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GLOBAL

Bond Indices

12 October 2000

Phil GaldiManaging Director

Quantitative Analysis& Portfolio Strategy

(1) 212 [email protected]

Bond IndexRules & DefinitionsOverview & Global Indices

Merrill Lynch & Co.Global Securities Research & Economics GroupFixed Income Analytics

RC#60828712

Contributors

Phil GaldiManaging [email protected](1) 212 449-5545

Europe

Behzad [email protected](44) 20 7867-3927

Joseph [email protected](44) 20 7867-3927

Preston [email protected](44) 20 7867-3927

United States

Mark [email protected](1) 212 449-5533

Mark [email protected](1) 212 449-5533

Kevin [email protected](1) 212 449-5533

Arjun [email protected](1) 212 449-5533

Borivoj [email protected](1) 212 449-5533

David [email protected](1) 212 449-1390

Bond Index Rules & Definitions – 12 October 2000

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Executive SummaryMuch has changed in the global fixed income marketssince the last edition of the Index Rules & Definitions.Ten currencies became one and for the first time, a truecorporate bond market began to develop in continentalEurope. High Yield and Emerging Markets – onceexclusively contained within the dollar markets – beganto expand into other currencies. And investorseverywhere – influenced by lower yields, dwindlingsovereign supply and, in some cases, regulatory change– became more focused than ever on credit. Change ininvestment behavior and policy guidelines necessitatedchange in performance benchmarks, and as a result thelast few years have seen a frenetic pace of new indexdevelopment. The updated Index Rules & Definitionsincorporates all of these recent developments,providing a comprehensive reference guide to ourcurrent index line-up and compilation standards.

New Indices Introduced in theLast Two Years

� Euro Markets

Launched in April 1997, the EMU Broad Market andLarge Cap Index series provided the industry’s firstcoverage of the full investment grade spectrum of euro-denominated credit markets.

� Sterling Markets

Launched in July 1998, the Sterling Broad Market andAll Stocks Index series matched our euro indices withfull coverage of the investment grade sterling creditmarkets.

� Global High Yield

Launched in August 1998, the Global High Yield Indexseries extended coverage of our popular US High YieldIndices to include new markets for euro, sterling andCanadian dollar-denominated high yield debt.

� Global Emerging Markets

Launched in October 1999, the Global EmergingMarkets series rounded out our coverage of the low-grade investment arena, complementing our extensivecoverage of the developed country high yield markets.

� Asian Dollar Markets

Launched in April 2000, the Asian Dollar Index seriesfocused specifically on dollar-denominated debt ofboth high grade and high yield Asian issuers.

� Australian Markets

Launched in June 2000, the Australian Broad MarketIndex series rounded out our dollar-bloc coveragewhich already included the US and Canada.

� Japan Markets

Launched in July 2000, completion of the Japan BroadMarket and Extended Market Index series was the laststep of our efforts to develop broad-based indexproducts for each of the major regional markets.

� Global Credit Markets

Launched in September 2000, the Global BroadMarket, Global Large Cap and Global Broad MarketPlus Index series represents the most completecoverage of the global high grade credit markets yetavailable.

Follow the Indices in theseRegular Publications

� Projected Index Structure

Published two days prior to month-end, the ProjectedIndex Structure reports highlights anticipated re-balancing changes for key indices.

� Monthly Risk/Return Profiles

The Index Risk/Return Profile reports recaps priormonth and year-to-date performance of the fixedincome markets along with an overview of the riskstructure of the markets for the coming month.

� Credit Index Quarterly

The Credit Index Quarterly offers in-depth analysis ofrelative performance within each of the major highgrade and high yield markets around the world,including historical yield spread and yield ratio trends,Sharpe Ratios, return attributions, etc.

� Index Almanac

The Index Almanac delivers a comprehensive annualreview of bond market performance and structure.Returns are analyzed for each of the major Regionaland Global Indices as well as for key sector and ratingIndices within each group.

The ranks of those actively using our Global IndexSystem has grown dramatically over the past two years– now numbering well over 20,000. We appreciate therole each of you play in offering suggestions and feedbackto help direct our development process. We look forwardto rewarding you with a long list of new features, analyticsand indices over the coming year.

Philip Galdi(1) 212 449 5545


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CONTENTS

� Section Page

Overview 4

Global High Grade 1. Global Broad Market IndexGlobal Large Cap IndexGlobal Broad Market Plus Index

51015

Global Sovereign 2. Global Government IndexOther Countries Not Included in the Global Government IndexGlobal Government Inflation-Linked IndexGlobal Money Market & Currency Indices

18252833

US High Grade 3. US Broad Market & Large Cap IndicesAsset Backed Securities IndexUS Treasury Bill, Current Coupon, Off-the-Run, Inflation Linked and STRIP IndicesMunicipal Securities IndexEuro-US Dollar Index

385255

6265

Europe High Grade 4. Pan-Europe Broad Market & Broad Market Plus IndicesEMU Broad Market & Large Cap IndicesSterling Broad Market & All Stocks IndicesOther Pan-Europe Broad Market Government IndicesOther Pan-Europe Broad Market Plus Government IndicesEuropean Government Inflation-Linked IndicesEuropean government Bill & Bonds Under 1 Year

