ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST II, N-2/A, 1999-02-12

ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST II
N-2/A, 1999-02-12

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999

SECURITIES ACT FILE NO. 333-57125

INVESTMENT COMPANY ACT FILE NO. 811-8827

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

PRE-EFFECTIVE AMENDMENT NO. 3 /X/

POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/

AMENDMENT NO. 3 /X/

------------------------

ESTEE LAUDER AUTOMATIC
COMMON EXCHANGE SECURITY TRUST II
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

C/O GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 902-1000

------------------------

KENNETH L. JOSSELYN, ESQ.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(NAME AND ADDRESS OF AGENT FOR SERVICE)

------------------------

Copies to:

ROBERT E. BUCKHOLZ, JR., ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004

------------------------

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.

If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. / /

It is proposed that this filing will become effective when declared
effective pursuant to section 8(c).

If appropriate, check the following box:

/ / This amendment designates a new effective date for a previously filed
registration statement.

/ / This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is 333- .

------------------------

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
$ Trust Automatic Common Exchange Securities............................ $172,500,000 $47,955(2)
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.

(2) Previously paid.

------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST II
CROSS-REFERENCE SHEET
(PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933)
PART A & B OF PROSPECTUS*

<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION LOCATION IN PROSPECTUS
- ------ -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
1. Outside Front Cover............................... Front Cover Page

2. Cover Pages; Other Offering Information........... Front Cover Page; Underwriting

3. Fee Table and Synopsis............................ Prospectus Summary

4. Financial Highlights.............................. Not Applicable

5. Plan of Distribution.............................. Front Cover Page; Prospectus Summary; Underwriting

6. Selling Shareholders.............................. Not Applicable

7. Use of Proceeds................................... Prospectus Summary-The Trust's Investment
Policies; Use of Proceeds; Investment Objective
and Policies

8. General Description of the Registrant............. Front Cover Page; Prospectus Summary; The Trust;
Investment Objective and Policies; Risk Factors

9. Management........................................ The Trust

10. Capital Stock, Long-Term Debt, and Other
Securities...................................... Investment Objective and Policies; Description of
the Securities; Certain Federal Income Tax
Considerations

11. Defaults and Arrears on Senior Securities......... Not Applicable

12. Legal Proceedings................................. Not Applicable

13. Table of Contents of the Statement of Additional
Information..................................... Not Applicable

14. Cover Page........................................ Not Applicable

15. Table of Contents................................. Not Applicable

16. General Information and History................... The Trust

17. Investment Objective and Policies................. Investment Objective and Policies

18. Management........................................ The Trust

19. Control Persons and Principal Holders of
Securities...................................... The Trust

20. Investment Advisory and Other Services............ The Trust

21. Brokerage Allocation and Other Practices.......... Investment Objective and Policies

22. Tax Status........................................ Certain Federal Income Tax Considerations

23. Financial Statements.............................. Statement of Assets and Liabilities
</TABLE>

- ------------------
* Pursuant to the General Instructions to Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been included
in Part A: The Prospectus. Information required to be included in Part C is
set forth under the appropriate item so numbered in Part C of this
Registration Statement.

<PAGE>

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.

Subject to Completion. Dated February 12, 1999.

Securities

Estee Lauder
Automatic Common Exchange Security Trust II

$ Trust Automatic Common Exchange
Securities (TRACES(Trademark)/(Service Mark))

(Subject to exchange into Shares of Class A Common Stock of The Estee Lauder
Companies Inc.)

------------------------

The $ Trust Automatic Common Exchange Securities are a new series of
securities issued by the Estee Lauder Automatic Common Exchange Security Trust
II. The Trust will pay quarterly distributions of $ on each Security. On
February , 2002, the Trust will exchange each Security for either:

o Between 0. shares and one share of Class A Common Stock of The
Estee Lauder Companies Inc., or

o Cash equal to the value of those shares.

The number of shares or amount of cash that will be delivered in exchange
for each Security will be based on the price of the Class A Common Stock during
the twenty business days before February , 2002.

Under the circumstances described in this prospectus, the shares or cash
may be delivered between February , 2002 and May , 2002, instead of on
February , 2002.

This is the first issuance of Securities by the Trust. As a result, there
is currently no public market for the Securities. The Trust will apply to list
the Securities on the New York Stock Exchange under the symbol "ECJ".

The Class A Common Stock is currently traded on the New York Stock Exchange
under the symbol "EL". The last reported sale price of the Class A Common Stock
on the New York Stock Exchange on February 11, 1999, was $84 9/16 per share. The
Estee Lauder Companies Inc. is not affiliated with the Trust.

