creation and redemption of Creation Units at its
New York office. Such records of the creation and redemption of Creation Units
shall be open to inspection at all reasonable times during the usual business
hours of the Trustee.
(b) The Trustee shall make, or cause to be made, such annual or
other reports and file such documents as it is advised by counsel or accountants
employed by it as are required of the BLDRS Index Fund by the Securities Act of
1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940
and including, but not limited to, Form N-SAR and filings pursuant to Rule 24f-2
under the Investment Company Act of 1940, make such elections and file such tax
returns as it is advised by counsel or accountants employed by it as are from
time to time required under any applicable state or federal statute or rule or
regulation there under, in particular, for the continuing qualification of the
BLDRS Index Fund as a Regulated Investment Company. The relevant BLDRS Index
Fund fiscal year shall be set forth in the Indenture and may be changed from
time to time by the Trustee and the Sponsor without consent of the Beneficial
Owners.
Section 8.03. Indenture and List of BLDRS Index Fund Securities on File.
The Trustee shall keep a certified copy or duplicate original of this Agreement
on file in its office and available for inspection at all reasonable times
during its usual business hours by any Beneficial Owner, together with the
Indenture for each BLDRS Index Fund then in effect and the Trustee shall keep
and so make available for inspection a current list of the BLDRS Index Fund
Securities in the Portfolio, including the identity and number of shares of each
of the BLDRS Index Fund Securities.
Section 8.04. Compensation of Trustee. (a) The Trustee shall receive; at
the times set forth in this Agreement, as compensation for performing its
services under this Agreement, an amount equal to the amount specified as
compensation for the Trustee in Section 3.04. The computation of such
compensation shall be made as set forth in Section 3.04. Such compensation shall
be accrued daily by the Trustee in accordance with Section 3.04.
Section 8.05. Indemnification of Trustee. The Trustee and its directors,
shareholders, officers, employees, agents, affiliates (as such term is defined
in Regulation S-X) and subsidiaries (each a "Trustee Indemnified Party") shall
be indemnified from the BLDRS Index Fund and held harmless against any loss,
liability or expense incurred without (1) gross negligence, bad faith, willful
misconduct or willful malfeasance on the part of such Trustee Indemnified Party
arising out of or in connection with the acceptance or administration of this
BLDRS Index Fund and any actions taken in accordance with the provisions of this
Agreement or arising out of the administration of any Section of this Agreement
or any Section of the Indenture or (2) reckless disregard on the part of such
Trustee Indemnified Party of its
37
obligations and duties under this Agreement or the Indenture. Such indemnity
shall include payment from the BLDRS Index Fund of the costs and expenses
incurred by such Trustee Indemnified Party in defending itself against any claim
or liability relating to this Agreement, the Indenture or the BLDRS Index Fund,
including any loss, liability or expense incurred in acting pursuant to written
directions or instructions to the Trustee given by the Sponsor or counsel to the
BLDRS Index Fund from time to time in accordance with the provisions of this
Agreement or in undertaking actions from time to time which the Trustee deems
necessary in its discretion to protect the BLDRS Index Fund and the rights and
interest of all Beneficial Owners pursuant to the terms of this Agreement or
Indenture. Any amounts payable to a Trustee Indemnified Party under this Section
8.05 may be payable in advance or shall be secured by a lien on the BLDRS Index
Fund.
Section 8.06. Resignation, Discharge or Removal of Trustee; Successors.
(a) The Trustee may resign and be discharged of the BLDRS Index Fund created by
this Agreement and the Indenture by executing an instrument in writing resigning
as such Trustee, filing the same with the Sponsor, if any, and mailing a copy of
a notice of resignation to all DTC Participants for distribution to Beneficial
Owners as provided in Section 3.11 not less than 60 days before the date
specified in such instrument when, subject to Section 8.06(c), such resignation
is to take effect. The Trustee shall be advised by the Depository as to the
holdings of all DTC Participants pursuant to the Depository Agreement. In case
at any time the Trustee shall not meet the requirements set forth in Section
8.07 hereof, shall fail to undertake or perform or shall become incapable of
undertaking or performing any of the duties which by the terms of this Agreement
are required to be undertaken or performed by it, and such failure shall not be
cured within fifteen (15) Business Days following receipt of notice from the
Sponsor of such failure, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or a trustee or
liquidator or any public officer shall take charge or control of such Trustee or
of its property or affairs for the purposes of rehabilitation, conservation or
liquidation, then in any such case, the Sponsor may, subject to the requirements
of Section 8.06(b) and (c), remove such Trustee and appoint a successor Trustee
by written instrument or instruments delivered to the Trustee so removed and to
the successor Trustee. Upon receiving notice of resignation or removal of the
Trustee, the Sponsor shall use its best efforts promptly to appoint a successor
Trustee in the manner and meeting the qualifications hereinafter provided, by
written instrument or instruments delivered to such resigning Trustee and the
successor Trustee. Notice of such appointment of a successor Trustee shall be
mailed promptly after acceptance of such appointment by the successor Trustee to
all DTC Participants for distribution to Beneficial Owners as provided in
Section 3.11. Beneficial Owners of 66 2/3 percent of the BLDRS Index Fund Shares
then outstanding may at any time remove the Trustee by written instrument or
instruments delivered to the Trustee and Sponsor. The Sponsor shall thereupon
use its best efforts to appoint a successor Trustee in the manner provided
herein. Upon effective resignation hereunder, the resigning Trustee shall be
discharged and shall no longer be liable in any manner hereunder except as to
acts or omissions occurring prior to such resignation, and the new Trustee shall
thereupon undertake and perform all duties and be entitled to all rights and
compensation as Trustee under this Agreement. The successor Trustee shall not be
under any liability hereunder for occurrences or omissions prior to the
execution of such instrument.
(b) In case at any time the Trustee shall be removed or shall resign
and no successor Trustee shall have been appointed within sixty (60) days after
the date notice of removal has
38
been received by the Trustee or the Trustee has issued its notice of
resignation, the Trustee shall terminate this Agreement and Indenture and
liquidate the BLDRS Index Fund pursuant to Section 9.01.
(c) Any successor Trustee appointed hereunder shall execute and
acknowledge to the Sponsor and to the retiring Trustee an instrument accepting
such appointment hereunder, and such successor Trustee without any further act,
deed or conveyance shall become vested with all the rights, powers, duties and
obligations of its predecessor hereunder with like effect as if originally named
a Trustee herein and shall be bound by all the terms and conditions of this
Agreement and the Indenture. Upon the request of such successor Trustee the
retiring Trustee and the Sponsor shall, upon payment of all amounts due the
retiring Trustee, execute and deliver an instrument acknowledged by it
transferring to such successor Trustee all the rights and powers of the retiring
Trustee; and the retiring Trustee shall transfer, deliver and pay over to the
successor Trustee all Securities and monies at the time held by it hereunder, if
any, together with all necessary instruments of transfer and assignment or other
documents properly executed necessary to effect such transfer and such of the
records or copies thereof maintained by the retiring Trustee in the
administration hereof as may be requested by the successor Trustee and shall
thereupon be discharged from all duties and responsibilities under this
Agreement. Any resignation or removal of a Trustee and appointment of a
successor Trustee pursuant to this Section 8.06 shall become effective upon such
acceptance of appointment by the successor Trustee. The indemnification of such
Trustee and any other Trustee Indemnified Party provided for under Section 8.05
hereof shall survive any resignation, discharge or removal of the Trustee
hereunder.
(d) Any bank, trust company, corporation or national banking
association into which a Trustee hereunder may be merged or with which it may be
consolidated, or any bank, trust company, corporation or national banking
association resulting from any merger or consolidation to which such Trustee
hereunder shall be a party, or any bank, trust company, corporation or national
banking association succeeding to all or substantially all of the business of
the Trustee, shall be the successor Trustee under this Agreement without the
execution or filing of any paper, instrument or further act to be done on the
part of the parties hereto, anything herein, or in any agreement relating to
such merger, consolidation or succession, by which any such Trustee may seek to
retain certain powers, rights and privileges theretofore obtaining for any
period of time following such merger or consolidation, to the contrary
notwithstanding.
Section 8.07. Qualifications of Trustee. The Trustee or successor
Trustee shall be a bank, trust company, corporation or national banking
association organized and doing business under the laws of the United States or
any state thereof, and shall be authorized under such laws to exercise corporate
trust powers. The Trustee and any successor Trustee shall have at all times an
aggregate capital, surplus, and undivided profits of not less than $50,000,000.