67768593949697

Japan High Grade 5. Japan Broad Market & Extended Market Indices 98

Canada High Grade 6. Canadian Broad Market Index 108

Australia High Grade 7. Australian Broad Market Index 113

Global High Yield& Emerging Markets

8. Aggregate High Yield & Emerging Market IndicesGlobal High Yield IndexUS High Yield IndicesEuropean High Yield IndicesCanadian High Yield IndicesGlobal Emerging Markets IndicesGlobal Emerging Market Sovereign IndicesGlobal Emerging Market Corporate Indices

118126128132137142148153

Asian Dollar Markets 9. Asian Dollar Index 156

Custom Indices 10. The Case for Custom IndicesMethods of Calculation

162162

General Methodology andClassification Schemes

11. Rate of Return CalculationsReturn Attribution MethodologyExcess Return MethodologyRe-balancing RulesComposite Rating AlgorithmSector Classification SchemaGlossary of Frequently Used Terms

165170177181182183186

Accessing the Indices 12. The Merrill Lynch Global Index System 188


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Overview: the Merrill Lynch IndexFrameworkMerrill Lynch Global Indices present a comprehensive view of the broad spectrumof the fixed income markets – investment grade to high yield issuers, domiciled indeveloped to emerging markets countries. The Indices are segmented into threemain series: The Broad Market (Investment Grade) Series; the High YieldSeries; and the new Emerging Markets Series. To classify a bond into one ofthese three groups, we first look at the issuer’s country of domicile – thosedomiciled in a country rated below investment grade (for its foreign currency long-term debt) are classified in the Emerging Markets group. For the remainder(i.e., issuers domiciled in investment grade rated countries), we additionally look atthe individual bond rating – those rated BBB3 and above are included in the BroadMarket series, while those rated BB1 and below are included in the High Yieldseries.

Chart 1: Segmentation of the Merrill Lynch Fixed Income Indices

Broad Market (Investment Grade)

Index Series

High YieldIndex Series

Emerging Markets Index Series

Issuer domiciled in abelow investment

grade rated country

Issuer domiciled inan investment grade

rated country

Issuer ratedinvestment grade

Issuer rated belowinvestment grade

BBB &Lower Series

BBB-BSeries

The broad classifications described above only define the starting point for Indexconstruction. Numerous sub-divisions and combinations are then created withinand across the three main Index series. For example, included in the EmergingMarkets Series are indices that track that market by type (Sovereign/ Corporate);region (Latin America/Europe/Asia); currency (US Dollar and Euro); and country.Broader combinations are also available, such as the combined High Yield andEmerging Markets Index and the BBB and Lower Sovereign Index. More detailedschematics of the Index/sub-index structure of the entire Index line-up areprovided throughout this document.


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1. Global High Grade Markets

Global Broad Market Index

Ticker: GBMIThe Global Broad Market Index tracks the performance of investment gradepublic debt issued in the major domestic and eurobond markets, including“global” bonds. Qualifying currencies and minimum issue size requirements forlocal currency sovereign debt are: AUD 1 billion, CAD 1 billion,CHF 500 million, DKK 5 billion, EUR 1 billion (EUR equivalent for euro legacycurrencies), GBP 500 million, JPY 200 billion, NZD 1 billion, SEK 5 billion, andUSD 1 billion. Qualifying currencies and minimum issue size requirements fornon-sovereign debt and foreign currency sovereign debt are: AUD 100 million,CAD 100 million, EUR 100 million (EUR equivalent for euro legacy currencies),GBP 100 million, JPY 20 billion, and USD 150 million (USD 25 million pertranche for asset backed securities). Qualifying bonds must have at least one yearremaining term to maturity and a fixed coupon schedule. Bonds must be ratedinvestment grade based on a composite of Moody’s and S&P. (Moody’s and S&Psenior unsecured debt and Pfandbrief issuer ratings are used for Quasi-Government, Mortgage and Pfandbrief securities that do not have individual bondratings.) In addition to their own rating requirements, qualifying issuers (otherthan Supranationals) must be domiciled in a country having an investment gradeforeign currency long-term debt rating (based on a composite of Moody’s andS&P). The index is re-balanced on the last calendar day of the month. Issues thatmeet the qualifying criteria are included in the index for the following month.Issues that no longer meet the criteria during the course of the month remain in theindex until the next month-end re-balancing at which point they are dropped fromthe index. Additional sub-indices are available that segment the Index by maturityand sector (All Non-Sovereign, Quasi-Government, Collateralized and Corporate).The inception date of the Index is December 31, 1996.