The Trust is a newly organized, finite term closed-end investment company.
Shares of this type of fund frequently trade at a discount from net asset value.
This risk is separate from the risk that the Trust's net asset value will fall.
The Trust cannot predict whether the Securities will trade at, below or above
net asset value. The risk of purchasing investments in a closed-end company that
might trade at a discount may be greater for investors who wish to sell their
investments soon after completion of this offering.

----------------------

This prospectus sets forth information about the Trust that you should know
before investing. You are advised to read this prospectus and to retain it for
future reference. Additional information about the Trust has been filed with the
Securities and Exchange Commission and is available upon written or oral request
and without charge. See "Further Information".

Consider carefully the "risk factors" beginning on page 27 of this
prospectus.

----------------------

Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

----------------------

<TABLE>
<CAPTION>
Per Security Total
------------------ ------------------
<S> <C> <C>
Initial Public Offering Price................ $ $
Sales Load................................... Not applicable Not applicable
Proceeds to the Trust........................ $ $
</TABLE>

The Underwriter may, under certain circumstances, purchase up to an
additional Securities from the Trust at the Initial Public Offering
Price.

----------------------

The Underwriter expects to deliver the Securities against payment in New
York, New York on February , 1999.

Goldman, Sachs & Co.

----------------------

Prospectus dated February , 1999.

<PAGE>

PROSPECTUS SUMMARY

This summary is not a complete description of the Trust or the Securities.
It does not contain all the information that may be important to you. To
understand this offering fully, you must read this entire prospectus carefully,
including the Risk Factors beginning on page 27.

This prospectus includes a Glossary, beginning on page 36. You should refer
to the Glossary if you wish to understand the terms used in this prospectus in
detail.

THE TRUST

The Trust is a newly organized trust that exists only to offer the
Securities. The Trust's only activities will be to issue the Securities and to
invest in the U.S. Treasury securities and stock purchase contract described in
this prospectus.

THE TRUST'S INVESTMENT OBJECTIVE

The Trust's investment objective is to give the holder of each Security a
quarterly cash distribution of $ and, on February , 2002 (the
"Exchange Date"), between 0. and 1 shares of Class A Common Stock (or cash
equal to the value of those shares). The number of shares, or amount of cash,
that a holder will receive in exchange for a single Security will vary,
depending on the average market price of the Class A Common Stock over the
twenty business days before the Exchange Date.

o If the average market price is less than $ but equal to or
greater than $ , the holder of each Security will receive the
number of shares of Class A Common Stock that has a value equal to
$ .

o If the average market price is equal to or greater than $ , the
holder of each Security will receive 0. shares of Class A Common
Stock.

o If the average market price is less than $ , the holder of each
Security will receive one share of Class A Common Stock.

This formula will be adjusted if the Company takes certain steps that combine,
split or dilute the value of the Class A Common Stock. If this formula would
require the Trust to deliver a fraction of a share of Class A Common Stock to
any holder, the Trust will instead deliver cash equal to the value of that
fraction of a share.

Because of this formula, the holders of the Securities will receive part of
any increase in the value of the Class A Common Stock above $ .
However, the holders of the Securities will not receive any increase in the
value of the Class A Common Stock unless that value rises higher than
$ . The holders will bear the entire amount of any decrease in the
value of the Class A Common Stock.

For more detail, please see "Investment Objective and Policies".

THE TRUST'S INVESTMENT POLICIES

To achieve its investment objective, the Trust will invest all the proceeds
of the Securities in:

o "Stripped" U.S. Treasury securities that will mature during each quarter
through February , 2002. The Trust will use the payments it receives as
these U.S. Treasury securities mature to pay the quarterly distributions
on the Securities.

o A stock purchase contract (the "Contract") with a stockholder of the
Company (the "Seller"). The Seller will be required to deliver shares of
Class A Common Stock to the Trust on the Exchange Date. Alternatively,
the Seller may choose to deliver the equivalent amount of cash. If the
Seller performs its obligations, the Contract will provide the Trust with
the shares of

2
<PAGE>

Class A Common Stock or cash that the Trust must deliver to the holders
of the Securities on the Exchange Date.

The Seller has the right to extend the Exchange Date under the Contract to
May , 2002. If the Seller extends the Exchange Date, the Seller will not be
required to deliver the shares of Class A Common Stock or cash under the
Contract until May , 2002. However, the Seller can then accelerate the
delivery of shares or cash to any date between February , 2002 and May ,
2002. If the Seller extends or accelerates the Exchange Date under the Contract,
the holders of the Securities will not receive the shares or cash in exchange
for the Securities until the extended or accelerated Exchange Date and the
number of shares or amount of cash to be delivered would be calculated as of
such extended or accelerated Exchange Date. However, the holders of the
Securities would receive an additional, partial cash distribution on the
Securities for the period of the delay.