Section 8.08. Trustee's Duties Expressly Provided for Herein. Except as
otherwise expressly provided for in this Agreement, the Trustee shall have no
duties or obligations hereunder.
39
ARTICLE IX
Termination
Section 9.01. Procedure Upon Termination. (a) If within 90 days from the
Initial Date of Deposit the net worth of the BLDRS Index Fund shall have fallen
to less than $100,000, the Trustee shall, upon the direction of the Sponsor,
terminate the BLDRS Index Fund and distribute to each Beneficial Owner such
Beneficial Owner's pro rata share of the assets of the BLDRS Index Fund. The
Sponsor will have the discretionary right to direct the Trustee to terminate the
BLDRS Index Fund if at any time after 90 days following and prior to three years
following the Initial Date of Deposit the net asset value of the BLDRS Index
Fund falls below $150,000,000 or if at any time after three years following the
Initial Date of Deposit such value is less than $350,000,000, as such dollar
amount shall be adjusted for inflation in accordance with the CPI-U, such
adjustment to take effect at the end of the fourth year following the Initial
Date of Deposit and at the end of each year thereafter and to be made so as to
reflect the percentage increase in consumer prices as set forth in the CPI-U for
the twelve (12) month period ending in the last month of the preceding fiscal
year (the "Discretionary Termination Amount"). In such case, the Trustee shall,
upon receipt of instruction from the Sponsor, terminate this Agreement, the
Indenture and the BLDRS Index Fund created hereby. Any termination pursuant to
the two preceding sentences shall be at the complete discretion of the Sponsor
subject to the terms hereof, and the Sponsor shall not be liable in any way for
depreciation or loss occurring as a result of any such termination. The Trustee
shall have no power to terminate the Agreement, the Indenture or the BLDRS Index
Fund because the value of the BLDRS Index Fund is below the Discretionary
Termination Amount. The Trustee shall terminate the Agreement, the Indenture and
the BLDRS Index Fund in the event that BLDRS Index Fund Shares are de-listed
from the Exchange.(3) The Agreement, the Indenture and the BLDRS Index Fund may
also be terminated upon receipt by the Trustee of written notice of the
occurrence of any one or more of the following events: (a) by the agreement of
the Beneficial Owners of 66-2/3% of outstanding BLDRS Index Fund Shares; (b) if
the Depository is unable or unwilling to continue to perform its functions as
set forth herein and a comparable replacement is unavailable; (c) if NSCC no
longer provides clearance services with respect to BLDRS Index Fund Shares, or
if the Trustee is no longer a participant in NSCC; (d) if the Licensor ceases
publishing each relevant Benchmark Index; or (e) if the License Agreement is
terminated. Notwithstanding the foregoing, the Agreement, the Indenture and the
BLDRS Index Fund in any event shall terminate by their terms on the Mandatory
Termination Date. If at any time the Sponsor shall fail to undertake or perform
or become incapable of undertaking or performing any of the duties which by the
terms of the Agreement are required to be undertaken or performed, or if the
Sponsor resigns pursuant
- ------------------------
(3) It is intended that BLDRS Index Fund Shares will be listed for trading
on the Exchange. Transactions involving BLDRS Index Fund Shares in the public
trading market will be subject to customary brokerage charges and commissions.
There can be no assurance, however, that BLDRS Index Fund Shares will always be
listed on the Exchange. Following the initial twelve-month period following
formation of the BLDRS Index Fund and commencement of trading on the Exchange,
the Exchange will consider the suspension of trading in or removal from listing
BLDRS Index Fund Shares when, in its opinion, further dealings appear
unwarranted if: (a) the BLDRS Index Fund has more than sixty (60) days remaining
until termination and there are fewer than 50 record Beneficial Owners for
thirty (30) or more consecutive trading days; (b) the Licensor ceases publishing
the relevant Benchmark Index; or (c) such other event shall occur or condition
shall exist which, in the opinion of the Exchange, makes further dealings on the
Exchange inadvisable.
40
to Section 7.03, the Trustee may, in its discretion, in lieu of appointing a
successor Sponsor pursuant to Section 8.01, terminate this Agreement, the
Indenture and the BLDRS Index Fund and liquidate the BLDRS Index Fund pursuant
to the provisions hereof. Notwithstanding the foregoing, in no event shall the
BLDRS Index Fund, the Indenture and this Agreement continue past the Mandatory
Termination Date set forth in the Indenture unless sooner terminated as
specified herein. As soon as practicable after notice of termination of the
Trust, the Trustee will distribute to redeeming beneficial owners tendering
Creation Units prior to the termination date the Securities and cash as provided
in Section 5.02 and upon termination of the BLDRS Index Fund the Trustee will
sell the Securities held in the BLDRS Index Fund as provided below.
(b) Written notice of termination, specifying the date of
termination, the period during which the assets of the BLDRS Index Fund will be
liquidated and Creation Units will be redeemed in cash at net asset value, and
the date determined by the Trustee upon which the books of the Trustee,
maintained pursuant to Section 6.01, shall be closed, shall be given by the
Trustee to each Beneficial Owner at least twenty (20) days prior to termination
of the Trust. Such notice shall further state that, as of the date thereof and
thereafter, neither requests to create additional Creation Units nor additional
Portfolio Deposits will be accepted and that, as of the date thereof, the
portfolio of securities delivered upon redemption shall be identical in
composition and weighting to the BLDRS Index Fund Securities rather than the
securities portion of the Portfolio Deposit as in effect on the date request for
redemption is made. Within a reasonable period of time after such termination
the Trustee shall, subject to any applicable provisions of law, sell all of the
BLDRS Index Fund Securities not already distributed to redeeming beneficial
owners of Creation Units, as provided herein, if any, in such a manner so as to
effectuate orderly sales and a minimal market impact. The Trustee shall not be
liable for or responsible in any way for depreciation or loss incurred by reason
of any sale or sales made in accordance with the provisions of this Section
9.01. The Trustee may suspend its sales of the BLDRS Index Fund Securities upon
the occurrence of unusual or unforeseen circumstances, including, but not
limited to, a suspension in trading of a Index Security, the closing or
restriction of trading on a stock exchange, the outbreak of hostilities or the
collapse of the economy. Upon receipt of proceeds from the sale of the last
BLDRS Index Fund Security, the Trustee shall:
(i) pay to itself individually from the BLDRS Index Fund an
amount equal to the sum of (1) its accrued compensation for its ordinary
services, (2) any reimbursement due to it for its extraordinary
services, (3) any advances made but not yet repaid and (4) any other
services and disbursements as provided herein;
(ii) deduct any and all fees and expenses from the BLDRS
Index Fund in accordance with the provisions of Section 3.04 hereof;
provided, however, that no portion of such amount shall be deducted or
paid unless the payment thereof from the BLDRS Index Fund is at that
time lawful;
(iii) deduct from the BLDRS Index Fund any amounts which it,
in its sole discretion, shall deem requisite to be set aside as reserves
for any applicable taxes or other governmental charges that may be
payable out of the BLDRS Index Fund;
(iv) transmit to the Depository for distribution each
Beneficial Owner's interest in the remaining assets of the Trust; and
41
(v) disseminate to each Beneficial Owner as provided in
Section 3.11 a final statement as of the date of the computation of the
amount distributable to the Beneficial Owners, setting forth the data
and information in substantially the form and manner provided for in
Section 3.05 hereof.
(c) Dividends to be received by the BLDRS Index Fund on BLDRS Index
Fund Securities sold in liquidation pursuant to this Section 9.01 subsequent to
redemption shall be aggregated and distributed ratably when all such dividends
have been received.
Section 9.02. Moneys to Be Held Without Interest to Beneficial Owners.
The Trustee shall be under no liability with respect to moneys held upon
termination, except to hold the same as a deposit without interest for the
benefit of the Beneficial Owners.
Section 9.03. Dissolution of Sponsor Not to Terminate Trust. The
dissolution of the Sponsor, or its ceasing to exist as a legal entity from, or
for, any cause, shall not operate to terminate this Agreement and the Indenture
insofar as the duties and obligations of the Trustee are concerned unless the
Trustee terminates the BLDRS Index Fund pursuant to Section 9.01.