Chart 2: Structure of the Global Broad Market Index Series

Pan-EuropeBroad Market

JapanBroad Market

SterlingBroad Market

EMU BroadMarket

Denmark GvtSweden Gvt

Switzerland Gvt

Dollar BlocBroad Market

New ZealandGovernment

Global Broad MktNon-Sovereign

GlobalSovereign

Global Broad Mkt Collateralized

Global Broad Mkt Quasi-Govt

Global Broad Mkt Corporate

Global BroadMarket Index

Euro-US$

Euro-C$

Euro-A$

U.S. Broad Market

CanadaBroad Market

AustraliaBroad Market

Available MaturitySub-divisions:1-3 Year3-5 Year5-7 Year7-10 Year10+ Year1-5 Year5-10 Year1-10 Year

AAA

AA

A

BBB


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Table 1: Global Broad Market Index (GBMI) Selection Criteria

Feature Requirement

Currency of Denomination Australian dollar, Canadian dollar, Danish krone, euro (and eurolegacy currencies), New Zealand dollar, sterling, Swedish krona,Swiss franc, US dollar, and yen

Market of Issue Public debt issued in the domestic and eurobond markets

Products AUD/CAD/EUR/GBP/JPY/USD: Sovereign bonds, Quasi-Government bonds, Corporate bonds and Collateralized securitiesAll other currencies: local currency Sovereign debt only

Issuer Country of Domicile Includes “offshore” issuers, however, the issuer must be domiciledin a country having a BBB3 or higher composite foreign currencylong-term debt rating

Minimum Bond Rating Quasi-Government: BBB3 composite Moody’s and S&P bondrating, or BBB3 composite Moody’s and S&P senior unsecureddebt issuer ratingMortgage Pass-Through: BBB3 composite Moody’s and S&Psenior unsecured debt issuer ratingPfandbrief: BBB3 composite Moody’s and S&P bond rating, orBBB3 composite Moody’s and S&P Pfandbrief rating, or BBB3composite Moody’s and S&P senior unsecured debt issuer ratingCorporate (financial, non-financial and asset backed): BBB3composite Moody’s and S&P bond rating

Remaining Term-to-Maturity Greater than or equal to one year

Coupon Type Fixed coupon schedule- includes step-up and multi-coupon securities provided the couponschedule is pre-determined at time of issue- excludes variable coupons, structured notes, inflation-linkedsecurities, etc.

Minimum Amount Outstanding Local Currency Sovereign Debt: AUD 1 billion; CAD 1 billion;CHF 500 million, DKK 5 billion, EUR 1 billion, GBP 500 million,JPY 200 billion, NZD 1 billion, SEK 5 billion, USD 1 billionNon-Sovereign and Foreign Currency Sovereign Debt:AUD 100 million; CAD 100 million; EUR 100 million,GBP 100 million, JPY 20 billion, USD 150 million (USD 25 millionper tranche for asset backed securities)

Settlement Date New issues must settle on or before the re-balancing date

Other Comments Government Strips are not included as separate securities. Theamount stripped is included in the amount outstanding of theunderlying bond.

USD 144a domestic issues are not included in the Index until theyare exchanged for registered securities.

Notes:Composite rating is based on an average of Moody’s and S&P, biased to the lower of the two (see Section 11 for moredetail on the Composite Rating Algorithm). Issues that are not rated on a composite basis are excluded.

Minimum amount outstanding requirements for US Mortgages are based on generic securities. A generic MortgagePass-Through security represents an aggregation of all mortgage Pass-Through pools having a common issuer (GinnieMae, Fannie Mae, Freddie Mac, etc.), type (30-year single family, 15-year single family, etc), coupon and production year(the year the underlying mortgages were issued). There is no minimum maturity requirement for Mortgages.


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� Pricing

Securities are priced daily at the bid side of the market. Pricing for Euro Marketsis as of 5pm CET, all non-Euro European Markets are as of the London close,Canada and the US are as of 3pm EST and all other markets are as of the localclose. Prices are obtained from a combination of Merrill Lynch trading desks andexternal sources.

� Primary Sub-Indices

The Global Broad Market Index is segmented into five primary sectorIndices:

Global Government Index (W0G1)The Global Government Index tracks the performance of public debt ofinvestment grade Sovereign issuers issued and denominated in their own domesticmarket and currency. Qualifying countries and their respective minimum issuesize requirements include: Australia (AUD 1 billion); Canada (CAD 1 billion);Denmark (DKK 5 billion); Euro-Sovereigns (EUR 1 billion); Japan(JPY 200 billion); New Zealand (NZD 1 billion); Sweden (SEK 5 billion);Switzerland (CHF 500 million); the UK (GBP 500 million); and the US(USD 1 billion). In addition, individual qualifying bonds must have at least oneyear remaining term to maturity and a fixed coupon schedule. Qualifying countriesmust maintain an investment grade foreign currency long term Sovereign debt rating(based on a composite of Moody’s and S&P). Government bills and inflation-linkedsecurities are excluded from the index. Zero coupon bonds are excluded; however,any portion of a qualifying note or bond that has been stripped for purposes ofcreating a zero coupon security remains included in the amount outstanding of theunderlying coupon note or bond. The index is re-balanced on the last calendar dayof the month. Issues that meet the qualifying criteria are included in the index forthe following month. Issues that no longer meet the criteria during the course ofthe month remain in the index until the next month-end re-balancing at whichpoint they are dropped from the index. Additional sub-indices are available thatsegment the Index by country, region and maturity. The inception date of theindex is December 31, 1985, with daily data available beginningSeptember 30, 1993.