In some circumstances, the holders of the Securities may receive cash or
other common equity securities instead of or in addition to the Class A Common
Stock. For more detail, please
see "--The Securities--Modifications to Delivery Requirements".

The Seller will pledge collateral to the Trust to secure the Seller's
obligations under the Contract. The collateral will initially be the shares of
Class A Common Stock that the Seller must deliver under the Contract. However,
if the Seller complies with its obligations under the Contract and its pledge,
the Seller may pledge U.S. Treasury securities instead of the shares of Class A
Common Stock.

The Trust will not change its investments, even if the value of the
Contract or the Class A Common Stock falls significantly or the financial
condition of the Company suffers. Furthermore, because the Trust is a grantor
trust for purposes of the U.S. federal tax laws, the trustees of the Trust will
not have the power to change the Trust's investments.

For more detail, please see "Investment Objective and Policies".

THE OFFERING

The Trust is offering Securities to the public at a
purchase price of $ per Security. This price is equal to the last reported
sale price of the Class A Common Stock on the date of this prospectus. The
Securities are being offered through Goldman, Sachs & Co. ("Goldman Sachs"), 85
Broad Street, New York, New York 10004 (the "Underwriter").

In addition, the Trust has granted the Underwriter an option to purchase up
to additional Securities. These Securities may be used only to cover
over-allotments. For more detail, please see "Underwriting".

THE SECURITIES

The Trust will pass through to the holders of the Securities all payments
that it receives on the U.S. Treasury securities that it purchases with the
proceeds of the Securities. Similarly, the Trust will deliver to the holders of
the Securities all shares of Class A Common Stock, cash or other securities,
that it receives from the Seller under the Contract.

DISTRIBUTIONS. The holder of each Security will receive a distribution of
$ each quarter. The Trust will pay these distributions on each March ,
June , September and December . However, if the Trust would be required to
make a distribution on a Saturday, Sunday or legal holiday, the Trust will pay
that distribution on the next business day instead. The Trust will make each
payment to the holder of the Security whose name appears in the Trust's books on
the business day before the applicable payment date. The first distribution will
be payable on March , 1999 to holders of record on the previous business day.

The only source of cash for the quarterly distributions on the Securities
will be the cash received from the U.S. Treasury securities purchased by the
Trust with the proceeds of the Securities. Part of

3
<PAGE>

each year's distributions on the Securities will be treated as a return of
capital under the U.S. federal income tax laws. For more detail, please see
"Description of Securities--Distributions--Tax Treatment of Distributions" and
"Certain Federal Income Tax Considerations".

EXCHANGE FOR CLASS A COMMON STOCK. On the Exchange Date, each Security
will be exchanged automatically for between 0. shares and one share of Class A
Common Stock, as determined by the formula described under "--The Trust's
Investment Objective". However, if the Seller delivers cash instead of Class A
Common Stock under the Contract, the holders of the Securities will receive cash
instead of the Class A Common Stock. The amount of cash will be based on the
average market price of the Class A Common Stock during the twenty business days
before the cash is delivered. The number of shares of Class A Common Stock or
amount of cash that will be delivered in exchange for the Securities will be
adjusted if the Company takes certain actions that have the effect of combining,
splitting or diluting the value of the Class A Common Stock.

MODIFICATIONS TO DELIVERY REQUIREMENTS. In some circumstances, the holders
of the Securities may receive cash, other common equity securities or other
property instead of or in addition to the Class A Common Stock, or the holders
of the Securities may receive the Class A Common Stock, cash or other securities
on a date other than February , 2002:

o The Exchange Date may be extended and then accelerated by the Seller as
described above. In this case, the holders of the Securities would not
receive the shares and cash until the extended or accelerated date, but
the holders would receive an additional, partial cash distribution on the
Securities for the period of delay. For further detail, please see
"Investment Objective and Policies--The Contract--Extension and
Acceleration of the Exchange Date at the Option of the Seller".

o The Seller may elect to deliver cash instead of Class A Common Stock
under the Contract. If the Seller decides to deliver cash instead of
Class A Common Stock under the Contract, it may do so in connection with
a "rollover offering"--that is, an offering of securities that refinances
the Securities. If the Seller completes a rollover offering, the Seller
will deliver the cash under the Contract by the fifth business day after
completing that offering. In this case, the holders of the Securities
would not receive the cash payable on exchange of the Securities until
the Seller pays it to the Trust. For further detail, please see
"Investment Objective and Policies--The Contract--Cash Settlement;
Rollover Offerings".