ARTICLE X
Miscellaneous Provisions
Section 10.01. Amendment and Waiver. (a) The Agreement and Indenture may
be amended from time to time by the Trustee and the Sponsor without the consent
of any Beneficial Owners (1) to cure any ambiguity or to correct or supplement
any provision thereof which may be defective or inconsistent or to make such
other provisions in regard to matters or questions arising there under as will
not adversely affect the interests of Beneficial Owners; (2) to change any
provision thereof as may be required by the SEC; (3) to add or change any
provision as may be necessary or advisable for the continuing qualification of
the BLDRS Index Fund as a Regulated Investment Company under the Internal
Revenue Code; (4) to add or change any provision thereof as may be necessary or
advisable in the event that NSCC or the Depository is unable or unwilling to
continue to perform its functions as set forth therein; (5) to add or change any
provision thereof to conform the adjustments to the Portfolio and the Portfolio
Deposit to changes, if any, made by the Licensor in its method of determining
each relevant Benchmark Index; (6) to add or change any provision thereof as may
be necessary to implement a dividend reinvestment plan; (7) to make changes to
Transaction Fee; and (8) to make changes to the expenses listed in clauses (i),
(ii), (iii) and listed in Section 3.04(c) as long as such changes do not exceed
the 30 basis point limit set forth in such Section. The Indenture and Agreement
may also be amended from time to time by the Sponsor and the Trustee with the
consent of the Beneficial Owners of 51% of the outstanding BLDRS Index Fund
Shares to add provisions to or change or eliminate any of the provisions of the
Agreement or to modify the rights of Beneficial Owners; provided, however, that
the Agreement may not be amended without the consent of the Beneficial Owners of
all outstanding BLDRS Index Fund Shares if such amendment would (x) permit,
except in accordance with the terms and conditions of the Agreement, the
acquisition of any securities other than those acquired in accordance with the
terms and conditions of the Agreement; (y) reduce the interest of any Beneficial
Owner in the Trust; or (z) reduce the percentage of Beneficial Owners required
to consent to any such amendment.
42
(b) Promptly after the execution of any such amendment, the Trustee
shall receive from the Depository, pursuant to the terms of the Depository
Agreement, a list of all DTC Participants holding BLDRS Index Fund Shares. The
Trustee shall inquire of each such DTC Participant as to the number of
Beneficial Owners for whom such DTC Participant holds BLDRS Index Fund Shares,
and provide each such DTC Participant with sufficient copies of a written notice
of the substance of such amendment for transmittal by each such DTC Participant
to such Beneficial Owners.
(c) It shall not be necessary for the consent of Beneficial Owners
under this Section 10.01 or under Section 9.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Beneficial Owners shall be subject
to such reasonable regulations as the Trustee may prescribe.
Section 10.02. Registration (Initial and Continuing) of BLDRS Index Fund
Shares. The Sponsor agrees and undertakes on its own part to register or appoint
an agent, which may include the Trustee, to register BLDRS Index Fund Shares
with the SEC and under the blue sky laws of such states as the Sponsor may
select and as may be required. If, and to the extent permitted by the Order, the
registration of BLDRS Index Fund Shares with the SEC and under the applicable
securities laws of such states shall be payable out of the Trust. Registration
charges, blue sky fees, printing costs, mailing costs, attorney's fees, and
other miscellaneous out-of-pocket expenses incurred pursuant to this Section and
related to all BLDRS Index Fund Shares shall be borne by the BLDRS Index Fund to
the extent and in the manner provided for by Section 3.04 and pursuant to the
Order.
Section 10.03. License Agreement with the Licensor. (a) The Sponsor
shall, prior to the Initial Date of Deposit, obtain a license agreement with the
Licensor under which the BLDRS Index Fund may use the trademarks and service
marks ______________________ to the extent deemed necessary by the Sponsor under
federal and state securities laws and to indicate the source of each relevant
Benchmark Index as a basis for determining the composition of the BLDRS Index
Fund pursuant to Section 2.04.
(b) The BLDRS Index Fund shall pay to the Licensor or shall
reimburse the Sponsor for its payment to the Trustee, in accordance with Section
3.04, a licensing fee as set forth in an exhibit to the License Agreement.
Section 10.04. Right of Sponsor to Direct Trustee to Declare a Split of
BLDRS Index Fund Shares. The Sponsor reserves the right to direct the Trustee to
declare a split or reverse split in the number of BLDRS Index Fund Shares
outstanding and a corresponding change in the number of BLDRS Index Fund Shares
constituting a Creation Unit in the event that the per BLDRS Index Fund Share
price in the secondary market changes to an amount that the Sponsor believes
falls outside a desirable retail range.
Section 10.05. Certain Matters Relating to Beneficial Owners. (a) By the
purchase and acceptance or other lawful delivery and acceptance of BLDRS Index
Fund Shares, each Beneficial Owner thereof shall be deemed to be a beneficiary
of the BLDRS Index Fund created by this Agreement and the Indenture and vested
with all right, title and interest in the BLDRS
43
Index Fund therein created to the extent of the BLDRS Index Fund Shares, subject
to the terms and conditions of this Agreement and the Indenture.
(b) A redeeming beneficial owner may at any time tender Creation
Units to the Trustee for redemption, subject to and in accordance with Section
5.02.
(c) The death or incapacity of any Beneficial Owner shall not
operate to terminate the Indenture and Agreement or the BLDRS Index Fund, nor
entitle such Beneficial Owner's legal representatives or heirs to claim an
accounting or to take any action or proceeding in any court for a partition or
winding up of the BLDRS Index Fund, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or any of them. Each Beneficial Owner
expressly waives any right such Beneficial Owner may have under any rule of law,
or the provisions of any statute, or otherwise, to require the Trustee at any
time to account, in any manner other than as expressly provided in the Indenture
and Agreement, in respect of the Securities or moneys from time to time
received, held and applied by the Trustee hereunder.
(d) No Beneficial Owner shall have any right to vote except as
provided in Sections 9.01 and 10.01 or in any manner otherwise to control the
operation and management of the BLDRS Index Fund, or the obligations of the
parties hereto. Nothing set forth in this Indenture and Agreement shall be
construed so as to constitute the Beneficial Owners from time to time as
partners or members of an association; nor shall any Beneficial Owner ever be
liable to any third person by reason of any action taken by the parties to this
Indenture, or for any other cause whatsoever.
Section 10.06. New York Law to Govern. The Indenture and Agreement are
executed and delivered in the State of New York, and all laws or rules of
construction of such State shall govern the rights of the parties hereto and the
Beneficial Owners and the interpretation of the provisions hereof. The Indenture
and Agreement shall be deemed effective when it is executed by the Sponsor and
the Trustee.
Section 10.07. Notices. Any notice, demand, direction or instruction to
be given to the Sponsor hereunder shall be in writing and shall be duly given if
mailed, by certified or registered mail, return receipt requested, or delivered
to the Sponsor, at the following address: c/o The Nasdaq Stock Market, Inc., or
at such other address as shall be specified by the Sponsor to the other parties
hereto in writing. Any notice, demand, direction or instruction to be given to
the Trustee shall be in writing and shall be duly given if mailed, by certified
or registered mail, return receipt requested, delivered to or sent by facsimile
transmission and received by The Bank of New York,
______________________________, Attention: ________________________, or such
other address as shall be specified to the other parties hereto by the Trustee
in writing. Any notice to be given to a Beneficial Owner shall be duly given if
mailed or delivered to DTC Participants for delivery to Beneficial Owners.
Section 10.08. Severability. If any one or more of the covenants,
agreements, provisions or terms of this Indenture shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants,
44
agreements, provisions or terms of this Agreement and shall in no way affect the
validity or enforceability of the other provisions of this Agreement or the
rights of the Beneficial Owners.
Section 10.09. Separate and Distinct BLDRS Index Funds. Each BLDRS Index
Fund of the BLDRS Index Funds Trust to which this Agreement shall be applicable
shall, for all financial and administrative purposes, be considered separate and
distinct from every other BLDRS Index Fund, and the assets of one Fund shall not
be commingled with the assets of another Fund nor shall the expenses of any one
Fund be charged against any other Fund.
Section 10.10. Counterparts. This Agreement may be simultaneously
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement dated
as of November 8, 2002 to be duly executed.
NASDAQ FINANCIAL PRODUCTS
SERVICES, INC.,
as Sponsor
By /s/ John L. Jacobs
------------------------------
Name: John L. Jacobs
Title: Chief Executive Officer
THE BANK OF NEW YORK,
as Trustee
By /s/ Alfred Irving
------------------------------
Title: Vice President
Effective Date: November 8, 2002
46
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 8th day of November in the year 2002 before me personally came
John L. Jacobs to me known, who, being by me duly sworn, did depose and say that
he is the Chief Executive Officer of Nasdaq Financial Products Services, Inc.,
the corporation described in and which executed the above instrument; and that
he signed his name thereto by authority of the board of directors of said
corporation.