Global Broad Market Non-Sovereign Index (G0BN)The Global Broad Market Non-Sovereign Index tracks the performance ofinvestment grade public debt, other than local currency Sovereign debt, issued inthe major domestic and eurobond markets, including “global” bonds. Qualifyingcurrencies and their respective minimum issue size requirements include: AUD100 million; CAD 100 million; EUR 100 million (EUR equivalent for euro legacycurrencies); JPY 20 billion; GBP 100 million; and USD 150 million (USD 25million per tranche for asset backed securities). Qualifying bonds must have atleast one year remaining term to maturity and a fixed coupon schedule. Bondsmust be rated investment grade based on a composite of Moody’s and S&P.(Moody’s and S&P senior unsecured debt and Pfandbrief issuer ratings are usedfor Quasi-Government, Mortgage and Pfandbrief securities that do not haveindividual bond ratings.) In addition to their own rating requirements, qualifyingissuers (other than Supranationals) must be domiciled in a country having aninvestment grade foreign currency long-term debt rating (based on a composite ofMoody’s and S&P). The index is re-balanced on the last calendar day of themonth. Issues that meet the qualifying criteria are included in the index for thefollowing month. Issues that no longer meet the criteria during the course of themonth remain in the index until the next month-end re-balancing at which pointthey are dropped from the index. Additional sub-indices are available thatsegment the Index by maturity. The inception date of the Index isDecember 31, 1996.


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Global Broad Market Quasi-Government Index (G0BQ)The Global Broad Market Quasi-Government Index tracks the performance ofinvestment grade public Government and Government sponsored debt, other thanlocal currency Sovereign debt, issued in the major domestic and eurobondmarkets, including “global” bonds. Qualifying currencies and their respectiveminimum issue size requirements include: AUD 100 million; CAD 100 million;EUR 100 million (EUR equivalent for euro legacy currencies); JPY 20 billion;GBP 100 million; and USD 150 million. Qualifying bonds must have at least oneyear remaining term to maturity and a fixed coupon schedule. Bonds must berated investment grade based on a composite of Moody’s and S&P. (Moody’s andS&P senior unsecured debt issuer ratings are used for Quasi-Governmentsecurities that do not have individual bond ratings.). In addition to their ownrating requirements, qualifying issuers (other than Supranationals) must bedomiciled in a country having an investment grade foreign currency long-termdebt rating (based on a composite of Moody’s and S&P). The index is re-balancedon the last calendar day of the month. Issues that meet the qualifying criteria areincluded in the index for the following month. Issues that no longer meet thecriteria during the course of the month remain in the index until the next month-end re-balancing at which point they are dropped from the index. Additional sub-indices are available that segment the Index by maturity. The inception date of theIndex is December 31, 1996.

Global Broad Market Corporate Index (G0BC)The Global Broad Market Corporate Index tracks the performance of investmentgrade public debt of Corporate issuers issued in the major domestic and eurobondmarkets, including “global” bonds. Qualifying currencies and their respectiveminimum issue size requirements include: AUD 100 million; CAD 100 million;EUR 100 million (EUR equivalent for euro legacy currencies); JPY 20 billion;GBP 100 million; and USD 150 million. Qualifying bonds must have at least oneyear remaining term to maturity and a fixed coupon schedule. Bonds must berated investment grade based on a composite of Moody’s and S&P. Candidatesthat do not have an individual bond rating from either Moody’s or S&P areexcluded from the Index. In addition to their own rating requirements, qualifyingissuers must be domiciled in a country having an investment grade foreigncurrency long-term debt rating (based on a composite of Moody’s and S&P).Asset backed securities and other collateralized debt are excluded from the Index.The index is re-balanced on the last calendar day of the month. Issues that meetthe qualifying criteria are included in the index for the following month. Issuesthat no longer meet the criteria during the course of the month remain in the indexuntil the next month-end re-balancing at which point they are dropped from theindex. Additional sub-indices are available that segment the Index by maturity,rating and sector (Financial, Industrial and Utility). The inception date of theIndex is December 31, 1996.

Global Broad Market Collateralized Index (G0BL)The Global Broad Market Collateralized Index tracks the performance of publicPfandbriefe, Mortgage Pass-Through and Asset Backed securities issued in themajor domestic and eurobond markets, including “global” bonds. Qualifyingcurrencies and their respective minimum issue size requirements include:AUD 100 million; CAD 100 million; EUR 100 million (EUR equivalent for eurolegacy currencies); JPY 20 billion; GBP 100 million; and USD 150 million forMortgage Pass-Through securities and USD 25 million (per tranche) for AssetBacked securities. Qualifying bonds must have a fixed coupon schedule and, withthe exception of Mortgage Pass-Through securities, at least one year remainingterm to maturity. Bonds must be rated investment grade based on a composite ofMoody’s and S&P. (Moody’s and S&P senior unsecured debt and Pfandbriefissuer ratings are used for Mortgage and Pfandbrief securities that do not haveindividual bond ratings.). In addition to their own rating requirements, qualifyingissuers must be domiciled in a country having an investment grade foreign


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currency long-term debt rating (based on a composite of Moody’s and S&P). Theindex is re-balanced on the last calendar day of the month. Issues that meet thequalifying criteria are included in the index for the following month. Issues thatno longer meet the criteria during the course of the month remain in the index untilthe next month-end re-balancing at which point they are dropped from the index.Additional sub-indices are available that segment the Index by maturity. Theinception date of the Index is December 31, 1996.

