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File No. 811-9170
File No. 333-31247
As filed with the Securities and Exchange Commission
on January 14, 1998*
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1*
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
A. Exact name of Trust:
DIAMONDS TRUST, SERIES 1
B. Name of Depositor:
PDR SERVICES CORPORATION
C. Complete address of Depositor's principal executive office:
PDR SERVICES CORPORATION
c/o AMERICAN STOCK EXCHANGE, INC.
86 Trinity Place
New York, New York 10006
D. Name and complete address of agent for service:
James F. Duffy
PDR SERVICES CORPORATION
c/o AMERICAN STOCK EXCHANGE, INC.
86 Trinity Place
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New York, New York 10006
Copy to:
Kathleen H. Moriarty
CARTER, LEDYARD & MILBURN
2 Wall Street
New York, New York 10005
E. Title and amount of securities being registered:
An indefinite number of units of Beneficial Interest pursuant to Rule
24f-2 under the Investment Company Act of 1940.
F. Proposed maximum aggregate offering price to the public of the
securities being registered:
Indefinite pursuant to Rule 24f-2
G. Amount of filing fee:
None required pursuant to Rule 24f-2.
H. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT.
// Check box if it is proposed that this filing will become
effective on (date) at (time) pursuant to Rule 487.
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DIAMONDS TRUST, SERIES 1
Cross Reference Sheet
Pursuant to Regulation C
Under the Securities Act of 1933, as amended
(Form N-8B-2 Items required by Instruction 1
as to Prospectus in Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
- ----------- ---------------------
I. Organization and General Information
------------------------------------
1. (a) Name of Trust.................... Prospectus Front Cover
(b) Title of securities issued....... Prospectus Front Cover
2. Name, address and Internal
Revenue Service Employer
Identification Number of
depositor............................ Sponsor
3. Name, address and Internal
Revenue Service Employer
Identification Number of
trustee.............................. Trustee
4. Name, address and Internal
Revenue Service Employer
Identification Number
of principal underwriter............. *
5. State of organization of Trust....... Prospectus Summary - The Trust
6. (a) Dates of execution and
termination of Trust
Agreement............................ Prospectus Summary - The Trust;
Prospectus Summary - Termination
(b) Dates of execution and
termination of Trust
Agreement............................ Same as set forth in 6(a)
7. Changes of name...................... *
8. Fiscal Year.......................... *
9. Material Litigation.................. *
- ---------------
*Not applicable, answer negative or not required.
-i-
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II. General Description of the Trust
and Securities of the Trust
-------------------------------------
10. (a) Registered or bearer
securities....................... Prospectus Summary - The Trust
(b) Cumulative or distributive....... Prospectus Summary - Distributions
(c) Rights of holders as to
withdrawal or redemption......... Prospectus Summary - Redemption;
Redemption of DIAMONDS;
Administration of the Trust -
Rights of
Beneficial Owners
(d) Rights of holders as to
conversion, transfer, etc........ Prospectus Summary - Redemption;
Administration of the Trust -
Register of Ownership and
Transfer; - Rights of Beneficial
Owners; Redemption
(e) Lapses or defaults in
principal payments with
respect to periodic payment
plan certificates................ *
(f) Voting rights.................... Administration of the Trust - Voting
(g) Notice to holders as to
change in:
(1) Composition of Trust
assets...................... *
(2) Terms and conditions
of Trust's securities....... Administration of the Trust -
Amendment
(3) Provisions of Trust
Agreement................... Same as set forth in 10(g)(2)
(4) Identity of depositor
and trustee................. Resignation, Removal and Liability -
The Trustee; - The Sponsor
- -----------------------
*Not applicable, answer negative or not required.
-ii-
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(h) Consent of holders
required to change:
(1) Composition of Trust
assets...................... *
(2) Terms and conditions
of Trust's securities....... Administration of the Trust -
Amendment
(3) Provisions of Trust
Agreement................... Same as set forth in 10(h)(2)
(4) Identity of depositor
and trustee................. Resignation, Removal and Liability -
The Sponsor; - The Trustee
(i) Other principal
features of the securities.. Prospectus Summary - The Trust
11. Type of securities
comprising units..................... The Prospectus - Front Cover;
Prospectus Summary - The
Trust; The Portfolio; The DJIA;
12. Certain information regarding
securities comprising periodic
payment certificates................. *
13. (a) Certain information regarding
loads, fees, expenses
and charges...................... Prospectus Summary - Redemption;
Expenses of the Trust;
Redemption of DIAMONDS;
(b) Certain information regarding
periodic payment plan
certificates..................... *
(c) Certain percentages.............. Same as set forth in 13(a)
(d) Reasons for certain
differences in prices............ *
(e) Certain other loads, fees, or
charges payable by holders....... *
- ---------------------
*Not applicable, answer negative or not required.
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(f) Certain profits receivable
by depositor, principal
underwriters, custodian,
trustee or affiliated
persons.......................... The Portfolio - Adjustments to the
Portfolio
(g) Ratio of annual charges and
deductions to income............. *
14. Issuance of Trust's securities....... The Trust - Creation of Creation
Units
15. Receipt and handling of
payments from purchasers............. The Trust
16. Acquisition and disposition of
underlying securities................ The Trust - Creation of Creation
Units; The Portfolio; Administration
of the Trust
17. (a) Withdrawal or redemption by
holders.......................... Administration of the Trust - Rights
of Beneficial Owners; Redemption
of DIAMONDS
(b) Persons entitled or required
to redeem or repurchase
securities....................... Same as set forth in 17(a)
(c) Cancellation or resale of
repurchased or redeemed
securities....................... Same as set forth in 17(a)
18. (a) Receipt, custody and
disposition of
income........................... Administration of the Trust-
Distributions to Beneficial Owners
(b) Reinvestment of distributions.... *
(c) Reserves or special funds........ Same as set forth in 18(a)
(d) Schedule of distributions........ *
- ---------------------
*Not applicable, answer negative or not required.
-iv-
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19. Records, accounts and reports........ The DJIA; Distribution of DIAMONDS;
Expenses; Administration of the
Trust- Records; - Distributions to
Beneficial Owners; - Statements to
Beneficial Owners; - Register of
Ownership and Transfer
20. Certain miscellaneous provi-
sions of Trust Agreement
(a) Amendments....................... Administration of the Trust -
Amendment
(b) Extension or termination......... Administration of the Trust -
Amendment; - Termination
(c) Removal or resignation of
trustee.......................... Resignation, Removal and Liability-
The Trustee
(d) Successor trustee................ Same as set forth in 20(c)
(e) Removal or resignation of
depositor........................ Resignation, Removal and Liability-
The Sponsor
(f) Successor depositor.............. Same as set forth in 20(e)
21. Loans to security holders............. *
22. Limitations on liabilities........... Resignation, Removal and Liability -
The Trustee; - The Sponsor
23. Bonding arrangements................. *
24. Other material provisions of
Trust Agreement...................... *
III. Organization, Personnel and
Affiliated Persons of Depositor
-------------------------------
25. Organization of depositor............ Sponsor
26. Fees received by depositor........... *
- ---------------------
*Not applicable, answer negative or not required.
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27. Business of depositor................ Sponsor
28. Certain information as to
officials and affiliated
persons of depositor................. Sponsor
29. Ownership of voting securities
of depositor......................... Sponsor
30. Persons controlling depositor........ *
31. Payments by depositor for
certain services rendered
to Trust............................. *
32. Payments by depositor for
certain other services
rendered to Trust.................... *
33. Remuneration of employees of
depositor for certain
services rendered to Trust........... *
34. Compensation of other persons
for certain services rendered
to Trust............................. *
IV. Distribution and Redemption of Securities
-----------------------------------------
35. Distribution of Trust's
securities in states................. Distribution of DIAMONDS;
36. Suspension of sales of Trust's
securities........................... *
37. Denial or revocation of
authority to distribute.............. *
38. (a) Method of distribution........... Prospectus Summary - Underwriting;
The Trust - Creation of Creation
Units; Distribution of DIAMONDS
(b) Underwriting agreements.......... Prospectus Summary - Underwriting;
Distribution of DIAMONDS
(c) Selling agreements............... Same as set forth in 38(b)
- ---------------------
*Not applicable, answer negative or not required.
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39. (a) Organization of principal
underwriter...................... Underwriter
(b) NASD membership of
principal underwriter............ Prospectus Summary - Underwriting;
Underwriter
40. Certain fees received by
principal underwriters............... *
41. (a) Business of principal
underwriters..................... Prospectus Summary - Underwriting;
Underwriter
(b) Branch offices of
principal underwriters............... *
(c) Salesmen of principal
underwriters......................... *
42. Ownership of Trust's securities
by certain persons................... *
43. Certain brokerage commissions
received by principal
underwriters......................... *
44. (a) Method of valuation for
determining offering price........... The Portfolio; Valuation
(b) Schedule as to components of
offering price....................... *
(c) Variation in offering
price to certain persons......... *
45. Suspension of redemption
rights............................... *
46. (a) Certain information
regarding redemption or
withdrawal valuation............. Valuation; Redemption of DIAMONDS
(b) Schedule as to components
of redemption price.............. *
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*Not applicable, answer negative or not required.
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47. Maintenance of position in
underlying securities................ The Trust; The Portfolio;
Distribution of DIAMONDS; Valuation;
Administration of the Trust -
Distribution to Beneficial Owners
V. Information Concerning the Trustee or Custodian
-----------------------------------------------
48. Organization and regulation of
trustee.............................. Trustee
49. Fees and expenses of trustee......... Expenses of the Trust; Redemptions of
DIAMONDS
50. Trustee's lien....................... Expenses of the Trust; Redemption of
DIAMONDS
VI. Information Concerning Insurance of Holders of Securities
---------------------------------------------------------
51. (a) Name and address of
insurance company............. *
(b) Types of policies............. *
(c) Types of risks insured and
excluded...................... *
(d) Coverage...................... *
(e) Beneficiaries................. *
(f) Terms and manner of
cancellation.................. *
(g) Method of determining
premiums...................... *
(h) Aggregate premiums paid....... *
(i) Recipients of premiums........ *
(j) Other material provisions
of Trust Agreement relating
to insurance..................... *
- ---------------------
*Not applicable, answer negative or not required.
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VII. Policy of Registrant
--------------------
52. (a) Method of selecting and
eliminating securities from
the Trust........................ The Trust - Creation of Creation
Units; The Portfolio; Administration
of the Trust
(b) Elimination of securities....
from the Trust................... *
(c) Policy of Trust regarding
substitution and elimina-
tion of securities............... Same as set forth in 52(a)
(d) Description of any other
fundamental policy of the
Trust............................ *
53. (a) Taxable status of the Trust...... Tax Status of the Trust
(b) Qualification of the Trust
as a regulated investment
company.......................... Same as set forth in 53(b)
VIII. Financial and Statistical Information
-------------------------------------
54. Information regarding the
Trust's last ten fiscal years........ *
55. Certain information regarding
periodic payment plan certifi-
cates................................ *
56. Certain information regarding
periodic payment plan certifi-
cates................................ *
57. Certain information regarding
periodic payment plan certifi-
cates................................ *
- ---------------------
*Not applicable, answer negative or not required.
-ix-
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58. Certain information regarding
periodic payment plan certifi-
cates................................ *
59. Financial statements
(Instruction 1(c) to Form S-6)...... *
- ---------------------
*Not applicable, answer negative or not required.
-x-
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Undertaking to File Reports
---------------------------
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulations of the Commission heretofore or hereafter duly adopted pursuant
to authority conferred in that section.
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PROSPECTUS
DIAMONDS(SM) TRUST, SERIES 1
A UNIT INVESTMENT TRUST
----------------------
The DIAMONDS Trust (the "Trust") was formed by PDR Services Corporation, a
Delaware corporation (the "Sponsor") and a wholly-owned subsidiary of the
American Stock Exchange, Inc. (the "Exchange"), to provide investors with the
opportunity to purchase units of beneficial interest in the Trust representing
proportionate undivided interests in the portfolio of securities held by the
Trust (the "Securities") consisting of all of the component common stocks of
the Dow Jones Industrial Average (the "DJIA"SM).* While the investment
objective of the Trust is to provide investment results that generally
correspond to the price and yield performance of the DJIA, there is no
assurance that this investment objective can be achieved. Each unit of
fractional undivided interest in the Trust is referred to as a "DIAMONDS
Unit". The value of the Securities and, consequently, the value of DIAMONDS,
will fluctuate. The minimum number of DIAMONDS that may be created or redeemed
at any one time as described below is 50,000, which aggregation is referred to
herein as a "Creation Unit".
DIAMONDS have been accepted for listing on the Exchange subject to official
notice of issuance. Once created, DIAMONDS may be traded in the secondary
market on a per-DIAMONDS Unit basis, and need not be traded in Creation Unit
size aggregations.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------------
Prospectus dated January 14, 1998
THE DOW INDUSTRIALS(SM)
-----------------------
D I A M O N D S (SM)
-----------------------
Investors are advised to read and retain this Prospectus for future reference.
----------------------
* "Dow Jones Industrial Average"SM, "DJIA"SM, "Dow Jones" SM, "The Dow" SM,
"THE DOW INDUSTRIALS" SM, and "DIAMONDS" SM are trademarks and service marks
of Dow Jones & Company, Inc. ("Dow Jones") and have been licensed for use
for certain purposes by PDR Services Corporation and the American Stock
Exchange, Inc. pursuant to a License Agreement with Dow Jones. The Trust,
based on the DJIA, is not sponsored, endorsed, sold or promoted by Dow Jones
and Dow Jones makes no representation regarding the advisability of
investing in the Trust.
COPYRIGHT(C) 1997 BY PDR SERVICES CORPORATION
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ESSENTIAL INFORMATION AS OF JANUARY 13, 1998+
Number of DIAMONDS
500,000
Fractional Undivided Interest in
Trust Represented by each DIAMONDS
Unit
1/500,000th
Record Date:
Monthly, commencing with April 21,
1998++
Dividend Payment Dates:
Monthly, commencing in the month of May,
1998++
Trustee's Annual Fee: From 11/100 of one percent to 15/100 of
one percent, based on net asset value of
the Trust, as the same may be reduced by
certain amounts, plus (or minus) the
Adjustment Amount.+++
Estimated Ordinary Operating Expenses
of the Trust: 18/100 of one percent (0.18%) (inclusive
of Trustee's annual fee).+++
Net Asset Value per DIAMONDS Unit
(based on the value of the
Securities, other net assets of the
Trust and number of DIAMONDS
outstanding)
$77.32
Evaluation Time: Closing time of the regular trading
session on the New York Stock Exchange,
Inc. (ordinarily 4:00 p.m. New York
time).
Licensor: Dow Jones & Company, Inc.
Mandatory Termination Date:
The first to occur of (i) January 13,
2123 or (ii) the date 20 years after the
death of the last survivor of fifteen
persons named in the Agreement, the
oldest of whom was born in 1994 and the
youngest of whom was born in 1997.
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Discretionary Termination:
Trust may be terminated if at any time
after six months following and prior to
three years following the Initial Date
of Deposit the value of the securities
held by the Trust is less than
$150,000,000 or if at any time after
three years following the Initial Date
of Deposit such value of the securities
held by the Trust is less than
$350,000,000, as such amount shall be
- ----------- adjusted for inflation.++++
+ The Trust Agreement became effective and the Initial Deposit was made on
January 13, 1998 (the "Initial Date of Deposit").
++ See "Administration of the Trust, Distributions to Beneficial Owners".
+++ Until further notice, the Sponsor has undertaken that on each day during
each fiscal year up to and including October 31, 2000, the ordinary
operating expenses of the Trust as calculated by the Trustee will not be
permitted to exceed an amount which is 0.18% of the daily net asset value
of the Trust. After October 31, 2000, such amount may be changed and may
exceed 0.18%. See "Expenses of Trust".
++++ The Trust may also be terminated under other circumstances. See
"Administration of the Trust--Termination".
3
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
OBJECTIVES
The Sponsor formed the Trust to provide investors with the opportunity to
purchase units of beneficial interest in the Trust representing proportionate
undivided interests in the Securities which consist of all of the component
common stocks of the Dow Jones Industrial Average (the "DJIA") in the form of a
security that closely tracks the DJIA and that may be traded as a share of
common stock. The investment objective of the Trust is to provide investment
results that generally correspond to the price and yield performance of the
component common stocks of the DJIA (the component common stocks of the DJIA
are sometimes referred to herein as "Index Securities"). There can be no
assurance that this investment objective will be met fully. For example, it may
not be possible for the Trust to replicate and maintain exactly the composition
of the Index Securities. It is also possible that, from time to time, the Trust
will be unable to purchase all of the Index Securities. In certain
circumstances, the Trust may be required to make distributions in excess of the
yield performance of the Index Securities (see "Tax Status of the Trust"). The
value of the Securities and, consequently, the value of DIAMONDS, is subject to
changes in the value of common stocks generally and to other factors. Further,
the payment of dividends and maintenance of capital are subject to a number of
conditions, including the financial condition of the issuers of the Securities
(see "Special Considerations and Risk Factors").
THE TRUST
The Trust is a unit investment trust organized under the laws of the State of
New York. The Trust is governed by a trust agreement (the "Trust Agreement")
between State Street Bank and Trust Company, a bank and trust company organized
under the laws of the Commonwealth of Massachusetts (the "Trustee"), and the
Sponsor dated and executed as of January 13, 1998.
DISTRIBUTOR
The Distributor for DIAMONDS is ALPS Mutual Funds Services, Inc., a
registered broker-dealer and a member of the National Association of Securities
Dealers, Inc., (see "Underwriting").
PORTFOLIO DEPOSITS
All orders to create DIAMONDS in Creation Unit size aggregations must be
placed with the Distributor (see "Underwriting" and "Procedure for Creation of
Creation Units"). To be eligible to place orders with the Distributor to create
Creation Unit size aggregations of DIAMONDS, an entity or person
4
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either must be (1) a "Participating Party", as hereinafter defined or (2) a
Depository Trust Company Participant (see "Book-Entry Ownership of DIAMONDS"),
and in each case must have executed a Participant Agreement, as hereinafter
defined (see "The Trust--Procedures for Creation of Creation Units" and "The
Trust--Placement of Creation Orders Using DIAMONDS Clearing Process"). As used
herein, the term "Participating Party" means a broker-dealer or other
participant in the DIAMONDS Clearing Process, as hereinafter defined, through
the Continuous Net Settlement ("CNS") System of the National Securities
Clearing Corporation ("NSCC"), a clearing agency that is registered with the
Securities and Exchange Commission (the "Commission"). Upon acceptance of an
order to create DIAMONDS, the Distributor will transmit such order to the
Trustee and instruct the Trustee to initiate the book entry movement of the
appropriate number of DIAMONDS to the account of the entity placing the order.
Payment for orders to create DIAMONDS will be made by deposits with the Trustee
of a portfolio of securities that is substantially similar in composition to
the Index Securities (see "The Trust--Creation of DIAMONDS"), together with a
cash payment in an amount which shall be equal to the Dividend Equivalent
Payment (as hereinafter defined), plus or minus, as the case may be, the
Balancing Amount (as hereinafter defined--see "The Portfolio--Adjustments to
the Portfolio Deposit"). The "Dividend Equivalent Payment" enables the Trustee
to make a distribution of dividends on the next Dividend Payment Date (as
hereinafter defined), and is an amount equal, on a per Creation Unit basis, to
the dividends on all the Securities with ex-dividend dates within the
accumulation period, net of expenses and accrued liabilities for such period
(including, without limitation, (x) taxes or other governmental charges against
the Trust not previously deducted, if any, and (y) accrued fees of the Trustee
and other expenses of the Trust (including legal and auditing expenses) and
other expenses not previously deducted (see "Expenses of the Trust")), as if
all of the Securities had been held for the entire accumulation period for such
distribution. For federal income tax purposes, a portion of dividend
distributions may result in a return of capital to Beneficial Owners (as
hereinafter defined) of DIAMONDS (see "Tax Status of the Trust").
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 connection with the creation of DIAMONDS, in the event
that the Trustee determines, in its discretion, that one or more Index
Securities are likely to be unavailable for delivery or available in
insufficient quantity for delivery to the Trust upon the creation of DIAMONDS
in Creation Unit size aggregations, then the Trustee shall have the right in
its discretion to permit the cash equivalent value of such Index Security or
Index Securities to be included in the Portfolio Deposit as a part of the Cash
Component in lieu of the inclusion of such Index Security or Index Securities
in
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the securities portion of the Portfolio Deposit (see "The Portfolio--
Adjustments to the Portfolio Deposit").
In connection with the creation of DIAMONDS, if a creator is restricted by
regulation or otherwise from investing or engaging in a transaction in one or
more Index Securities, the Trustee shall have the right, in its discretion, to
permit the cash equivalent value of such Index Security or Index Securities to
be included in the Portfolio Deposit based on the market value of such Index
Security or Index Securities as of the Evaluation Time on the date such
creation order is deemed received by the Distributor (see "Placement of
Creation Orders Outside DIAMONDS Clearing Process") as part of the Cash
Component in lieu of the inclusion of such Index Security or Index Securities
in the securities portion of the Portfolio Deposit. In such case such creator
will pay the Trustee the standard Transaction Fee, plus an additional amount
per Creation Unit not to exceed three (3) times the Transaction Fee applicable
for one Creation Unit as described below.
An entity or person placing creation orders with the Distributor must deposit
Portfolio Deposits either (i) through the CNS clearing processes of NSCC, as
such processes have been enhanced to effect creations and redemptions of
Creation Unit size aggregations of DIAMONDS, such processes being referred to
herein as the "DIAMONDS Clearing Process", or (ii) with the Trustee outside the
DIAMONDS Clearing Process (i.e., through the facilities of DTC).
TRANSACTION FEE
A transaction fee is payable to the Trustee in connection with each creation
and each redemption made through the DIAMONDS Clearing Process of Creation Unit
size aggregations of DIAMONDS (the "Transaction Fee"), subject to the changes,
modifications or waivers, if any, described below. Such Transaction Fee is non-
refundable, regardless of the net asset value of the Trust.
Until further notice is given as described below, the Transaction Fee charged
in connection with each creation of Creation Units through the DIAMONDS
Clearing Process (see "Procedures for Creation of Creation Units") is $1,000
per Participating Party per day, regardless of the number of Creation Units
created on such day by such Participating Party. Likewise, until further notice
is given as described below, the Transaction Fee charged in connection with the
redemption of Creation Units through the DIAMONDS Clearing Process is $1,000
per Participating Party per day, regardless of the number of Creation Units
redeemed on such day by such Participating Party. This Transaction Fee may
subsequently be changed by the Trustee, upon the advice of the Sponsor in its
sole discretion, but will not in any event exceed 10/100 of one percent (10
basis points) of the value of a Creation Unit at the time of creation or
redemption, as the case may be, (the "10 Basis Point
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Limit")*. No modifications to, or reductions, discounts or waivers of, the
Transaction Fee charged in connection with the creation of Creation Units are
scheduled or currently contemplated by the Sponsor.
If Creation Units are created or redeemed outside the DIAMONDS Clearing
Process, an additional amount not to exceed three (3) times the applicable
Transaction Fee will be charged to the creator or redeemer. Under the current
schedule, therefore, the total fee charged in connection with the creation or
redemption of Creation Units outside the DIAMONDS Clearing Process would be
$1,000 (the Transaction Fee for the creation or redemption of a Creation Unit)
plus an additional amount not to exceed $3,000 (3 times $1,000) for a total of
$4,000.
From time to time, and for such periods as the Sponsor, in its sole
discretion, may determine, the Transaction Fee (as well as any additional
amounts charged in connection with creations and/or redemptions outside the
DIAMONDS Clearing Process) may be increased, decreased or otherwise modified or
waived in its entirety for certain lot-size creations and/or redemptions of
DIAMONDS, or for creations and/or redemptions made under certain specified
circumstances without the consent of Beneficial Owners, subject to certain
conditions (See "The Trust--Creation of Creation Units" and "Procedures for
Redemption of DIAMONDS"). The Sponsor also reserves the right, from time to
time, to vary the lot-size of the creations and/or redemptions of DIAMONDS
subject to an increase or decrease and/or entitled to such waiver of the
Transaction Fee. Any change so made will not cause the amount of the
Transaction Fee to exceed the 10 Basis Point Limit at the time of a creation,
or redemption, as the case may be. Such changes or variations will be effected
by an amendment to the current Trust prospectus. The amount of the new
Transaction Fee in effect at any given time will be available from the Trustee.
SIZE OF CREATION UNIT AGGREGATIONS OF DIAMONDS
DIAMONDS may be created or redeemed only in Creation Unit size aggregations
of 50,000 DIAMONDS, or in multiples thereof (e.g., 100,000, 150,000, 200,000
DIAMONDS), and in no event will fractional Creation Units be created or
redeemed.** The Sponsor reserves the right to direct the Trustee to declare a
split or reverse split in the number of DIAMONDS outstanding and a
corresponding change in the number of DIAMONDS constituting a Creation Unit in
the event that the per DIAMONDS Unit price in the secondary market changes to
an amount that the Sponsor believes falls outside a desirable retail
- -----------
* The amount of the Transaction Fee currently in effect will be available from
the Trustee.
** See "Dividend Reinvestment Service," however, for a description of the sole
case in which DIAMONDS may be created by the Trustee in less than a Creation
Unit size aggregation of 50,000 DIAMONDS.
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range. For example, if a 2-for-1 split were declared, the number of DIAMONDS in
a Creation Unit size aggregation of DIAMONDS would double (e.g., from 50,000 to
100,000 DIAMONDS per Creation Unit).