------------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 8th day of November in the year 2002 before me personally came
Alfred Irving, to me known, who, being by me duly sworn, did depose and say that
he is a Vice President of The Bank of New York, the corporation described in and
which executed the above instrument; and that he signed his name thereto by
authority of the board of directors of said corporation.
------------------------------------
Notary Public
EXHIBIT A
Form of Participant Agreement
A-1
Exhibit A
BLDRS INDEX FUNDS TRUST
PARTICIPANT AGREEMENT
This BLDRS Index Funds Trust Participant Agreement (this "Agreement")
is entered into between ALPS Distributors, Inc. (the "Distributor") and
__________ (the "Participant") and is subject to acceptance by The Bank of New
York (the "Trustee"). The Trustee serves as the trustee of the BLDRS Index Funds
of the BLDRS Index Funds Trust pursuant to certain Standard Terms and Conditions
of Trust dated and effective as of November 8, 2002 and the Trust Indenture and
Agreement dated November 8, 2002 between Nasdaq Financial Products Services,
Inc. as Sponsor and the Trustee (collectively, the "Trust Agreement") and is an
Index Receipt Agent as that term is defined in the rules of the National
Securities Clearing Corporation ("NSCC"). The Distributor has been retained to
provide certain services with respect to acting as principal underwriter of the
BLDRS Index Funds in connection with the creation and distribution BLDRS Index
Fund Shares. As specified in the BLDRS Index Funds Trust Agreement, BLDRS Index
Fund Shares may be created or redeemed only in aggregations of 50,000 BLDRS
Index Fund Shares, referred to therein and herein as a "Creation Unit." The
Trust Agreement provides that Creation Units be issued in exchange for a
Portfolio Deposit be delivered by the Participant to the Trustee.
Capitalized terms not otherwise defined herein are used herein as
defined in the Trust Agreement.
This Agreement is intended to set forth certain premises and the
procedures by which the Participant may create or redeem Creation Units through
(i) the Continuous Net Settlement ("CNS") clearing processes of NSCC as such
processes have been enhanced to effect creations and redemptions of Creation
Units, such processes being referred to herein as the "BLDRS Index Fund Clearing
Process", or (ii) outside the BLDRS Index Fund Clearing Process (i.e., through
the facilities of the Depository Trust Company ("DTC" )). The parties hereto in
consideration of the premises and of the agreements contained herein agree as
follows:
1. STATUS OF PARTICIPANT. The Participant hereby represents,
covenants and warrants that (i) with respect to orders for the
creation or redemption of Creation Units by means of the BLDRS
Index Fund Clearing Process, it is a member of NSCC and a
participant in the CNS System of NSCC (a "Participating
Party"); and (ii) with respect to orders for the creation or
redemption of Creation Units outside the BLDRS Index Fund
Clearing Process, it is a DTC Participant (a "DTC
Participant"). The Participant may place orders for the
creation or redemption of Creation Units either through the
BLDRS Index Fund Clearing Process or outside the BLDRS Index
Fund Clearing Process, subject to the procedures for creation
and redemption referred to in paragraph 2 of this Agreement
("Execution of Orders") and the procedures described in
Attachment A hereto. Any change in the foregoing status of the
Participant shall terminate this Agreement, and the
Participant shall give immediate notice to the Distributor and
the Trustee of such change.
1
The Participant further represents that it is a broker-dealer
registered with the Securities and Exchange Commission and a
member of the National Association of Securities Dealers, Inc.
("NASD") or is exempt from or otherwise not required to be
licensed as a broker-dealer or a member of the NASD. The
Participant is qualified as a broker or dealer, or otherwise,
under all applicable state laws where it is required to do so
in order that BLDRS Index Fund Shares may be sold in such
states where the Participant intends to sell BLDRS Index Fund
Shares. The Participant agrees to conform to the rules of the
NASD (if it is a member of NASD) and the securities laws of
any jurisdiction in which it sells, directly or indirectly,
BLDRS Index Fund Shares.
2. EXECUTION OF ORDERS. All orders for the creation or redemption
of Creation Units shall be handled in accordance with the
terms of the Trust Agreement and the procedures described in
Attachment A to this Agreement. Each party hereto agrees to
comply with the provisions of such documents to the extent
applicable to it. In the event the procedures include the use
of recorded telephone lines, the Participant hereby consents
to such use. The Trustee reserves the right to issue
additional or other procedures relating to the manner of
creating or redeeming Creation Units, and the Participant and
the Distributor agree to comply with such procedures as may be
issued from time to time.
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 an order to create a Creation
Units ("Purchase Order") or an order to redeem a Creation Unit
("Redemption Order") shall be irrevocable, provided that the
BLDRS Index Fund and the Distributor on behalf of the BLDRS
Index Fund reserves the right to reject any Purchase Order
until the trade is released as good and any Redemption Order
that is not in "proper form" as defined in Attachment A.
With respect to any Purchase Order, the BLDRS Index 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 BLDRS Index Fund in respect
of any BLDRS Index Fund Security that is transferred to the
BLDRS Index Fund that, based on the valuation of such BLDRS
Index Fund Security at the time of transfer, should have been
paid to the Participant or any party for which it is acting.
With respect to any Redemption Order: (i) the Participant
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 BLDRS Index Fund any dividend, distribution or
other corporate action paid to it or to the party for which it
is acting in respect of any BLDRS Index Fund Security that is
transferred to the Participant or any party for which it is
acting that, based on the valuation of such BLDRS Index Fund
Security at the time of transfer, should have been paid to the
BLDRS Index Fund; and (ii) the Participant acknowledges and
agrees on behalf of itself and any party for which it is
acting (whether as a customer or otherwise) that the BLDRS
Index 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
2
dividend, distribution or other corporate action to be paid to
it or to the party for which it is acting in respect of any
BLDRS Index Fund Security that is transferred to the
Participant or any party for which it is acting that, based on
the valuation of such BLDRS Index Fund Security at the time of
transfer, should be paid to the BLDRS Index Fund.
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 BLDRS Index Fund. 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 a resident of Australia or
New Zealand.
3. NSCC. Solely with respect to orders for the creation or
redemption of Creation Units through the BLDRS Index Fund
Clearing Process, the Participant as a Participating Party
hereby authorizes the Trustee to transmit to NSCC on behalf of
the Participant such instructions, including share and cash
amounts as are necessary with respect to the creation and
redemption of Creation Units consistent with the instructions
issued by the Participant to the BLDRS Index Funds Trust
Telephone Representative identified in Attachment A hereto
(the "BLDRS Index Funds Trust Telephone Representative"). The
Participant agrees to be bound by the terms of such
instructions issued by the Trustee and reported to NSCC as
though such instructions were issued by the Participant
directly to NSCC.
4. FEES. In connection with the creation or redemption of
Creation Units, the Trustee shall charge, and the Participant
agrees to pay to the Trustee, the Transaction Fee prescribed
in the Trust Agreement applicable to creations or redemptions
through the BLDRS Index Fund Clearing Process, or the
Transaction Fee and such additional amounts as may be
prescribed pursuant to the Trust Agreement applicable to: (i)
creations or redemptions outside the BLDRS Index Fund Clearing
Process and (ii) creations within the BLDRS Index Fund
Clearing Process where the cash equivalent value of one or
more Index Securities is being deposited in lieu of the
inclusion of such Index Security in the securities portion of
the Portfolio Deposit because the Participant is restricted by
regulation or otherwise from investing or engaging in a
transaction in such security. The Transaction Fee may be
waived or otherwise adjusted from time to time subject to the
provisions relating thereto and any limitations as prescribed
in the Trust Agreement.
5. AUTHORIZED PERSONS. Concurrently with the execution of this
Agreement and from time to time thereafter, the Participant
shall deliver to the Distributor and the Trustee, duly
certified as appropriate by its secretary or other duly
authorized official, a certificate setting forth the names and
signatures of all persons authorized to give instructions
relating to 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
3
Distributor and the Trustee 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
Trustee of a superseding certificate bearing a subsequent
date. The Trustee shall issue to each Authorized Person a
unique personal identification number ("PIN Number") by which
such Authorized Person and the Participant shall be identified
and instructions issued by the Participant hereunder shall be
authenticated. Upon the termination or revocation of authority
of such Authorized Person by the Participant, the Participant
shall give immediate written notice of such fact to the
Distributor and the Trustee and such notice shall be effective
upon receipt by both the Distributor and the Trustee.