Table 2: Global Broad Market Index Series Ticker Reference List

Sector All 1-3 Yr 3-5 Yr 5-7 Yr 7-10 Yr 10+ Yr 1-5 Yr 5-10 Yr 1-10 Yr AAA AA A BBBGlobal Broad Market GBMI G1MI G2MI G3MI G4MI G9MI GVMI G6MI G5MI na na na naSovereign W0G1 W1G1 W2G1 W3G1 W4G1 W9G1 WVG1 W6G1 W5G1 na na na naNon-Sovereign G0BN G1BN G2BN G3BN G4BN G9BN GVBN G6BN G5BN na na na naQuasi-Government G0BQ G1BQ G2BQ G3BQ G4BQ G9BQ GVBQ G6BQ G5BQ na na na naCollateralized G0BL G1BL G2BL G3BL G4BL G9BL GVBL G6BL G5BL na na na naCorporate G0BC G1BC G2BC G3BC G4BC G9BC GVBC G6BC G5BC GBC1 GBC2 GBC3 GBC4Financial G0BF G1BF G2BF G3BF G4BF G9BF GVBF G6BF G5BF GBF1 GBF2 GBF3 GBF4Industrial G0BI G1BI G2BI G3BI G4BI G9BI GVBI G6BI G5BI GBI1 GBI2 GBI3 GBI4Utility G0BU G1BU G2BU G3BU G4BU G9BU GVBU G6BU G5BU GBU1 GBU2 GBU3 GBU4


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Global Large Cap Index

Ticker: GLCIThe Global Large Cap Index tracks the performance of large capitalizationinvestment grade public debt issued in the major domestic and eurobondmarkets, including “global” bonds. Qualifying currencies and minimum issuesize requirements for local currency sovereign debt are: AUD 1 billion,CAD 1 billion, CHF 500 million, DKK 5 billion, EUR 1 billion (EUR equivalentfor euro legacy currencies), GBP 500 million, JPY 200 billion, NZD 1 billion,SEK 5 billion, and USD 1 billion. Qualifying currencies and minimum issue sizerequirements for non-sovereign debt and foreign currency sovereign debt are:AUD 500 million, CAD 500 million, EUR 500 million (EUR equivalent for eurolegacy currencies), GBP 250 million, JPY 60 billion, and USD 500 million(USD 100 million per tranche for asset backed securities). Qualifying bonds musthave at least one year remaining term to maturity and a fixed coupon schedule.Bonds must be rated investment grade based on a composite of Moody’s and S&P.(Moody’s and S&P senior unsecured debt and Pfandbrief issuer ratings are usedfor Quasi-Government, Mortgage and Pfandbrief securities that do not haveindividual bond ratings.) In addition to their own rating requirements, qualifyingissuers (other than Supranationals) must be domiciled in a country having aninvestment grade foreign currency long-term debt rating (based on a composite ofMoody’s and S&P). The index is re-balanced on the last calendar day of themonth. Issues that meet the qualifying criteria are included in the index for thefollowing month. Issues that no longer meet the criteria during the course of themonth remain in the index until the next month-end re-balancing at which pointthey are dropped from the index. Additional sub-indices are available thatsegment the Index by maturity and sector (All Non-Sovereign, Quasi-Government,Collateralized and Corporate). The inception date of the Index isDecember 31, 1996.

Chart 3: Structure of the Global Large Cap Index Series

Pan-Europe Large Cap

Japan Large Cap

Sterling Large Cap

EMULarge Cap

Denmark GvtSweden Gvt

Switzerland Gvt

Dollar Bloc Large Cap


Global Large CapNon-Sovereign

GlobalSovereign

Global Large Cap Collateralized

Global Large Cap Quasi-Govt

Global Large Cap Corporate

Global LargeCap Index

Euro-US$ Large Cap

Euro-C$ Large Cap

Euro-A$ Large Cap

U.S. Large Cap

Canada Large Cap

Australia Large Cap


AAA

AA

A

BBB


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Table 3: Global Large Cap Index (GLCI) Selection Criteria

Feature Requirement

Currency of Denomination Australian dollar, Canadian dollar, Danish krone, euro (and eurolegacy currencies), New Zealand dollar, sterling, Swedish krona,Swiss franc, US dollar, and yen







Minimum Amount Outstanding Local Currency Sovereign Debt: AUD 1 billion; CAD 1 billion;CHF 500 million, DKK 5 billion, EUR 1 billion, GBP 500 million,JPY 200 billion, NZD 1 billion, SEK 5 billion, USD 1 billionForeign Sovereign and Non-Sovereign Debt: AUD 500 million;CAD 500 million; EUR 500 million, GBP 250 million, JPY 60 billion,USD 500 million (USD 100 million per tranche for asset backedsecurities)







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� Pricing



The Global Large Cap Index is segmented into five primary sector Indices:

Global Government Index (W0G1)The Global Government Index tracks the performance of public debt ofinvestment grade Sovereign issuers issued and denominated in their own domesticmarket and currency. Qualifying countries and their respective minimum issuesize requirements include: Australia (AUD 1 billion); Canada (CAD 1 billion);Denmark (DKK 5 billion); Euro-Sovereigns (EUR 1 billion); Japan(JPY 200 billion); New Zealand (NZD 1 billion); Sweden (SEK 5 billion);Switzerland (CHF 500 million); the UK (GBP 500 million); and the US(USD 1 billion). In addition, individual qualifying bonds must have at least oneyear remaining term to maturity and a fixed coupon schedule. Qualifying countriesmust maintain an investment grade foreign currency long term Sovereign debt rating(based on a composite of Moody’s and S&P). Government bills and inflation-linkedsecurities are excluded from the index. Zero coupon bonds are excluded; however,any portion of a qualifying note or bond that has been stripped for purposes ofcreating a zero coupon security remains included in the amount outstanding of theunderlying coupon note or bond. The index is re-balanced on the last calendar dayof the month. Issues that meet the qualifying criteria are included in the index forthe following month. Issues that no longer meet the criteria during the course ofthe month remain in the index until the next month-end re-balancing at whichpoint they are dropped from the index. Additional sub-indices are available thatsegment the Index by country, region and maturity. The inception date of theindex is December 31, 1985, with daily data available beginningSeptember 30, 1993.

Global Large Cap Non-Sovereign Index (G0LN)The Global Large Cap Non-Sovereign Index tracks the performance of largecapitalization investment grade public debt, other than local currency Sovereigndebt, issued in the major domestic and eurobond markets, including “global”bonds. Qualifying currencies and their respective minimum issue sizerequirements include: AUD 500 million; CAD 500 million; EUR 500 million(EUR equivalent for euro legacy currencies); JPY 60 billion; GBP 250 million;and USD 500 million (USD 100 million per tranche for asset backed securities).Qualifying bonds must have at least one year remaining term to maturity and afixed coupon schedule. Bonds must be rated investment grade based on acomposite of Moody’s and S&P. (Moody’s and S&P senior unsecured debt andPfandbrief issuer ratings are used for Quasi-Government, Mortgage andPfandbrief securities that do not have individual bond ratings.) In addition to theirown rating requirements, qualifying issuers (other than Supranationals) must bedomiciled in a country having an investment grade foreign currency long-termdebt rating (based on a composite of Moody’s and S&P). The index is re-balancedon the last calendar day of the month. Issues that meet the qualifying criteria areincluded in the index for the following month. Issues that no longer meet thecriteria during the course of the month remain in the index until the next month-end re-balancing at which point they are dropped from the index. Additional sub-indices are available that segment the Index by maturity. The inception date of theIndex is December 31, 1996.


13

Global Large Cap Quasi-Government Index (G0LQ)The Global Large Cap Quasi-Government Index tracks the performance of largecapitalization investment grade public Government and Government sponsoreddebt, other than local currency Sovereign debt, issued in the major domestic andeurobond markets, including “global” bonds. Qualifying currencies and theirrespective minimum issue size requirements include: AUD 500 million;CAD 500 million; EUR 500 million (EUR equivalent for euro legacy currencies);JPY 60 billion; GBP 250 million; and USD 500 million. Qualifying bonds musthave at least one year remaining term to maturity and a fixed coupon schedule.Bonds must be rated investment grade based on a composite of Moody’s and S&P.(Moody’s and S&P senior unsecured debt issuer ratings are used for Quasi-Government securities that do not have individual bond ratings.) In addition totheir own rating requirements, qualifying issuers (other than Supranationals) mustbe domiciled in a country having an investment grade foreign currency long-termdebt rating (based on a composite of Moody’s and S&P). The index is re-balancedon the last calendar day of the month. Issues that meet the qualifying criteria areincluded in the index for the following month. Issues that no longer meet thecriteria during the course of the month remain in the index until the next month-end re-balancing at which point they are dropped from the index. Additional sub-indices are available that segment the Index by maturity. The inception date of theIndex is December 31, 1996.

Global Large Cap Corporate Index (G0LC)The Global Large Cap Corporate Index tracks the performance of largecapitalization investment grade public debt of Corporate issuers issued in themajor domestic and eurobond markets, including “global” bonds. Qualifyingcurrencies and their respective minimum issue size requirements include: AUD500 million; CAD 500 million; EUR 500 million (EUR equivalent for euro legacycurrencies); JPY 60 billion; GBP 250 million; and USD 500 million. Qualifyingbonds must have at least one year remaining term to maturity and a fixed couponschedule. Bonds must be rated investment grade based on a composite ofMoody’s and S&P. In addition to their own rating requirements, qualifyingissuers must be domiciled in a country having an investment grade foreigncurrency long-term debt rating (based on a composite of Moody’s and S&P).Asset backed securities and other collateralized debt are excluded from the Index.The index is re-balanced on the last calendar day of the month. Issues that meetthe qualifying criteria are included in the index for the following month. Issuesthat no longer meet the criteria during the course of the month remain in the indexuntil the next month-end re-balancing at which point they are dropped from theindex. Additional sub-indices are available that segment the Index by maturity,rating and sector (Financial, Industrial and Utility). The inception date of theIndex is December 31, 1996.