PORTFOLIO ADJUSTMENTS
To maintain the correspondence between the Trust and the DJIA, the Trustee
will make conforming changes to the Trust's portfolio in accordance with the
terms of the Agreement to conform, to the extent practicable, to periodic
changes in the Index Securities made by Dow Jones, (see "The Portfolio--
Adjustments to the Portfolio"). The composition of the securities portion of a
Portfolio Deposit is adjusted to conform to changes in the DJIA resulting from
certain capital changes that may affect the price, and hence the weighting of a
component security in the DJIA. Any such change will result in a corresponding
adjustment to the prescribed Portfolio Deposit effective on the Business Day (a
"Business Day" being any day that the New York Stock Exchange is open for
business) on which the change to the DJIA takes effect. Changes to the DJIA are
made after the close of the market (see "The Portfolio--Adjustments to the
Portfolio Deposit").
BOOK ENTRY OWNERSHIP OF DIAMONDS
The Depository Trust Company, New York, New York, a limited purpose trust
company organized under the laws of the State of New York (the "Depository") or
its nominee will be the record or registered owner of all outstanding DIAMONDS.
Beneficial ownership of DIAMONDS will be shown on the records of the Depository
or its participants. Certificates will not be issued for DIAMONDS, whether in
Creation Unit size aggregations or otherwise (see "The Trust--Book-Entry-Only
System").
EXPENSES
The expenses incident to the organization of the Trust and its registration
as an investment company will be capitalized and amortized on a straight line
basis over five years following the Initial Date of Deposit unless the Trust is
sooner terminated or by law or regulation amortization must occur over a
shorter time period. (see "Expenses of the Trust"). The Trustee's fees are set
forth generally in the Summary of Essential Information and more specifically
in "Expenses of the Trust" below. Other expenses of the Trust are also
described more fully in "Expenses of the Trust".
FEDERAL INCOME TAX CONSIDERATIONS
The Trust intends to adopt a fiscal year ending on October 31 of each year.
The Trust intends to qualify for and elect tax treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and to distribute annually its entire investment company
taxable income and net capital gain. Distributions that are taxable as ordinary
income to Beneficial Owners generally are expected to constitute
8
<PAGE>
dividend income for federal income tax purposes and to be eligible for the
dividends-received deduction available to many corporations to the extent of
qualifying dividend income received by the Trust (see "Tax Status of the
Trust"). The Trust's regular monthly distributions will be based on the
dividend performance of the Securities held during such monthly distribution
period rather than the actual taxable income of the Trust. As a result, a
portion of the distributions of the Trust may be treated as a return of capital
or a capital gain dividend for federal income tax purposes or the Trust may be
required to make additional distributions to maintain its status as a regulated
investment company or to avoid imposition of income or excise taxes on
undistributed income (see "Tax Status of the Trust" and "Administration of the
Trust--Distributions to Beneficial Owners").
ERISA CONSIDERATIONS
In considering the advisability of an investment in DIAMONDS, fiduciaries of
pension, profit sharing or other tax-qualified retirement plans (including
Keogh Plans) and welfare plans (collectively, "Plans") subject to the fiduciary
responsibility requirements of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), should consider whether an investment in DIAMONDS
is permitted by the documents and instruments governing the Plan and whether
the investment satisfies the exclusive benefit, prudence and diversification
requirements of ERISA. Individual retirement account ("IRA") investors should
consider that an IRA may make only such investments as are authorized by its
governing instruments.
The fiduciary standards and prohibited transaction rules of ERISA and Section
4975 of the Code will not apply to transactions involving the Trust's assets
while DIAMONDS are held by a Plan or IRA. Unlike many other investment vehicles
offered to Plans and IRAs, the Trust's assets will not be treated as "plan
assets" of the Plans or IRAs which acquire or purchase DIAMONDS. Although ERISA
imposes certain duties on Plan fiduciaries and ERISA and/or Section 4975 of the
Code prohibit certain transactions involving "plan assets" between Plans or
IRAs and their fiduciaries or certain related persons, those rules will not
apply to transactions involving the Trust's assets because DIAMONDS represent
an interest in the Trust, and the Trust is registered as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"). ERISA,
the Code and U.S. Department of Labor regulations contain unconditional
language exempting the assets of registered investment companies from treatment
as "plan assets" in applying the fiduciary and prohibited transaction
provisions of ERISA and the Code.
RESTRICTIONS ON PURCHASES BY INVESTMENT COMPANIES
The acquisition of DIAMONDS by registered investment companies is subject to
the restrictions set forth in section 12(d)(1) of the 1940 Act.
9
<PAGE>
INVESTMENT MANAGEMENT
The Trust holds the Securities and cash and is not actively "managed" by
traditional methods, which typically involve effecting changes in the
Securities on the basis of judgments made relating to economic, financial and
market considerations. The composition of the Securities are, however, adjusted
to conform to changes in the composition of the Index Securities in the manner
set forth in the Trust Agreement (see "The Portfolio--Adjustments to the
Portfolio").
DISTRIBUTIONS
After the initial three months of the Trust's operations, monthly
distributions based on the amount of dividends payable with respect to
Securities held by the Trust and other income, if any, received by the Trust,
net of fees and expenses, are made via the Depository and its participants to
Beneficial Owners (see "The Trust--Book-Entry-Only System") on each Dividend
Payment Date (see "Administration of the Trust--Distributions to Beneficial
Owners"). Any net capital gains recognized by the Trust in any taxable year
will be distributed at least annually. The Trust may make additional
distributions after the end of the year in order to satisfy certain
distribution requirements imposed by the Code (see "Tax Status of the Trust"
and "Administration of the Trust--Distributions to Beneficial Owners").
Although income distributions are currently planned to be made on a monthly
basis, the Trustee reserves the right to vary the periodicity with which
distributions are made (see "Administration of the Trust--Distributions to
Beneficial Owners"). Those Beneficial Owners interested in reinvesting their
monthly distributions may participate through DTC Participants in the DTC
Dividend Reinvestment Service available through certain brokers. (See "Dividend
Reinvestment Service" for a brief description thereof.)
REDEMPTION
DIAMONDS in Creation Unit size aggregations are ordinarily redeemable in kind
only and are not redeemable for cash except under certain circumstances (see
"Redemption of DIAMONDS"). DIAMONDS can be redeemed only in Creation Unit size
aggregations effected by a Participating Party (with respect to redemptions
through the DIAMONDS Clearing Process) or a DTC Participant (with respect to
redemptions outside the DIAMONDS Clearing Process), in either case which has
executed a Participant Agreement (see "Redemption of DIAMONDS--Procedure for
Redemption of DIAMONDS"). Individual DIAMONDS are not redeemable, but entitle
the owners thereof to certain payments upon termination of the Trust (see
"Administration of the Trust--Termination"). Prior to termination, DIAMONDS
Unit owners may aggregate individual DIAMONDS to Creation Unit size or
multiples thereof (e.g., 50,000,
10
<PAGE>
100,000 DIAMONDS, etc.) and request that the Trustee redeem the DIAMONDS so
aggregated. There can be no assurance, however, that there always will be
sufficient depth and liquidity in the public trading market to complete all
such transactions (see "Special Considerations"). Owners of DIAMONDS in less
than Creation Unit size aggregations may have to pay brokerage fees and
commissions to acquire sufficient DIAMONDS (i.e., 50,000 DIAMONDS) to
constitute a Creation Unit. Each redemption will also be accompanied by a Cash
Redemption Payment (as hereinafter defined, see "Redemption of DIAMONDS--
Procedure for Redemption of DIAMONDS") which on any given Business Day is an
amount typically identical to the Cash Component of a Portfolio Deposit.
In the event that the Trustee determines in its discretion that an Index
Security is likely to be unavailable for delivery or available in insufficient
quantity for delivery by the Trust upon the redemption of DIAMONDS in Creation
Unit size aggregations, then the Trustee shall have the right in its discretion
to deliver the cash equivalent value of such Index Security or Index
Securities, based on the market value of such Index Security or Index
Securities as of the Evaluation Time on the date such redemption order is
deemed received by the Trustee (see "Procedure for Redemption of DIAMONDS"), as
part of the Cash Redemption Payment in lieu of delivering the Index Security or
Index Securities to the redeemer.
In connection with the redemption of DIAMONDS, if a redeeming investor
requests redemption in cash, rather than in kind, with respect to one or more
Index Securities, (for example, because a redeemer is restricted by regulation
or otherwise from investing or engaging in a transaction in one or more Index
Securities,) the Trustee shall have the right in its discretion to deliver the
cash equivalent value of such Index Security or Index Securities based on the
market value of such Index Security or Index Securities as of the Evaluation
Time on the date such redemption order is deemed received by the Trustee (see
"Placement of Redemption Orders Outside DIAMONDS Clearing Process") as a part
of the Cash Redemption Payment in lieu of delivering such Index Security or
Index Securities to the redeemer. In all such cases, such investor will pay the
Trustee the standard Transaction Fee, plus an additional amount not to exceed
three (3) times the Transaction Fee applicable for a Creation Unit.
The Trustee, in its discretion, upon the request of a redeeming investor, may
redeem Creation Units in whole or in part by providing such redeemer with a
Portfolio Deposit differing in composition, but not differing in net asset
value, from the then-current Portfolio Deposit. Such a redemption might be made
if it were determined to be appropriate in order to maintain the Trust
portfolio's correspondence to the price-weighted composition of the DJIA (i.e.
an equal number of shares of each component stock) when a stock split of one of
the Index Securities occurs. See ("The Portfolio" and "The DJIA").
11
<PAGE>
DIAMONDS Unit owners may also be required to pay Excess Cash Amounts, (as
hereinafter defined) when applicable, in connection with a redemption of
DIAMONDS (see "Redemption of DIAMONDS--Procedure for Redemption of DIAMONDS").
The Transaction Fee will be charged in connection with the redemption of
Creation Unit size aggregations of DIAMONDS. If a request for redemption is
made directly to the Trustee outside the DIAMONDS Clearing Process, an
additional amount not to exceed three (3) times the Transaction Fee applicable
for a Creation Unit will be charged to the redeemer due to the increased
expense associated with delivery outside the DIAMONDS Clearing Process (see
"Prospectus Summary--Transaction Fee").
TERMINATION
The Trust will terminate by its terms on the first to occur of: (i) the date
one hundred twenty-five (125) years from the Initial Date of Deposit (i.e.,
January 13, 2123) or (ii) the date twenty (20) years after the death of the
last survivor of fifteen persons named in the Agreement, the oldest of whom was
born in 1994 and the youngest of whom was born in 1997 (the "Mandatory
Termination Date"). The Trust may also be terminated earlier upon the agreement
of the Beneficial Owners of 66 2/3% of the then outstanding DIAMONDS or in the
event that DIAMONDS are delisted from the Exchange (see "Exchange Listing").
The Sponsor will also have the discretionary right to direct the Trustee to
terminate the Trust if at anytime after six months following and prior to three
years following the Initial Date of Deposit the net asset value of the Trust
falls below $150,000,000 and if after three years following the Initial Date of
Deposit the net asset value of the Trust is less than $350,000,000, as such
dollar amount shall be adjusted for inflation in accordance with the National
Consumer Price Index for All Urban Consumers (the "CPI-U")* as published by the
United States Department of Labor, 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 month period ending in
the month preceding the month in which such adjustment is made. The Trustee
shall also have the right to terminate the Trust in the event that (a) the
Sponsor resigns or becomes incapable of discharging its duties and a successor
is not appointed; (b) the Depository is unable or unwilling to continue to
perform its functions as set forth under the Trust Agreement and a comparable
replacement is unavailable; (c) NSCC no longer provides clearance services with
respect to DIAMONDS, or if the Trustee is no longer a member of NSCC; (d) Dow
Jones ceases publishing the DJIA; or (e) the License Agreement (as hereinafter
defined) is terminated. The License Agreement
- -----------
* The CPI-U, as published by the United States Department of Labor, measures
the inflation rate of specified commodities deemed representative of the
purchases of all urban consumers.
12
<PAGE>
currently is scheduled to terminate five years from the commencement date of
trading of DIAMONDS, subject to a five-year renewal period following such date.
The Trust shall terminate if the Trustee resigns or becomes incapable of
discharging its duties and a successor is not appointed (see "Administration of
the Trust--Termination").
UNDERWRITING
ALPS Mutual Funds Services, Inc. (the "Distributor") acts as underwriter of
DIAMONDS on an agency basis. All orders to create DIAMONDS in Creation Unit
size aggregations must be placed with the Distributor, and it is the
responsibility of the Distributor to transmit such orders to the Trustee. The
Distributor will furnish to those placing such orders confirmation that the
orders have been accepted, but the Distributor shall reject any order which is
not submitted in proper form. Upon acceptance of an order to create DIAMONDS,
the Distributor instructs the Trustee to initiate the book-entry movement of
the appropriate number of DIAMONDS to the account of the entity placing the
order. The Distributor is also responsible for delivering a prospectus to those
persons creating DIAMONDS. The Distributor also maintains records of both the
orders placed with it for the creation of DIAMONDS and the confirmations of
acceptance issued by it. In addition, the Distributor maintains a record of the
instructions given to implement delivery of DIAMONDS in response to orders
placed with it. The Distributor may also provide certain other administrative
services, such as those related to state securities law compliance. The
Distributor is a corporation organized under the laws of the State of Colorado
and is located at 370 17th Street, Suite 3100, Denver, CO 80202. The
Distributor is a registered broker-dealer and a member of the National
Association of Securities Dealers, Inc. The Sponsor pays the Distributor for
its services a flat annual fee. The Sponsor will not seek reimbursement for
such payment from the Trust without obtaining prior exemptive relief from the
Commission.
13
<PAGE>
SPECIAL CONSIDERATIONS AND RISK FACTORS
GENERAL
Investment in the Trust should be made with an understanding that the value
of the Securities may fluctuate in accordance with changes in the financial
condition of the issuers of the Securities, the value of common stocks
generally and other factors. The identity of the Index Securities and the
Securities also changes from time to time (see "The Portfolio--Adjustments to
the Portfolio" and "The Portfolio--Selection and Acquisition of Securities").
There can be no assurance that the issuers of the Securities will pay
dividends on outstanding shares of common stock. Distributions on the
Securities will generally depend upon the declaration of dividends by the
issuers of the Securities; the declaration of such dividends generally depends
upon various factors, including the financial condition of the issuers and
general economic conditions. As discussed above, the Trust, unlike a managed
investment company, is not actively "managed" by traditional methods, and
therefore the adverse financial condition of an issuer will not result in the
elimination of its securities from the Securities held by the Trust unless the
Securities of such issuer are removed from the DJIA (see "The Portfolio--
Adjustments to the Portfolio").
An investment in the Trust should also be made with an understanding of the
risks inherent in an investment in equity securities, including the risk that
the financial condition of the issuers of the Securities may become impaired
or that the general condition of the stock market may deteriorate (either of
which may cause a decrease in the value of the Securities and thus in the
value of DIAMONDS). Common stocks are susceptible to general stock market
fluctuations and to volatile increases and decreases in value as market
confidence in and perceptions of their issuers change. These investor
perceptions are based on various and unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic and banking crises. As discussed above, the Trust
is not actively "managed" and therefore common stocks held by the Trust will
not be disposed of as a result of or in anticipation of normal fluctuations in
the market.
Holders of common stocks of any given issuer incur more risk than holders of
preferred stocks and debt obligations of such issuer because common
stockholders, as owners of such issuer, have generally inferior rights to
receive payments from such issuer in comparison with the rights of creditors
of, or holders of debt obligations or preferred stocks issued by, such issuer.
Further, unlike debt securities which typically have a stated principal amount
payable at maturity (whose value, however, will be subject to market
fluctuations prior thereto), or preferred stocks which typically have a
liquidation preference and which may have stated optional or mandatory
redemption provisions, common stocks have neither a fixed principal amount nor
a maturity. Common stock values are subject to market fluctuations as long as
the common stock
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<PAGE>
remains outstanding. The value of the Securities thus may be expected to
fluctuate over the entire life of the Trust to values higher or lower than
those prevailing on the Initial Date of Deposit (see "Market Risks").
Although currently all of the Securities are listed on a national securities
exchange, in the future the principal trading market for some Securities may
be in the over-the-counter market. The existence of a liquid trading market
for certain Securities may depend on whether dealers will make a market in
such Securities. There can be no assurance that a market will be made for any
of the Securities, that any market for the Securities will be maintained or
that any such market will be or remain liquid. The price at which the
Securities may be sold and the value of the Trust will be adversely affected
if trading markets for the Securities are limited or absent.
An investment in the Trust should also be made with an understanding that
the Trust will not be able to replicate exactly the performance of the DJIA
because the total return generated by the Securities will be reduced by
transaction costs incurred in adjusting the actual balance of the Securities
and other Trust expenses, whereas such transaction costs and expenses are not
included in the calculation of the DJIA. It is also possible that for a short
period of time, the Trust may not fully replicate the performance of the DJIA
due to the temporary unavailability of certain Index Securities in the
secondary market or due to other extraordinary circumstances. Such events are
unlikely to continue for an extended period of time, because the Trustee is
required to correct such imbalances by means of adjusting the composition of
Portfolio Securities (see "The Portfolio--Adjustments to the Portfolio"). It
is also possible that the composition of the Trust may not exactly replicate
the composition of the DJIA if the Trust has to adjust its Portfolio holdings
in order to continue to qualify as a "regulated investment company" under the
Code (see "Tax Status of the Trust").
Neither the Depository nor Beneficial Owners of DIAMONDS are entitled either
to dispose of any of the Securities in the Trust, as such, or to vote the
Securities. As the beneficial owner of the Securities, the Trustee has the
right to vote all of the voting Securities (see "Administration of the Trust--
Voting").
Except as otherwise specifically noted, the time frames for delivery of
Securities, cash, or DIAMONDS in connection with creation and redemption
activity within the DIAMONDS Clearing Process as set forth herein are based on
NSCC's current "regular way" settlement period of three (3) days during which
NSCC is open for business (each such day an "NSCC Business Day"). NSCC may, in
the future, reduce such "regular way" settlement period, in which case it is
anticipated that there would be a corresponding reduction in settlement
periods applicable to DIAMONDS Unit creations and redemptions. Investors
should note that NSCC Business Days do not always coincide with the days
during which the Trustee is open for business.
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<PAGE>
NET ASSET VALUE AND MARKET PRICES
The Trust's assets consist primarily of the Securities. Therefore, the net
asset value of DIAMONDS in Creation Unit size aggregations and,
proportionately, the net asset value per DIAMONDS Unit, changes as
fluctuations occur in the market value of Securities. Investors should also be
aware that the aggregate public trading market price of 50,000 DIAMONDS may be
different from the net asset value of a Creation Unit aggregation of DIAMONDS
(i.e., 50,000 DIAMONDS may trade at a premium over or at a discount to the net
asset value of a Creation Unit) and similarly the public trading market price
per DIAMONDS Unit may be different from the net asset value of a Creation Unit
on a per DIAMONDS Unit basis (see "Special Considerations and Risk Factors--
Market Risks"). This price difference may be due, in large part, to the fact
that supply and demand forces at work in the secondary trading market for
DIAMONDS will be closely related to, but not identical to, the same forces
influencing the prices of the DJIA component stocks trading individually or in
the aggregate at any point in time. The expenses of the Trust are reflected in
the net asset value of DIAMONDS in Creation Unit size aggregations and the
expenses of the Trust are accrued daily (see "Expenses of the Trust").
TRADING CONSIDERATIONS
Prior to the date of this Prospectus, there has been no market for DIAMONDS
trading individually or in Creation Unit size aggregations and, consequently,
there can be no assurance that active trading markets will develop, nor is
there an accurate basis for predicting the price levels at which DIAMONDS may
trade.
Further, there can be no assurance that DIAMONDS will experience trading or
pricing patterns similar to those of Exchange-traded securities which are
issued by investment companies based upon indexes other than the DJIA (e.g.
MidCap SPDRs(TM), SPDRs(R), and WEBS SM)*
The Sponsor does not maintain a secondary market in DIAMONDS. DIAMONDS have
been accepted for listing on the Exchange subject to official notice of
issuance. The market symbol for DIAMONDS will be DIA. Trading in DIAMONDS on
the Exchange may be halted due to market conditions or, in light of Exchange
rules and procedures, for reasons that, in the view of the Exchange, make
trading in DIAMONDS inadvisable. In addition, trading in DIAMONDS on the
Exchange is subject to trading halts caused by extraordinary market volatility
pursuant to Exchange "circuit breaker" rules that require trading in
securities on the Exchange to be halted for a specified time period based on a
specified market decline. There can be no assurance that the requirements of
the Exchange necessary to maintain the
- -----------
* MidCap SPDRs(TM) and SPDRs(R) are trademarks of the McGraw-Hill Companies,
Inc. WEBS SM is a service mark of Morgan Stanley, Dean Witter, Discover &
Co.
16
<PAGE>
listing of DIAMONDS will continue to be met or will remain unchanged. The
Trust will be terminated in the event DIAMONDS are delisted from the Exchange.
(For a description of the conditions to listing of DIAMONDS and the
circumstances under which the Exchange would consider the suspension of
trading in or the delisting of DIAMONDS, see "Exchange Listing.") Further, the
Trust may be terminated, among other reasons, in the event that the net asset
value of the Trust falls below a specified level (see "Administration of the
Trust--Termination").
MARKET RISKS
DIAMONDS are subject to the risks of an investment in a portfolio of large-
capitalization common stocks, including the risk that the general level of
stock prices may decline, thereby adversely affecting the value of such
investment. DIAMONDS are also subject to risks other than those associated
with an investment in such a portfolio of common stocks in that the selection
of the stocks included in the Trust's portfolio, the expenses associated with
the Trust or other factors distinguishing an ownership interest in a trust
from the direct ownership of a portfolio of securities may affect trading in
DIAMONDS as compared with trading in a portfolio of large-capitalization
common stocks. Additionally, DIAMONDS may perform differently than other
investments in portfolios containing large capitalization stocks which may be
based upon or derived from an index other than the DJIA (see "The DJIA"). For
example, the great majority of component stocks of the DJIA are drawn from
among the largest of the large capitalization universe, while other indexes
may represent a broader sampling of large capitalization stocks. Also, other
indexes may use different methods for assigning relative weights to the index
components than the price weighted method used by the DJIA. As a result, DJIA
accords relatively more weight to stocks with a higher price to market
capitalization ratio than a similar market capitalization weighted index.
DIAMONDS are further subject to the risk that extraordinary events may cause
any of the parties providing services to the Trust, such as the Trustee, the
Sponsor, the Distributor, the Depository or NSCC, to be closed or otherwise
unable to perform such party's obligations as set forth herein and in the
agreements between and among such parties. According to the terms of the Trust
Agreement, if any of the above named entities fails or is otherwise unable to
perform adequately its duties, a successor entity may be named or appointed to
assume all duties and obligations of its predecessor. If, however, no suitable
successor is available or willing to undertake all such duties and
obligations, under the Trust Agreement the Trust will then be terminated (see
"Administration of the Trust--Termination").
The Trustee will ordinarily deliver a portfolio of Securities for each
Creation Unit size aggregation of DIAMONDS delivered for redemption, identical
in composition to the securities portion of a Portfolio Deposit as in effect
on the date a request for redemption is deemed received by the Trustee (see
"Redemption of DIAMONDS"). If a redemption is processed through the DIAMONDS
Clearing Process, to the extent
17
<PAGE>
that the Securities to be delivered on settlement date are not delivered, they
will be covered by NSCC's guarantee of the completion of such delivery. Any
Securities not received on settlement date will be marked to the market until
delivery is completed. The Trust, to the extent it has not already done so,
remains obligated to deliver such Securities to NSCC, and the market risk of
any increase in the value of such Securities until delivery is made by the
Trust to NSCC could adversely affect the net asset value of the Trust.
Investors should note that the Securities to be delivered to a redeemer
submitting a redemption request outside of the DIAMONDS Clearing Process that
are not delivered to such redeemer are not covered by NSCC's guarantee of
completion of such delivery.
Investors should also note that the size of the Trust in terms of total
assets held may change substantially over time and from time to time as
DIAMONDS in Creation Unit size aggregations are created and redeemed. Such
fluctuations in Trust size should not adversely impact the net asset value at
any time, because the amount of the Cash Component or the Cash Redemption
Payment upon creations or redemptions, respectively, of DIAMONDS in Creation
Unit size aggregations is determined each day to equate the value of the
Portfolio Deposit to the net asset value of the Trust, on a per Creation Unit
basis, at the close of business on the day such request is deemed received by
the Trustee (see "The Portfolio--Adjustments to the Portfolio Deposit").
Investors in the Trust should also be aware that there are tax consequences
associated with the ownership of DIAMONDS resulting from the distribution of
Trust dividends and sales of DIAMONDS as well as the sales of underlying
Securities held by the Trust in connection with redemptions or changes in the
DJIA under certain circumstances (see "Tax Status of the Trust--Tax
Consequences to Beneficial Owners").