6. REDEMPTION. The Participant represents and warrants that it
will not obtain a Submission Number (as defined in Attachment
A) from the Trustee for the purpose of redeeming a Creation
Unit unless it first ascertains that (a) it or its customer,
as the case may be, owns outright the requisite number of
BLDRS Index Fund Shares to be redeemed and (b) such BLDRS
Index Fund Shares have not been loaned or pledged to another
party nor are the subject of a repurchase agreement,
securities lending agreement or such other arrangement which
would preclude the delivery of such shares to the Trustee on a
"regular way" basis.
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 BLDRS Index
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
BLDRS Index 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 Trust Agreement; (c) the Participant agrees to
maintain records of all sales of BLDRS Index Fund Shares made
by or through it and to furnish copies of such records to the
BLDRS Index Fund or the Distributor upon the request of the
BLDRS Index Fund or the Distributor.
8. BENEFICIAL OWNERSHIP. The Participant represents and warrants
to the Distributor and the Trustee that either (i) it does not
hold for the account of any single Beneficial Owner of BLDRS
Index Fund Shares, 80 percent (80%) or more of outstanding of
BLDRS Index Fund Shares or (ii) if it does hold for the
account of any single Beneficial Owner of BLDRS Index Fund
Shares, 80 percent (80%) or more of outstanding BLDRS Index
Fund Shares, that such a circumstance would not cause the
Trust to have a basis in the Index Securities deposited with
the BLDRS Index Fund different from the market value of such
Index Securities on the date of such deposit, pursuant to
Section 351 of the Internal Revenue Code of 1986, as amended.
The Trustee shall have the right to require information from
4
the Participant regarding BLDRS Index Fund Share ownership and
to rely thereon to the extent necessary to make a
determination regarding ownership of 80 percent (80%) or more
of outstanding BLDRS Index Fund Shares by a Beneficial Owner
as a condition to the acceptance of a Portfolio Deposit.
9. INDEMNIFICATION. The Participant hereby agrees to indemnify
and hold harmless the Distributor, the Trustee and Sponsor,
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 incurred by such Indemnified
Party as a result of (i) any breach by the Participant of its
representations and warranties contained herein or of any
provision of this Agreement; or (ii) any actions of such
Indemnified Party in reliance upon any instructions issued in
accordance with Attachment A (as may be amended from time to
time) believed by the Distributor and/or the Trustee to be
genuine and to have been given by the Participant. This
paragraph shall survive the termination of this Agreement.
10. TRUSTEE CAPACITY. The parties acknowledge that the Trustee is
acting in its capacity hereunder as trustee in accordance with
and pursuant to the Trust Agreement and not in its general
corporate capacity.
11. ACKNOWLEDGMENT. The Participant acknowledges receipt of the
Trust Agreement and prospectus and represents it has reviewed
such documents and understands the terms thereof.
12. 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 as provided herein). Unless otherwise notified in
writing, all notices to the Trustee shall be given or sent as
follows: The Bank of New York, One Wall Street, New York, New
York 10286. All notices to the Participant and the Distributor
shall be directed to the address or telephone, facsimile or
telex numbers indicated below the signature line of such
party.
13. TERMINATION AND AMENDMENT. This Agreement shall become
effective in this form as of the date accepted by the Trustee
and may be terminated at any time by any party upon thirty
(30) day prior notice to the other parties (i) unless earlier
terminated by the Trustee in the event of a breach of this
Agreement or the procedures described herein by the
Participant or (ii) in the event that the Trust is terminated
pursuant to the Trust Agreement. This Agreement supersedes any
prior agreement between the parties. This Agreement may be
amended by the Trustee without consent of any Beneficial Owner
from time to time by the following procedure. The Trustee will
mail a copy of the amendment to the Distributor and the
Participant. For the purposes of this Agreement, mail will be
deemed received by the recipient thereof on the third
5
(3rd) day following the deposit of such mail into the U.S.
postal system. If neither the Distributor nor the Participant
objects in writing to the amendment within ten (10) days after
its receipt, the amendment will become part of this Agreement
in accordance with its terms.
14. REPRESENTATIONS REGARDING BLDRS INDEX FUND SHARES. The
Participant shall not make, or permit any representative to
make, in connection with any sale or solicitation of a sale of
BLDRS Index Fund Shares, any representations concerning BLDRS
Index Fund Shares except those contained in the then current
prospectus and in printed information approved by the
Distributor and the Trustee as information supplemental to
such prospectus. Copies of the then current prospectus and any
such printed supplemental information will be supplied by the
Distributor to the Participant in reasonable quantities upon
request.
15. 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 BLDRS Index Fund
Securities to the Custodian and/or the relevant subcustodian
in accordance with the terms of the Trust Agreement, the BLDRS
Index 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.
16. COUNTERPARTS. This Agreement may be simultaneously executed in
several counterparts, each of which shall be an original and
all shall constitute but one and the same instrument.
17. SPONSOR AS THIRD PARTY BENEFICIARY. The Sponsor shall be a
third-party beneficiary of this Agreement and is entitled to
enforce directly against the Participant the obligations owed
to the Sponsor by the Participant (including, without
limitation, bringing proceedings against the Participant in
the Sponsor's name).
6
18. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New
York without regard to the conflicts of laws thereof.
ALPS DISTRIBUTORS, INC.
BY:
------------------------------
NAME:
TITLE:
ADDRESS: 1625 Broadway, Suite 2200
Denver, Colorado 80202
TELEPHONE: (303) ______
FACSIMILE: (303) ______
{NAME OF PARTICIPANT}
BY:
------------------------------
NAME:
------------------------------
TITLE:
------------------------------
ADDRESS:
------------------------------
------------------------------
TELEPHONE:
------------------------------
FACSIMILE:
------------------------------
ACCEPTED BY:
THE BANK OF NEW YORK,
AS TRUSTEE
BY:
----------------------------------
NAME:
TITLE:
ADDRESS: 101 Barclay Street
New York, NY 10286
TELEPHONE: (212) 815- ______
FACSIMILE: (212) 815- ______
DATED:
----------------------------------
7
ATTACHMENT A
This document supplements the Trust Agreement, and is an attachment to
the Agreement with respect to the procedures to be used by: (i) the Distributor
and the Trustee in processing an order for the creation of Creation Units of
each BLDRS Index Fund of the BLDRS Index Funds Trust ("Purchase Order"); and
(ii) the Trustee in processing a request for the redemption of Creation Units of
each BLDRS Index Fund of the BLDRS Index Funds Trust ("Redemption Order").
A Participant is first required to have signed the BLDRS Index Funds
Trust Participant Agreement. Upon acceptance of the BLDRS Index Funds Trust
Participant Agreement by the Trustee, the Trustee will assign a personal
identification number to each Authorized Person authorized to act for the
Participant. This will allow a Participant through its Authorized Person(s) to
place an order with respect to BLDRS Index Fund Shares.
I. GENERAL RULES FOR PLACING A PURCHASE ORDER OR REDEMPTION ORDER
1. Call to Receive a Submission Number. An Authorized Person for
the Participant will call the BLDRS Index Funds Trust
Telephone Representative at (212) 815-________ not later than
the closing time of the regular trading session on the
Exchange ("Exchange Closing Time") (ordinarily 4:00 p.m. New
York time) to receive a submission number ("Submission
Number"). Upon verifying the authenticity of the caller and
the terms of the Purchase Order or Redemption Order, the BLDRS
Index Funds Trust Telephone Representative will issue a unique
Submission Number. All Purchase Orders and Redemption Orders
are required to be in writing and accompanied by the
designated Submission Number. Incoming telephone calls are
queued and will be handled in the sequence received. Calls
placed before the Exchange 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 CLOSING TIME WILL NOT BE ACCEPTED.
2. Assemble the Submission. The Authorized Person submitting a
Purchase Order or Redemption Order shall assemble (a) written
instructions regarding such creation order or redemption
request, (b) the designated Submission Number and (c) the PIN
Number in one document and transmit such document by facsimile
or telex to the BLDRS Index Funds Trust Telephone
Representative and the Distributor, as applicable, according
to the procedures set forth below in subsection 3. The
document so transmitted is hereinafter referred to as the
"Submission", and the Business Day on which a Submission is
made is hereinafter referred to as the "Transmittal Date."
