CUSTODY AGREEMENT



         AGREEMENT, dated as of ________, 2003 between PowerShares

Exchange-Traded Fund Trust, a business trust organized and existing under the

laws of the State of ___________ having its principal office and place of

business at _______________________________ (the "Fund") and The Bank of New

York, a New York corporation authorized to do a banking business having its

principal office and place of business at One Wall Street, New York, New York

10286 ("Custodian").



                              W I T N E S S E T H:



that for and in consideration of the mutual promises hereinafter set forth the

Fund and Custodian agree as follows:



ARTICLE I



                                   DEFINITIONS



         Whenever used in this Agreement, the following words shall have the

meanings set forth below:



     1. "AUTHORIZED PERSON" shall be any person, whether or not an officer or

employee of the Fund, duly authorized by the Fund's board to execute any

Certificate or to give any Oral Instruction with respect to one or more

Accounts, such persons to be designated in a Certificate annexed hereto as

Schedule I hereto or such other Certificate as may be received by Custodian from

time to time.



     2. "BNY AFFILIATE" shall mean any office, branch or subsidiary of The Bank

of New York Company, Inc.



     3. "BOOK-ENTRY SYSTEM" shall mean the Federal Reserve/Treasury book-entry

system for receiving and delivering securities, its successors and nominees.



     4. "BUSINESS DAY" shall mean any day on which Custodian and relevant

Depositories are open for business.



     5. "CERTIFICATE" shall mean any notice, instruction, or other instrument in

writing, authorized or required by this Agreement to be given to Custodian,

which is actually received by Custodian by letter or facsimile transmission and

signed on behalf of the Fund by an Authorized Person or a person reasonably

believed by Custodian to be an Authorized Person.



     6. "COMPOSITE CURRENCY UNIT" shall mean the Euro or any other composite

currency unit consisting of the aggregate of specified amounts of specified

currencies, as such unit may be constituted from time to time.



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     7. "DEPOSITORY" shall include (a) the Book-Entry System, (b) the Depository

Trust Company, (c) any other clearing agency or securities depository registered

with the Securities and Exchange Commission identified to the Fund from time to

time, and (d) the respective successors and nominees of the foregoing.



     8. "FOREIGN DEPOSITORY" shall mean (a) Euroclear, (b) Clearstream Banking,

societe anonyme, (c) each Eligible Securities Depository as defined in Rule

17f-7 under the Investment Company Act of 1940, as amended, identified to the

Fund from time to time, and (d) the respective successors and nominees of the

foregoing.



     9. "INSTRUCTIONS" shall mean communications transmitted by electronic or

telecommunications media, including S.W.I.F.T., computer-to-computer interface,

or dedicated transmission lines.



     10. "ORAL INSTRUCTIONS" shall mean verbal instructions received by

Custodian from an Authorized Person or from a person reasonably believed by

Custodian to be an Authorized Person.



     11. "SERIES" shall mean the various portfolios, if any, of the Fund listed

on Schedule II hereto, and if none are listed references to Series shall be

references to the Fund.



     12. "SECURITIES" shall include, without limitation, any common stock and

other equity securities, bonds, debentures and other debt securities, notes,

mortgages or other obligations, and any instruments representing rights to

receive, purchase, or subscribe for the same, or representing any other rights

or interests therein (whether represented by a certificate or held in a

Depository or by a Subcustodian).



     13. "SUBCUSTODIAN" shall mean a bank (including any branch thereof) or

other financial institution (other than a Foreign Depository) located outside

the U.S. which is utilized by Custodian in connection with the purchase, sale or

custody of Securities hereunder and identified to the Fund from time to time,

and their respective successors and nominees.



     14. "TRANSFER AGENT" shall mean The Bank of New York.



                                   ARTICLE II

                       APPOINTMENT OF CUSTODIAN; ACCOUNTS;

                   REPRESENTATIONS, WARRANTIES, AND COVENANTS



     1. (a) The Fund hereby appoints Custodian as custodian of all Securities

and cash at any time delivered to Custodian during the term of this Agreement,

and authorizes Custodian to hold Securities in registered form in its name or

the name of its nominees. Custodian hereby accepts such appointment and agrees

to establish and maintain one or more securities accounts and cash accounts for

each Series in which Custodian will hold Securities and cash as provided herein.

Custodian shall maintain books and records segregating the assets of each Series

from the assets of any other Series. Such accounts (each, an "Account";

collectively, the "Accounts") shall be in the name of the Fund.



                                      -2-



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     (b) Custodian may from time to time establish on its books and records such

sub-accounts within each Account as the Fund and Custodian may agree upon (each

a "Special Account"), and Custodian shall reflect therein such assets as the

Fund may specify in a Certificate or Instructions.