o If the Company merges with another entity, the Company is liquidated, or
certain similar events occur, holders of Securities may receive other
common equity securities, cash or other property equal to the value of
the other consideration received by the Company's stockholders in that
transaction, rather than shares of Class A Common Stock. If at least 30%
of the consideration received by the Company's stockholders in the merger
consists of cash or cash equivalents, then the Seller will be required to
deliver any consideration other than common equity securities to the
Trust within five business days after the Seller receives that
consideration. On the Exchange Date, the Seller would be required to
deliver the common equity securities included in the merger
consideration. In this case, the holders of the Securities will receive
cash or other property representing part of the merger consideration on a
date before the scheduled Exchange Date, and common equity securities
representing the rest of the merger consideration on the Exchange Date.

Instead of delivering any non-cash consideration after a merger, the
Seller may choose to deliver cash equal to the value of those assets.
Similarly, instead of delivering the common equity securities on the
Exchange Date, the Seller may choose to deliver cash equal to the value
of those securities.

For further detail, please see "Investment Objective and Policies--The
Contract--Reorganization Events".

4
<PAGE>

o If the Company declares a dividend consisting of the shares of common
stock of another issuer, the Seller will be required to deliver the
shares received in the dividend, together with the Class A Common Stock.
In this case, the holders of Securities will receive both shares of
Class A Common Stock and shares of the other issuer, or cash equal to the
value of those shares. For further detail, please see "Investment
Objective and Policies--The Contract--Spin-Off Distributions".

o If the Seller defaults under the Contract or its collateral arrangements,
the Contract would be accelerated. In this case, the holder of each
Security would then receive an early distribution of the shares of
Class A Common Stock, cash or other common equity securities, instead of
receiving the Class A Common Stock, or cash or other securities, that
would otherwise be delivered on the Exchange Date. For further detail,
please see "Investment Objective and Policies--The Contract--Collateral
Arrangements; Acceleration Upon Default By the Seller".

For more detail, please see "Investment Objective and Policies".

VOTING RIGHTS. Holders will have the right to vote on changes to the terms
of the Securities, on the replacement of the trustees of the Trust and the
Trust's custodian, paying agent, transfer agent, registrar and other agents, and
on other matters affecting the Trust, as described below under the caption
"Description of Securities". However, holders of the Securities will not have
any voting rights with respect to the Class A Common Stock until they actually
receive shares of Class A Common Stock in exchange for the Securities. For more
detail, please see "Description of Securities--Voting".

LISTING. The Trust will apply to list the Securities on the New York Stock
Exchange (the "NYSE") under the symbol "ECJ".

THE COMPANY

The Company, founded in 1946 by Estee and Joseph Lauder, is one of the
world's leading manufacturers and marketers of quality skin care, makeup,
fragrance and hair care products. The Company's products are sold in over 100
countries and territories under the following well-recognized brand names: Estee
Lauder, Clinique, Aramis, Prescriptives, Origins, MoAoC, Bobbi Brown essentials,
jane and Aveda. The Company is also the global licensee for fragrances and
cosmetics for the Tommy Hilfiger, Donna Karan New York and DKNY brands. Each
brand is distinctly positioned within the cosmetics market.

The Company has prepared a prospectus that describes the Company and the
Class A Common Stock (the "Company Prospectus"). The Company Prospectus is
attached as Annex A to this prospectus. The Company is not affiliated with the
Trust and will not receive any of the proceeds from the sale of the Securities.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The Trust will be treated as a grantor trust under the U.S. federal income
tax laws. This means that under these laws, each holder will be treated as if it
owned directly its proportionate share of the assets held by the Trust.
Similarly, income and original issue discount received by the Trust will
generally be treated as income of the holders.

Under the U.S. federal income tax laws, the U.S. Treasury securities held
by the Trust will be treated as having "original issue discount" that will
accrue over the term of the U.S. Treasury securities. However, when the Trust
actually receives cash on these U.S. Treasury securities, these cash payments
will not be included in the holders' income. Instead, these payments will reduce
the holders' aggregate tax basis in the Securities. A holder will have taxable
gain or loss if the Trust receives cash instead of Class A Common Stock.

Holders should be aware that the Trust's assets could be characterized
differently under the federal income tax laws. Other characterizations could
require holders to include more interest in

5
<PAGE>

income than they would under the analysis outlined above. For more detail,
please see "Certain Federal Income Tax Considerations".