18
<PAGE>
DIAMONDS TRUST, SERIES 1
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Trustee and Unitholder of DIAMONDS Trust, Series 1
In our opinion, the accompanying statement of financial condition, including
the schedule of investments, presents fairly, in all material respects, the
financial position of DIAMONDS Trust, Series 1 at January 14, 1998, in
conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Trust's management; our responsibility
is to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit, which included confirmation of securities at January
14, 1998 by correspondence with the custodian and brokers, provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
January 14, 1998
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<PAGE>
DIAMONDS TRUST, SERIES 1
STATEMENT OF FINANCIAL CONDITION
OPENING OF BUSINESS, JANUARY 14, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in Securities, at value (cost $38,643,555) (Note 1).... $38,643,555
Receivable for balancing cash (Note 1)............................ 17,095
Deferred organization expenses (Note 2)........................... 300,000
-----------
TOTAL ASSETS.................................................... 38,960,650
-----------
LIABILITIES AND INTEREST OF DIAMONDS HOLDERS
Organization expenses payable..................................... 300,000
-----------
TOTAL LIABILITIES............................................... 300,000
-----------
TOTAL NET ASSETS.................................................... $38,660,650
===========
NET ASSET VALUE PER DIAMONDS UNIT................................... $ 77.32
===========
(comprised of $38,660,650/500,000 DIAMONDS outstanding)
</TABLE>
NOTES TO STATEMENT:
1. DIAMONDS Trust, Series 1 (the "Trust") is a unit investment trust created
under the laws of the State of New York and registered under the Investment
Company Act of 1940. On the initial Date of Deposit, Portfolio Deposits were
received by State Street Bank and Trust Company, the Trust's Trustee, in the
form of executed securities transactions which will settle within three
business days of the Initial Date of Deposit, from Spear, Leeds & Kellogg, in
exchange for 10 (ten) Creation Units of the Trust equivalent to 500,000
DIAMONDS. Irrevocable letters of credit issued by Chase Manhattan Bank, in the
aggregate amount of $40,000,000 have been delivered to the Trustee, to be
drawn on if necessary, for the benefit of the Trust to fund the settlement of
the executed securities transactions. The value of the securities is based on
the January 13, 1998 closing sales price on the exchange or market which is
deemed the principal market therefor.
2. It is anticipated that the Trust will pay the expenses of its operation,
including the fees of its Trustee and payments to Dow Jones for a license to
use the Dow Jones Industrial Average as a basis for determining the
composition of the Trust, as described under "Expenses of the Trust" and
"License Agreement" in this Prospectus. In addition, fees and expenses
totaling approximately $300,000 incurred in connection with the organization
of the Trust will be capitalized and amortized over 5 (five) years on a
straight-line basis by the Trust.
20
<PAGE>
The Sponsor has undertaken that on each day during each fiscal year up to
and including October 31, 2000, the ordinary operating expenses of the Trust
as calculated by the Trustee will not be permitted to exceed an amount which
is 18/100 of 1% (0.18%) per annum of the daily net asset value of the Trust
after taking into account any expense offset credits earned on uninvested cash
balances. To the extent during such period the ordinary operating expenses of
the Trust do exceed 0.18%, the Sponsor will reimburse the Trust for such
excess ordinary operating expenses. The Sponsor retains the ability to be
repaid by the Trust for expenses so reimbursed to the extent that subsequently
during the fiscal year expenses fall below the 0.18% per annum level on any
given day. (see "Expenses of the Trust" in this Prospectus.)
3. DIAMONDS are created and redeemed by the Trust only in Creation Unit size
aggregations of 50,000 units. Transaction fees of varying amounts are charged
to those persons creating or redeeming Creation Units. See "Prospectus
Summary--Portfolio Deposits" and "The Trust--Creation of Creation Units" in
this Prospectus for further description.
21
<PAGE>
DIAMONDS TRUST, SERIES 1
SCHEDULE OF INVESTMENTS
SECURITIES REQUIRED FOR A PORTFOLIO DEPOSIT
ON THE OPENING OF BUSINESS, JANUARY 14, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE
- --------------------------------- ------ -----------
<S> <C> <C>
AT&T Corp. ................................................. 19,920 $ 1,298,535
Allied-Signal Inc. ......................................... 19,920 732,060
Aluminum Co. of America..................................... 19,920 1,314,720
American Express Co. ....................................... 19,920 1,649,625
Boeing Co. ................................................. 19,920 896,400
Caterpillar Inc. ........................................... 19,920 917,565
Chevron Corp. .............................................. 19,920 1,482,795
Coca-Cola Co. .............................................. 19,920 1,299,780
Disney (Walt) Co. (The)..................................... 19,920 1,892,400
Du Pont (E.I.) de Nemours & Co., Inc. ...................... 19,920 1,084,395
Eastman Kodak Co. .......................................... 19,920 1,221,345
Exxon Corp. ................................................ 19,920 1,196,445
General Electric Co. ....................................... 19,920 1,487,775
General Motors Corp. ....................................... 19,920 1,152,870
Goodyear Tire & Rubber Co. (The)............................ 19,920 1,203,915
Hewlett Packard Co. ........................................ 19,920 1,269,900
International Business Machines Corp. ...................... 19,920 2,034,330
International Paper Co. .................................... 19,920 849,090
J.P. Morgan & Co. .......................................... 19,920 2,130,195
Johnson & Johnson........................................... 19,920 1,319,700
McDonald's Corp. ........................................... 19,920 937,485
Merck & Co., Inc. .......................................... 19,920 2,116,500
Minnesota Mining and Manufacturing Co. ..................... 19,920 1,675,770
Philip Morris Cos., Inc. ................................... 19,920 953,670
Procter & Gamble Co. ....................................... 19,920 1,616,010
Sears, Roebuck & Co. ....................................... 19,920 901,380
Travelers Group Inc. ....................................... 19,920 987,285
Union Carbide Corp. ........................................ 19,920 821,700
United Technologies Corp. .................................. 19,920 1,413,075
Wal-Mart Stores, Inc. ...................................... 19,920 786,840
-----------
Total Investments--(Cost $38,643,555)....................... $38,643,555
===========
</TABLE>
See accompanying notes to Statement of Financial Condition.
22
<PAGE>
THE TRUST
The Trust is a unit investment trust created under the laws of the State of
New York pursuant to the Trust Agreement.* The Securities held by the Trust
consist of a portfolio of common stocks or, in the case of securities not yet
delivered in connection with purchases made by the Trust or Portfolio
Deposits, confirmations of contracts to purchase such securities
(collectively, the "Portfolio").
CREATION OF CREATION UNITS
On the Initial Date of Deposit, Portfolio Deposits will be deposited with
the Trustee through the clearing processes of NSCC, following placement with
the Distributor of orders to create DIAMONDS. The Distributor shall reject any
order that is not submitted in proper form. To permit the Trustee to insure
that the process of settlement is working satisfactorily, there shall be no
further Portfolio Deposits accepted by the Trustee for a period of three (3)
Business Days following the Initial Date of Deposit, and the Sponsor and the
Trustee shall jointly announce the day thereafter on which further Portfolio
Deposits will be accepted, and Exchange trading of DIAMONDS shall not commence
until such date. On or after such date, Portfolio Deposits may be deposited
with the Trustee through the clearing processes of NSCC, following placement
with the Distributor of orders to create DIAMONDS. Investors may deposit
Portfolio Deposits through the DIAMONDS Clearing Process or directly with the
Trustee outside the DIAMONDS Clearing Process. The Transaction Fee will be
charged at the time of creation of a Creation Unit size aggregation of
DIAMONDS. An additional amount not to exceed three (3) times the Transaction
Fee applicable for a Creation Unit will be charged to a creator creating
outside the DIAMONDS Clearing Process (i.e. depositing Portfolio Deposits
directly with the Trustee through DTC,) in part due to the increased expense
associated with settlement outside the DIAMONDS Clearing Process. See
"Prospectus Summary--Transaction Fee" for a detailed description of the amount
of the Transaction Fee and the additional amounts and reductions, limitations
and waivers applicable thereto, if any. The shares of the common stock of the
Index Securities in a Portfolio Deposit on the Initial Date of Deposit had an
aggregate market value of $38,643,555.00 (see "Schedule of Investments").
There will be a Cash Component included in the Portfolio Deposit on the
Initial Date of Deposit in order to make the value of each DIAMONDS Unit equal
to 1/100th of the value of the DJIA.
The Trustee, at the direction of the Sponsor in its sole discretion, from
time to time and for such periods as may be determined by the Sponsor in its
sole discretion, may increase** or reduce the amount and/or waive the
imposition altogether of the
- -----------
* Reference is hereby made to said Trust Agreement, and any statements
contained herein are qualified in their entirety by the provisions of said
Trust Agreement.
** Such increase is subject to the 10 Basis Point Limit discussed above under
"Prospectus Summary--Transaction Fee".
23
<PAGE>
Transaction Fee (and/or the additional amounts charged in connection with
creations and/or redemptions outside the DIAMONDS Clearing Process) for
certain lot-size creations and/or redemptions of DIAMONDS, whether applied
solely to creations and/or redemptions of DIAMONDS made through the DIAMONDS
Clearing Process (see "Procedures for Creation of Creation Units"), solely to
creations and/or redemptions made outside the DIAMONDS Clearing Process, or to
both methods of creation and/or redemption. The Sponsor also reserves the
right, from time to time, to vary the lot-size of the creations and/or
redemptions of DIAMONDS subject to such an increase and/or entitled to such a
reduction or waiver of the Transaction Fee and the additional amounts charged
in connection with creations and/or redemptions outside the DIAMONDS Clearing
Process. The existence of such increase, reduction or waiver of the
Transaction Fee (as well as any additional amounts, if applicable) and the
lot-size of Creation Units affected shall be disclosed in the current DIAMONDS
Unit Prospectus (see "Prospectus Summary--Transaction Fee"). As of the date
hereof, the Sponsor does not contemplate the reduction, variation by lot-size
or waiver of Transaction Fees in connection with the creation or redemption of
DIAMONDS or of the additional amounts charged in connection with the creation
or redemption of DIAMONDS outside the DIAMONDS Clearing Process beyond that
which is discussed herein under the caption "Prospectus Summary--Transaction
Fee".
The DJIA is a price-weighted stock index; that is, the component stocks of
the DJIA are represented in exactly equal share amounts and therefore are
accorded relative importance in the DJIA based on their prices. See "The
Portfolio" and "The DJIA". The shares of common stock of the securities
portion of a Portfolio Deposit on any date of deposit will reflect the
composition of the component stocks of the DJIA on such day. The portfolio of
Index Securities that is the basis for a Portfolio Deposit varies as changes
are made in the composition of the Index Securities (see "The Portfolio--
Adjustments to the Portfolio Deposit"). The Trustee will 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 of the Index Securities of the Portfolio Deposit on the
previous Business Day. The identity of each of the Index Securities required
for a Portfolio Deposit, as in effect on the Initial Date of Deposit, is set
forth in the above Schedule of Investments. The Sponsor intends to make
available (a) on each Business Day, the Dividend Equivalent Payment effective
through and including the previous Business Day, per outstanding DIAMOND, and
(b) every 15 seconds throughout the day a number representing, on a per
DIAMONDS
- -----------
* As of December 31, 1997, the AMEX Clearing Corp., a wholly-owned subsidiary
of the American Stock Exchange, Inc., owned 33% of the issued and
outstanding shares of common stock of NSCC.
24
<PAGE>
Unit 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--see "The Portfolio--
Adjustments to the Portfolio Deposit"). Such information is calculated based
upon the best information available to the Sponsor and may be calculated by
other persons designated to do so by the Sponsor. The inability of the Sponsor
to provide such information will not in itself result in a halt in the trading
of DIAMONDS on the Exchange. Investors interested in creating DIAMONDS or
purchasing DIAMONDS in the secondary market should not rely solely on such
information in making investment decisions but should also consider other
market information and relevant economic and other factors (including, without
limitation, information regarding the DJIA, the Index Securities and financial
instruments based on the DJIA).
Upon receipt of a Portfolio Deposit or Deposits, following placement with
the Distributor of an order to create DIAMONDS, the Trustee will deliver
DIAMONDS in Creation Unit size aggregations to the Depository. In turn, the
DIAMONDS Unit position will be removed from the Trustee's account at the
Depository and will be allocated to the account of the DTC Participant acting
on behalf of the depositor creating Creation Unit(s) (see "The Trust--
Procedures for Creation of Creation Units" and "The Trust--Book-Entry-Only
System"). Each DIAMONDS Unit represents a fractional undivided interest in the
Trust in an amount equal to one (1) divided by the total number of DIAMONDS
outstanding. The Trustee may reject a request to create Creation Units made by
any depositor or group of depositors if such depositor(s), upon the acceptance
by the Trustee of such request and the issuance to such depositor(s) of
DIAMONDS, would own eighty percent (80%) or more of the outstanding DIAMONDS
(see "Tax Status of the Trust"). The Trustee also may reject any Portfolio
Deposit or any component thereof under certain other circumstances (see "The
Trust--Procedures for Creation of Creation Units").
Additional DIAMONDS in Creation Unit size aggregations will be created upon
receipt of the appropriate Portfolio Deposits from creators. As additional
DIAMONDS in Creation Unit size aggregations are created, the aggregate value
of the Portfolio will be increased and the fractional undivided interest in
the Trust represented by each DIAMONDS Unit will be decreased. As discussed
above, under certain circumstances (1) a portion of the securities portion of
a Portfolio Deposit may consist of contracts to purchase certain Index
Securities or (2) a portion of the Cash Component may consist of cash in an
amount to enable the Trustee to purchase such Index Securities. In the event
there is a failure to deliver the Index Securities which are the subject of
such contracts to purchase, the Trustee will be instructed pursuant to the
Agreement to acquire such Index Securities in an expeditious manner. To the
extent the price of any such Index Security increases or decreases between the
time of creation and the
25
<PAGE>
time any such Index Security is purchased and delivered, DIAMONDS will
represent fewer or more shares of such Index Security and more or fewer of the
other Index Securities in the Trust. Hence, price fluctuations during the
period from the time the cash is received by the Trustee to the time the
requisite Index Securities are purchased and delivered will affect the value
of all DIAMONDS.
The identity and appropriate number of shares of the Index Securities
required for a Portfolio Deposit are determined in the manner described
herein. Due to changes in the composition of the Index Securities, the
composition of the Securities and the prescribed Portfolio Deposit will also
change from time to time (see "The Portfolio--Adjustments to the Portfolio"
and "The Portfolio--Adjustments to the Portfolio Deposit"). The identity and
appropriate number of shares of the Index Securities to be delivered as part
of a Portfolio Deposit are determined daily and reflect the composition of the
DJIA and, together with the Cash Component, have a value equal to the net
asset value of the Trust on a per Creation Unit basis at the close of business
on the day of request for creation. The composition of the Portfolio is also
adjusted from time to time to conform to the changes to the DJIA as described
herein and as set forth in the Trust Agreement. As the appropriate number of
shares and identities of the Index Securities change, substantially identical
changes to the composition of the required Portfolio Deposit are made
contemporaneously. Corresponding adjustments to the composition of the
Portfolio, however, will be made as nearly contemporaneously as possible with
adjustments to the required Portfolio Deposit, but in all cases will be made
in accordance with the specifications set forth herein and in the Trust
Agreement (see "The Portfolio--Adjustments to the Portfolio"). Although the
composition of the securities portion of a Portfolio Deposit changes from time
to time, the interests of Beneficial Owners will not be adversely affected
because the composition of such securities and the aggregate value thereof,
together with the Cash Component, will be calculated based upon the
proportionate net asset value of the Trust (see "The Portfolio--Adjustments to
the Portfolio").
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create DIAMONDS in
Creation Unit size aggregations, an entity or person must be (1) a
Participating Party, with respect to creations through the DIAMONDS Clearing
Process or (2) a DTC Participant with respect to creations/redemptions outside
the DIAMONDS Clearing Process. All DIAMONDS, however created, will be entered
on the records of the Depository in the name of Cede & Co. for the account of
a DTC Participant (see "The Trust--Book Entry Only System").
All orders to create DIAMONDS must be placed in multiples of 50,000 DIAMONDS
(Creation Unit size). All orders to create DIAMONDS, whether through the
DIAMONDS Clearing Process or outside the DIAMONDS Clearing Process, must be
received by the Distributor by no later than the closing time of the regular
trading
26
<PAGE>
session on the New York Stock Exchange, Inc. ("Closing Time") (ordinarily 4:00
p.m. New York time) in each case on the date such order is placed in order for
creation of DIAMONDS to be effected based on the net asset value of the Trust
as determined on such date. The date on which a creation order (or order to
redeem as discussed below) is placed is herein referred to as the "Transmittal
Date". Orders must be transmitted by telephone or other transmission method
acceptable to the Distributor and Trustee, pursuant to procedures set forth in
the Participant Agreement, as described below (see "Placement of Creation
Orders Using DIAMONDS Clearing Process" and "Placement of Creation Orders
Outside DIAMONDS Clearing Process"). Severe economic or market changes or
disruptions, or telephone or other communication failure, may impede the
ability to reach the Trustee, the Distributor, a Participating Party or a DTC
Participant.
Orders to create Creation Unit sized aggregations of DIAMONDS shall be
placed with a Participating Party or DTC Participant, as applicable, in the
form required by such Participating Party or DTC Participant. Investors should
be aware that their particular broker may not have executed a Participant
Agreement, and that, therefore, orders to create Creation Unit sized
aggregations of DIAMONDS may have to be placed by the investor's broker
through a Participating Party or a DTC Participant who has executed a
Participant Agreement. At any given time there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those placing
orders to create DIAMONDS through the DIAMONDS Clearing Process should afford
sufficient time to permit proper submission of the order to the Distributor
prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the DIAMONDS Clearing Process
are likely to require transmittal by the DTC Participant earlier on the
Transmittal Date than orders effected using the DIAMONDS Clearing Process.
Those persons placing orders outside the DIAMONDS Clearing Process should
ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire
system by contacting the operations department of the broker or depository
institution effectuating such transfer of securities and Cash Component. The
DTC Participant notified of an order to create DIAMONDS outside the DIAMONDS
Clearing Process shall be required to effect a transfer of (1) the requisite
Index Securities through DTC by 11:00 a.m. on the next Business Day
immediately following the Transmittal Date in such a way as to replicate the
Portfolio Deposit established on the Transmittal Date by the Trustee in
calculating the net asset value of the Trust and (2) the Cash Component
through the Federal Reserve Bank wire system so as to be received by the
Trustee by 2:00 p.m. on the next Business Day immediately following the
Transmittal Date. If the Trustee does not receive both the Index Securities by
11:00 a.m. and the Cash Component by 2:00 p.m. on the Business Day immediately
following the Transmittal Date, such order shall be canceled. Upon written
notice to the Distributor, such canceled order may be resubmitted the
following Business Day using a Portfolio Deposit as newly constituted to
reflect the current net asset value of the Trust.
27
<PAGE>
All questions as to the number of shares of each of the Index Securities,
the amount of the Cash Component and the validity, form, eligibility
(including time of receipt) and acceptance for deposit of any Index Securities
to be delivered shall be determined by the Trustee, whose determination shall
be final and binding. The Trustee reserves the absolute right to reject a
creation order transmitted to it by the Distributor in respect of any
Portfolio Deposit or any component thereof if (a) the depositor or group of
depositors, upon obtaining the DIAMONDS ordered, would own 80% or more of the
current outstanding DIAMONDS (see "Tax Status of the Trust"), (b) the
Portfolio Deposit is not in proper form; (c) acceptance of the Portfolio
Deposit would have certain adverse tax consequences (see "Tax Status of the
Trust"); (d) the acceptance of the Portfolio Deposit would, in the opinion of
counsel, be unlawful; (e) the acceptance of the Portfolio Deposit would
otherwise, in the discretion of the Trustee, have an adverse effect on the
Trust or the rights of Beneficial Owners; or (f) in the event that
circumstances outside the control of the Trustee make it for all practical
purposes impossible to process creations of DIAMONDS. 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 list of the Participating Parties or DTC Participants that have executed a
Participant Agreement (as hereinafter defined) is available at the office of
the Trustee at 1776 Heritage Drive, North Quincy, Massachusetts 02171 and the
office of the Distributor at 370 17th Street, Suite 3100, Denver, CO 80202
during normal business hours.
PLACEMENT OF CREATION ORDERS USING DIAMONDS CLEARING PROCESS
Portfolio Deposits created through the DIAMONDS Clearing Process must be
delivered through a Participating Party (see "Prospectus Summary--Portfolio
Deposits") that has executed a Participant Agreement with the Distributor and
with the Trustee (as the same may be from time to time amended in accordance
with its terms, the "Participant Agreement"). The Participant Agreement
authorizes the Trustee to transmit to NSCC on behalf of the Participating
Party such trade instructions as are necessary to effect the Participating
Party's creation order. Pursuant to such trade instructions from the Trustee
to NSCC, the Participating Party agrees to transfer the requisite Index
Securities (or contracts to purchase such Index Securities that are expected
to be delivered in a "regular way" manner by the third (3rd) NSCC Business
Day) and the Cash Component to the Trustee, together with such additional
information as may be required by the Trustee. An order to create DIAMONDS
through the DIAMONDS Clearing Process is deemed received by the Distributor on
the Transmittal Date if (i) such order is received by the Distributor not
later than the Closing Time on such Transmittal Date and (ii) all other
procedures set forth in the Participant Agreement are properly followed.
28
<PAGE>
PLACEMENT OF CREATION ORDERS OUTSIDE DIAMONDS CLEARING PROCESS
Portfolio Deposits created outside the DIAMONDS Clearing Process must be
delivered through a DTC Participant that has executed a Participant Agreement
with the Distributor and with the Trustee. A DTC Participant who wishes to
place an order creating DIAMONDS to be effected outside the DIAMONDS Clearing
Process need not be a Participating Party, but such orders must state that the
DTC Participant is not using the DIAMONDS Clearing Process and that the
creation of DIAMONDS will instead be effected through a transfer of securities
and cash. The Portfolio Deposit transfer must be ordered by the DTC
Participant in a timely fashion so as to ensure the delivery of the requisite
number of Index Securities through DTC to the account of the Trustee by no
later than 11:00 a.m. of the next Business Day immediately following the
Transmittal Date. All questions as to the number of Index Securities to be
delivered, and the validity, form and eligibility (including time of receipt)
for the deposit of any tendered securities, will be determined by the Trustee,
whose determination shall be final and binding. The cash equal to the Cash
Component must be transferred directly to the Trustee through the Federal
Reserve wire system in a timely manner so as to be received by the Trustee no
later than 2:00 p.m. on the next Business Day immediately following the
Transmittal Date. An order to create DIAMONDS outside the DIAMONDS Clearing
Process is deemed received by the Distributor on the Transmittal Date if (i)
such order is received by the Distributor not later than the Closing Time on
such Transmittal Date and (ii) all other procedures set forth in the
Participant Agreement are properly followed. However, if the Trustee does not
receive both the requisite Index Securities and the Cash Component in a timely
fashion on the next Business Day immediately following the Transmittal Date,
such order will be canceled. Upon written notice to the Distributor, such
canceled order may be resubmitted the following Business Day using a Portfolio
Deposit as newly constituted to reflect the current net asset value of the
Trust. The delivery of DIAMONDS so created will occur no later than the third
(3rd) Business Day following the day on which the creation order is deemed
received by the Distributor. Under the current schedule, the total fee charged
in connection with the creation of one Creation Unit outside the DIAMONDS
Clearing Process would be $4,000 (see "Prospectus Summary--Transaction Fee").
BOOK-ENTRY-ONLY SYSTEM
The Depository acts as securities depository for DIAMONDS. DIAMONDS are
represented by a single global security (the "Global Security"), which is
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 DIAMONDS.
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
29
<PAGE>
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
(the "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.
Upon the settlement date of any creation, transfer or redemption of
DIAMONDS, the Depository will credit or debit, on its book-entry registration
and transfer system, the number of DIAMONDS 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 DIAMONDS Clearing Process, or by
the Trustee and the DTC Participant, in the case of a creation or redemption
transacted outside of the DIAMONDS Clearing Process (see "The Trust--
Procedures for Creation of Creation Units" and "Redemption of DIAMONDS").
Beneficial ownership of DIAMONDS is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and
Indirect Participants. Ownership of beneficial interests in DIAMONDS (owners
of such beneficial interests are referred to herein as "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). Beneficial Owners are
expected to receive from or through the DTC Participant a written confirmation
relating to their purchase of DIAMONDS. The laws of some jurisdictions may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such laws may impair the ability of certain
investors to acquire beneficial interests in DIAMONDS.
So long as Cede & Co., as nominee of the Depository, is the registered owner
of DIAMONDS, references herein to the registered or record owners of DIAMONDS
- -----------
* As of December 31, 1997, the Exchange owns 4.68347% of the issued and
outstanding shares of common stock of the Depository and an affiliate of the
Exchange, AMEX Clearing Corp., owns 0.00188% of the issued and outstanding
shares of common stock of the Depository. Also as of such date, the Trustee
owns 4.35685% of the issued and outstanding shares of the common stock of
the Depository.
30
<PAGE>
shall mean Cede & Co. and shall not mean the Beneficial Owners of DIAMONDS.
Beneficial Owners of DIAMONDS will not be entitled to have DIAMONDS 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 Trust Agreement. Accordingly, each
Beneficial Owner must rely on the procedures of the Depository, the DTC
Participant and any indirect Participant through which such Beneficial Owner
holds its interests, to exercise any rights of a holder of DIAMONDS under the
Trust Agreement. The Trustee and the Sponsor understand that under existing
industry practice, in the event the Trustee requests any action of DIAMONDS
Unit holders, or a Beneficial Owner desires to take any action that the
Depository, as the record owner of all outstanding DIAMONDS, 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.
As described above, the Trustee recognizes the Depository or its nominee as
the owner of all DIAMONDS for all purposes except as expressly set forth in
the Trust Agreement. Conveyance of all notices, statements and other
communications to Beneficial Owners is effected as follows. Pursuant to the
agreement between the Trustee and the Depository (as the same may be from time
to time amended in accordance with its terms, the "Depository Agreement"), the
Depository is required to make available to the Trustee upon request and for a
fee to be charged to the Trust a listing of the DIAMONDS Unit holdings of each
DTC Participant. The Trustee shall inquire of each such DTC Participant as to
the number of Beneficial Owners holding DIAMONDS, directly or indirectly,
through such DTC Participant. The Trustee shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such
Beneficial Owners. In addition, the Trust shall pay to each such DTC
Participant a fair and reasonable amount as reimbursement for the expenses
attendant to such transmittal, all subject to applicable statutory and
regulatory requirements.