NOTE THAT THE TELEPHONE CALL IN WHICH THE SUBMISSION NUMBER IS
ISSUED INITIATES THE ORDER PROCESS BUT DOES NOT ALONE
CONSTITUTE THE ORDER. AN ORDER OR REQUEST
1
IS ONLY COMPLETED AND PROCESSED UPON RECEIPT OF THE
SUBMISSION.
3. Transmit the Submission. (a) A Submission Number is only valid
for a limited time. The Submission Purchase Orders or
Redemption Orders must be sent by facsimile or telex to the
BLDRS Index Funds Trust Telephone Representative and the
Distributor, as applicable, within 15 minutes of the issuance
of the Submission Number. In the event that the Submission is
not received within such time period, the BLDRS Index Funds
Trust Telephone Representative will attempt to contact the
Participant to request immediate transmission of the
Submission. (b)Unless the Submission is received by the BLDRS
Index Funds Trust Telephone Representative with a copy to the
Distributor upon the earlier of within (i) 15 minutes of
contact with the Participant or (ii) 45 minutes after the
Exchange Closing Time, the Submission will be deemed invalid.
II. PURCHASE ORDERS THROUGH THE BLDRS INDEX FUND CLEARING PROCESS
1. The Distributor shall issue to both the Participating Party
and the Trustee a confirmation of acceptance of a Purchase
Order through the BLDRS Index Fund Clearing Process within 15
minutes of its receipt of a Submission received in good form.
In the event the Participating Party does not receive a timely
confirmation from the Distributor, it should contact the
Distributor and the BLDRS Index Funds Trust Telephone
Representative at the business numbers indicated.
2. The Participating Party notified of confirmation of a Purchase
Order through the BLDRS Index Fund Clearing Process shall be
required to transfer or arrange for the transfer of: (a) the
requisite Index Securities (or contracts to purchase such
Index Securities expected to be delivered through NSCC by the
"regular way" settlement date); and (b) the Cash Component, if
any, to the Trustee by means of the BLDRS Index Fund Clearing
Process so as to be received no later than on the "regular
way" settlement date following the Business Day on which such
order is Deemed Received by the Distributor as set forth below
in this Section II.
3. After the Trustee has received notification of a Submission
from the Distributor for a Purchase Order through the BLDRS
Index Fund Clearing Process which has been Deemed Received by
the Distributor, the Trustee shall initiate procedures to
transfer the requisite BLDRS Index Fund Shares and the Cash
Component, if any, through the BLDRS Index Fund Clearing
Process so as to be received by the creator no later than on
the "regular way" settlement date following the Business Day
on which the Submission is Deemed Received by the Distributor.
4. A Purchase Order placed through the BLDRS Index Fund Clearing
Process shall be "Deemed Received" by the Distributor on the
Transmittal Date only if (a) the Submission containing such
order is in proper form and (b) such Submission is received by
the Distributor no later than the time on such Transmittal
Date as set
2
forth in Section II (1) hereof. Purchase Orders contained in
Submissions transmitted after such time on a Transmittal Date
shall be deemed invalid.
III. PURCHASE ORDERS OUTSIDE THE BLDRS INDEX FUND CLEARING PROCESS
1. The Distributor shall issue to both the DTC Participant and
the Trustee an acknowledgment of receipt of a Purchase Order
outside the BLDRS Index Fund Clearing Process within 15
minutes of its receipt of a Submission received in good form.
In the event the DTC Participant does not receive a timely
acknowledgment from the Distributor, it should contact the
Distributor and the BLDRS Index Funds Trust Telephone
Representative at the business numbers indicated.
2. The DTC Participant notified of acknowledgment of a Purchase
Order outside the BLDRS Index Fund Clearing Process shall be
required to effect a transfer to the Trustee of: (a) the
requisite Index Securities through DTC so as to be received by
the Trustee no later than 11:00 a.m. on the next Business Day
immediately following the Business Day on which such order is
Deemed Received by the Distributor as set forth below in
Section III(4), in such a way as to replicate the Portfolio
Deposit established on the Transmittal Date by the Trustee;
and (b) the Cash Component, if any, through the Federal
Reserve Bank wire system so as to be received by the Trustee
by 1:00 p.m. on the next Business Day immediately following
the day such order is Deemed Received. If the Trustee does not
receive the Index Securities by 11:00 a.m. and the Cash
Component, if any, by 1:00 p.m. on the Business Day
immediately following the day such order is Deemed Received,
the creation order contained in such Submission shall be
canceled. Upon written notice to the Distributor and the BLDRS
Index Funds Trust Telephone Representative, the DTC
Participant may resubmit such canceled order on the following
Business Day using a Portfolio Deposit as newly constituted.
3. After the Trustee has received notification of a Submission
from the Distributor for a Purchase Order outside the BLDRS
Index Fund Clearing Process which has been Deemed Received by
the Distributor, the Trustee shall initiate procedures to
transfer the requisite BLDRS Index Fund Shares through DTC and
the DTC Participants and the Cash Component, if any, through
the Federal Reserve Bank wire system so as to be received by
the creator no later than on the third (3rd) Business Day
following the Business Day on which the Submission is Deemed
Received by the Distributor.
4. A Purchase Order placed outside the BLDRS Index Fund Clearing
Process shall be Deemed Received by the Distributor on the
Transmittal Date only if: (a) the Submission containing such
order is in proper form, (b) such Submission is received by
the Distributor no later than the time on such Transmittal
Date as set forth in Section III(2) hereof, (c) the requisite
number of Index Securities is transferred through DTC to the
account of the Trustee by no later than 11:00 a.m. on the
Business Day next following the Transmittal Date and (d) the
cash equal to the Cash Component, if any, is transferred via
the Federal Reserve Bank wire
3
system to the account of the Trustee by no later than 1:00
p.m. on the Business Day next following the Transmittal Date.
If either the Submission, the requisite Index Securities or
the cash equal to the Cash Component is not received by the
Trustee within the time periods set forth above, such order
shall be deemed invalid.
IV. PURCHASE ORDERS PRIOR TO RECEIPT OF PORTFOLIO DEPOSIT
1. Creation Units also may be purchased in advance of the receipt
by the Trustee of all or a portion of the Portfolio Deposit
relating to such Creation Units, but only through the BLDRS
Index Fund Clearing Process. In such cases, a Participating
Party intending to utilize this procedure will be required to
post collateral with the Trustee outside of the NSCC
consisting of: (i) cash at least equal to 115% of the closing
value, on the day the order to purchase Creation Units is
deemed received, of the portion of the Index Securities not
expected to be available in the account of the Participating
Party for delivery to the BLDRS Index Fund on the third NSCC
Business Day following placement of such order, and (ii) such
additional deposits as will reflect daily marked to the market
increases (but not decreases) in such value as determined by
the Trustee. This cash collateral will be required to be
posted with the Trustee by 11:00 a.m. on the morning of the
NSCC Business Day following the day such order is Deemed
Received by the Distributor, or else the order to purchase
Creation Units will be canceled. The Trustee will hold such
collateral in an account separate and apart from the BLDRS
Index Fund.
2. Under customary NSCC practices, by midnight of the day
following the receipt by NSCC of such order, NSCC determines
either: (i) to guarantee the Participating Party's obligations
for delivery and receipt of securities and cash in connection
with the order to purchase Creation Units; or (ii) in certain
circumstances to cease to act on behalf of the Participating
Party with respect to such obligations.
3. In accordance with IV(2)(i) above, if the Trustee does not
receive the requisite Index Securities by the end of business
on the NSCC Business Day following receipt of such order, the
Trustee will then be required under the Agreement to submit
promptly (i.e., on the same day if practicable) a notice of
intention to buy-in to NSCC with respect to the undelivered
Index Securities. In conformance with NSCC's buy-in-rules, two
NSCC Business Days following the day on which such notice of
buy-in has been submitted, if all requisite Index Securities
have still not been received by the Trustee, the Trustee will
be required under the Agreement to effect a buy-in of the
undelivered Index Securities in accordance with NSCC's buy-in
procedures at no additional financial obligation to the BLDRS
Index Fund beyond that in connection with the Trustee's
original obligation to deliver the Creation Units.