RISK FACTORS

An investment in the Securities involves risk. Some of the risks of an
investment in the Securities are described under "Risk Factors", beginning on
page 27. These risks include the following:

o The Trust will not dispose of the Contract even if the price of the
Class A Common Stock falls significantly or the financial condition of
the Company suffers. The holders will bear the entire amount of any
decrease in the value of the Class A Common Stock.

o Similarly, the Trust will not dispose of the U.S. Treasury securities
before they mature or the Trust terminates, whichever comes first, even
if their value falls significantly.

o If the price of Class A Common Stock rises, a holder of a Security will
not receive all of this increase in value. Holders will not receive any
of this increase if the average market price of the Class A Common Stock
at the Exchange Date is below $ . Holders will receive only %
of any increase in the value of the Class A Common Stock over $ . On
the other hand, holders of Securities will bear all of any decrease in
the value of the Class A Common Stock.

o The distributions on the Securities will be higher than the annual
dividends paid on the Class A Common Stock in the past year. However, the
distributions on the Securities will remain fixed. As a result, if the
dividend on the Class A Common Stock is raised, the distributions on the
Securities may then be lower than the dividends paid on the Class A
Common Stock.

o The number of shares of Class A Common Stock or amount of cash that
holders may receive on the Exchange Date will be adjusted if the Company
takes certain actions described in this prospectus that have the effect
of combining, splitting or diluting the value of the Class A Common
Stock. The number of shares to be received by holders may not be adjusted
for other events that may adversely affect the price of the Class A
Common Stock, such as offerings of Class A Common Stock for cash or in
connection with acquisitions.

o The only assets held by the Trust will be the U.S. Treasury securities
and the Contract. An investment in the Trust will be riskier than an
investment in an investment company with diversified investments.

o The trading prices of the Securities in the secondary market will be
directly affected by the trading prices of the Class A Common Stock in
the secondary market. The trading prices of the Class A Common Stock will
be influenced by the Company's operating results and prospects and by
economic, financial and other factors and market conditions. The trading
prices of the Securities will also be affected by fluctuations in
interest rates and other factors that are difficult to predict and beyond
the Trust's control.

o There can be no assurance that a secondary market will develop for the
Securities. If a secondary market does develop, there can be no assurance
that it will provide the holders with liquidity for their investment or
that it will continue for the life of the Securities.

o Holders of the Securities will not be entitled to any rights with respect
to the Class A Common Stock unless they actually receive Class A Common
Stock in exchange for the Securities. For example, holders of Securities
will not be entitled to vote the shares of Class A Common Stock or
receive dividends.

6
<PAGE>

FEES AND EXPENSES

UNDERWRITER'S COMPENSATION. The Seller will compensate the Underwriter for
the offering of the Securities because a significant portion of the proceeds of
the sale of the Securities will be used by the Trust to purchase the Contract
from the Seller. The Underwriting Agreement requires the Seller to pay the
Underwriter $ for each Security sold in the offering.

ORGANIZATIONAL AND OFFERING COSTS. The Trust's organizational costs will be
approximately $10,000. The Trust's costs in connection with the offering of the
Securities will be approximately $ . Goldman Sachs will pay these
organizational and offering costs.

COSTS OF OTHER SERVICE PROVIDERS. At the closing of the offering of the
Securities, Goldman Sachs will make a one-time, up-front payment of $ to
the Trust's administrator, custodian, paying agent and trustees as compensation
for their services to the Trust. Goldman Sachs will also pay the Trust's
administrator $ to cover the Trust's anticipated expenses. Goldman Sachs
will pay any ongoing expenses of the Trust above these estimated amounts and the
Seller will reimburse the Trust for any amounts it may pay as indemnification to
the Trust's administrator, custodian, paying agent or any trustee. If Goldman
Sachs or the Seller does not pay these expenses and obligations, the Trust will
have to pay them, and this will reduce the amount available to distribute to
holders.

DISCLOSURE REQUIRED BY THE SECURITIES AND EXCHANGE COMMISSION. The
Securities and Exchange Commission (the "SEC") requires the Trust to present its
expenses in the following format. The SEC has stated that it intends this
requirement to assist investors in understanding the various costs and expenses
that an investor in the Securities will bear directly or indirectly.

Because the Trust will not bear any fees or expenses, investors will not
bear any expenses directly.

<TABLE>
<S> <C>
INVESTOR TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of the Initial Public
Offering Price)................................................ %(a)
Dividend Reinvestment and Cash Purchase Plan Fees................ N/A

ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees(b)............................................... 0%
Other Expenses(c)................................................ 0%
-----
Total Annual Expenses(c).................................... 0%
-----
-----
</TABLE>

- ------------------
(a) See "Underwriting".
(b) See "The Trust". The Trust will be internally managed; consequently, there
will be no separate investment advisory fee paid by the Trust. The Chase
Manhattan Bank will act as the administrator of the Trust.