DIAMONDS Unit distributions shall be made to the Depository or its nominee,
Cede & Co., as the registered owner of all DIAMONDS. The Trustee and the
Sponsor expect that the Depository or its nominee, upon receipt of any payment
of distributions in respect of DIAMONDS, shall credit immediately DTC
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in DIAMONDS 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 of
DIAMONDS held through such DTC Participants will be
31
<PAGE>
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 has or 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 DIAMONDS, 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.
Beneficial Owners may elect to have their distributions reinvested in
additional DIAMONDS (see "Dividend Reinvestment Service").
The Depository may determine to discontinue providing its service with
respect to DIAMONDS 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 Trust (see "Termination of the Trust").
THE PORTFOLIO
Because the objective of the Trust is to provide investment results that
correspond substantially to the price and yield performance of the DJIA, the
Portfolio will at any time consist of as many of the Index Securities as is
practicable and under most circumstances, all of the Index Securities. It is
anticipated that cash or cash items (other than dividends held for
distribution) normally would not be a substantial part of the Trust's net
assets. Although the Trust may at any time fail to own certain of the Index
Securities, the Trust will be substantially invested in Index Securities and
the Sponsor believes that such investment should result in a close
correspondence between the investment performance of the DJIA and that derived
from ownership of DIAMONDS.
ADJUSTMENTS TO THE PORTFOLIO
The DJIA is a price-weighted index of 30 component common stocks, the
components of which are determined by the editors of The Wall Street Journal,
without any consultation with the companies, the respective stock exchange or
any official agency.
Because the investment objective of the Trust is to provide investment
results that generally correspond to the price and yield performance of the
DJIA, capital changes such as stock splits and composition changes to the DJIA
create the need for the Trust to make corresponding Portfolio adjustments as
described below.
32
<PAGE>
The Trustee will adjust the composition of the Portfolio from time to time,
to the extent practicable, to conform to changes in the composition of the
Index Securities. Pursuant to the provisions of the Agreement, the Trustee
will make conforming changes to the Trust's portfolio in order to correlate
the Securities with the Index Securities comprising the DJIA, within three (3)
Business Days before or after the day on which such changes are scheduled to
take effect at the close of the market. While other DJIA changes may lead to
adjustments in the Trust's portfolio, the most common changes are likely to
occur as a result of changes in the Index Securities included in the DJIA and
as a result of stock splits. The Agreement sets forth the method of
adjustments which may occur thereunder as a result of corporate actions to the
DJIA, such as stock splits or changes in the identity of the component stocks.
For example, in the event of an Index Security change (in which the common
stock of one issuer held in the DJIA is replaced by the common stock of
another), the Trustee may sell all shares of the Security held in the
Portfolio corresponding to the old Index Security and use the proceeds of such
sale to purchase replacement Securities corresponding to the new Index
Security. If the share price of the removed Security was higher than the price
of its replacement Security, the Trustee will calculate how to allocate the
proceeds of the sale of the removed Security between purchase of the
replacement Security and purchases of additional shares of other Securities
currently held in the Portfolio so that the number of shares of each Security
in the Portfolio after the transactions would be as nearly equal as
practicable. If the share price of the removed Security was lower than the
price of the replacement Security, the Trustee will calculate the number of
shares of each of the other Securities currently held in the Portfolio that
must be sold in order to purchase enough shares of the replacement Security so
that the number of shares of each Security in the Portfolio after the
transactions would be as nearly equal as practicable.
In the event of a stock split, the price weighting of the stock which is
split will drop. The Trustee may make the corresponding Portfolio Adjustment
by selling the additional shares of the Security received from the stock
split. The Trustee may then use the proceeds of the sale to buy an equal
number of shares of each Security held in the Portfolio--including the
Security which had just experienced a stock split. In practice, of course, not
all the shares received in the split would be sold: enough of those shares
would be retained to make an increase in the number of split shares equal to
the increase in the number of shares in each of the other Securities held in
the Portfolio purchased with the proceeds of the sale of the remaining shares
resulting from such split.
As a result of the purchase and sale of Securities in accordance with these
requirements, or the creation of Creation Units, the Trust may hold some
amount of residual cash (other than cash held temporarily due to timing
differences between the sale and purchase of Securities, cash delivered in
lieu of Index Securities, undistributed income (including Dividend Equivalent
Payments), or undistributed capital gains) as a result of such transactions,
which amount shall not exceed for more
33
<PAGE>
than two (2) consecutive Business Days 5/10th of 1 percent of the aggregate
value of the Securities. Cash in excess of such amounts will be used by the
Trustee to purchase additional Securities.
All adjustments to the Portfolio held by the Trustee shall be made by the
Trustee pursuant to the foregoing specifications and as set forth in the Trust
Agreement and shall be non-discretionary. All portfolio adjustments will be
made as described herein unless such adjustments would cause the Trust to lose
its status as a "regulated investment company" under Subchapter M of the
Internal Revenue Code. Additionally, the Trustee is required to adjust the
composition of the Portfolio at any time if it is necessary to insure the
continued qualification of the Trust as a regulated investment company (see
"Tax Status of the Trust"). The adjustments provided herein are intended to
conform the composition of the Portfolio, to the extent practicable, to the
composition of the Index Securities. Such adjustments are based upon the DJIA
as it is currently determined by Dow Jones. To the extent that the method of
determining the DJIA is changed by Dow Jones in a manner that would affect the
adjustments provided for herein, the Trustee and the Sponsor shall have the
right to amend the Trust Agreement, without the consent of the Depository or
Beneficial Owners, to conform the adjustments provided herein and in the Trust
Agreement to such changes so that the objective of tracking the DJIA is
maintained.
In making the adjustments described herein, the Trustee shall rely on Dow
Jones for information as to the composition 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 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 weightings of the
Securities (as opposed to the Index 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.
At such time as the Trustee gives written notice of the termination of the
Trust (see "Administration of the Trust--Termination"), from and after the
date of such notice the Trustee shall use the composition and weightings of
the Securities as of such notice date for the purpose and determination of all
redemptions or other required uses of the basket.
From time to time Dow Jones may make adjustments to the composition of the
DJIA as a result of a merger or acquisition involving one or more of the Index
34
<PAGE>
Securities. In such cases, the Trust, as shareholder of securities of an
issuer that is the object of such merger or acquisition activity, may receive
various offers from would-be acquirors of the issuer. The Trustee is not
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 DJIA. Since
securities of an issuer may be removed from the DJIA only after the
consummation of a merger or acquisition of such issuer, in selling the
securities of such issuer the Trust 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 proportion to the new composition of the
Index Securities in the DJIA. 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
proportion to the new composition of the Index Securities in the DJIA.
Purchases and sales of Securities resulting from the adjustments described
above will be made in the share amounts dictated by the foregoing
specifications, whether round lot or odd lot. Certain Index Securities,
however, may at times not be available in the quantities that the foregoing
calculations require. For this and other reasons, precise duplication of the
proportionate relationship between the Portfolio and the Index Securities may
sometimes not be possible but nevertheless will continue to be the objective
in connection with all acquisitions and dispositions of Securities.
The Trust is a unit investment trust registered under the 1940 Act, and is
not a managed fund. Traditional methods of investment management for a managed
fund typically involve frequent changes to a portfolio of securities on the
basis of economic, financial and market analyses. The Portfolio held by the
Trust, however, is not managed. Instead, the only purchases and sales that are
made with respect to the Portfolio will be those necessary to create, to the
extent feasible, a portfolio that is designed to replicate the DJIA to the
extent practicable, taking into consideration the adjustments referred to
above. Since no attempt is made to "manage" the Trust in the traditional
sense, the adverse financial condition of an issuer will not be the basis for
the sale of its securities from the Portfolio unless the issuer is removed
from the DJIA.
The Trust will be liquidated on the fixed Mandatory Termination Date unless
terminated earlier under certain circumstances (see "Administration of the
Trust--Termination"). In addition, Beneficial Owners of DIAMONDS in Creation
Unit size aggregations have the right to redeem in kind (see "Redemption of
DIAMONDS").
ADJUSTMENTS TO THE PORTFOLIO DEPOSIT
On each Business Day following the Initial Date of Deposit (each such day an
"Adjustment Day"), the number of shares and/or identity of each of the Index
35
<PAGE>
Securities in a Portfolio Deposit is adjusted in accordance with the following
procedure. At the close of the market on each Adjustment Day, the Trustee
calculates the net asset value of the Trust (see "Valuation"). The net asset
value is divided by the number of outstanding DIAMONDS multiplied by 50,000
DIAMONDS in one Creation Unit, resulting in a net asset value per Creation
Unit (the "NAV Amount"). The Trustee then calculates the number of shares of
each of the component stocks of the DJIA 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 Cash Component or Cash
Redemption Payment (defined below), as the case may be, effective for requests
to create or redeem on Adjustment Day, equals the NAV Amount and (2) the
securities in a Portfolio Deposit correspond to the securities in the DJIA
after the close of trading on Request Day. For each security, the number
resulting from such calculation is rounded down to the nearest whole share.
The securities so calculated constitute the securities portion of the
Portfolio Deposit effective on Request Day and thereafter until the next
subsequent Adjustment Day, as well as the Securities to be delivered by the
Trustee in the event of request for redemption of DIAMONDS in Creation Unit
size aggregations on Request Day and thereafter until the following Adjustment
Day (see "Redemption of DIAMONDS"). In addition to the foregoing adjustments,
in the event that there shall occur a stock split, stock dividend or reverse
split with respect to any Index Security that results in an adjustment to the
DJIA divisor, the Portfolio Deposit shall be adjusted to take account of such
stock split, stock dividend or reverse split.
On Request Day and on each day that a request for the creation or redemption
of DIAMONDS in Creation Unit size aggregations is deemed received, the Trustee
calculates 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 adds 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 then calculates the NAV Amount, based on the close of the market on
Request Day. The difference between the NAV Amount so calculated and the
Portfolio Deposit Amount is 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, a difference in the percentage of the
Creation Unit and the percentage of the Trust's assets held in cash or a
change in the composition of the Index.
As previously discussed, the Dividend Equivalent Payment and the Balancing
Amount in effect at the close of business on Request Date are collectively
referred to as the Cash Component or the Cash Redemption Payment (see
"Prospectus Summary--Portfolio Deposits" and "Prospectus Summary--
Redemption"). If the Balancing
36
<PAGE>
Amount is a positive number (i.e., if the NAV Amount exceeds the Portfolio
Deposit Amount) then, with respect to the creation of DIAMONDS, the Balancing
Amount shall increase the Cash Component of the then effective Portfolio
Deposit transferred to the Trustee by a creator, and with respect to
redemptions of DIAMONDS in Creation Unit size aggregations, the Balancing
Amount shall be added to the cash transferred to a redeemer by the Trustee. If
the Balancing Amount is a negative number (i.e., if the NAV Amount is less
than the Portfolio Deposit Amount) then, with respect to the creation of
DIAMONDS such amount shall decrease the Cash Component of the then effective
Portfolio Deposit to be transferred to the Trustee by the creator or, if such
cash portion is less than the Balancing Amount, the difference shall be paid
by the Trustee to the creator, and with respect to redemptions of DIAMONDS in
Creation Unit size aggregations, the Balancing Amount shall be deducted from
the cash transferred to the redeemer or, if such cash is less than the
Balancing Amount, the difference shall be paid by the redeemer to the Trustee.
In the event that the Trustee has included the cash equivalent value of one
or more Index Securities in the Portfolio Deposit because the Trustee has
determined that such Index Securities are likely to be unavailable or
available in insufficient quantity for delivery, the Portfolio Deposit so
constituted shall dictate the Index Securities to be delivered in connection
with the creation of DIAMONDS in Creation Unit size aggregations and upon the
redemption of DIAMONDS in Creation Unit size aggregations for all purposes
hereunder until such time as the securities portion of the Portfolio Deposit
is subsequently adjusted.
In connection with the creation or redemption of DIAMONDS, 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 in the Portfolio Deposit as part of the Cash Component (or the Cash
Redemption Payment, as the case may be) in lieu of the inclusion of such Index
Securities in the securities portion of the Portfolio Deposit for the
particular affected investor. The amount of such cash equivalent payment may
require the Trustee to purchase the appropriate number of shares of the Index
Security that such investor was unable to purchase. In any such case such
investor shall pay the Trustee the standard Transaction Fee, plus an
additional amount not to exceed three (3) times the Transaction Fee applicable
for a Creation Unit.
The Trustee, in its discretion, upon the request of the redeeming investor,
may redeem Creation Units in whole or in part by providing such redeemer with
a portfolio of Securities differing in exact composition from the Index
Securities but not differing in net asset value from the then-current
Portfolio Deposit. Such a redemption might be made, for example, if it were to
be determined that this composition would be appropriate in order to maintain
the Trust Portfolio correlation to the price-weighted
37
<PAGE>
composition of the DJIA (i.e. an equal number of shares of each component
stock), for instance when a stock split in one of the DJIA Index Securities
occurs.
SELECTION AND ACQUISITION OF SECURITIES
In prescribing the method described above for selecting the Index Securities
that constitute the prescribed Portfolio Deposit from time to time, the
Sponsor intends to duplicate, to the extent practicable, the component
securities of the DJIA as of the relevant date.
Because certain of the Securities from time to time may be sold or may
otherwise be changed under certain circumstances as described herein, no
assurance can be given that the Trust will retain for any length of time its
size and composition (see "The Portfolio--Adjustments to the Portfolio").
Also, the deposit of additional Portfolio Deposits and the redemption of
DIAMONDS in Creation Unit size aggregations will affect the size and
composition of the Trust.
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Securities.
THE DJIA
The Sponsor selected the DJIA as the basis for the selection of the
securities held by the Trust because it is well known to investors and
contains some of the most well known, liquid and highly capitalized companies
in the U.S. Many of the stocks in the DJIA are household names.
The DJIA was first published in 1896. Initially comprised of 12 companies,
the DJIA has evolved into the most recognizable stock indicator in the world,
and the only index composed of companies that have sustained earnings
performance over a significant period of time. In its second century, the DJIA
is the oldest continuous barometer of the U.S. stock market, and the most
widely quoted indicator of U.S. stock market activity.
The 30 stocks now comprising the DJIA are all leaders in their respective
industries, and their stocks are widely held by individuals and institutional
investors. These stocks represent approximately one-fifth of the $1 trillion-
plus market value of all US stocks and approximately one-fourth of the value
of stocks listed on the New York Stock Exchange.
The Sponsor has been granted a license to use the DJIA as a basis for
determining the composition of the Trust and to use certain trademarks of Dow
Jones in connection with the Trust (see "License Agreement"). Dow Jones is not
responsible for and shall
38
<PAGE>
not participate in the creation or sale of DIAMONDS or in the determination of
the timing of, prices at, or quantities and proportions in which purchases or
sales of Index Securities or Securities shall be made. The information in this
Prospectus concerning Dow Jones and the DJIA has been obtained from sources
that the Sponsor believes to be reliable, but the Sponsor takes no
responsibility for the accuracy of such information.
The following table shows the actual performance of the DJIA for the years
1896 through 1997. Stock prices fluctuated widely during this period and were
higher at the end than at the beginning. The results shown should not be
considered as a representation of the income yield or capital gain or loss
that may be generated by the DJIA in the future, nor should the results be
considered as a representation of the performance of the Trust.
<TABLE>
<CAPTION>
YEAR DJIA POINT YEAR % %
ENDED CLOSE CHANGE CHANGE DIVS YIELD
- ----- -------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
1997.................................... 7,908.25 1,459.98 22.6% 136.10 1.72%
1996.................................... 6,448.27 1,331.20 26.0 131.14 2.03
1995.................................... 5,117.12 1,282.70 33.5 116.56 2.28
1994.................................... 3,834.44 80.3 2.1 105.66 2.76
1993.................................... 3,754.09 453 13.7 99.66 2.65
1992.................................... 3,301.11 132.3 4.2 100.72 3.05
1991.................................... 3,168.83 535.2 20.3 95.18 3.00
1990.................................... 2,633.66 - 119.5 - 4.3 103.7 3.94
1989.................................... 2,753.20 584.6 27.0 103 3.74
1988.................................... 2,168.57 229.7 11.8 79.53 3.67
1987.................................... 1,938.83 42.9 2.3 71.2 3.67
1986.................................... 1,895.95 349.3 22.6 67.04 3.54
1985.................................... 1,546.67 335.1 27.7 62.03 4.01
1984.................................... 1,211.57 - 47.1 - 3.7 60.63 5.00
1983.................................... 1,258.64 212.1 20.3 56.33 4.48
1982.................................... 1,046.54 171.5 19.6 54.14 5.17
1981.................................... 875 - 89 - 9.2 56.22 6.43
1980.................................... 963.99 125.3 14.9 54.36 5.64
1979.................................... 838.74 33.7 4.2 50.98 6.08
1978.................................... 805.01 - 26.2 - 3.1 48.52 6.03
1977.................................... 831.17 - 173.5 - 17.3 45.84 5.52
1976.................................... 1,004.65 152.2 17.9 41.4 4.12
1975.................................... 852.41 236.2 38.3 37.46 4.39
1974.................................... 616.24 - 234.6 - 27.6 37.72 6.12
1973.................................... 850.86 - 169.2 - 16.6 35.33 4.15
1972.................................... 1,020.02 129.8 14.6 32.27 3.16
1971.................................... 890.2 51.3 6.1 30.86 3.47
1970.................................... 838.92 38.6 4.8 31.53 3.76
1969.................................... 800.36 - 143.4 - 15.2 33.9 4.24
1968.................................... 943.75 38.6 4.3 31.34 3.32
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
YEAR DJIA POINT YEAR % %
ENDED CLOSE CHANGE CHANGE DIVS YIELD
- ----- ------ ------- ------ ----- -----
<S> <C> <C> <C> <C> <C>
1967........................................ 905.11 119.4 15.2% 30.19 3.34%
1966........................................ 785.69 - 183.6 - 18.9 31.89 4.06
1965........................................ 969.26 95.1 10.9 28.61 2.95
1964........................................ 874.13 111.2 14.6 31.24 3.57
1963........................................ 762.95 110.9 17.0 23.41 3.07
1962........................................ 652.1 - 79 - 10.8 23.3 3.57
1961........................................ 731.14 115.3 18.7 22.71 3.11
1960........................................ 615.89 - 63.5 - 9.3 21.36 3.47
1959........................................ 679.36 95.7 16.4 20.74 3.05
1958........................................ 583.65 148 34.0 20 3.43
1957........................................ 435.69 - 63.8 - 12.8 21.61 4.96
1956........................................ 499.47 11.1 2.3 22.99 4.60
1955........................................ 488.4 84 20.8 21.58 4.42
1954........................................ 404.39 123.5 44.0 17.47 4.32
1953........................................ 280.9 - 11 - 3.8 16.11 5.74
1952........................................ 291.9 22.7 8.4 15.43 5.29
1951........................................ 269.23 33.8 14.4 16.34 6.07
1950........................................ 235.41 35.3 17.6 16.13 6.85
1949........................................ 200.13 22.8 12.9 12.79 6.39
1948........................................ 177.3 - 3.9 - 2.1 11.5 6.49
1947........................................ 181.16 4 2.2 9.21 5.08
1946........................................ 177.2 - 15.7 - 8.1 7.5 4.23
1945........................................ 192.91 40.6 26.6 6.69 3.47
1944........................................ 152.32 16.4 12.1 6.57 4.31
1943........................................ 135.89 16.5 13.8 6.3 4.64
1942........................................ 119.4 8.4 7.6 6.4 5.36
1941........................................ 110.96 - 20.2 - 15.4 7.59 6.84
1940........................................ 131.13 - 19.1 - 12.7 7.06 5.38
1939........................................ 150.24 - 4.5 - 2.9 6.11 4.07
1938........................................ 154.76 33.9 28.1 4.98 3.22
1937........................................ 120.85 - 59.1 - 32.8 8.78 7.27
1936........................................ 179.9 35.8 24.8 7.05 3.92
1935........................................ 144.13 40.1 38.5 4.55 3.16
1934........................................ 104.04 4.1 4.1 3.66 3.52
1933........................................ 99.9 40 66.7 3.4 3.40
1932........................................ 59.93 - 18 - 23.1 4.62 7.71
1931........................................ 77.9 - 86.7 - 52.7 8.4 10.78
1930........................................ 164.58 - 83.9 - 33.8 11.13 6.76
1929........................................ 248.48 - 51.5 - 17.2 12.75 5.13
1928........................................ 300 97.6 48.2 NA NA
1927........................................ 202.4 45.2 28.8 NA NA
1926........................................ 157.2 0.5 0.3 NA NA
1925........................................ 156.66 36.2 30.0 NA NA
1924........................................ 120.51 25 26.2 NA NA
1923........................................ 95.52 - 3.2 - 3.3 NA NA
1922........................................ 98.73 17.6 21.7 NA NA
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
YEAR DJIA POINT YEAR % %
ENDED CLOSE CHANGE CHANGE DIVS YIELD
- ----- ------ ------ ------ ---- -----
<S> <C> <C> <C> <C> <C>
1921........................................... 81.1 9.1 12.7% NA NA%
1920........................................... 71.95 - 35.3 - 32.9 NA NA
1919........................................... 107.23 25 30.5 NA NA
1918........................................... 82.2 7.8 10.5 NA NA
1917........................................... 74.38 - 20.6 - 21.7 NA NA
1916........................................... 95 - 4.2 - 4.2 NA NA
1915........................................... 99.15 44.6 81.7 NA NA
1914........................................... 54.58 - 24.2 - 30.7 NA NA
1913........................................... 78.78 - 9.1 - 10.3 NA NA
1912........................................... 87.87 6.2 7.6 NA NA
1911........................................... 81.68 0.3 0.4 NA NA
1910........................................... 81.36 - 17.7 - 17.9 NA NA
1909........................................... 99.05 12.9 15.0 NA NA
1908........................................... 86.15 27.4 46.6 NA NA
1907........................................... 58.75 - 35.6 - 37.7 NA NA
1906........................................... 94.35 - 1.9 - 1.9 NA NA
1905........................................... 96.2 26.6 38.2 NA NA
1904........................................... 69.61 20.5 41.7 NA NA
1903........................................... 49.11 - 15.2 - 23.6 NA NA
1902........................................... 64.29 - 0.3 - 0.4 NA NA
1901........................................... 64.56 - 6.1 - 8.7 NA NA
1900........................................... 70.71 4.6 7.0 NA NA
1899........................................... 66.08 5.6 9.2 NA NA
1898........................................... 60.52 11.1 22.5 NA NA
1897........................................... 49.41 9 22.2 NA NA
1896........................................... 40.45 NA NA NA NA
</TABLE>
- -----------
* Source: Dow Jones. Year-end index values shown do not reflect reinvestment
of dividends nor costs, such as brokerage charges and transaction costs.
** Source: Dow Jones. Yields are obtained by dividing the sum of the then most
recent four quarters' cash dividends per share of each of the component
stocks in the DJIA by the sum of the prices at year end of the component
stocks in the DJIA.
The DJIA is a price-weighted stock index, meaning that the component stocks
of the DJIA are accorded relative importance based on their prices. In this
regard, the DJIA is unlike many other stock indexes which weight their
component stocks by market capitalization (price times shares outstanding).
The DJIA is called an "average" because originally it was calculated by adding
up the component stock prices and then dividing by the number of stocks. The
method remains the same today, but the divisor (the number that is divided
into the total of the stock prices) has been increased to eight significant
digits to minimize distortions due to rounding and has been adjusted over time
to insure continuity of the DJIA after component stock changes and corporate
actions, as discussed below.
41
<PAGE>
The DJIA divisor is adjusted due to corporate actions that change the price
of any of its component shares. The most frequent reason for such an
adjustment is a stock split. For example, suppose a company in the DJIA issues
one new share for each share outstanding. After this two-for-one "split," each
share of stock is worth half what it was immediately before, other things
being equal. But without an adjustment in the divisor, this split would
produce a distortion in the DJIA. An adjustment must be made to compensate so
that the "average" will remain unchanged. At Dow Jones, this adjustment is
handled by changing the divisor.* The formula used to calculate divisor
adjustments is:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Adjusted Sum Unadjusted Sum
New Divisor = Current Divisor x of Prices / of Prices
</TABLE>
Changes in the composition of the DJIA are made entirely by the editors of
The Wall Street Journal without consultation with the companies, the
respective stock exchange, or any official agency. Additions or deletions of
components may be made to achieve better representation of the broad market
and of American industry.
In selecting components for the DJIA, the following criteria are used: 1)
the company is not a utility or in the transportation business; 2) the company
has a premier reputation in its field; 3) the company has a history of
successful growth; and 4) there is wide interest among individual and
institutional investors. Whenever one component is changed, the others are
reviewed. For the sake of historical continuity, composition changes are made
rarely.
Although all 30 components are currently listed on the New York Stock
Exchange, listing on the New York Stock Exchange is not a criterion for
selection. Dow Jones & Co. announced the following changes in the components
of the DJIA, effective with trading Monday, March 17, 1997.
Companies removed were:
.Woolworth Corp., which had been in the DJIA since 1924.
.Westinghouse Electric, which had been in the DJIA since 1928.
.Texaco Inc., which had been in the DJIA since 1925.
.Bethlehem Steel, which had been in the DJIA since 1928.
Companies added were:
.Hewlett-Packard
.Johnson & Johnson
.Traveler's Group Inc.
.Wal-Mart Stores Inc.
- -----------
* Currently, the divisor is recalculated after the close of business on the
day prior to the occurrence of the split.
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<PAGE>
LICENSE AGREEMENT
Under the terms of a license agreement with Dow Jones (the "License
Agreement"), the Sponsor and the Exchange have been granted a license to use
the DJIA as a basis for determining the composition of the Trust and to use
certain trade names, trademarks and service marks of Dow Jones in connection
with the Trust. The License Agreement may be amended by the parties thereto
without the consent of any of the Beneficial Owners of DIAMONDS. Currently,
the License Agreement is scheduled to expire five years from the commencement
date of trading of DIAMONDS, in accordance with its terms and is subject to a
five year renewal period following such date. The parties thereto may extend
the term of the License Agreement beyond such date without the consent of any
of the Beneficial Owners of DIAMONDS.