     (c) Custodian may from time to time establish pursuant to a written

agreement with and for the benefit of a broker, dealer, future commission

merchant or other third party identified in a Certificate or Instructions such

accounts on such terms and conditions as the Fund and Custodian shall agree, and

Custodian shall transfer to such account such Securities and money as the Fund

may specify in a Certificate or Instructions.



     2. The Fund hereby represents and warrants, which representations and

warranties shall be continuing and shall be deemed to be reaffirmed upon each

delivery of a Certificate or each giving of Oral Instructions or Instructions by

the Fund, that:



     (a) It is duly organized and existing under the laws of the jurisdiction of

its organization, with full power to carry on its business as now conducted, to

enter into this Agreement, and to perform its obligations hereunder;



     (b) This Agreement has been duly authorized, executed and delivered by the

Fund, approved by a resolution of its board, constitutes a valid and legally

binding obligation of the Fund, enforceable in accordance with its terms, and

there is no statute, regulation, rule, order or judgment binding on it, and no

provision of its charter or by-laws, nor of any mortgage, indenture, credit

agreement or other contract binding on it or affecting its property, which would

prohibit its execution or performance of this Agreement;



     (c) It is conducting its business in substantial compliance with all

applicable laws and requirements, both state and federal, and has obtained all

regulatory licenses, approvals and consents necessary to carry on its business

as now conducted;



     (d) It will not use the services provided by Custodian hereunder in any

manner that is, or will result in, a violation of any law, rule or regulation

applicable to the Fund;



     (e) Its board or its foreign custody manager, as defined in Rule 17f-5

under the Investment Company Act of 1940, as amended (the "`40 Act"), has

determined that use of each Subcustodian (including any Replacement Custodian)

and each Depository which Custodian or any Subcustodian is authorized to utilize

in accordance with Section 1(a) of Article III hereof, satisfies the applicable

requirements of the `40 Act and Rules 17f-4 or 17f-5 thereunder, as the case may

be;



     (f) The Fund or its investment adviser has determined that the custody

arrangements of each Foreign Depository provide reasonable safeguards against

the custody risks associated with maintaining assets with such Foreign

Depository within the meaning of Rule 17f-7 under the `40 Act;



     (g) It is fully informed of the protections and risks associated with

various methods of transmitting Instructions and Oral Instructions and

delivering Certificates to



                                      -3-



{PAGE}



Custodian, understands that there may be more secure methods of transmitting or

delivering the same than the methods selected by the Fund, agrees that the

security procedures (if any) to be utilized provide a commercially reasonable

degree of protection in light of its particular needs and circumstances, and

acknowledges and agrees that Instructions need not be reviewed by Custodian, may

conclusively be presumed by Custodian to have been given by person(s) duly

authorized, and may be acted upon as given;



     (h) It shall manage its borrowings, including, without limitation, any

advance or overdraft (including any day-light overdraft) in the Accounts, so

that the aggregate of its total borrowings for each Series does not exceed the

amount such Series is permitted to borrow under the `40 Act;



     (i) Its transmission or giving of, and Custodian acting upon and in

reliance on, Certificates, Instructions, or Oral Instructions pursuant to this

Agreement shall at all times comply with the `40 Act;



     (j) It shall impose and maintain restrictions on the destinations to which

cash may be disbursed by Instructions to ensure that each disbursement is for a

proper purpose; and



     (k) It has the right to make the pledge and grant the security interest and

security entitlement to Custodian contained in Section 1 of Article V hereof,

free of any right of redemption or prior claim of any other person or entity,

such pledge and such grants shall have a first priority subject to no setoffs,

counterclaims, or other liens or grants prior to or on a parity therewith, and

it shall take such additional steps as Custodian may require to assure such

priority.



     3. The Fund hereby covenants that it shall from time to time complete and

execute and deliver to Custodian upon Custodian's request a Form FR U-1 (or

successor form) whenever the Fund borrows from Custodian any money to be used

for the purchase or carrying of margin stock as defined in Federal Reserve

Regulation U.



                                  ARTICLE III

                          CUSTODY AND RELATED SERVICES



     1. (a) Subject to the terms hereof, the Fund hereby authorizes Custodian to

hold any Securities received by it from time to time for the Fund's account.

Custodian shall be entitled to utilize Depositories, Subcustodians, and, subject

to subsection(c) of this Section 1, Foreign Depositories, to the extent possible

in connection with its performance hereunder. Securities and cash held in a

Depository or Foreign Depository will be held subject to the rules, terms and

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