4. Alternatively, in accordance with IV(2)(ii) above, if NSCC, by
midnight on the day following receipt by NSCC of an order by a
Participating Party for the purchase of Creation Units,
determines to cease to act on behalf of the Participating
Party with respect to its delivery and/or receipt obligations
of
4
securities and cash in connection with such order, the Trustee
will be required under the Agreement to act, depending upon
the specific circumstances that arise, in one of three ways as
described in the Participant Agreement: (i) in the case in
which NSCC elects not to guarantee in entirety the delivery of
Index Securities by the Participating Party to the Trustee and
the receipt of Creation Units by the Participating Party from
the Trustee, the Trustee shall deem the order to purchase
Creation Units canceled altogether outside the NSCC system;
(ii) in the case in which the NSCC elects only to guarantee
the delivery of Index Securities by the Participating Party to
the Trustee, the Trustee shall deem the order to purchase
Creation Units canceled and return against payment outside the
NSCC system any securities delivered to the Trustee; or (iii)
in the case where the NSCC elects only to guarantee the
receipt of Creation Units by the Participating Party from the
Trustee, the Trustee shall issue the Creation Units and be
required under the Agreement to buy promptly (i.e., on the
same day, if practicable) the requisite Index Securities
utilizing cash received by the Trustee pursuant to NSCC's
rules in connection with its delivery of Creation Units,
together with the 115% cash collateral held separately by the
Trustee, to cover all buy-in costs and expenses. In other
words, only in the third case described above are Creation
Units issued by the Trustee, and in this case, the purchase by
the Trustee of the undelivered Index Securities is secured by
no less than 200% cash collateral (i.e., approximately the
115% cash collateral amount deposited by the Participating
Party and 100% of the closing value, on the day the order to
purchase Creation Units is Deemed Received and which is
guaranteed by NSCC), which insulates the BLDRS Index Fund 's
net asset value from any conceivable risk of dilution.
5. It should be noted that the foregoing procedures of NSCC to
guarantee the delivery of missing Index Securities are in
accordance with the NSCC rules regarding the settlement of all
securities transactions through NSCC. It should also be noted
that the Trustee will return the 115% cash collateral to the
Participating Party net of commissions and other buy-in
expenses incurred by the Trustee, if any, promptly upon
settlement of delivery of all Index Securities, or buy-in of
all missing Index Securities, or cancellation of the order to
purchase Creation Units. The relevant prospectus advises
investors that information concerning the procedures for such
cash collateralization is available from the Distributor.
V. REDEMPTION ORDERS THROUGH THE BLDRS INDEX FUND CLEARING PROCESS
1. The Participating Party notified of confirmation of a
Redemption Order placed through the BLDRS Index Fund Clearing
Process shall be required to transfer or arrange for the
transfer of the requisite BLDRS Index Fund Shares and the Cash
Redemption Amount, if any, to the Trustee by means of the
BLDRS Index Fund Clearing Process so as to be received no
later than on the "regular way" settlement date following the
Business Day on which such order is Deemed Received by the
Trustee as set forth below in Section V(3).
5
2. After the Trustee has received a Submission for a Redemption
Order placed through the BLDRS Index Fund Clearing Process and
Deemed Received, the Trustee shall initiate procedures to
transfer the requisite securities (or contracts to purchase
such securities expected to be delivered through NSCC by the
"regular way" settlement date) and the Cash Redemption Amount,
if any, through the BLDRS Index Fund Clearing Process so as to
be received by the Beneficial Owner no later than on the
"regular way" settlement date following the Business Day on
which the Submission is Deemed Received by the Trustee.
3. A Redemption Order placed through the BLDRS Index Fund
Clearing Process shall be Deemed Received by the Trustee on
the Transmittal Date only if (a) the Submission containing
such request is in proper order and (b) such Submission is
received by the Trustee no later than the time on such
Transmittal Date as set forth in Section V(2) hereof.
Redemption Orders contained in Submissions transmitted after
such time on a Transmittal Date shall be "Deemed Received" by
the Trustee on the next Business Day immediately following
such Transmittal Date.
VI. REDEMPTION ORDERS OUTSIDE THE BLDRS INDEX FUND CLEARING PROCESS
1. The Trustee shall issue to the DTC Participant an
acknowledgment of receipt of Redemption Orders placed outside
the BLDRS Index Fund Clearing Process within 15 minutes of its
receipt of a Submission received in good form. In the event
the DTC Participant does not receive a timely acknowledgment
from the Trustee, it should contact the Trustee directly at
the business number indicated.
2. The DTC Participant notified of acknowledgment of a Redemption
Order placed outside the BLDRS Index Fund Clearing Process
shall be required to effect a transfer to the Trustee of: (a)
the requisite number of BLDRS Index Fund Shares through DTC no
later than the Closing Time on the Business Day on which such
order is Deemed Received as defined below in Section VI(4), by
the Trustee; and (b) the Cash Redemption Amount, if any,
through the Federal Reserve Bank wire system by no later than
1:00 p.m. on the next Business Day immediately following the
Business Day on which such order is Deemed Received by the
Trustee.
3. After the Trustee has received a Submission for a Redemption
Order placed outside the BLDRS Index Fund Clearing Process and
Deemed Received, the Trustee shall initiate procedures to
transfer the requisite securities (or contracts to purchase
such securities expected to be delivered within three Business
Days) through DTC and the DTC Participants and the Cash
Redemption Amount, if any, through the Federal Reserve Bank
wire system so as to be received by the Beneficial Owner no
later than on the third (3rd) Business Day following the
Business Day on which the Submission is Deemed Received by the
Trustee.
6
4. A request to redeem BLDRS Index Fund Shares outside the BLDRS
Index Fund Clearing Process shall be Deemed Received by the
Trustee on the Transmittal Date only if: (a) the Submission
containing such request is in proper form; (b) such Submission
is received by the Trustee no later than the time as set forth
in Section VI(2) hereof; (c) the requisite number of BLDRS
Index Fund Shares are transferred via DTC to the account of
the Trustee by the Closing Time on such Transmittal Date; and
(d) the Cash Redemption Amount owed to the Trustee, if any, is
received by the Trustee no later than 1:00 p.m. of the
Business Day next following such Transmittal Date. If either
the Submission, the BLDRS Index Fund Shares or cash equal to
the Cash Redemption Amount, if any, is not received by the
Trustee within the time periods set forth above, such
Redemption Order shall be Deemed Received by the Trustee on
the Business Day on which both the Submission and the
requisite number of BLDRS Index Fund Shares are delivered to
the Trustee within the proper time periods as set forth above;
provided that the Cash Redemption Amount, if any, is then paid
on the next Business Day within the time period set forth
above.
VII. MISCELLANEOUS
1. Transaction Fee. In connection with a Purchase Order or
Redemption Order, the Trustee shall charge, and the
Participant agrees to pay to the Trustee, the Transaction Fee
prescribed in the Trust Agreement prospectus applicable to:
(i) Creation Orders or Redemption Orders placed through the
BLDRS Index Fund Clearing Process, or the Transaction Fee and
such additional amounts as may be prescribed pursuant to the
Trust Agreement prospectus applicable to outside the BLDRS
Index Fund Clearing Process; and (ii) within the BLDRS Index
Fund Clearing Process where the cash equivalent value of one
or more Index Securities is being deposited in lieu of the
inclusion of such Index Security in the securities portion of
the Portfolio Deposit because the Participant is restricted by
regulation or otherwise from investing or engaging in a
transaction in such security. Such Transaction Fee and
additional amounts, if any, shall be included in the
calculation of the Cash Component or Cash Redemption Amount
payable or to be received, as the case may be, by the
Participant in connection with such Purchase Order or
Redemption Order.
2. Ambiguous Instructions. In the event that a Submission
contains terms that differ from the information provided in
the telephone call at the time of issuance of the Submission
Number, the BLDRS Index Funds Trust Telephone Representative
will attempt to contact the Participant to request
confirmation of the terms of the order. If an Authorized
Person confirms the terms as they appear in the Submission
then the Submission will be accepted and processed. If an
Authorized Person contradicts its terms, the Submission will
be deemed invalid, and a corrected Submission must be received
by the BLDRS Index Funds Trust Telephone Representative and
the Distributor, as applicable, not later than the earlier of:
(i) within 15 minutes of such contact with the Participant; or
(ii) 45 minutes after the Closing Time. If the BLDRS Index
Funds Trust Telephone Representative is not able to contact an
Authorized Person, then the Submission shall be accepted and
processed in accordance with its terms notwithstanding any
7
inconsistency from the terms of the telephone information. In
the event that a Submission contains terms that are illegible,
the Submission will be deemed invalid and the BLDRS Index
Funds Trust Telephone Representative will attempt to contact
the Participant to request retransmission of the Submission. A
corrected Submission must be received by the BLDRS Index Funds
Trust Telephone Representative, and the Distributor, as
applicable, not later than the earlier of (i) within 15
minutes of such contact with the Participant or (ii) 45
minutes after the Closing Time.