None of the Trust, the Trustee, the Distributor, the Depository or any
Beneficial Owner of DIAMONDS is entitled to any rights whatsoever under the
foregoing licensing arrangements or to use the trademarks and service marks
"Dow Jones", "DIAMONDS", "THE DOW INDUSTRIALS", "The Dow", "DJIA" or "Dow
Jones Industrial Average", or to use the DJIA except as specifically described
herein or as may be specified in the Trust Agreement.
The Trust is not sponsored, endorsed, sold or promoted by Dow Jones. Dow
Jones makes no representation or warranty, express or implied, to the
Beneficial Owners of DIAMONDS or any member of the public regarding the
advisability of investing in securities generally or in the Trust
particularly. Dow Jones' only relationship to the Sponsor, the Exchange and
the Trust is the licensing of certain trademarks, trade names and service
marks of Dow Jones and of the DJIA which is determined, composed and
calculated by Dow Jones without regard to the Sponsor, the Exchange, the Trust
or the Beneficial Owners of DIAMONDS. Dow Jones has no obligation to take the
needs of the Sponsor, the Exchange, the Trust or the Beneficial Owners of
DIAMONDS into consideration in determining, comprising or calculating the
DJIA. Dow Jones is not responsible for and has not participated in the
determination of the timing of, prices at or quantities of the DIAMONDS to be
issued or in the determination or calculation of the equation by which the
DIAMONDS are to be redeemed. Dow Jones has no obligation or liability in
connection with the administration, marketing or trading of DIAMONDS.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
DJIA OR ANY DATA INCLUDED THEREIN AND DOW JONES SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. DOW JONES MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE SPONSOR, THE EXCHANGE,
THE TRUST, BENEFICIAL OWNERS OF DIAMONDS OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE DJIA OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES NO
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<PAGE>
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, WITH RESPECT TO
THE DJIA OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING,
IN NO EVENT SHALL DOW JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR
INDIRECT, PUNITIVE SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY
BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES, THE SPONSOR
AND THE EXCHANGE.
EXCHANGE LISTING
As described above, DIAMONDS have been accepted for listing on the Exchange,
subject to official notice of issuance. Transactions involving DIAMONDS in the
public trading market are subject to customary brokerage charges and
commissions.
The Sponsor's aim in designing DIAMONDS was to provide investors with a
security whose initial market value would approximate one-hundredth ( 1/100th)
the value of the DJIA. Thus, for example, if the DJIA were at 7500, investors
might expect a DIAMONDS Unit to trade at approximately $75. Note, however,
that the market price of a DIAMONDS Unit should also reflect its share of the
dividends accumulated on the Securities (see "Administration of the
Trust,Distributions to Beneficial Owners") and may also be affected by supply
and demand, market volatility, sentiment and other factors.
There can be no assurance that DIAMONDS will always be listed on the
Exchange. The Exchange will consider the suspension of trading in or removal
from listing of DIAMONDS:
(a) if the Trust has more than 60 days remaining until termination and
there are fewer than 50 record and/or beneficial holders of DIAMONDS for
30 or more consecutive trading days;
(b) if the DJIA is no longer calculated or available; or
(c) if such other event shall occur or condition exists which, in the
opinion of the Exchange, makes further dealings on the Exchange
inadvisable.
The Trust is not required to pay a listing fee to the Exchange.
The Trust will be terminated in the event that DIAMONDS are delisted (see
"Administration of the Trust--Termination").
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<PAGE>
TAX STATUS OF THE TRUST
The Trust intends to qualify for and elect tax treatment as a "regulated
investment company" under Subchapter M of the Code. The Trust intends to adopt
a year ending on October 31 of each year. To qualify as a regulated investment
company, the Trust must, among other things, (a) derive in each taxable year
at least 90% of its gross income from dividends, interest, gains from the sale
or other disposition of stock, securities or foreign currencies, or certain
other sources, (b) meet certain diversification tests, and (c) distribute in
each year at least 90% of its investment company taxable income. If the Trust
qualifies as a regulated investment company, subject to certain conditions and
requirements, the Trust will not be subject to federal income tax to the
extent its income is distributed in a timely manner. Any undistributed income
may be subject to tax, including a four percent (4%) excise tax imposed by
section 4982 of the Code on certain undistributed income of a regulated
investment company that does not distribute to shareholders in a timely manner
at least ninety-eight percent (98%) of its taxable income (including capital
gains).
TAX CONSEQUENCES TO BENEFICIAL OWNERS
Dividends paid by the Trust from its investment company taxable income
(which includes dividends, interest and the excess of net short-term capital
gains over net long-term capital losses) will be taxable to Beneficial Owners
as ordinary income. A dividend paid in January will be considered for federal
income tax purposes to have been paid by the Trust and received by Beneficial
Owners on the preceding December 31 if the dividend was declared in the
preceding October, November or December to Beneficial Owners of record shown
on the records of the Depository and the DTC Participants (see "The Trust--
Book Entry Only System") on a date in one of those months.
Distributions paid by the Trust from the excess of net long-term capital
gains over net short-term capital losses ("net capital gain") are taxable as
long-term capital gain, regardless of the length of time an investor has owned
DIAMONDS. Any loss on the sale or exchange of a share held for six months or
less may be treated as a long-term capital loss to the extent of any capital
gain dividends received by the Beneficial Owner. For corporate investors,
dividends from net investment income (but not return of capital distributions
or capital gain dividends) generally will qualify for the corporate dividends-
received deduction to the extent of qualifying dividend income received by the
Trust, subject to the limitations contained in the Code. Investors should note
that the regular monthly dividends paid by the Trust will not be based on the
Trust's investment company taxable income and net capital gain, but rather
will be based on the dividends paid with respect to the Securities. As a
result, a portion of the distributions of the Trust may be treated as a return
of capital or a capital gain dividend for federal income tax purposes or the
Trust may make
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<PAGE>
additional distributions in excess of the yield performance of the Securities
in order to distribute all of its investment company taxable income and net
capital gain.
Distributions in excess of the Trust's current or accumulated earnings and
profits (as specially computed) generally will be treated as a return of
capital for federal income tax purposes and will reduce a Beneficial Owner's
tax basis in DIAMONDS. Return of capital distributions may result, for
example, if a portion of the dividends declared represents cash amounts
deposited in connection with Portfolio Deposits rather than dividends actually
received by the Trust. Under certain circumstances, a significant portion of
the Trust's regular monthly dividends could be treated as return of capital
distributions. Such circumstances may be more likely to occur in periods
during which the number of outstanding DIAMONDS fluctuates significantly, as
may occur during the initial years of the Trust. Beneficial Owners will
receive annually notification from the Trustee through the DTC Participants as
to the tax status of the Trust's distributions (see "The Trust--Book-Entry-
Only System"). A distribution paid shortly after a purchase or creation of
DIAMONDS may be taxable even though in effect it may represent a return of
capital. Under the Taxpayer Relief Act of 1997, capital gains realized on the
sale of property held for more than one year but not more than eighteen months
are considered "mid-term gains." In the case of individuals, mid-term gains
are taxed at lower rates than ordinary income, but not as favorably as capital
gains on property held for more than eighteen months. The Trustee will
identify in the annual tax information statement provided to Beneficial Owners
the breakdown of capital gain distributions between mid-term gains and long-
term gains.
Distributions reinvested in additional DIAMONDS through the means of the
Service (see "Dividend Reinvestment Service") will nevertheless be taxable
dividends to Beneficial Owners acquiring such additional DIAMONDS to the same
extent as if such dividends had been received in cash.
The sale of DIAMONDS by a Beneficial Owner is a taxable event, and may
result in a gain or loss, which generally should be a capital gain or loss for
Beneficial Owners that are not dealers in securities.
Under the Code, an in-kind redemption of DIAMONDS will not result in the
recognition of taxable gain or loss by the Trust but generally will constitute
a taxable event for the redeeming shareholder. Upon redemption, a Beneficial
Owner generally will recognize gain or loss measured by the difference on the
date of redemption between the aggregate value of the cash and securities
received and its tax basis in the DIAMONDS redeemed. Securities received upon
redemption (which will be comprised of the securities portion of the Portfolio
Deposit in effect on the date of redemption) generally will have an initial
tax basis equal to their respective market values on the date of redemption.
The Internal Revenue Service ("IRS") may assert that any resulting loss may
not be deducted by a Beneficial Owner on the basis that there has been no
material change in such Beneficial Owner's economic position or
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<PAGE>
that the transaction has no significant economic or business utility apart
from the anticipated tax consequences. Beneficial Owners of DIAMONDS in
Creation Unit size aggregations should consult their own tax advisors as to
the consequences to them of the redemption of DIAMONDS.
Dividend distributions, capital gains distributions, and capital gains from
sales or redemptions may also be subject to state, local and foreign taxes.
Deposit of a Portfolio Deposit with the Trustee in exchange for DIAMONDS in
Creation Unit size aggregations will not result in the recognition of taxable
gain or loss by the Trust but generally will constitute a taxable event to the
depositor under the Code, and a depositor generally will recognize gain or
loss with respect to each security deposited equal to the difference between
the amount realized in respect of the security and the depositor's tax basis
therein. The amount realized with respect to a security deposited should be
determined by allocating the value on the date of deposit of the DIAMONDS
received (less any cash paid to the Trust, or plus any cash received from the
Trust, in connection with the deposit) among the securities deposited on the
basis of their respective fair market values at that time. The IRS may assert
that any resulting losses may not be deducted by a depositor on the basis that
there has been no material change in the depositor's economic position or that
the transaction has no significant economic or business utility or purpose
apart from the anticipated tax consequences. Depositors should consult their
own tax advisors as to the tax consequences to them of a deposit to the Trust.
After the initial deposit of Portfolio Deposits with the Trustee, the
Trustee has the right to reject the order to create Creation Units transmitted
to it by the Distributor if the depositor or group of depositors, upon
obtaining the DIAMONDS ordered, would own eighty percent (80%) or more of the
outstanding DIAMONDS, and if pursuant to section 351 of the Code 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. The Trustee has the right to require information regarding DIAMONDS
Unit 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 a Portfolio Deposit.
Ordinary income dividends received via the Depository by Beneficial Owners
who are non-resident aliens will be subject to a thirty percent (30%) United
States withholding tax unless a reduced rate of withholding or a withholding
exemption is provided under applicable tax treaties. Non-resident shareholders
are urged to consult their own tax advisors concerning the applicability of
United States withholding tax.
Backup withholding at a rate of 31% will apply to dividends, capital gain
distributions, redemptions and sales of DIAMONDS unless (a) the Beneficial
Owner is a corporation or comes within certain other exempt categories and,
when required,
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<PAGE>
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. The
amount of any backup withholding from a payment to a Beneficial Owner will be
allowed as a credit against the holder's U.S. federal income tax liability and
may entitle such holder to a refund from the U.S. Internal Revenue Service,
provided that the required information is furnished to the U.S. Internal
Revenue Service.
The tax discussion set forth above is included for general information only.
Prospective investors should consult their own tax advisors concerning the
federal, state, local and foreign tax consequences to them of an investment in
the Trust, including the effect of possible legislative changes.
CONTINUOUS OFFERING OF DIAMONDS
DIAMONDS in Creation Unit size aggregations will be offered continuously to
the public by the Trust through the Distributor and will be delivered upon the
deposit of a Portfolio Deposit (see "The Trust--Procedure for Creation of
Creation Units"). A list of the identity and number of shares of each of the
Index Securities in the current Portfolio Deposit and the amount of the
Dividend Equivalent Payment effective through and including the previous
Business Day is made available by the Trustee to NSCC on each 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 composition and weighting of the Index Securities for the most
recently effective Portfolio Deposit. The minimum number of DIAMONDS that may
be created as described herein is 50,000 or one Creation Unit. Persons making
Portfolio Deposits and creating Creation Unit aggregations of DIAMONDS will
receive no fees, commissions or other form of compensation or inducement of
any kind from the Sponsor or the Distributor, nor will any such person have
any obligation or responsibility to the Sponsor or Distributor to effect any
sale or resale of DIAMONDS.
Because new DIAMONDS can be created and issued on an ongoing basis, at any
point during the life of the Trust a "distribution", as such term is used in
the Securities Act of 1933, may be occurring. Broker-dealers and other persons
are cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in
a manner which could render them statutory underwriters and subject them to
the prospectus-delivery and liability provisions of the Securities Act. For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing a creation order with the
Distributor, breaks them down into the constituent DIAMONDS and sells the
DIAMONDS directly to its customers; or if it chooses to couple the creation of
a supply of new DIAMONDS with an active selling effort
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<PAGE>
involving solicitation of secondary market demand for DIAMONDS. A
determination of whether one is an underwriter must take into account all the
facts and circumstances pertaining to the activities of the broker-dealer or
its client in the particular case, and the examples mentioned above should not
be considered a complete description of all the activities that could lead to
categorization as an underwriter.
Dealers who are not "underwriters" but are participating in a distribution
(as contrasted to ordinary secondary trading transactions), and thus dealing
with DIAMONDS that are part of an "unsold allotment" within the meaning of
Section 4(3)(C) of the Securities Act, would be unable to take advantage of
the prospectus-delivery exemption provided by Section 4(3) of the Securities
Act. Firms that do incur a prospectus delivery obligation with respect to
DIAMONDS are reminded that under Securities Act rule 153, a prospectus-
delivery obligation under Section 5(b)(2) of the Act owed to an Exchange
member in connection with a sale on the Exchange is satisfied by the fact that
DIAMONDS prospectuses will be available at the Exchange upon request. Of
course, the prospectus-delivery mechanism provided in rule 153 is only
available with respect to transactions on an exchange.
The Sponsor intends to qualify DIAMONDS in states selected by the Sponsor
and through broker-dealers who are members of the National Association of
Securities Dealers, Inc. Investors intending to create or redeem Creation Unit
size aggregations of DIAMONDS in transactions not involving a broker-dealer
registered in such investor's state of domicile or residence should consult
counsel regarding applicable broker-dealer or securities regulatory
requirements under such state securities laws prior to such creation or
redemption.
EXPENSES OF THE TRUST
Until further notice, the Sponsor has undertaken that on each day during
each fiscal year up to and including October 31, 2000, the ordinary operating
expenses of the Trust as calculated by the Trustee will not be permitted to
exceed an amount which is 18/100 of 1% (0.18%) per annum of the daily net
asset value of the Trust after taking into account any expense offset credits.
To the extent during such period the ordinary operating expenses of the Trust
do exceed such 0.18% amount, the Sponsor will reimburse the Trust for or
assume such excess ordinary operating expenses. The Sponsor retains the
ability to be repaid by the Trust for expenses so reimbursed or assumed to the
extent that subsequently during the year expenses fall below the 0.18% per
annum level on any given day. For purposes of this undertaking by the Sponsor,
ordinary operating expenses of the Trust shall not include taxes, brokerage
commissions and, of course, such extraordinary non-recurring expenses as may
arise, including without limitation the cost of any litigation to which the
Trust or Trustee may be a party. After October 31, 2000, the Sponsor may
discontinue this undertaking or renew it for an additional period of time, or
may choose to reimburse or assume certain Trust expenses in later periods in
order to keep Trust expenses at a level it
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<PAGE>
believes to be attractive to investors, but is not obligated to do so. In any
event, it is possible that, on any day and during any period over the life of
the Trust, total fees and expenses of the Trust may exceed 0.18% per annum.
Subject to any applicable cap, the Sponsor reserves the right to charge the
Trust a special sponsor fee from time to time in reimbursement for certain
services it may provide to the Trust which would otherwise be provided by the
Trustee in an amount not to exceed the actual cost of providing such services.
The Sponsor or the Trustee from time to time may voluntarily assume some
expenses or reimburse the Trust so that total expenses of the Trust 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.
The following charges are or may be accrued and paid by the Trust: (a) the
Trustee's fee as discussed more fully below, (b) fees payable to transfer
agents for the provision of transfer agency services; (c) fees of the Trustee
for extraordinary services performed under the Trust Agreement; (d) various
governmental charges; (e) any taxes, fees and charges payable by the Trustee
with respect to DIAMONDS (whether in Creation Unit size aggregations or
otherwise); (f) expenses and costs of any action taken by the Trustee or the
Sponsor to protect the Trust and the rights and interests of Beneficial Owners
of DIAMONDS (whether in Creation Unit size aggregations or otherwise); (g)
indemnification of the Trustee or the Sponsor for any losses, liabilities or
expenses incurred by it in the administration of the Trust without gross
negligence, bad faith, wilful misconduct or wilful malfeasance on its part or
reckless disregard of its obligations and duties; (h) expenses incurred in
contacting Beneficial Owners of DIAMONDS during the life of the Trust and upon
termination of the Trust; and (i) other out-of-pocket expenses of the Trust
incurred pursuant to actions permitted or required under the Trust Agreement.
In addition to the specific expenses discussed in the previous paragraph,
the following expenses are or may be charged to the Trust: (a) reimbursement
to the Sponsor of amounts paid by it to Dow Jones in respect of annual
licensing fees pursuant to the License Agreement (see "License Agreement"),
(b) federal and state annual registration fees for the issuance of DIAMONDS,
and (c) expenses of the Sponsor relating to the printing and distribution of
marketing materials describing DIAMONDS and the Trust (including, but not
limited to, associated legal, consulting, advertising, and marketing costs and
other out-of-pocket expenses such as printing). In addition, initial fees and
expenses totaling approximately $300,000, in connection with the organization
of the Trust, will be capitalized and will be amortized over five years from
the start of the Trust's operations on a straight-line basis and charged to
the Trust, unless the Trust is sooner terminated or if by law or regulation
the Trust is required to amortize such costs over a shorter period of time. In
such cases, the Trustee shall follow the requisite time period for such
amortization. Pursuant to the provisions of an exemptive order, the expenses
set forth in this paragraph may be
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<PAGE>
charged to the Trust by the Trustee in an amount equal to the actual costs
incurred, but in no case shall such charges exceed 20/100 of 1% (0.20%) per
annum of the daily net asset value of the Trust.
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to cover Trust expenses, the
Trustee may make advances to the Trust to cover such expenses; otherwise the
Trustee may sell Securities in an amount sufficient to pay such expenses. The
Trustee may reimburse itself in the amount of any such advance, together with
interest thereon at a percentage rate equal to the then current overnight
federal funds rate, by deducting such amounts from (1) dividend payments or
other income of the Trust 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 Trust, and (3) the sale of Securities.
Notwithstanding the foregoing, in the event that any advance remains
outstanding for more than forty-five (45) Business Days, the Trustee may sell
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
Trust in favor of the Trustee. The expenses of the Trust are reflected in the
net asset value of the Trust (see "Valuation").
For services performed under the Trust Agreement, the Trustee is paid by the
Trust a fee at an annual rate of 11/100 of 1% to 15/100 of 1% of the net asset
value of the Trust, as shown below, such percentage amount to vary depending
on the net asset value of the Trust, plus or minus the Adjustment Amount (as
hereinafter defined). Such compensation is computed on each Business Day on
the basis of the net asset value of the Trust on such day, and the amount
thereof is accrued daily and paid quarterly. Notwithstanding the fee schedule
set forth in the table below, in the fourth year of the Trust's operation and
in subsequent years, the Trustee shall be paid a minimum fee of $400,000 per
annum as adjusted by the CPI-U to take effect at the beginning of the fourth
year and each year thereafter. To the extent that the amount of the Trustee's
compensation, prior to any adjustment in respect of the Adjustment Amount, is
less than specified amounts, the Sponsor has agreed to pay the amount of any
such shortfall. The Trustee, in its discretion, may also waive all or a
portion of such fee.
TRUSTEE FEE SCALE
<TABLE>
<CAPTION>
NET ASSET VALUE FEE AS A PERCENTAGE OF NET
OF THE TRUST ASSET VALUE OF THE TRUST
--------------- --------------------------
<S> <C>
$0-$499,999,999......... 15/100 of 1% per annum plus or minus the Adjustment Amount*
$500,000,000-
$999,999,999.......... 13/100 of 1% per annum plus or minus the Adjustment Amount**
$1,000,000,000 and
above................. 11/100 of 1% per annum plus or minus the Adjustment Amount**
</TABLE>
- -----------
* During the first two years of operation of the Trust, the Trustee's fee
shall be reduced to 12/100 of 1% per annum plus or minus the Adjustment
Amount for any day on which the net asset value of the Trust is below
$350,000,000.
** The fee indicated applies to that portion of the net asset value of the
Trust which falls in the size category indicated.
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<PAGE>
The Adjustment Amount shall be calculated at the end of each quarter and
applied against the Trustee's fee for the following quarter. The "Adjustment
Amount" is an amount which is intended, depending upon the circumstances,
either to (1) reduce the Trustee's fee by the amount that the Transaction Fees
paid on creation and redemption exceeds the costs of those activities, and by
the amount of excess earnings on cash held for the benefit of the Trust or (2)
increase the Trustee's fee by the amount that the Transaction Fee (plus
additional amounts paid in connection with creations or redemptions outside
the DIAMONDS Clearing Process), if any, paid on creations or redemptions,
falls short of the actual costs of these activities. If in any quarter the
Adjustment Amount exceeds the fee payable to the Trustee as set forth above,
the Trustee shall use such excess amount to reduce other Trust expenses,
subject to certain federal tax limitations. To the extent that the amount of
such excess exceeds the Trust's expenses for such quarter, any remaining
excess shall be retained by the Trustee as part of its compensation. If in any
quarter the costs of processing creations and redemptions exceed the amounts
charged as a Transaction Fee (plus the additional amounts paid in connection
with creations or redemptions outside the DIAMONDS Clearing Process) net of
the excess earnings, if any, on cash held for the benefit of the Trust, the
Trustee will augment the Trustee's fee by the resulting Adjustment Amount.
REDEMPTION OF DIAMONDS
DIAMONDS in Creation Unit size aggregations are ordinarily redeemable in
kind only and are not redeemable for cash except under certain circumstances.
DIAMONDS in Creation Unit size aggregations may be redeemed by submitting a
request for redemption, the requisite number of DIAMONDS and the Excess Cash
Amount (as defined below), if applicable, to the Trustee in the manner
specified below. Beneficial Owners of DIAMONDS may sell DIAMONDS in the
secondary market, but must accumulate enough DIAMONDS to constitute a Creation
Unit (i.e., 50,000 DIAMONDS) in order to redeem through the Trust. DIAMONDS
can be redeemed only when Creation Unit size aggregations are owned by a
Beneficial Owner and held in the account of a single Participating Party (with
respect to redemptions through the DIAMONDS Clearing Process) or a single DTC
Participant (with respect to redemptions outside the DIAMONDS Clearing
Process). DIAMONDS will remain outstanding until redeemed or until the
termination of the Trust.
PROCEDURE FOR REDEMPTION OF DIAMONDS
Requests for redemptions of Creation Units may be made on any Business Day
through the DIAMONDS Clearing Process to the Trustee at its Quincy office or
at such other office as may be designated by the Trustee. Requests for
redemptions of Creation Units may also be made directly to the Trustee outside
the DIAMONDS Clearing Process. Requests for redemption shall not be made to
the Distributor. In the
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case of redemptions made through the DIAMONDS Clearing Process, the
Transaction Fee will be deducted from the amount delivered to the redeemer. In
case of redemptions tendered directly to the Trustee outside the DIAMONDS
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 for a Creation Unit, (due in part to the increased expense
associated with delivery outside the DIAMONDS Clearing Process) and such
amount will be deducted from the amount delivered to the redeemer (see
"Prospectus Summary--Transaction Fee"). In all cases, both the tender of
DIAMONDS for redemption and distributions to the redeemer in respect of
DIAMONDS 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
(see "The Trust--Book-Entry-Only System").
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 size aggregation of DIAMONDS delivered, typically identical
in weighting and composition to the securities portion of 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 DIAMONDS Clearing Process or outside the DIAMONDS Clearing Process or (2)
on the date that notice of the termination of the Trust is given, in the case
of the termination of the Trust (see "Administration of the Trust--
Termination" and "The Portfolio--Adjustments to the Portfolio"). The Trustee
will also transfer via the relevant DTC Participant(s) to the redeeming
Beneficial Owner in cash the "Cash Redemption Payment", which on any given
Business Day is typically an amount identical to the amount of the Cash
Component and is equal to a proportional amount of the following: dividends on
all the Securities for the period through the date of redemption, net of
expenses and liabilities for such period including, without limitation, (x)
taxes or other governmental charges against the Trust not previously deducted
if any, and (y) accrued fees of the Trustee and other expenses of the Trust
(including legal and auditing expenses) and other expenses not previously
deducted (see "Expenses of the Trust"), as if all the Securities had been held
for the entire accumulation period for such distribution, plus or minus the
Balancing Amount. To the extent that any amounts payable to the Trust by the
redeeming Beneficial Owner exceed the amount of the Cash Redemption Payment
("Excess Cash Amounts"), such Beneficial Owner shall be required to deliver
payment thereof to the Trustee. In the case of redemptions made through the
DIAMONDS Clearing Process, the Trustee will effect a transfer of the Cash
Redemption Payment and 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
DIAMONDS Clearing Process, the Trustee will transfer the Cash Redemption
Payment and the securities to the redeeming Beneficial Owner by the third
(3rd) Business Day following the date
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on which the request for redemption is deemed received. The Trustee will
cancel all DIAMONDS delivered upon redemption.