(c) The organization costs of the Trust in the amount of $10,000, compensation
payable to the Trust's trustees, administrator, custodian, collateral agent
and paying agent in the amount of $ and approximately $ in
respect of costs associated with the initial registration and offering of
the Securities will be paid by Goldman Sachs. Anticipated ongoing expenses
of the Trust over the term of the Trust, estimated to be approximately
$ , as well as any unanticipated operating expenses of the Trust,
will also be paid by Goldman Sachs. See "The Trust--Expenses of the Trust".
Absent such arrangements, the Trust's "Other Expenses" and "Total Annual
Expenses" would be approximately % of the Trust's net assets.

7
<PAGE>

The SEC also requires that closed-end investment companies present an
illustration of cumulative expenses (both direct and indirect) that an investor
would bear. The example must factor in the applicable Sales Load and must assume
that investors will receive a 5% annual return and will reinvest all
distributions at net asset value. PLEASE NOTE THAT THE ASSUMPTION OF A 5% ANNUAL
RETURN DOES NOT ACCURATELY REFLECT THE TRUST'S TERMS. SEE "INVESTMENT OBJECTIVE
AND POLICIES". ALSO, THE TRUST DOES NOT PERMIT HOLDERS TO REINVEST THE
DISTRIBUTIONS ON THE SECURITIES.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
You would bear the following expenses on a $10,000 investment, including
the applicable Sales Load of $ and assuming (1) no annual expenses
and (2) a 5% annual return throughout the period....................... $ $
</TABLE>

8
<PAGE>

THE TRUST

CREATION AND FORM OF THE TRUST

The Trust is a newly organized New York trust. It is a registered,
non-diversified, closed-end management investment company under the Investment
Company Act of 1940 (the "Investment Company Act"). The Trust was formed on
June 17, 1998 under a trust agreement, which was amended and restated as of
February , 1999 to reflect the terms of this offering (the "Trust Agreement").
The Trust's address is 85 Broad Street, New York, New York 10004 (telephone no.
(212) 902-1000).

THE TRUSTEES

The Trust will be internally managed by three trustees (the "Trustees").
One of the Trustees will be designated as the Trust's "Managing Trustee". The
Trustees will be responsible for the Trust's general management and operations.
However, the Trustees will not have the power to vary the investments held by
the Trust. See "Investment Objective and Policies". Goldman Sachs will pay each
Trustee, on behalf of the Trust, a one-time, up-front fee to cover the Trustee's
annual fee and anticipated out-of-pocket expenses. The Managing Trustee will
also receive an additional up-front fee for serving in that capacity.

Goldman Sachs, as the Trust's sponsor and the initial holder of the Trust's
Securities, has elected three individuals to serve as the Trustees. Their names,
ages, addresses and titles, their principal occupations during the past five
years and their compensation are as follows:

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS COMPENSATION
- ------------------------------------------ ----------------- ------------------------ ------------
<S> <C> <C> <C>
Donald J. Puglisi, 53 .................... Managing Trustee Professor of Finance $ 14,400
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716

William R. Latham III, 54 ................ Trustee Professor of Economics $ 10,800
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716

James B. O'Neill, 59 ..................... Trustee Professor of Economics $ 10,800
Center for Education & University of Delaware
Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>

None of the Trustees is an "interested person" of the Trust as defined in
the Investment Company Act. Furthermore, none of the Trustees is a director,
officer or employee of the Underwriter or of the Trust's administrator, or of
any affiliate of the Underwriter or the Trust's administrator. Each of the
Trustees serves as a trustee of other similar trusts, but none of the Trustees
receives any compensation for serving as a trustee or director of any other
affiliated investment company.

OTHER SERVICE PROVIDERS

ADMINISTRATOR. The Trust's day-to-day affairs will be managed by The Chase
Manhattan Bank as Administrator under an Administration Agreement, dated as of
February , 1999 (the "Administration Agreement"). Under the Administration
Agreement, the Trustees have delegated most of their operational duties to the
Administrator, including the duties to:

o receive and pay invoices for expenses incurred by the Trust;

o with the approval of the Trustees, engage legal and other professional
advisors (other than the independent public accountants for the Trust);

9
<PAGE>

o instruct the Trust's paying agent to pay the distributions on the
Securities;

o prepare, mail, file and publish all notices, proxies, reports, tax
returns and other documents for the Trust, or direct the Trust's paying
agent to do so, and keep the Trust's books and records;

o select and engage an independent investment banking firm (after
consultation with the Seller), when the Trust is required to do so under
the Contract;

o at the direction of the Trustees, institute and prosecute legal and other
appropriate proceedings to enforce the Trust's rights and remedies, but
the Administrator is required to do so only if it receives any indemnity
that it requests; and

o make all necessary arrangements for meetings of the Trustees and any
meetings of holders.