Global Large Cap Collateralized Index (G0LL)The Global Large Cap Collateralized Index tracks the performance of largecapitalization investment grade public Pfandbriefe, Mortgage Pass-Through andAsset Backed securities issued in the major domestic and eurobond markets,including “global” bonds. Qualifying currencies and their respective minimumissue size requirements include: AUD 500 million; CAD 500 million;EUR 500 million (EUR equivalent for euro legacy currencies); JPY 60 billion;GBP 250 million; and USD 500 million for Mortgage Pass-Through securities and100 million (per tranche) for Asset Backed securities. Qualifying bonds musthave at least one year remaining term to maturity and a fixed coupon schedule.Bonds must be rated investment grade based on a composite of Moody’s and S&P.(Moody’s and S&P senior unsecured debt and Pfandbrief issuer ratings are usedfor Mortgage and Pfandbrief securities that do not have individual bond ratings.).In addition to their own rating requirements, qualifying issuers must be domiciledin a country having an investment grade foreign currency long-term debt rating(based on a composite of Moody’s and S&P). The index is re-balanced on the last


14

calendar day of the month. Issues that meet the qualifying criteria are included inthe index for the following month. Issues that no longer meet the criteria duringthe course of the month remain in the index until the next month-end re-balancingat which point they are dropped from the index. Additional sub-indices areavailable that segment the Index by maturity. The inception date of the Index isDecember 31, 1996.

Table 4: Global Large Cap Index Series Ticker Reference List

Sector All 1-3 Yr 3-5 Yr 5-7 Yr 7-10 Yr 10+ Yr 1-5 Yr 5-10 Yr 1-10 Yr AAA AA A BBBGlobal Large Cap GLCI G1CI G2CI G3CI G4CI G9CI GVCI G6CI G5CI na na na naSovereign W0G1 W1G1 W2G1 W3G1 W4G1 W9G1 WVG1 W6G1 W5G1 na na na naNon-Sovereign G0LN G1LN G2LN G3LN G4LN G9LN GVLN G6LN G5LN na na na naQuasi-Government G0LQ G1LQ G2LQ G3LQ G4LQ G9LQ GVLQ G6LQ G5LQ na na na naCollateralized G0LL G1LL G2LL G3LL G4LL G9LL GVLL G6LL G5LL na na na naCorporate G0LC G1LC G2LC G3LC G4LC G9LC GVLC G6LC G5LC GLC1 GLC2 GLC3 GLC4Financial G0LB G1LB G2LB G3LB G4LB G9LB GVLB G6LB G5LB GLB1 GLB2 GLB3 GLB4Industrial G0LD G1LD G2LD G3LD G4LD G9LD GVLD G6LD G5LD GLD1 GLD2 GLD3 GLD4Utility G0LE G1LE G2LE G3LE G4LE G9LE GVLE G6LE G5LE GLE1 GLE2 GLE3 GLE4


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Global Broad Market Plus Index

Ticker: GBMPThe Global Broad Market Plus Index tracks the performance of investmentgrade public debt issued in the major domestic and eurobond markets,including “global” bonds, along with an extended list of smaller localcurrency sovereign markets not covered in the Global Broad Market Index.Qualifying currencies and minimum issue size requirements for local currencysovereign debt are: AUD 1 billion; CAD 1 billion; CHF 500 million,CZK 2 billion, DKK 5 billion, EUR 1 billion, GBP 500 million, GRD 60 billion,HKD 500 million, HUF 5 billion, JPY 200 billion, KRW 200 billion,NOK 5 billion, NZD 1 billion, PLN 200 million, SEK 5 billion, SGD 200 million,TWD 5 billion, USD 1 billion, ZAR 5 billion. Qualifying currencies andminimum issue size requirements for non-sovereign debt and foreign currencysovereign debt are: AUD 100 million, CAD 100 million, EUR 100 million (EURequivalent for euro legacy currencies), GBP 100 million, JPY 20 billion, andUSD 150 million (USD 25 million per tranche for asset backed securities).Qualifying bonds must have at least one year remaining term to maturity and afixed coupon schedule. Bonds must be rated investment grade based on acomposite of Moody’s and S&P. (Moody’s and S&P senior unsecured debt andPfandbrief issuer ratings are used for Quasi-Government, Mortgage andPfandbrief securities that do not have individual bond ratings.) In addition to theirown rating requirements, qualifying issuers (other than Supranationals) must bedomiciled in a country having an investment grade foreign currency long-termdebt rating (based on a composite of Moody’s and S&P). The index is re-balancedon the last calendar day of the month. Issues that meet the qualifying criteria areincluded in the index for the following month. Issues that no longer meet thecriteria during the course of the month remain in the index until the next month-end re-balancing at which point they are dropped from the index. Additional sub-indices are available that segment the Index by maturity. The inception date of theIndex is December 31, 1996.

Chart 4: Structure of the Global Broad Market Plus Index Series

Pan-EuropeBroad Market

JapanBroad Market

SterlingBroad Market

EMU BroadMarket

Denmark GvtSweden GvtSwiss Gvt

Dollar BlocBroad Market


Global BroadMarket Plus Index

Euro-US$ex Globals

Euro-C$ex Globals

Euro-A$

U.S. Broad Market

CanadaBroad Market

AustraliaBroad Market

Non-CoreGovt Markets

Czech Rep.