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 Trust upon the redemption of DIAMONDS in Creation Unit size
aggregations, the Trustee shall have the right in its discretion to deliver
the cash equivalent value of such Index Security or Index Securities, based on
the market value of such Index Security or Index Securities as of the
Evaluation Time on the date such redemption is deemed received by the Trustee
(see "Placement of Redemption Orders Using DIAMONDS Clearing Process") as a
part of the Cash Redemption Payment in lieu of delivering such Index Security
or Index Securities to the redeemer. In connection with the redemption of
DIAMONDS, if a redeeming investor requests redemption in cash, rather than in
kind, with respect to one or more Securities (for example, because such a
redeemer is restricted by regulation or otherwise from investing or engaging
in a transaction in one or more Index Securities), the Trustee shall have the
right in its discretion to deliver the cash equivalent value of such Index
Security or Index Securities based on the market value of such Index Security
or Index Securities as of the Evaluation Time on the date such redemption
order is deemed received by the Trustee (see "Placement of Redemption Orders
Outside DIAMONDS Clearing Process") as a part of the Cash Redemption Payment
in lieu of delivering such Index Security or Index Securities to the redeemer.
In such case, such investor will pay the Trustee the standard Transaction Fee,
plus an additional amount not to exceed three (3) times the Transaction Fee
applicable for a Creation Unit (see "Prospectus Summary--Transaction Fee").
The Trustee, in its discretion, upon the request of a redeeming investor,
may redeem Creation Units in whole or in part by providing such redeemer with
a portfolio of Securities differing in exact composition from the Index
Securities but not differing in net asset value from the then-current
Portfolio Deposit. Such a redemption might be made, for example, if it were to
be determined that this composition would be appropriate in order to maintain
the Trust Portfolio correlation to the price-weighted composition of the DJIA
(i.e. an equal number of shares of each component stock), for instance when a
stock split of one of the Index Securities occurs. See ("The Portfolio" and
"The DJIA").
The Trustee may sell Securities to obtain sufficient cash proceeds to
deliver to the redeeming Beneficial Owner. To the extent cash proceeds are
received by the Trustee in excess of the amount required to be provided to the
redeeming Beneficial Owner, such cash amounts shall be held by the Trustee and
shall be applied in accordance with the guidelines set forth under the caption
"The Portfolio--Adjustments to the Portfolio").
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to allow distribution of the
Cash
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Redemption Payment, the Trustee may advance out of its own funds any amounts
necessary in respect of redemptions of DIAMONDS; otherwise, the Trustee may
sell Securities in an amount sufficient to effect such redemptions. The
Trustee may reimburse itself in the amount of such advance, together with
interest thereon at a percentage rate equal to the then current overnight
federal funds rate, by deducting such amounts from (1) dividend payments or
other income of the Trust 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 Trust, and (3) the sale of Securities.
Notwithstanding the foregoing, in the event that any advance remains
outstanding for more than forty-five (45) Business Days, the Trustee shall
sell 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 Trust in
favor of the Trustee.
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 (1) for any period during which the New York Stock
Exchange is closed; (2) for any period during which an emergency exists as a
result of which disposal or evaluation of the Securities is not reasonably
practicable; or (3) for such other period as the Commission 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 which
may result from any such suspension or postponement.
To be eligible to place orders with the Trustee to redeem DIAMONDS in
Creation Unit size aggregations, an entity or person must be (1) a
Participating Party with respect to redemptions through the DIAMONDS Clearing
Process, or (2) a DTC Participant with respect to redemptions outside the
DIAMONDS Clearing Process.
All orders to redeem DIAMONDS must be placed in multiples of 50,000 DIAMONDS
(Creation Unit size). Orders must be transmitted to the Trustee by telephone
or other transmission method acceptable to the Trustee so as to be received by
the Trustee not later than the Closing Time on the Transmittal Date, pursuant
to procedures set forth in the Participant Agreement. Severe economic or
market changes or disruptions, or telephone or other communication failure,
may impede the ability to reach the Trustee, a Participating Party, or a DTC
Participant.
Orders to redeem Creation Unit size aggregations of DIAMONDS shall be placed
with a Participating Party or DTC Participant, as applicable, in the form
required by such Participating Party or DTC Participant. Investors should be
aware that their particular broker may not have executed a Participant
Agreement, and that, therefore, orders to redeem Creation Unit size
aggregations of DIAMONDS may have to be placed by the investor's broker
through a Participating Party or a DTC Participant who has executed a
Participant Agreement. At any given time there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those placing
orders to redeem DIAMONDS should afford sufficient time to permit (1) proper
submission of the order by a Participating Party or DTC Participant to the
Trustee and
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(2) the receipt of the DIAMONDS to be redeemed and the Excess Cash Amounts, if
any, by the Trustee in a timely manner, as described below. Orders for
redemption that are effected outside the DIAMONDS Clearing Process are likely
to require transmittal by the DTC Participant earlier on the Transmittal Date
than orders effected using the DIAMONDS Clearing Process. Those persons
placing orders outside the DIAMONDS Clearing Process should ascertain the
deadlines applicable to DTC and the Federal Reserve Bank wire system by
contacting the operations department of the broker or depository institution
effectuating such transfer of DIAMONDS and Cash Redemption Payment. These
deadlines will vary by institution. The Participant notified of an order to
redeem outside the DIAMONDS Clearing Process will be required to transfer
DIAMONDS through DTC and the Excess Cash amounts, if any, through the Federal
Reserve Bank wire system in a timely manner (see "Placement of Redemption
Orders Outside the DIAMONDS Clearing Process"). Information regarding Cash
Redemption Payment amounts, number of outstanding DIAMONDS and Transaction
Fees may be obtained from the Trustee at the toll-free number: 800-545-4189.
PLACEMENT OF REDEMPTION ORDERS USING DIAMONDS CLEARING PROCESS
Orders to redeem DIAMONDS in Creation Unit size aggregations through the
DIAMONDS Clearing Process must be delivered through a Participating Party (see
"Portfolio Deposit") that has executed the Participant Agreement with the
Distributor and with the Trustee (as the same may be from time to time amended
in accordance with its terms). An order to redeem DIAMONDS using the DIAMONDS
Clearing Process is deemed received on the Transmittal Date if (i) such order
is received by the Trustee not later than the Closing Time on such Transmittal
Date and (ii) all other procedures set forth in the Participant Agreement are
properly followed; such order will be effected based on the net asset value of
the Trust as determined as of the Evaluation Time on the Transmittal Date. An
order to redeem DIAMONDS using the DIAMONDS Clearing Process made in proper
form but received by the Trustee after the Closing Time will be deemed
received on the next Business Day immediately following the Transmittal Date.
The Participant Agreement authorizes the Trustee to transmit to NSCC on behalf
of the Participating Party such trade instructions as are necessary to effect
the Participating Party's redemption order. Pursuant to such trade
instructions from the Trustee to NSCC, the Trustee will transfer the requisite
Securities (or contracts to purchase such Securities which are expected to be
delivered in a "regular way" manner) by the third (3rd) NSCC Business Day
following the date on which such request for redemption is deemed received,
and the Cash Redemption Payment. The calculation of the value of the
Securities and the Cash Redemption Payment to be delivered by the Trustee to
the redeeming Beneficial Owner will be made according to the procedures set
forth under "Valuation," computed as of the Evaluation Time on the Business
Day on which a redemption order is deemed received by the Trustee.
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PLACEMENT OF REDEMPTION ORDERS OUTSIDE DIAMONDS CLEARING PROCESS
Orders to redeem DIAMONDS outside the DIAMONDS Clearing Process must be
delivered through a DTC Participant that has executed the Participant
Agreement with the Distributor and with the Trustee. A DTC Participant who
wishes to place an order for redemption of DIAMONDS to be effected outside the
DIAMONDS Clearing Process need not be a Participating Party, but such orders
must state that the DTC Participant is not using the DIAMONDS Clearing Process
and that redemption of DIAMONDS will instead be effected through transfer of
DIAMONDS directly through DTC. An order to redeem DIAMONDS outside the
DIAMONDS Clearing Process is deemed received by the Trustee on the Transmittal
Date if (i) such order is received by the Trustee not later than the Closing
Time on such Transmittal Date, (ii) such order is preceded or accompanied by
the requisite number of DIAMONDS specified in such order, which delivery must
be made through DTC to the Trustee no later than 11:00 a.m. on such
Transmittal Date (the "DTC Cut-Off Time") and (iii) all other procedures set
forth in the Participant Agreement are properly followed. The Excess Cash
Amounts owed by the Beneficial Owner, if any, must be delivered no later than
2:00 p.m. on the Business Day immediately following the Transmittal Date.
After the Trustee has deemed an order for redemption outside the DIAMONDS
Clearing Process received, the Trustee will initiate procedures to transfer
the requisite Securities (or contracts to purchase such Securities which are
expected to be delivered within three Business Days) and the Cash Redemption
Payment to the redeeming Beneficial Owner by the third Business Day following
the Transmittal Date on which such redemption order is deemed received by the
Trustee.
The calculation of the value of the Securities and the Cash Redemption
Payment to be delivered to the redeeming Beneficial Owner will be made by the
Trustee according to the procedures set forth under "Valuation," computed as
of the Evaluation Time on the Business Day on which a redemption order is
deemed received by the Trustee. Therefore, if a redemption order in proper
form is submitted to the Trustee by a DTC Participant not later than the
Closing Time on the Transmittal Date, and the requisite DIAMONDS are delivered
to the Trustee prior to the DTC Cut-Off Time on such Transmittal Date, then
the value of the Securities and the Cash Redemption Payment to be delivered to
the Beneficial Owner will be determined by the Trustee as of the Evaluation
Time on such Transmittal Date. If, however, a redemption order is submitted to
the Trustee by a DTC Participant not later than the Closing Time on a
Transmittal Date but either (1) the requisite DIAMONDS are NOT delivered by
the DTC Cut-Off Time on such Transmittal Date or (2) the redemption order is
not submitted in proper form, then the redemption order will NOT be deemed
received as of such Transmittal Date. In such case, the value of the
Securities and the Cash Redemption Payment to be delivered to the Beneficial
Owner will be computed as of the Evaluation Time on the Business Day that such
order is deemed received by the Trustee, i.e., the Business Day on which the
DIAMONDS are delivered through DTC to the Trustee by the DTC Cut-Off Time on
such Business Day pursuant to a properly submitted redemption order.
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VALUATION
The net asset value of the Trust is computed as of the Evaluation Time shown
under "Essential Information" on each Business Day. The net asset value of the
Trust on a per DIAMONDS Unit basis is determined by subtracting all
liabilities (including accrued expenses and dividends payable) from the total
value of the Trust's investments and other assets and dividing the result by
the total number of outstanding DIAMONDS.
The aggregate value of the Securities shall be determined by the Trustee in
good faith in the following manner: If the 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 therefor (the New York or American Stock Exchange 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 Securities
are not so listed or, if so listed and the principal market therefor 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.
ADMINISTRATION OF THE TRUST
RECORDS
The Trustee maintains records of the transactions of the Trust, including a
current list of the identity and number of shares of each of the Securities in
the Portfolio. Records of the creation of DIAMONDS in Creation Unit size
aggregations are also maintained by the Distributor. Record of ownership of
DIAMONDS is maintained by the Depository and by DTC Participants as described
above (see "The Trust--Book-Entry-Only System").
A complete copy of the Trust Agreement is maintained by the Trustee. A copy
of the Trust Agreement is available to Beneficial Owners at the corporate
trust office of the Trustee at 225 Franklin Street, Boston, Massachusetts
02110 during normal business hours.
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VOTING
The Trustee has the right to vote all of the voting stocks in the Trust. The
Trustee votes the voting stocks of each issuer in the same proportionate
relationship as all other shares of each such issuer are voted to the extent
permissible and, if not permitted, abstains from voting.
DISTRIBUTIONS TO BENEFICIAL OWNERS
The regular monthly ex-dividend date for DIAMONDS is the third (3rd) Friday
in each calendar month of each fiscal year, commencing April 17, 1998, unless
such day is not a Business Day, in which case the ex-dividend date is 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 Business Day following the Ex-Dividend Date (the "Record Date") are
entitled to receive an amount representing dividends accumulated on the
Securities through the monthly dividend period which ends on the Business Day
preceding such Ex-Dividend Date (including Securities with ex-dividend dates
falling within such monthly dividend period), net of fees and expenses,
accrued daily for such period. For the purposes of all dividend distributions,
dividends per DIAMONDS Unit are calculated at least to the nearest 1/100th of
$0.01. The payment of dividends is made on the Monday preceding the third
(3rd) Friday of the next calendar month or the next subsequent Business Day if
such Monday is not a Business Day (the "Dividend Payment Date"). Dividend
payments will be made through the Depository and the DTC Participants to
Beneficial Owners then of record with funds received from the Trustee.
DIAMONDS are registered in book entry only, which records are kept by the
Depository (see "The Trust--Book-Entry-Only System").
Dividends payable to the Trust in respect of the Securities are credited by
the Trustee to a non-interest bearing account as of the date on which the
Trust receives such dividends. Other moneys received by the Trustee in respect
of the Securities, including but not limited to the Cash Component, the Cash
Redemption Payment, all moneys realized by the Trustee from the sale of
options, warrants or other similar rights received or distributed in respect
of the Securities as dividends or distributions and capital gains resulting
from the sale of Securities are also credited by the Trustee to a non-interest
bearing account. All funds collected or received are held by the Trustee
without interest until distributed or otherwise utilized in accordance with
the provisions of the Trust Agreement. To the extent the amounts credited to
such accounts generate interest income or an equivalent benefit to the
Trustee, such interest income or benefit is used to reduce the Trustee's
annual fee (see "Expenses of the Trust").
The Trust intends to qualify as a regulated investment company for federal
income tax purposes. A regulated investment company is not subject to federal
income tax on its net investment income and capital gains that it distributes
to shareholders,
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so long as it meets certain overall distribution and diversification
requirements and other conditions under Subchapter M of the Code. The Trust
intends to satisfy these overall distribution and diversification requirements
and to otherwise satisfy any required conditions. The Trustee intends to make
additional distributions to the minimum extent necessary (i) to distribute the
entire annual investment company taxable income of the Trust, plus any net
capital gains (from sales of securities in connection with adjustments to the
Portfolio or to generate cash for such distributions), and (ii) to avoid
imposition of the excise tax imposed by section 4982 of the Code (see "Tax
Status of the Trust"). The additional distributions, if needed, would consist
of (a) any amount by which estimated Trust investment company taxable income
and net capital gains for a fiscal year exceeds the amount of Trust taxable
income previously distributed with respect to such year or, if greater, the
minimum amount required to avoid imposition of such excise tax, and (b) a
distribution after the actual annual investment company taxable income and net
capital gains of the Trust have been computed of the amount, if any, by which
such actual income exceeds the distributions already made. The net asset value
of the Trust will be reduced by the amount of such additional distributions.
The magnitude of the additional distributions, if any, will depend upon a
number of factors, including the level of redemption activity experienced by
the Trust. Because substantially all proceeds from the sale of Securities in
connection with adjustments to the Portfolio will have been used to purchase
shares of Index Securities, the Trust may have no cash or insufficient cash
with which to pay any such additional distributions. In that case, the Trustee
typically will have to sell an approximately equal number of shares of each of
the Securities sufficient to produce the cash required to make such additional
distributions. (see "The Portfolio--Adjustments to the Portfolio").
The Trustee further reserves the right to declare special dividends if, in
its reasonable discretion, such action is necessary or advisable to preserve
the status of the Trust as a regulated investment company or to avoid
imposition of income or excise taxes on undistributed income.
The Trustee further reserves the right to vary the frequency with which
periodic dividend distributions are made (e.g., from monthly to quarterly) 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 Trust. In addition, the Trustee reserves the right to
change the regular ex-dividend date for DIAMONDS to another date within the
month or quarter if it is determined by the Sponsor and the Trustee, in their
discretion, that such a change would be advantageous to the Trust. Notice of
any such variance or change (which notice shall include changes to the Record
Date, the Ex-Dividend Date, the Dividend Payment Date, and the accumulation
period resulting from such variance) shall be provided to Beneficial Owners
via the Depository and the DTC Participants (see "The Trust--Book-Entry-Only
System").
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The Trustee may, in its discretion, advance out of its own funds any amounts
necessary to permit distributions via the Depository to Beneficial Owners. The
Trustee may reimburse itself in the amount of such advance, 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 Trust 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 Trust, and (3) the sale of Securities. Notwithstanding
the foregoing, in the event that any advance remains outstanding for more than
forty-five (45) Business Days, the Trustee shall sell 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 Trust in favor of the Trustee.
In addition, as soon as practicable after notice of termination of the
Trust, the Trustee will distribute via the Depository and the DTC Participants
to each Beneficial Owner redeeming DIAMONDS in Creation Unit size aggregations
prior to the termination date specified in such notice a portion of the
Securities and cash as described above (see "Redemption of DIAMONDS" and
"Administration of the Trust--Termination"). Otherwise, the Trustee will
distribute to each Beneficial Owner (whether in Creation Unit size
aggregations or otherwise), as soon as practical after termination of the
Trust, such Beneficial Owner's pro rata share of the net asset value of the
Trust (see "Administration of the Trust--Termination").
All distributions are made by the Trustee through the Depository and the DTC
Participants to Beneficial Owners as recorded on the book entry system of the
Depository and the DTC Participants (see "The Trust--Book-Entry-Only System").
The settlement date for the creation of DIAMONDS in Creation Unit size
aggregations or the purchase of DIAMONDS in the secondary market must occur on
or prior to the Record Date in order for such creator or purchaser to receive
a distribution on the next Dividend Payment Date. If the settlement date for
such creation or a secondary market purchase occurs after the Record Date, the
distribution will be made to the prior security holder or Beneficial Owner as
of such Record Date.
Any Beneficial Owner interested in acquiring additional DIAMONDS with
proceeds received from distributions described above may elect dividend
reinvestment through DTC Participants by means of the DTC Dividend
Reinvestment Service, described herein (see "Dividend Reinvestment Service"),
if such service is available through such Beneficial Owner's broker.
TRUST SUPERVISION
The Trust's Portfolio Securities are not managed and therefore the adverse
financial condition of an issuer of securities in the Trust does not, in
itself, require the sale of Securities from the Portfolio. The Trustee shall,
on a non-discretionary basis, make changes to the Portfolio as described above
(see "The Portfolio--Adjustments to the Portfolio").
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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 or execution of orders.
STATEMENTS TO BENEFICIAL OWNERS
With each distribution, the Trustee will furnish for distribution to
Beneficial Owners (see "The Trust--Book-Entry-Only System") a statement
setting forth the amount being distributed expressed as a dollar amount per
DIAMONDS Unit.
Promptly after the end of each calendar year, the Trustee will furnish to
the DTC Participants for distribution to each person who was a Beneficial
Owner of DIAMONDS at the end of such calendar year, an annual report of the
Trust containing financial statements audited by independent accountants of
nationally recognized standing and such other information as may be required
by applicable laws, rules and regulations.
REGISTER OF OWNERSHIP AND TRANSFER
The Trustee maintains a record of the creation and redemption of DIAMONDS in
Creation Unit size aggregations as well as creations of DIAMONDS in connection
with the Dividend Reinvestment Service. The Depository maintains a record on
its book entry system of the DTC Participant ownership of DIAMONDS and the
number of DIAMONDS owned (see "The Trust--Book-Entry-Only System").
Certificates are not issued for DIAMONDS, whether in Creation Unit size
denominations or otherwise. Beneficial Owners have the rights accorded to
holders of "book-entry" securities under applicable law. Beneficial Owners may
transfer DIAMONDS through the Depository by instructing the DTC Participant
holding the DIAMONDS for such Beneficial Owner in accordance with standard
securities industry procedures.
RIGHTS OF BENEFICIAL OWNERS
DIAMONDS in Creation Unit size aggregations (i.e., 50,000 DIAMONDS) may be
tendered to the Trustee for redemption (see "Redemption of DIAMONDS").
Beneficial Owners may sell DIAMONDS in the secondary market, but must
accumulate enough DIAMONDS (i.e., 50,000 DIAMONDS) to constitute a full
Creation Unit in order to redeem through the Trust. The death or incapacity of
any Beneficial Owner will not operate to terminate the Trust 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 Trust.
Beneficial Owners shall not have the right to vote concerning the Trust,
except as described below with respect to termination and as otherwise
expressly set forth in the Trust Agreement, or in any manner control the
operation and management of the Trust, nor shall any Beneficial Owner be
liable to any other person by reason of any action taken by the Sponsor or the
Trustee.
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AMENDMENT
The Trust Agreement may be amended from time to time by the Trustee and the
Sponsor without the consent of any Beneficial Owners (a) 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 thereunder as will not adversely affect the interests of
Beneficial Owners; (b) to change any provision thereof as may be required by
the Commission; (c) to add or change any provision as may be necessary or
advisable for the continuing qualification of the Trust as a "regulated
investment company" under the Code; (d) 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;
and (e) to add or change any provision thereof to conform the adjustments to
the Portfolio and the Portfolio Deposit to changes, if any, made by Dow Jones
in its method of determining the DJIA. The Trust 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 DIAMONDS to add provisions to or
change or eliminate any of the provisions of the Trust Agreement or to modify
the rights of Beneficial Owners; provided, however, that the Trust Agreement
may not be amended without the consent of the Beneficial Owners of all
outstanding DIAMONDS if such amendment would (1) permit, except in accordance
with the terms and conditions of the Trust Agreement, the acquisition of any
securities other than those acquired in accordance with the terms and
conditions of the Trust Agreement; (2) reduce the interest of any Beneficial
Owner in the Trust; or (3) reduce the percentage of Beneficial Owners required
to consent to any such amendment.
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 DIAMONDS. The Trustee shall
inquire of each such DTC Participant as to the number of Beneficial Owners for
whom such DTC Participant holds DIAMONDS, 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 (see "The Trust--Book-Entry-Only System").
TERMINATION
The Trust Agreement provides that the Sponsor has the discretionary right to
direct the Trustee to terminate the Trust if at any time after six months
following and prior to three years following the Initial Date of Deposit the
net asset value of the Trust falls below $150,000,000 or if at any time after
three years following the Initial Date of Deposit the net asset value of the
Trust 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
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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 month period ending in the last month of the preceding fiscal year.
The Trust Agreement also provides that the Trustee shall, at the direction
of the Sponsor, terminate the Trust if within 90 days from the Initial Date of
Deposit the net asset value is less than $100,000. The Trust will also
terminate in the event that DIAMONDS are delisted from the Exchange. The
Exchange will consider the suspension of trading in or the delisting of
DIAMONDS as discussed above (see "Exchange Listing").
The Trust may also be terminated (a) by the agreement of the Beneficial
Owners of 66 2/3% of outstanding DIAMONDS; (b) if the Depository is unable or
unwilling to continue to perform its functions as set forth under the Trust
Agreement and a comparable replacement is unavailable; (c) if NSCC no longer
provides clearance services with respect to DIAMONDS, or if the Trustee is no
longer a participant in NSCC; (d) if Dow Jones ceases publishing the DJIA; and
(e) if the License Agreement is terminated. Currently, the License Agreement
is scheduled to expire five years from the commencement date of trading of
DIAMONDS in accordance with its terms and is subject to a five year renewal
period following such date. The Trust will also terminate by its terms on the
Mandatory Termination Date.
If either the Sponsor or the Trustee shall resign or be removed and a
successor is not appointed, the Trust will terminate (see "Resignation,
Removal and Liability--The Trustee" and "Resignation, Removal and Liability--
The Sponsor"). The dissolution of the Sponsor or its ceasing to exist as a
legal entity for any cause whatsoever, however, will not cause the termination
of the Trust Agreement or the Trust unless the Trustee deems termination to be
in the best interests of Beneficial Owners.
Prior written notice of the termination of the Trust will be given at least
twenty (20) days prior to termination of the Trust to all Beneficial Owners in
the manner described above (see "The Trust--Book-Entry-Only System"). The
notice will set forth the date on which the Trust will be terminated (the
"Termination Date"), the period during which the assets of the Trust will be
liquidated, the date on which Beneficial Owners of DIAMONDS (whether in
Creation Unit size aggregations or otherwise) will receive in cash the net
asset value of the DIAMONDS held and the date determined by the Trustee upon
which the books of the Trust shall be closed. Such notice shall further state
that, as of the date thereof and thereafter, neither requests to create
additional Creation Units nor Portfolio Deposits will be accepted, that no
additional DIAMONDS will be created for the purpose of reinvesting dividend
distributions, and that, as of the date thereof and thereafter, the portfolio
of Securities delivered upon redemption shall be identical in composition to
the Securities held in
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the Trust as of such date rather than the securities portion of the Portfolio
Deposit as in effect on the date request for redemption is deemed received.
Beneficial Owners of DIAMONDS in Creation Unit size aggregations may, in
advance of the Termination Date, redeem in kind directly from the Trust (see
"Redemption of DIAMONDS").
Within a reasonable period of time after the Termination Date the Trustee
shall, subject to any applicable provisions of law, use its best efforts to
sell all of the Securities not already distributed to redeeming Beneficial
Owners of Creation Units. The Trustee shall not be liable for or responsible
in any way for depreciation or loss incurred by reason of any such sale or
sales. The Trustee may suspend such sales upon the occurrence of unusual or
unforeseen circumstances, including but not limited to a suspension in trading
of a 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 Security, the Trustee shall deduct
therefrom its fees and all other expenses (see "Expenses of the Trust"). The
remaining amount shall be transmitted to the Depository for distribution via
the DTC Participants, together with a final statement setting forth the
computation of the gross amount distributed. DIAMONDS not redeemed prior to
termination of the Trust will be redeemed in cash at net asset value based on
the proceeds of the sale of the Securities. Such redemptions in cash at net
asset value shall be available to all Beneficial Owners, with no minimum
aggregation of DIAMONDS required (see "Administration of the Trust--
Distributions to DIAMONDS Unit Beneficial Owners").