The Administrator will not select the independent public accountants for
the Trust. The Administrator also will not sell any of the Trust's assets, or
permit any other agent of the Trust to do so, except when the Contract requires
the Trust to make a delivery, when the Trust is required to sell fractional
shares, when the collateral agreement securing the Contract requires the Trust
to sell collateral posted by the Seller, and when the Trust terminates.

CUSTODIAN. The Trust's assets will be held by The Chase Manhattan Bank as
the Trust's custodian (the "Custodian") under a Custodian Agreement, dated as of
February , 1999 (the "Custodian Agreement").

COLLATERAL AGENT. The Custodian will also act as collateral agent (the
"Collateral Agent") under the collateral agreement with the Trust and the Seller
(the "Collateral Agreement"). The Collateral Agent will hold a perfected
security interest in the Class A Common Stock and U.S. Government obligations or
other assets pledged by the Seller under the Collateral Agreement. If the Seller
defaults under the Contract or the Collateral Agreement, it will be the
Collateral Agent that sells the collateral posted by the Seller and pays the
proceeds of that sale to the Custodian for distribution to the holders of the
Securities.

PAYING AGENT. ChaseMellon Shareholder Services, L.L.C. will serve as the
transfer agent, registrar and paying agent (the "Paying Agent") for the
Securities under a Paying Agent Agreement, dated as of February , 1999 (the
"Paying Agent Agreement").

OTHER INFORMATION CONCERNING THE TRUST'S AGENTS. The Administrator, the
Custodian, the Collateral Agent and the Paying Agent each have the right to
resign at any time upon required notice to the Trust. The Trustees have the
right to remove any of these agents of the Trust at any time on 60 days' notice
or immediately if the agent defaults under the applicable agreement or the
Investment Company Act, suffers a bankruptcy, or under certain other
circumstances. In order to ensure that all the agents of the Trust are the same
financial institution or affiliate financial institutions, if any of these
agents resigns or is removed, the appointment of each of the other agents
automatically terminates. However, no resignation or removal of any of these
agents will be effective until a successor is appointed. If any of these agents
resigns or is removed, the Trustees are required to appoint a successor with the
qualifications specified in the Trust Agreement.

Except for their respective roles as Administrator, Custodian, Collateral
Agent and Paying Agent, The Chase Manhattan Bank and ChaseMellon Shareholder
Services, L.L.C. have no other affiliation with, and are not engaged in any
other transactions with, the Trust.

INDEMNIFICATION

The Trust will indemnify each Trustee, the Administrator, the Custodian and
the Paying Agent against any liabilities or costs (including the costs of
defending against any liability) that it may incur in acting in that capacity,
except for willful misfeasance, bad faith, gross negligence or reckless
disregard of their respective duties or where applicable law prohibits that
indemnification. The Seller has agreed to reimburse the Trust for any amounts it
may be required to pay under these

10
<PAGE>

indemnifications. If the Seller does not pay these amounts, the Trust will have
to pay them, and this will reduce the amount available to distribute to holders.

EXPENSES OF THE TRUST

At the closing of the offering of the Securities, Goldman Sachs will pay to
the Administrator, the Custodian, the Collateral Agent and the Paying Agent a
one-time, up-front payment of $ to cover their fees. Goldman Sachs will
also pay the Administrator a one-time up-front payment of $ to cover the
Trust's anticipated expenses. The anticipated Trust expenses to be paid by the
Administrator out of this amount include, among other things:

o expenses for legal and independent accountants' services;

o costs of printing proxies, Securities certificates and holder reports;

o fidelity bond coverage for the Trustee; and

o the Trustees' compensation described above.

In addition, Goldman Sachs will pay the costs of organizing the Trust in the
amount of $10,000 and estimated costs in connection with the initial
registration and public offering of the Securities in the amount of $ .

The amount that Goldman Sachs will pay to the Administrator to cover the
Trust's ongoing expenses was determined based on estimates made in good faith on
the basis of information currently available to the Trust, including estimates
furnished by the Trust's agents. It is possible, however, that the actual
operating expenses of the Trust will be substantially more than this amount.
Goldman Sachs has agreed to pay any excess expenses beyond this amount. If
Goldman Sachs does not pay those excess expenses, the Trust will have to pay
them, and this will reduce the amount available to distribute to holders.

TRUST TERMINATION

The Trust will terminate automatically ten business days after the Exchange
Date. However, if the Contract is accelerated, then the Trust will terminate 10
business days after the Class A Common Stock, cash or other common equity
securities required to be delivered under the Contract are delivered. If the
Trust terminates before all the distributions on the Securities have been paid,
the Trust's Administrator will sell any U.S. Treasury securities then held in
the Trust and distribute the proceeds pro rata to the holders of the Securities,
together with the shares or cash delivered under the Contract.