3. Suspension or Rejection of an Order. (a) The Distributor or
Trustee reserves the right to suspend a Submission in the
event that its acceptance would appear to result in the
Participant or a Beneficial Owner owning 80 percent (80%) or
more of all outstanding BLDRS Index Fund Shares and if
pursuant to Section 351 of the Internal Revenue Code of 1986,
as amended, such a circumstance would result in the Trust
having a basis in the securities deposited different from the
market value of such securities on the date of deposit. In
such event, the Distributor or the BLDRS Index Funds Trust
Telephone Representative will attempt to contact an Authorized
Person for purposes of confirmation of the fact that with
respect to such Participant no Beneficial Owner would own 80
percent (80%) or more of all outstanding BLDRS Index Fund
Shares upon execution of the Submission or that such a
circumstance would not result in the Trust having a basis in
the securities deposited different from the market value of
such securities on the date of deposit. In the event that: (i)
the Distributor or the BLDRS Index Funds Trust Telephone
Representative is unable to contact an Authorized Person; or
(ii) the Participant fails to transmit an identical Submission
containing a representation and warranty as to such fact, then
the Submission shall be deemed invalid.
(b) The Trustee further reserves the absolute right to reject
a Purchase Order transmitted to it by the Distributor in
respect of any Portfolio Deposit or any component thereof if:
(i) the Portfolio Deposit is not in proper form; (ii)
acceptance of the Portfolio Deposit would have certain adverse
tax consequences; (iii) the acceptance of the Portfolio
Deposit would, in the opinion of counsel, be unlawful; (iv)
the acceptance of the Portfolio Deposit would otherwise, in
the discretion of the Trustee, have an adverse affect on the
Trust or the rights of Beneficial Owners; or (v) in the event
that circumstances outside the control of the Trustee make it
for all practical purposes impossible to process Purchase
Orders. The Trustee will provide notice of its reasons for
rejection of a creation order in respect of a Portfolio
Deposit or any component thereof. The Trustee, the Distributor
and the Sponsor shall not incur any liability in connection
with any notification of defects or irregularities in the
delivery of Portfolio Deposits or any component thereof or in
connection with the rejection of a Purchase Order.
8
VIII. TELEPHONE, FACSIMILE, AND TELEX NUMBERS
ALPS DISTRIBUTORS, INC.
TELEPHONE:
----------------------
FACSIMILE:
------------------
BLDRS INDEX FUNDS TRUST TELEPHONE REPRESENTATIVE:
TELEPHONE: (212) 815-
----------
FACSIMILE: (212) 815- __________
----------
TRUSTEE: TELEPHONE: (212) 815-
------------ ----------
FACSIMILE: (212) 815-
----------
PARTICIPANT: TELEPHONE:
- ----------- ----------------------
FACSIMILE:
----------------------
9
ALPS DISTRIBUTORS, INC.
BY
-----------------------------------------
TITLE:
-------------------------------------
{NAME OF PARTICIPANT}
BY:
----------------------------------------
TITLE:
-------------------------------------
ACCEPTED BY:
THE BANK OF NEW YORK,
AS TRUSTEE
BY:
----------------------------------------
TITLE:
-------------------------------------
DATED:
-------------------------------------
10
EXHIBIT B
[FORM A OF GLOBAL CERTIFICATE]
CERTIFICATE OF BENEFICIAL INTEREST
-Evidencing-
All Undivided Interests
-in-
BLDRS Index Funds Trust, BLDRS Index Fund
This is to certify that CEDE & CO. is the owner and registered holder of
this Certificate evidencing the ownership of all of the fractional undivided
interests in the BLDRS Index Funds Trust, BLDRS Index Fund (herein called the
"BLDRS Index Fund "), created under the laws of the State of New York by the
Standard Terms and Conditions of Trust and the BLDRS Index Fund Indenture
(hereinafter called the "Agreement and Indenture"), each between Nasdaq
Financial Products Services, Inc. (hereinafter called the "Sponsor"), and The
Bank of New York, as Trustee (hereinafter called the "Trustee"), copies of which
are available at the offices of the Trustee.
At any given time this Certificate shall represent all undivided
interests in the BLDRS Index Fund, which shall be the total number of Creation
Units of undivided interest that are outstanding at such time. The Agreement and
Indenture provide for the deposit of additional Index Securities from time to
time with the Trustee, at which times the Trustee will create Creation Units
representing the additional Securities deposited with the BLDRS Index Fund in
accordance with the provisions of the Agreement and Indenture.
The Sponsor and __________ as the initial depositor of the Index
Securities hereby grant and convey all of their rights, title and interest in
and to the BLDRS Index Fund to the extent of the undivided interest represented
hereby to the registered holder of this Certificate subject to and in pursuance
of the Agreement and Indenture, all the terms, conditions and covenants of which
are incorporated herein as if fully set forth at length.
The registered holder of this Certificate is entitled at any time upon
tender of this Certificate to the Trustee, endorsed in blank or accompanied by
all necessary instruments of assignment and transfer in proper form, at its New
York office in the State of New York and, upon payment of any tax or other
governmental charges, to receive on or before the seventh calendar day following
the day on which such tender is made or, if such calendar day is not a Business
Day (as defined in the Agreement and Indenture), on the next succeeding Business
Day following such calendar day, such holder's ratable portion of each of the
Securities for each Creation Unit tendered and evidenced by this Certificate and
a check or, if elected, a wire transfer, in an amount proportionate to money due
such holder for each Creation Unit tendered.
The holder hereof may be required to pay a charge specified in the
Agreement and Indenture issued in connection with the issuance, transfer or
interchange of this Certificate and
B-1
any tax or other governmental charge that may be imposed in connection with the
transfer, interchange or other surrender of this Certificate.
The holder of this Certificate, by virtue of the purchase and acceptance
hereof, assents to and shall be bound by the terms of the Agreement and
Indenture, copies of which are on file and available for inspection at
reasonable times during business hours at the New York office of the Trustee, to
which reference is made for all the terms, conditions and covenants thereof.
The Trustee may deem and treat the person in whose name this Certificate
is registered upon the books of the Trustee as the owner hereof for all purposes
and the Trustee shall not be affected by any notice to the contrary.
The Agreement and Indenture permits, with certain exceptions as therein
provided, the amendment thereof, by the Sponsor and the Trustee with the consent
of the Beneficial Owners of 51% of the outstanding BLDRS Index Fund Shares to
add provisions to or change or eliminate any of the provisions of the Agreement
or to modify the rights of Beneficial Owners; provided, however, that the
Agreement may not be amended without the consent of the Beneficial Owners of all
outstanding BLDRS Index Fund Shares if such amendment would (x) permit, except
in accordance with the terms and conditions of the Agreement, the acquisition of
any securities other than those acquired in accordance with the terms and
conditions of the Agreement; (y) reduce the interest of any Beneficial Owner in
the Trust; or (z) reduce the percentage of Beneficial Owners required to consent
to any such amendment. Any such consent or waiver by the holder of BLDRS Index
Fund Shares shall be conclusive and binding upon such holder of BLDRS Index Fund
Shares and upon all future holders of BLDRS Index Fund Shares, and shall be
binding upon any BLDRS Index Fund Shares, whether evidenced by a Certificate or
held in uncertificated form, issued upon the registration or transfer hereof
whether or not notation of such consent or waiver is made upon this Certificate
and whether or not the BLDRS Index Fund Shares evidenced hereby are at such time
in uncertificated form. The Agreement and Indenture also permits the amendment
thereof, in certain limited circumstances, without the consent of any holders of
BLDRS Index Fund Shares.
This Certificate shall not become valid or binding for any purpose until
properly executed by the Trustee under the Agreement and Indenture.
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the Trustee or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is required by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
Terms not defined herein will have the same meaning as in the Agreement
and Indenture.
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IN WITNESS WHEREOF, The Bank of New York, as Trustee, has caused this
Certificate to be manually executed in its corporate name by an Authorized
Officer and Nasdaq Financial Products Services, Inc., as Sponsor, has caused
this Certificate to be executed in its name by the manual or facsimile signature
of one of its Authorized Officers.
THE BANK OF NEW YORK, NASDAQ FINANCIAL PRODUCTS
As Trustee SERVICES, INC.,
As Sponsor
By By
-------------------------------- --------------------------------
Authorized Officer Authorized Officer
Date: , 2002
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