RESIGNATION, REMOVAL AND LIABILITY
THE TRUSTEE
Under the Trust Agreement, the Trustee may resign and be discharged of the
Trust created by the Trust Agreement by executing a notice of resignation in
writing and filing such notice with the Sponsor and mailing a copy of the
notice of resignation to all DTC Participants that are reflected on the
records of the Depository as owning DIAMONDS for distribution to Beneficial
Owners as provided above (see "The Trust--Book-Entry-Only System") not less
than sixty (60) days before the date such resignation is to take effect. Such
resignation will become effective upon the appointment of and the acceptance
of the Trust by a successor Trustee or, if no successor is appointed within
sixty (60) days after the date such notice of resignation is given, the Trust
shall terminate (see "Administration of the Trust--Termination"). The Sponsor,
upon receiving notice of such resignation, is obligated to use its best
efforts to appoint a successor Trustee promptly.
In case the Trustee becomes incapable of acting as such or is adjudged a
bankrupt or is taken over by any public authority, the Sponsor may discharge
the Trustee and appoint a successor Trustee as provided in the Trust
Agreement. Notice of such discharge and appointment shall be mailed via the
DTC Participants to Beneficial Owners by the Sponsor.
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Upon a successor Trustee's execution of a written acceptance of an
appointment as Trustee for the Trust, such successor Trustee will become
vested with all the rights, powers, duties and obligations of the original
Trustee.
A successor Trustee is required to be a trust company, corporation or
national banking association organized and doing business under the laws of
the United States or any state thereof; to be authorized under such laws to
exercise corporate trust powers; and to have at all times an aggregate
capital, surplus and undivided profit of not less than $50,000,000.
Beneficial Owners of 51% of the then outstanding DIAMONDS may at any time
remove the Trustee by written instrument(s) delivered to the Trustee and the
Sponsor. The Sponsor shall thereupon use its best efforts to appoint a
successor Trustee in the manner specified above and in the Trust Agreement.
The Trust Agreement provides that the Trustee is not liable for any action
taken in reasonable reliance on properly executed documents or for the
disposition of monies or Securities or for the evaluations required to be made
thereunder, except by reason of its own gross negligence, bad faith, wilful
malfeasance, wilful misconduct, or reckless disregard of its duties and
obligations nor is the Trustee liable or responsible in any way for
depreciation or loss incurred by reason of the sale by the Trustee of any
Securities in the Trust. In the event of the failure of the Sponsor to act,
the Trustee may act and is not liable for any such action taken by it in good
faith. The Trustee is not personally liable for any taxes or other
governmental charges imposed upon or in respect of the Securities or upon the
interest thereon or upon it as Trustee or upon or in respect of the Trust
which the Trustee 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 addition, the Trust Agreement contains other customary
provisions limiting the liability of the Trustee. The Trustee and its
directors, subsidiaries, shareholders, officers, employees, and affiliates
under common control with the Trustee (each a "Trustee Indemnified Party")
will be indemnified from the assets of the Trust and held harmless against any
loss, liability or expense incurred without gross negligence, bad faith,
wilful misconduct, wilful malfeasance on the part of such Trustee Indemnified
Party or reckless disregard of its duties and obligations, arising out of, or
in connection with its acceptance or administration of the Trust, including
the costs and expenses (including counsel fees) of defending against any claim
or liability.
THE SPONSOR
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 Trust Agreement are required of it to be undertaken or performed, or shall
resign, or shall become bankrupt or its affairs shall be taken over by public
authorities, the Trustee
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may appoint a successor Sponsor as shall be satisfactory to the Trustee, agree
to act as Sponsor itself, or may terminate the Trust Agreement and liquidate
the Trust (see "Termination"). Notice of the resignation or removal of the
Sponsor and the appointment of a successor shall be mailed by the Trustee to
the Depository and the DTC Participants for distribution to Beneficial Owners
(see "The Trust--Book-Entry-Only System"). Upon a successor Sponsor's
execution of a written acceptance of such appointment as Sponsor of the Trust,
such successor Sponsor shall become vested with all of the rights, powers,
duties and obligations of the original Sponsor. Any successor Sponsor may be
compensated at rates deemed by the Trustee to be reasonable.
The Sponsor may resign by executing and delivering to the Trustee an
instrument of resignation. Such resignation shall become effective upon the
appointment of a successor Sponsor and the acceptance of such appointment by
the successor Sponsor, unless the Trustee either agrees to act as Sponsor or
terminates the Trust Agreement and liquidates the Trust, which the Trustee
shall do if no successor Sponsor is appointed (see "Termination").
The dissolution of the Sponsor or its ceasing to exist as a legal entity for
any cause whatsoever will not cause the termination of the Trust Agreement or
the Trust unless the Trustee deems termination to be in the best interests of
the Beneficial Owners of DIAMONDS.
The Trust Agreement provides that the Sponsor is not liable to the Trustee,
the Trust or to the Beneficial Owners of DIAMONDS for taking any action or for
refraining from taking any action made in good faith or for errors in
judgment, but is liable only for its own gross negligence, bad faith, wilful
misconduct or wilful malfeasance in the performance of its duties or its
reckless disregard of its obligations and duties under the Trust Agreement.
The Sponsor is not liable or responsible in any way for depreciation or loss
incurred by the Trust by reason of the sale of any Securities of the Trust.
The Trust Agreement further provides that the Sponsor and its directors,
subsidiaries, shareholders, officers, employees, and affiliates under common
control with the Sponsor (each a "Sponsor Indemnified Party") shall be
indemnified from the assets of the Trust and held harmless against any loss,
liability or expense incurred without gross negligence, bad faith, wilful
misconduct or wilful malfeasance on the part of any Sponsor Indemnified Party
in the performance of its duties or reckless disregard of its obligations and
duties under the Trust Agreement, including the payment of the costs and
expenses of defending against any claim or liability.
SPONSOR
The Sponsor of the Trust is PDR Services Corporation, a Delaware corporation
incorporated on June 15, 1990 with offices c/o the Exchange, 86 Trinity Place,
New York, New York 10006. The Sponsor's Internal Revenue Service Employer
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Identification Number is 13-3574560. The Exchange owns all of the Sponsor's
outstanding shares of common stock. The Exchange is a "control person" of the
Sponsor as such term is defined in the Securities Act of 1933.
The Sponsor, at its own expense, may from time to time provide additional
promotional incentives to brokers who sell DIAMONDS to the public. In certain
instances, these incentives may be provided only to those brokers who meet
certain threshold requirements for participation in a given incentive program,
such as selling a significant number of DIAMONDS within a specified time
period.
TRUSTEE
The Trustee is State Street Bank and Trust Company, a bank and trust company
organized under the laws of the Commonwealth of Massachusetts with its
principal place of business at 225 Franklin Street, Boston, Massachusetts
02110. The Trustee's Internal Revenue Service Employer Identification Number
is 04-1867445. The Trustee is subject to supervision and examination by the
Massachusetts Division of Banks and the Federal Reserve Bank of Boston.
DEPOSITORY
The Depository Trust Company, New York, New York, a limited purpose trust
company and member of the Federal Reserve System, acts as Depository for
DIAMONDS. The Depository receives customary fees for its services.
LEGAL OPINION
The legality of the DIAMONDS offered hereby has been passed upon by Carter,
Ledyard & Milburn, New York, New York, as counsel for the Sponsor.
INDEPENDENT ACCOUNTANTS
The financial statements as of January 14, 1998 included in this Prospectus
have been so included in reliance upon the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
DAILY DIAMONDS UNIT TRADING INFORMATION
The Sponsor will make available daily a list of the names and the required
number of shares of each of the Securities in the current Portfolio Deposit.
The Sponsor also intends to make available (a) on a daily basis, the Dividend
Equivalent
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Payment effective through and including the previous Business Day, per
outstanding DIAMONDS Unit, and (b) every 15 seconds throughout the trading day
at the Exchange a number representing, on a per DIAMONDS Unit 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 may include a cash in
lieu amount to compensate for the omission of a particular Index Security from
such Portfolio Deposit). Intra-day information will be available with respect
to trades and quotes and underlying trading values will be published every 15
seconds throughout the trading day. Information with respect to net asset
value, net accumulated dividend, final dividend amount to be paid, shares
outstanding, estimated cash amount and total cash amount per Creation Unit
will be available daily prior to the opening of trading on the Exchange.
INFORMATION AND COMPARISONS RELATING TO TRUST, SECONDARY MARKET TRADING, NET
ASSET SIZE, PERFORMANCE AND TAX TREATMENT
Information regarding various aspects of the Trust, including the net asset
size thereof, as well as the secondary market trading, the performance and the
tax treatment of DIAMONDS, may be included from time to time in
advertisements, sales literature and other communications as well as in
reports to current or prospective Beneficial Owners.
Information may be provided to prospective investors to help such investors
assess their specific investment goals and to aid in their understanding of
various financial strategies. Such information may present current economic
and political trends and conditions and may describe general principles of
investing such as asset allocation, diversification and risk tolerance, as
well as specific investment techniques such as indexing and hedging. In
addition, information may be presented to prospective or current Beneficial
Owners regarding the purchase of DIAMONDS in the secondary market, such as
margin requirements, types of orders that may be entered, and information
concerning short sales. Similarly, market data symbols, trading fractions,
other trading information and the CUSIP number relating to DIAMONDS may be
included in such information. Comparisons with other investment vehicles, such
as mutual funds, may be made with respect to the application of such
requirements; costs of fund management and administration; cost and advantages
of intraday trading; and rules applicable to short sales.
Information regarding the Trust's net asset size may be stated in
communications to prospective or current Beneficial Owners for one or more
time periods, including annual, year-to-date or daily periods. Such
information may also be expressed in terms of the total number of DIAMONDS
outstanding as of one or more time periods.
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Factors integral to the size of the Trust's net assets, such as creation
volume and activity, may also be discussed, and may be specified from time to
time or with respect to various periods of time. Comparisons of such
information during various periods may also be made, and may be expressed by
means of percentages.
Information may be provided to investors regarding the ability to engage in
short sales of DIAMONDS, including reference to any applicable exemption from
the "tick test" provision of the SEC short sale rule (Rule 10a-1 under the
Securities Exchange Act of 1934), to permit short sales on "minus" or "zero-
minus" ticks. Selling short refers to the sale of securities which the seller
does not own, but which the seller arranges to borrow prior to effecting the
sale. Institutional investors may be advised that lending their DIAMONDS Unit
shares to short sellers may generate stock loan credits which may supplement
the return they can earn from an investment in DIAMONDS. These stock loan
credits may provide a useful source of additional income for certain
institutional investors who can arrange to lend DIAMONDS. Potential short
sellers may be advised that a short rebate (functionally equivalent to partial
use of proceeds of the short sale) may reduce their cost of selling short.
Information may be provided to investors regarding capital gains
distributions by the Trust, including historical information relating to such
distributions. Comparisons between the Trust and other investment vehicles
such as mutual funds may be made regarding such capital gains distributions,
as well as relative tax efficiencies between the Trust and such other
investment vehicles (e.g. realization of capital gains or losses to the Trust
and to such other investment vehicles in connection with redemption of their
respective securities). (See "Tax Status of the Trust" for discussion of tax
consequences to Beneficial Owners of DIAMONDS in connection with the sale or
redemption of DIAMONDS.) Based on projected differences between DIAMONDS and
conventional mutual funds with regard to capital gains distributions,
projections may be made regarding comparative capital gains distributions and
tax rates for taxable investors holding DIAMONDS over a long period of time.
Comparisons may also be provided regarding the probable tax impact resulting
from rebalancing of the Trust portfolio (see "The Portfolio--Adjustments to
the Portfolio") and adjustments to the portfolio of an actively managed
investment vehicle.
Specifically, information may be provided to prospective or current
investors comparing and contrasting the tax efficiencies of conventional
mutual funds with DIAMONDS. Both conventional mutual funds and the DIAMONDS
Trust may be required to recognize capital gains incurred as a result of
adjustments to the composition of the DJIA and therefore to their respective
portfolios. From a tax perspective, however, a significant difference between
a conventional mutual fund and the DIAMONDS Trust is the process by which
their shares are redeemed. In cases where a conventional mutual fund
experiences redemptions in excess of subscriptions ("net redemptions") and has
insufficient cash available to fund such net redemptions,
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such fund may have to sell stocks held in its portfolio to raise and pay cash
to redeeming shareholders. A mutual fund will generally experience a taxable
gain or loss when it sells such portfolio stocks in order to pay cash to
redeeming fund shareholders. In contrast, the redemption mechanism for
DIAMONDS does not ordinarily involve selling the portfolio stocks held by the
DIAMONDS Trust in the event of a redemption. Instead, the DIAMONDS Trust
usually delivers the actual portfolio of stocks in an "in-kind" exchange to
any person redeeming DIAMONDS Unit in Creation Unit size aggregations (i.e.,
50,000 DIAMONDS per Creation Unit). While this "in-kind" exchange is a taxable
transaction to the redeeming entity (usually a broker/dealer) making the
exchange, it generally does not constitute a taxable transaction at the
DIAMONDS Trust level and, consequently, there is no realization of taxable
gain or loss by the DIAMONDS Trust with respect to such "in-kind" exchanges.
In a period of market appreciation of the DJIA and, consequently, appreciation
of DIAMONDS Unit , this "in-kind" redemption mechanism has the effect of
eliminating the recognition and distribution of those net unrealized gains at
the DIAMONDS Trust level. Investors should note that although the same result
would occur for conventional mutual funds utilizing an "in-kind" redemption
mechanism, the opportunities to redeem fund shares by delivering portfolio
stocks "in-kind" are limited in most mutual funds.
Investors may be informed that, while no unequivocal statement can be made
as to the net tax impact on a conventional mutual fund resulting from the
purchases and sales of its portfolio stocks over a period of time,
conventional funds that have accumulated substantial unrealized capital gains,
if they experience net redemptions and do not have sufficient available cash,
may be required to make taxable capital gains distributions that are generated
by changes in such fund's portfolio. In contrast, the "in-kind" redemption
mechanism of DIAMONDS may make them more tax efficient investments under most
circumstances than comparable conventional mutual fund shares. As discussed
above, the "in-kind" redemption feature of the DIAMONDS Trust tends to lower
the amount of annual net capital gains distributions to DIAMONDS Unit holders
as compared to their conventional mutual fund counterparts. Since shareholders
are generally required to pay income tax on capital gains distributions, the
smaller the amount of such distributions, the less taxes that are payable
currently. To the extent that the DIAMONDS Trust is not required to recognize
capital gains, the DIAMONDS Unit holder is able, in effect, to defer tax on
such gains until he sells or otherwise disposes of his shares, or the DIAMONDS
Trust terminates. If such holder retains his shares until his death, under
current law the tax basis of such shares would be adjusted to their then fair
market value.
Information regarding the secondary market trading activity of DIAMONDS also
may be presented over one or more stated time periods, such as for daily,
monthly, quarterly or annual periods. DIAMONDS Unit secondary market trading
volume information may be compared with similar information relating to other
issues trading
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on the Exchange during the same reporting period. Average daily secondary
market trading volume of DIAMONDS may also be reported from time to time.
Comparisons of such information during various periods may also be made, and
may be expressed by means of percentages.
Information may also be provided in communications to prospective investors
or current Beneficial Owners comparing and contrasting the relative advantages
of investing in DIAMONDS as compared to other investment vehicles, such as
mutual funds, both on an individual and a group basis (e.g., stock index
mutual funds). Such information may include comparisons of costs and expense
ratios, expressed either in dollars or basis points, stock lending activities,
permitted investments and hedging activities (e.g., engaging in options or
futures transactions), and portfolio turnover data and analyses. In addition,
such information may quote, reprint or include portions of financial,
scholarly or business publications or periodicals, including model allocation
schedules or portfolios, as the foregoing relate to the comparison of DIAMONDS
to other investment vehicles, current economic, financial and political
conditions, investment philosophy or techniques, or the desirability of owning
DIAMONDS.
In addition, information on the performance of DIAMONDS on the basis of
changes in price per DIAMONDS Unit with or without reinvesting all dividends
and/or any distributions of capital in additional DIAMONDS may be included
from time to time in such information. Total return measures the percentage
growth in the total dollar value of an investment in DIAMONDS (reflecting
dividends and capital appreciation but without provision for any income taxes
payable). Average annualized performance will be stated for various periods.
Total return figures may also be stated for a period from the Initial Date of
Deposit, a date at least twelve months prior to the end of the reporting
period or for annual periods for the life of the Trust. Information on the
DJIA contained in this Prospectus, as updated from time to time, may also be
included from time to time in such material. The performance of the Trust, of
the DJIA (provided information is also given reflecting the performance of the
Trust in comparison to that DJIA) or both may also be compared to the
performance of money managers as reported in market surveys such as SEI Fund
Evaluation Survey (a leading data base of tax-exempt funds) or mutual funds
such as those reported by Lipper Analytical Services Inc., Money Magazine Fund
Watch, Wiesenberger Investment Companies Service, Morningstar Incorporated and
Value Line Investment Survey each of which measures performance following
their own specific and well-defined calculation measures, or of the New York
Stock Exchange Composite Index, the American Stock Exchange Index (indices of
stocks traded on the New York and American Stock Exchanges, respectively), S&P
500 Index ( a broad-based index of 500 publicly traded common stocks) or
similar measurement standards during the same period of time. In addition to
all other sources of comparative information, comparative performance figures
published by other funds or money managers may be included from time to time.
Information may also be included regarding the
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aggregate amount of assets committed to index investing generally by various
types of investors, such as pension funds and other institutional investors,
which currently exceeds $300 billion.
Information on the relative price performance of DIAMONDS in relation to
other securities and/or indices may be represented in the form of
"correlation". Correlation is a standard measure of the degree of linear
association between two price series, and ranges from minus one hundred
percent (-100%) (i.e. perfect negative linear association) to positive one
hundred percent (100%) (i.e., perfect linear association).
One important difference between DIAMONDS and conventional mutual fund
shares is that the DIAMONDS are available for purchase or sale on an intraday
basis on the American Stock Exchange. An investor who buys shares in a
conventional mutual fund will usually buy or sell shares at a price at or
related to the closing net asset value per share, as determined by the fund.
In contrast, DIAMONDS are not offered for purchase or redeemed for cash at a
fixed relationship to closing NAV.
Information relating to the relative price performance of DIAMONDS may be
compared against a wide variety of investment categories and asset classes,
including common stocks, small capitalization stocks, long and intermediate
term corporate and government bonds, Treasury bills, the rate of inflation in
the United States (based on the Consumer Price Index ("CPI") and combinations
of various capital markets. Historical returns of these and other capital
markets in the United States may be provided by independent statistical
studies and sources, such as those provided by Ibbotson Associates of Chicago,
Illinois. The performance of these capital markets is based on the returns of
different indices. Information may be presented using the performance of these
and other capital markets to demonstrate general investment strategies. So,
for example, performance of DIAMONDS may be compared to the performance of
selected asset classes such as short-term U.S. Treasury bills, long-term U.S.
Treasury bonds, long-term corporate bonds, mid-capitalization stocks, foreign
stocks and small capitalization stocks and may also be measured against the
rate of inflation as set forth in well-known indices (such as the CPI).
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. Performance of DIAMONDS may also
be compared to that of other indices or compilations that may be developed and
made available to the investing public in the future. Of course, such
comparisons will only reflect past performance of DIAMONDS and the investment
categories, indices or compilations chosen and no guarantees can be made of
future results regarding the performance of either DIAMONDS or the asset
classes chosen for such comparisons.
DIVIDEND REINVESTMENT SERVICE
The Trust has made the DTC book-entry Dividend Reinvestment Service (the
"Service") available for use by Beneficial Owners through DTC Participants for
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reinvestment of their cash proceeds. Note that some DTC Participants may not
elect to utilize the Service; therefore, after the Service is made available
for DIAMONDS, an interested DIAMONDS Unit investor may wish to contact such
investor's broker to ascertain the availability of the Service through such
broker. Interested Beneficial Owners should also note that each broker may
require investors to adhere to specific procedures and timetables in order to
participate in the Service and such investors should ascertain from their
broker such necessary details. DIAMONDS acquired pursuant to the Service will
be held by the Beneficial Owners in the same manner, and subject to the same
terms and conditions, as for original ownership of DIAMONDS.
Distributions reinvested in additional DIAMONDS through the Service will
nevertheless be taxable dividends to Beneficial Owners to the same extent as
if received in cash.
The Trustee will utilize the cash proceeds of dividends received from all
Beneficial Owners participating in reinvestment through the Service to obtain
Index Securities necessary to create the requisite number of DIAMONDS at the
close of business on each DIAMONDS Unit distribution date. Any cash balance
remaining after the requisite number of DIAMONDS has been created will be
distributed, on a pro rata basis, to all Beneficial Owners who participated in
the Service. Note that brokerage commissions, if any, incurred in obtaining
the Index Securities necessary to create additional DIAMONDS with the cash
from the distributions will be an expense of the Trust.*
ADDITIONAL INFORMATION
This Prospectus does not include all of the information with respect to the
Trust set forth in its registration statement and the exhibits thereto filed
with the Commission, under the Securities Act of 1933, and the 1940 Act, to
which reference is hereby made. Copies of such documents may be inspected
without charge at the Commission's offices at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from such office after payment of the fees prescribed by the Commission. Such
information is also available at the offices of the Sponsor at 86 Trinity
Place, New York, New York.
- -----------
* It is difficult to estimate the annual dollar amount of brokerage
commissions that might be incurred in connection with the Dividend
Reinvestment Service during any fiscal year. The Trustee estimates that
during fiscal year 1998, the approximate amount of annual brokerage
commissions incurred in implementing the Service might be in the range of
$0.001 to $0.005 per DIAMONDS Unit. There can be no guarantee that either
the size of the Trust or the number of outstanding DIAMONDS will remain
constant, or that dividend payments, the cost of brokerage commissions
incurred to purchase Index Securities or Beneficial Owner participation
will remain the same from year to year.
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GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Adjustment Amount"........................................................ 52
"Adjustment Day"........................................................... 35
"Balancing Amount"......................................................... 36
"Beneficial Owners"........................................................ 30
"Business Day"............................................................. 8
"Cash Component"........................................................... 5
"Cash Redemption Payment".................................................. 53
"Closing Time"............................................................. 27
"Code"..................................................................... 8
"Commission"............................................................... 5
"Creation Unit"............................................................ 1
"Depository Agreement"..................................................... 31
"Depository"............................................................... 8
"DIAMONDS"................................................................. 1
"DIAMONDS Clearing Process"................................................ 6
"DIAMONDS Unit"............................................................ 1
"DJIA"..................................................................... 1
"Distributor".............................................................. 13
"Dividend Equivalent Payment".............................................. 5
"Dividend Payment Date".................................................... 59
"Dow Jones"................................................................ 1
"DTC Cut-Off Time"......................................................... 57
"DTC Participants"......................................................... 30
"Evaluation Time".......................................................... 2
"Ex-Dividend Date"......................................................... 59
"Excess Cash Amounts"...................................................... 53
"Exchange"................................................................. 1
"Global Security".......................................................... 29
"Index Securities"......................................................... 4
"Indirect Participants".................................................... 30
"Initial Date of Deposit".................................................. 3
"License Agreement"........................................................ 43
"Mandatory Termination Date"............................................... 12
"NAV Amount"............................................................... 36
"NSCC Business Day"........................................................ 15
"NSCC"..................................................................... 5
"Participant Agreement".................................................... 28
"Participating Party"...................................................... 5
"Portfolio Deposit Amount"................................................. 36
"Portfolio Deposit"........................................................ 5
"Portfolio"................................................................ 23
"Record Date".............................................................. 59
"Request Day".............................................................. 36
"Securities"............................................................... 1
"Service".................................................................. 73
"Sponsor".................................................................. 1
"Transaction Fee".......................................................... 6
"Transmittal Date"......................................................... 27
"Trust Agreement".......................................................... 4
"Trust".................................................................... 1
"Trustee".................................................................. 4
</TABLE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND ANY
INFORMATION OR REPRESENTATIONS NOT STATED IN IT, OR IN THE REGISTRATION
STATEMENT AND EXHIBITS OF WHICH IT IS A PART, MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST, THE SPONSOR OR THE TRUSTEE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, ANY
SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, SECURITIES IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION IN IT IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF ANY MATERIAL CHANGE OCCURS
WHILE THIS PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
THE TRUST IS REGISTERED AS A UNIT INVESTMENT TRUST UNDER THE INVESTMENT
COMPANY ACT OF 1940. REGISTRATION DOES NOT IMPLY THAT THE TRUST OR DIAMONDS
HAVE BEEN GUARANTEED, SPONSORED, RECOMMENDED OR APPROVED BY THE UNITED STATES
OR ANY STATE OR ANY AGENCY OR OFFICER THEREOF.
----------------------
Until February 15, 1998, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus.
DIAMONDS(SM) TRUST SERIES 1
THE DOW INDUSTRIALS(SM)
-----------------------
D I A M O N D S (SM)
----------------------
PROSPECTUS
----------------------
SPONSOR
PDR SERVICES CORPORATION
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ESSENTIAL INFORMATION..................................................... 2
PROSPECTUS SUMMARY........................................................ 4
SPECIAL CONSIDERATIONS AND RISK FACTORS................................... 14
REPORT OF INDEPENDENT ACCOUNTANTS......................................... 19
STATEMENT OF FINANCIAL CONDITIONS.........................................