Greece

Hungary

Norway

Poland

S. Africa

Hong Kong*

Singapore *

S. Korea *

Taiwan *

* added to the Index effective 30-Jun-00



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Table 5: Global Broad Market Plus Index (GBMP) Selection Criteria

Feature Requirement

Currency of Denomination Australian dollar, Canadian dollar, Czech koruna, Danish krone,euro (and euro legacy currencies), Greek drachma, Hong Kongdollar, Hungarian forint, New Zealand dollar, Norwegian krone,Polish zloty, Singapore dollar, South African rand, South Koreanwon, sterling, Swedish krona, Swiss franc, Taiwan dollar, USdollar, and yen







Minimum Amount Outstanding Local Currency Sovereign Debt: AUD 1 billion; CAD 1 billion;CHF 500 million, CZK 2 billion, DKK 5 billion, EUR 1 billion,GBP 500 million, GRD 60 billion, HKD 500 million, HUF 5 billion,JPY 200 billion, KRW 200 billion, NOK 5 billion, NZD 1 billion,PLN 200 million, SEK 5 billion, SGD 200 million, TWD 5 billion,USD 1 billion, ZAR 5 billionForeign Sovereign and Non-Sovereign Debt: AUD 100 million;CAD 100 million; EUR 100 million, GBP 100 million, JPY 20 billion,USD 150 million (USD 25 million per tranche for asset backedsecurities)







17

� Pricing



Credit sector sub-indices of the Global Broad Market Plus Index are thesame as those for the Global Broad Market Index. Additional Sovereignsector sub-indices include:

Global Broad Market Plus Sovereign Index (G0PG)The Global Broad Market Plus Sovereign Index tracks the performance of localcurrency denominated debt of investment grade rated Sovereign issuers.Qualifying countries and their respective minimum issue size requirementsinclude: Australia (AUD 1 billion); Canada (CAD 1 billion); Czech Republic(CZK 2 billion ), Denmark (DKK 5 billion); Euro-Sovereigns (EUR 1 billion);Greece (GRD 60 billion ), Hong Kong (HKD 500 million), Hungary(HUF 5 billion), Japan (JPY 200 billion); New Zealand (NZD 1 billion); Norway(NOK 5 billion), Poland (PLN 200 million), Singapore (SGD 200 million),South Africa (ZAR 5 billion), South Korea (KRW 200 billion), Sweden(SEK 5 billion); Switzerland (CHF 500 million); Taiwan (TWD 5 billion), the UK(GBP 500 million); and the US (USD 1 billion). In addition, individual qualifyingbonds must have at least one year remaining term to maturity and a fixed couponschedule. Qualifying countries must maintain an investment grade foreign currencylong term sovereign debt rating (based on a composite of Moody’s and S&P).Government bills and inflation-linked securities are excluded from the index. Zerocoupon bonds are excluded; however, any portion of a qualifying note or bond thathas been stripped for purposes of creating a zero coupon security remains includedin the amount outstanding of the underlying coupon note or bond. The index is re-balanced on the last calendar day of the month. Issues that meet the qualifyingcriteria are included in the index for the following month. Issues that no longermeet the criteria during the course of the month remain in the index until the nextmonth-end re-balancing at which point they are dropped from the index.Additional sub-indices are available that segment the Index by country andmaturity. The inception date of the index is December 31, 1996.

Table 6: Global Broad Market Plus Series Ticker Reference List

Sector All 1-3 Yr 3-5 Yr 5-7 Yr 7-10 Yr 10+ Yr 1-5 Yr 5-10 Yr 1-10 YrGlobal Broad MarketPlus

GBMP G1MP G2MP G3MP G4MP G9MP GVMP G6MP G5MP

Extended Sovereign Indices:Czech Republic G0CZ na na na na na na na naGreece G0GR na na na na na na na naHong Kong G0HK na na na na na na na naHungary G0HU na na na na na na na naNorway G0J0 na na na na na na na naPoland G0PL na na na na na na na naSingapore G0SP na na na na na na na naSouth Africa G0SA na na na na na na na naSouth Korea G0SK na na na na na na na naTaiwan G0TW na na na na na na na na


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Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). All rights reserved. Any unauthorized use or disclosure is prohibited. This report has been prepared and issued by MLPF&S and/or one of itsaffiliates and has been approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is regulated by SFA; has been considered and distributed in Australia by Merrill Lynch Equities(Australia) Limited (ACN 006 276 795), a licensed securities dealer under the Australian Corporations Law; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Ltd, which is regulated by the Hong Kong SFC; and is distributedin Singapore by Merrill Lynch International Bank Ltd (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd, which are regulated by the Monetary Authority of Singapore. The information herein was obtained from various sources;we do not guarantee its accuracy or completeness. Additional information available.

Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments").MLPF&S and its affiliates may trade for their own accounts as odd-lot dealer, market maker, block positioner, specialist and/or arbitrageur in any securities of this issuer(s) or in related investments, and may be on the opposite sideof public orders. MLPF&S, its affiliates, directors, officers, employees and employee benefit programs may have a long or short position in any securities of this issuer(s) or in related investments. MLPF&S or its affiliates may fromtime to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report.

This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specificperson who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand thatstatements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receiveback less than originally invested. Past performance is not necessarily a guide to future performance.

The bonds of the company are traded over-the-counter. Retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale. MLPF&Susually makes a market in the bonds of this company.

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