SCHEDULE OF INVESTMENTS................................................... 22
THE TRUST................................................................. 23
THE PORTFOLIO............................................................. 32
THE DJIA.................................................................. 38
LICENSE AGREEMENT......................................................... 43
EXCHANGE LISTING.......................................................... 44
TAX STATUS OF THE TRUST................................................... 45
CONTINUOUS OFFERING OF DIAMONDS........................................... 48
EXPENSES OF THE TRUST..................................................... 49
REDEMPTION OF DIAMONDS.................................................... 52
VALUATION................................................................. 58
ADMINISTRATION OF THE TRUST............................................... 58
RESIGNATION, REMOVAL AND LIABILITY........................................ 65
SPONSOR................................................................... 67
TRUSTEE................................................................... 68
DEPOSITORY................................................................ 68
LEGAL OPINION............................................................. 68
INDEPENDENT ACCOUNTANTS................................................... 68
DAILY DIAMONDS UNIT TRADING INFORMATION................................... 68
INFORMATION AND COMPARISONS RELATING TO TRUST, SECONDARY MARKET TRADING,
NET ASSET SIZE, PERFORMANCE AND TAX TREATMENT........................... 69
DIVIDEND REINVESTMENT SERVICE............................................. 73
ADDITIONAL INFORMATION.................................................... 74
GLOSSARY OF DEFINED TERMS................................................. 75
</TABLE>
JANUARY 14, 1998
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This amendment to the Registration Statement on Form S-6 comprises the following
papers and documents:
The facing sheet.
The cross-reference sheet.
The prospectus.
The undertaking to file reports.
The signatures.
The following exhibits:
1. Ex.-27 - Financial Data Schedule
2. Ex.-99.1 - Standard Terms and Conditions of Trust effective January
13, 1998 between PDR Services Corporation, as Sponsor, and State
Street Bank and Trust Company, as Trustee, incorporated by reference
to Exhibit A (1) to Amendment No. 1 to Form N-8b-2 for File No. 811-
9170, including the Form of Certificate of Ownership as Exhibit B
thereto.
3. Ex.-99.A2 - Trust Indenture and Agreement dated January 13, 1998
between PDR Services Corporation, as Sponsor, and State Street Bank
and Trust Company, as Trustee.
4. Ex.-99.A9- Dow Jones License Agreement dated June 5, 1997 among Dow
Jones & Company, Inc., the Sponsor and the Trustee, filed on January
14, 1998 with the Secretary of the Securities and Exchange Commission
under separate cover.
5. Ex.-99.A9- Depository Agreement dated January 12, 1998 between the
Depository and the Trustee, incorporated by reference to Exhibit No.
A(9) to Amendment No. 1 to Form N-8b-2 for File No. 811-9170.
6. Ex.-99.A9- Form of Participant Agreement to be entered into among the
Trustee, the Distributor and various Broker-Dealers, as Participants,
incorporated by reference to Exhibit No. A(9)(b) to Amendment No. 1
to Form N-8b-2 for File No.811-9170.
7. Ex.-99.2 - Opinion of Counsel as to legality of securities being
registered.
8. Ex.-99.C1 - Opinion of Counsel as to certain tax aspects of
the Trust.
9. Ex.-99.C2 - Consent of Independent Accountants.
<PAGE>
10. Ex.-A6 - Certificate of Incorporation and By-Laws of PDR Services
Corporation, Sponsor, incorporated by reference to Exhibit A(6) to
Amendment No. 1 to Form S-6 for the MidCap SPDR Trust, Series 1
filed with the Securities and Exchange Commission on April 27, 1995
(File No. 33-89088).
FINANCIAL STATEMENTS
--------------------
1. Statement of Financial Condition of the Trust as shown in the current
Prospectus for this series herewith.
2. Financial Statements of the Depositor:
PDR Services Corporation - Financial Statements, as part of American
Stock Exchange, Inc. current consolidated financial statements
incorporated by reference to Form 1-A, amendment No. 312 filed on June
27, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, DIAMONDS Trust, Series 1, has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, all in the City of New York, and State of New York, on the 13th
____
day of January, 1998.
_____________
DIAMONDS TRUST, SERIES 1
(Registrant)
By: PDR Services Corporation
(Depositor)
-----------------------------
Joseph Stefanelli
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed on behalf of PDR
Services Corporation the Depositor by the following persons who constitute a
majority of its Board of Directors and by the named persons who are in the
following capacities, in the City of New York and State of New York, on the date
above indicated.
PDR SERVICES CORPORATION
Name Title/Office
- ---- ------------
Joseph Stefanelli President and Director*
Paul Shackford Treasurer and Director*
Gary Gastineau Vice President and Director*
By
------------------------------
Joseph Stefanelli
Attorney-in-fact*
- -------------------------
* Executed copies of the powers of attorney were previously filed with
the Securities and Exchange Commission in connection with Registration
Statement on July 14, 1997 as Exhibit No. 1.
<PAGE>
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM S-6
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------
PDR SERVICES CORPORATION
-------------
EXHIBITS
============================================================================
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. TITLE OF DOCUMENT
- ----------- -----------------
1. Ex.-27 - Financial Data Schedule.
2. Ex.-99.A1 - Standard Terms and Conditions of Trust effective January 13,
1998 between PDR Services Corporation, as Sponsor, and State Street Bank
and Trust Company, as Trustee, incorporated by reference to Exhibit No.
A(1) to Amendment No. 1 to Form N-8b-2 for File No. 811-9170, including
the Form of Certificate of Ownership as Exhibit B thereto.
3. Ex.-99.A2 - Trust Indenture and Agreement dated January 13, 1998 between
PDR Services Corporation, as Sponsor, and State Street Bank and Trust
Company, as Trustee.
4. Ex.-99.A9- Dow Jones License Agreement dated June 5, 1997 among Dow
Jones and Company, Inc., the Sponsor and the Trustee, filed on January
14, 1998 with the Secretary of the Securities and Exchange Commission
under separate cover.
5. Ex.-99.A9- Depository Agreement dated January 12, 1998 between the
Depository and the Trustee, incorporated by reference to Exhibit No.
A(9) for Amendment No. 1 to Form N-8b-2 for File No. 811-9170.
6. Ex.-99.A9- Form of Participant Agreement to be entered into among the
Trustee, the Distributor and various Broker-Dealers, as Participants,
incorporated by reference to Exhibit No. A(9)(b) for Amendment No. 1 to
Form N-8b-2 for File No.811-9170.
7. Ex.-99.2 - Opinion of Counsel as to legality of securities being
registered.
8. Ex.-99.C1 - Opinion of Counsel as to certain tax aspects of the Trust.
9. Ex.-99.C2 - Consent of Independent Accountants.
10. Ex.-A6 - Certificate of Incorporation and By-Laws of PDR Services
Corporation, Sponsor, incorporated by reference to Exhibit A(6) to
Amendment No. 1 to Form S-6 for the MidCap SPDR Trust, Series 1 filed
with the Securities and Exchange Commission on April 27, 1995 (File No.
33-89088).
<PAGE>
CONSENT OF COUNSEL
The consent of counsel to the use of their name in the Prospectus
included in this Registration Statement has been set forth in their opinion
filed as Exhibit 99.2 to this Registration Statement.
-------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
The consent of independent accountants to the use of their name and
their report in the Prospectus included in this Registration Statement has been
set forth in the document filed as Exhibit 99.C2 to this Registration Statement.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Statements of Financial Conditions and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> JAN-14-1998
<PERIOD-END> JAN-14-1998
<INVESTMENTS-AT-COST> 38,643,555
<INVESTMENTS-AT-VALUE> 38,643,555
<RECEIVABLES> 17,095
<ASSETS-OTHER> 300,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,960,650
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 300,000
<TOTAL-LIABILITIES> 300,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,660,650
<SHARES-COMMON-STOCK> 500,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 38,660,650
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 500,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 38,660,650
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 99.(a)(2)
============================================================================
DIAMONDS TRUST, SERIES 1
TRUST INDENTURE AND AGREEMENT
Dated January 13, 1998
Incorporating
Standard Terms and Conditions of Trust
for DIAMONDS TRUST, SERIES 1
and subsequent and similar
Series of the DIAMONDS TRUST
Dated as of January 1, 1998,
Effective Date
January 13, 1998
Between
PDR SERVICES CORPORATION,
As Sponsor
and
STATE STREET BANK AND TRUST COMPANY,
As Trustee
============================================================================
<PAGE>
This TRUST INDENTURE AND AGREEMENT dated January 13, 1998 (the
"Indenture"), between PDR Services Corporation, as Sponsor and State Street Bank
and Trust Company, as Trustee, which sets forth certain of its provisions in
full and incorporates other of its provisions by reference to a document
entitled "Standard Terms and Conditions of Trust" dated as of January 1, 1998,
between the parties hereto (hereinafter called the "Agreement;" together with
the Indenture, the "Indenture and Agreement"), such provisions are as set forth
in full and such provisions as are incorporated by reference constituting a
single instrument.
WITNESSETH that:
WHEREAS, the parties hereto have hereto for or concurrently herewith
entered into the Agreement in order to facilitate the creation of a series of
securities issued under a unit investment trust in accordance with the
provisions of the Investment Company Act of 1940 and the laws of the State of
New York, such series representing undivided interests in a trust fund composed
primarily of Securities (as defined in the Agreement) included from time to time
in the Dow Jones Industrial Average (the "DJIA");
WHEREAS, the parties now desire to create the first of the aforesaid
series; and
WHEREAS, this first series of the Trust shall be designated and
known as "DIAMONDS Trust, Series 1" and shall be subject to the terms and
provisions of this Indenture and of the Agreement, incorporated herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the Sponsor and the Trustee agree as follows:
Section 1. Incorporation of Agreement. Subject to the provisions of
--------------------------
Section 2 hereof, all of the provisions of the Agreement are herein incorporated
by reference in their entirety and shall be deemed to be a part of this
instrument as though said provisions had been set forth in full in this
instrument.
Section 2. Specific Terms of this Series. The parties hereby agree to
-----------------------------
the following terms for the DIAMONDS Trust, Series 1:
A. The securities portion of the Initial Portfolio Deposit deposited on
the date hereof pursuant to Section 2.02 of the Agreement is comprised of the
securities set forth in Schedule A hereto.
B. The number of Initial Portfolio Deposits received by the Trust as of
the date of this Indenture is ten (10).
<PAGE>
C. The Dividend Equivalent Payment made in connection with each Initial
Portfolio Deposit on the date hereof is $0.00
D. (1) The aggregate number of Creation Units outstanding on the
Initial Date of Deposit for this series is ten (10).
(2) The initial fractional undivided interest represented by each
Creation Unit of the Trust shall be 1/10th.
(3) The number of DIAMONDS which, when aggregated, constitute one
Creation Unit, is 50,000.
E. The Mandatory Termination Date for the Trust shall be (1) one
hundred twenty-five years from the date the Trust is declared effective under
the Securities Act of 1933, which is January 14, 2123 or (2) the date twenty
(20) years after the death of the last survivor of the fifteen (15) persons
named below under the List of Measuring Lives, whichever occurs first:
List of Measuring Lives
- ---------------------------
Name Address Date of Birth
Lauren Michele Weber 6 Chadwick Court 12/9/94
Denville, NJ 07834
David Martin Angel 936 North Livinstonft 10/23/96
Arlington, VA 22205
Campbell Barnett Holman 27 Knollwood Road 6/6/97
Short Hills, NJ 07078
David Emmanuel Caine 44 Long Pond Lane 1/8/97
Staten Island, NY 10304
Nathan Robert Morris 303 Mercer Street 9/5/97
Apt. A605
New York, NY 10003
Devon Hennessy 70 Lincoln Avenue 5/3/97
Apt. 22E
Rockville Center, NY 11570
Naeema Janae Campbell 321 Beach 57th Street 5/14/95
Apt. 5k
Arverne, NY 11692
Steven William Tarr 15 Tristam Place 3/11/97
Pine Brook, NJ 07058
Samuel J. Carsky 2 Bayberry Street 6/25/97
Bronxville, NY 10708
<PAGE>
Chloe Josephine Morris 303 Mercer Street 2/29/96
Apt. A605
New York, NY 10003
Samantha Elizabeth 2467 West 3rd St. 11/6/97
Buono Brooklyn, NY 11223
Kevin Joseph Sweeney 34 Jefferson Street 12/16/97
Metuchen, NJ 08840
Jhordan Michael Julien 20-41 Seagirt Blvd. 5/27/97
Apt. 5F
Far Rockaway, NY 11691
Lily Sherry Hogan 160 West 66th Street 9/9/97
Apt. 25H
New York, NY 10023
Ariana Miyuki Vetrano 99 Bank Street 9/11/97
Apt. 4H
New York, NY 10014
F. The initial Date of Deposit of this Series of the Trust is the
date hereof.
G. The Trust's taxable year shall be the calendar year ending each
October 31.
H. This Indenture 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.
<PAGE>
IN WITNESS WHEREOF, PDR Services Corporation has caused this Indenture to
be executed by one of its Authorized Signatories and attested by its Secretary
or one of its Assistant Secretaries, and State Street Bank and Trust Company has
caused this Indenture to be executed by one of its Authorized Signatories and
attested by one of its Authorized Signatories, all as of the date first above
written.
PDR SERVICES CORPORATION
Attest: By ________________________
Authorized Signatory
________________________
Secretary
STATE STREET BANK
AND TRUST COMPANY
BY _________________________
Authorized Signatory
Attest:
__________________________
Authorized Signatory
<PAGE>
STATE OF NEW YORK )
:ss:
COUNTY OF NEW YORK )
On this 13th day of January, 1998, before me personally appeared
Joseph Stefanelli, to me known, who, being by me duly sworn, did depose and say
that he is an Authorized Signatory of PDR Services Corporation, the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by like authority.
--------------------------
Notary Public
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
)ss.:
COUNTY OF NORFOLK )
On this _____ day of January, 1998, before me personally appeared
___________________________, to me known, who, being by me duly sworn, said that
he/she is an Authorized Signatory of State Street Bank and Trust Company, the
national banking association described in and which executed the foregoing
instrument; and that he/she signed his/her name thereto by like authority.
------------------------------
Notary Public
<PAGE>
SCHEDULE A
DIAMONDS TRUST,
SERIES 1
A. SECURITIES DEPOSITED WITH THE TRUST
ON THE INITIAL DATE OF DEPOSIT
Name of Issuer and Title of Issue Shares Value
- ----------------------------------------- ------ -----------
AT&T Corp. .............................. 19,920 $1,298,535
Allied-Signal Inc. ...................... 19,920 732,060
Aluminum Co. of America.................. 19,920 1,314,720
American Express Co. .................... 19,920 1,649,625
Boeing Co. .............................. 19,920 896,400
Caterpillar Inc. ........................ 19,920 917,565
Chevron Corp. ........................... 19,920 1,482,795
Coca-Cola Co. ........................... 19,920 1,299,780
Disney (Walt) Co. (The).................. 19,920 1,892,400
Du Pont (E.I.) de Nemours & Co., Inc. ... 19,920 1,084,395
Eastman Kodak Co. ....................... 19,920 1,221,345
Exxon Corp. ............................. 19,920 1,196,445
General Electric Co. .................... 19,920 1,487,775
General Motors Corp. .................... 19,920 1,152,870
Goodyear Tire & Rubber Co. (The)......... 19,920 1,203,915
Hewlett Packard Co. ..................... 19,920 1,269,900
International Business Machines Corp. ... 19,920 2,034,330
International Paper Co. ................. 19,920 849,090
J.P. Morgan & Co. ....................... 19,920 2,130,195
Johnson & Johnson........................ 19,920 1,319,700
McDonald's Corp. ........................ 19,920 937,485
Merck & Co., Inc. ....................... 19,920 2,116,500
Minnesota Mining and Manufacturing Co. .. 19,920 1,675,770
Philip Morris Cos., Inc. ................ 19,920 953,670
Procter & Gamble Co. .................... 19,920 1,616,010
Sears, Roebuck & Co. .................... 19,920 901,380
Travelers Group Inc. .................... 19,920 987,285
Union Carbide Corp. ..................... 19,920 821,700
United Technologies Corp. ............... 19,920 1,413,075
Wal-Mart Stores, Inc. ................... 19,920 786,840
-----------
Total Investments-(Cost $38,643,555)..... $38,643,555
===========
B. Amount of Cash Component Deposited with
the Trust on the Initial Date of Deposit.
$ 17,095
<PAGE>
EXHIBIT 99.2
January 13, 1998
PDR Services Corporation
c/o American Stock Exchange
86 Trinity Place
New York, New York 10006
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: DIAMONDS Trust, Series 1
------------------------
Dear Ladies and Gentlemen:
We have served as counsel to the American Stock Exchange, Inc. (the
"Exchange") and PDR Services Corporation as sponsor (the "Sponsor") of DIAMONDS
Trust, Series 1 (hereinafter referred to as the "Trust") in connection with the
issuance by the Trust of an indefinite number of units of fractional undivided
interest in the Trust (hereinafter referred to as the Units").
In this regard, we have examined executed originals or copies of the
following:
(a) the Certificate of Incorporation, as amended, and the By-Laws of
the Sponsor as amended, certified by the Secretary of the Sponsor as of the
date hereof;
(b) resolutions of the Board of Directors of the Sponsor adopted on
June 1, 1997 relating to the Trust and the issuance of the Units, certified
by the Secretary of the Sponsor on the date hereof;
(c) powers of Attorney as set forth in the certificate of the
Secretary of the Sponsor dated the date hereof;
<PAGE>
(d) the Registration Statement on Form S-6 (File No. 333-31247) filed
with the Securities and Exchange Commission (the "Commission") in
accordance with the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder (collectively, the
"1933 Act") and amendments thereto including Amendment No. 1 ("Amendment
No. 1") proposed to be filed on January 14, 1998 the "Registration
Statement");
(e) the Notification of Registration of the Trust filed with the
Commission under the Investment Company Act of 1940, as amended and the
rules and regulations of the Commission promulgated thereunder
(collectively, the "1940 Act") on Form N-8A, as amended, (the "1940 Act
Notification");
(f) the registration of the Trust filed with the Commission under the
1940 Act on Form N-8B-2 (File No. 811-9170), as amended (the "1940 Act
Registration"), and amendments thereto;
(g) the prospectus dated January 14, 1998 proposed to be included in
Amendment No. 1 (the "Prospectus");
(h) the Application of DIAMONDS Trust, Series 1 and the Sponsor for
exemptions under Sections 4(2), 14(a), 17(a), 22(d), 22(e), 24(d) and 26(a)
(2) (C) of the 1940 Act and Rule 22c-1 and pursuant to Section 17d-1, as
amended, the notice published and the order granted in connection therewith
(File No. 812-22979, collectively, the "Order");
(i) the Standard Terms and Conditions of the Trust dated as of January
1, 1998 and effective January 13, 1998 between the Sponsor and State Street
Bank and Trust Company, as Trustee (the "Trustee") (the "Standard Terms");
(j) the Trust Indenture and Agreement dated January 13, 1998 between
the Sponsor and the Trustee (the "Trust Indenture", and, collectively with
the Standard Terms, the "Indenture and Agreement");
(k) the Distribution Agreement effective as of December 1, 1997 among
the Sponsor, the Trust and ALPS Mutual Funds Services, Inc., as Distributor
(the "Distribution Agreement"),
(l) the License Agreement between Dow Jones and Company, Inc. and the
Sponsor dated June 5, 1997;
(m) the Closing Memorandum dated January 13, 1998, among the Sponsor,
Spear, Leeds & Kellogg LP the initial Depositor and the Trustee (the
"Closing Memorandum");
<PAGE>
(n) Officer's Certificates required by the Closing Memorandum;
(o) the form of global certificate of ownership for units (the
"Certificate") to be issued under the Indenture and Agreement; and
(p) such other pertinent records and documents as we have deemed
necessary.
With your permission, in such examination, we have assumed the following:
(a) the authenticity of original documents and the genuineness of all
signatures; (b) the conformity to the originals of all documents submitted to us
as copies; (c) the truth, accuracy and completeness of the information,
representations, and warranties contained in the records, documents, instruments
and certificates as we have reviewed; (d) except as specifically covered in the
opinions set forth below, the due authorization, execution, and delivery on
behalf of the respective parties thereto of documents referred to herein and the
legal, valid and binding effect thereof on such parties; and (e) the absence of
any evidence extrinsic to the provisions of the written agreement(s) between the
parties that the parties intended a meaning contrary to that expressed by those
provisions. However, we have not examined the securities deposited pursuant to
the Indenture and the Agreement (the "Securities") nor the contracts for the
Securities.
We express no opinion as to matters of law in jurisdictions other than the
State of New York (except "Blue Sky" laws) and the federal laws of the United
States, except to the extent necessary to render the opinion as to the Sponsor
and the Indenture and Agreement in paragraphs (i) and (iii) below with respect
to Delaware law. As you know, we are not licensed to practice law in the State
of Delaware, and our opinion in paragraph (i) as to Delaware law is based solely
on review of the official statues of the State of Delaware.
Based on such examination, and having regard for legal considerations which
we deem relevant, we are of the opinion that:
(i) the Sponsor is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware with full
corporate power to conduct its business as described in the Prospectus;
(ii) the Sponsor is duly qualified as a foreign corporation and is in
good standing as such within the State of New York;
(iii) the Indenture and Agreement has been duly authorized, executed
and delivered by the Sponsor and, assuming the due authorization, execution
and delivery by the other parties thereto, is a valid and binding agreement
of the Sponsor, enforceable against the Sponsor in accordance with its
terms;
(iv) the Trust has been duly formed and is validly existing as an
investment trust under the laws of the State of New York and has been duly
registered under the 1940 Act;
<PAGE>
(v) the terms and provisions of the Units conform in all material
respects to the description thereof contained in the Prospectus;
(vi) the consummation of the transaction contemplated under the
Indenture and the fulfillment of the terms thereof will not be in violation
of the Sponsor's Certificate of Incorporation, as amended, or By-Laws, as
amended, and will not conflict with any applicable laws or regulations
applicable to the Sponsor in effect on the date hereof;
(vii) the Certificate to be issued by the Trust, when duly executed by
the Sponsor and the Trustee in accordance with the Indenture and Agreement,
upon delivery against payment therefor as described in the Registration
Statement and Prospectus will constitute fractional undivided interests in
the Trust enforceable against the Trust in accordance with its terms, will
be entitled to the benefits of the Indenture and Agreement and will be
fully paid and non-assessable; and
(viii) while the Registration Statement has not yet become effective,
we have no reason to believe that such Registration Statement after being
appropriately amended, will not become effective within 30 days after the
date hereof.
In addition, we have participated in conferences with representatives of
the Sponsor, the Exchange, the Trustee, the Trustee's counsel, the Trust's
accountants and others concerning the Registration Statement and the Prospectus
and have considered the matters required to be stated therein and the statements
contained therein, although we have not independently verified the accuracy,
completeness or fairness of such statements. Based upon and subject to the
foregoing, nothing has come to our attention to cause us to believe that the
Registration Statement, as of the date hereof, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
Prospectus, as of the date hereof, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that we have not
been requested to and do not make any comment in this paragraph with respect to
the final statements, schedules and other financial and statistical information
contained in the Registration Statement or the Prospectus).
Our opinion that any document is valid, binding, or enforceable in
accordance with its terms is qualified as to:
(a) limitations imposed by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium or other laws relating to or
affecting the enforcement of creditors' rights generally;
(b) rights to indemnification and contribution which may be limited by
applicable law or equitable principles; and
<PAGE>
EXHIBIT 99.2
(c) general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name where it appears in the
Registration Statement and the Prospectus.
Very truly yours,
Carter, Ledyard & Milburn
KHM:cd
<PAGE>
EXHIBIT 99.C1
January 13, 1998
PDR Services Corporation
c/o American Stock Exchange, Inc.
86 Trinity Place
New York, New York 10006
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Ladies and Gentlemen:
As counsel for PDR Services Corporation, as sponsor (the "Sponsor") and the
American Stock Exchange, Inc. (the "Exchange"), we have examined an executed
copy of the Trust Indenture dated January 13, 1998 (the "Indenture") and
Standard Terms and Conditions of Trust, dated as of January 1, 1998 and
effective January 13, 1998 (the "Agreement"), both between the Sponsor and State
Street Bank and Trust Company, as trustee, (the "Trustee"). The Indenture
established a trust called the DIAMONDS Trust, Series 1 (the "Trust") into which
Spear, Leeds & Kellogg, LP as the initial depositor (the "Depositor") deposited
certain stocks (the "Securities") and the Cash Component specified in Exhibit A
to the Indenture, to be held by the Trustee upon the terms and conditions set
forth in the Indenture and Agreement for the benefit of the Beneficial Owners
(as defined in the Indenture and Agreement.
In rendering this opinion we have assumed that the Trust intends to and
will qualify for and elect tax treatment as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended (the "Code") and
that the Trust will properly elect to be treated as an
<PAGE>
association taxable as a corporation (collectively, the "Elections"). We have
also assumed that the gross annual payroll of the Trust will be $1,000,000 or
less.
Based upon the foregoing and upon an examination of such other documents
and an investigation of such matters of law as we have deemed necessary, we are
of the opinion that, under existing statutes and decisions:
1. Assuming that the Elections are made and the Trust otherwise qualifies
as a RIC, the Trust would not be subject to federal income tax on such part of
its net income and capital gain, if any, as is timely distributed to
Unitholders.
2. The Trust will be subject to New York State and New York City
franchise and general corporation tax. However, in any fiscal year in which the
Trust qualifies as a RIC under Section 851 of the Code, and distributes all of
its net income and capital gains to Unitholders, the sum of such New York State
and New York City tax to which the Trust will be subject will not exceed
$2,055.00.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-31247) relating to the Units referred to
above.
Very truly yours,
Carter, Ledyard & Milburn
KHM:hcu
<PAGE>
Exhibit No. 99.(c)(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this Pre-
Effective Amendment No. 1 to the Registration Statement on Form S-6 (the
"Registration Statement") of our report dated January 14, 1998, relating to the
Statement of Financial Condition of DIAMONDS Trust, Series 1, which appears in
such Prospectus. We also consent to the reference to us under the heading
"Independent Accountants" in such Prospectus.
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 14, 1998