VALUATION FOR INVESTMENT COMPANY ACT PURPOSES

In calculating the Trust's net asset value as required by the Investment
Company Act, the Trust Agreement provides that (i) the U.S. Treasury securities
held by the Trust will be valued at the mean between the last current bid and
asked prices or, if quotations are not available, as determined in good faith by
the Trustees, (ii) short-term investments having a maturity of 60 days or less
will be valued at cost with accrued interest or discount earned included in
interest receivable and (iii) the Contract will be valued on the basis of the
bid price received by the Trust for the Contract, or any portion of the Contract
covering not less than 1,000 shares, from an independent broker-dealer firm
unaffiliated with the Trust to be named by the Trustees who is in the business
of making bids on financial instruments similar to the Contract and with
comparable terms, or if such a bid quotation is not available, as determined in
good faith by the Trustees.

INVESTMENT COMPANY ACT EXEMPTION

The SEC has issued an order that exempts the Trust from the requirements of
Section 12(d)(1) of the Investment Company Act that restrict the amount of
Securities that registered investment companies could otherwise own.
Accordingly, registered investment companies may hold

11
<PAGE>

Securities in excess of the limits imposed by Sections 12(d)(1)(A)(i) and
12(d)(1)(C) of the Investment Company Act. However, any such investment company
will be required to vote its Securities in proportion to the votes of all other
holders.

USE OF PROCEEDS

The net proceeds of this offering will be used immediately upon the closing
of this offering to:

o purchase a portfolio of stripped U.S. Treasury securities with face
amounts and maturities corresponding to the quarterly distributions
payable with respect to the Securities; and

o pay the purchase price to the Seller under the Contract.

INVESTMENT OBJECTIVE AND POLICIES

This prospectus includes a Glossary that states the definitions given to
some of the capitalized terms used in this prospectus in the Contract, the Trust
Agreement and the Collateral Agreement. You should refer to the Glossary if you
wish to understand the terms used in this prospectus in detail. Some of these
definitions are summarized in the descriptions below.

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS; FUNDAMENTAL POLICIES

The Trust's investment objective is to give the holder of each Security a
quarterly cash distribution of $ and, on the Exchange Date, between
0. and 1 shares of Class A Common Stock (or cash equal to the value of some
or all of those shares). The number of shares, or amount of cash, that a holder
will receive in exchange for a single Security will vary, depending on the
average market price of the Class A Common Stock over the twenty business days
before the Exchange Date. The value of the Class A Common Stock (or cash or
Marketable Securities received in lieu of Class A Common Stock) that will be
received by a holder under the Securities may be more or less than the amount
the holder paid for the Securities.

To achieve its investment objective, the Trust will use the proceeds of the
Securities to buy and hold:

o a portfolio of stripped U.S. Treasury securities that will mature during
each quarter through February , 2002; and

o the Contract.

The Trust has adopted the following fundamental policies:

o the Trust will invest at least 70% of its total assets in the Contract;

o the Contract may not be disposed of during the term of the Trust;

o the U.S. Treasury securities held by the Trust may not be disposed of
before the earliest of their respective maturities, the occurrence of a
Reorganization Event where the consideration does not include any
Marketable Securities, a default by the Seller under the Contract, and
the termination of the Trust; and

o the Trust may not purchase any securities or instruments other than the
U.S. Treasury securities, the Contract and the Class A Common Stock or
other assets received pursuant to the Contract and, for cash management
purposes, the short-term obligations of the U.S. Government described
under "--Temporary Investments" below; issue any securities or
instruments except for the Securities; make short sales or purchases on
margin; write put or call options; borrow money; underwrite securities;
purchase or sell real estate, commodities or commodities contracts; make
loans (other than the purchase of stripped U.S. Treasury securities as
described in this prospectus); or take any action that would or could
cause the Trust not to be a "grantor trust" for purposes of the U.S.
federal income tax laws.

12
<PAGE>

The foregoing investment objective and policies are fundamental policies of
the Trust that may not be changed without the approval of a majority of the
Trust's outstanding Securities. A "majority of the Trust's outstanding
Securities" means the lesser of (i) 67% of the Securities represented at a
meeting at which more than 50% of the outstanding Securities are represented,
and (ii) more than 50% of the outstanding Securities.

Because of the foregoing limitations, the Trust's investments will be
concentrated in the cosmetics industry, which is the industry in which the
Company operates. The Trust is not permitted to purchase restricted securities.

THE COMPANY AND THE CLASS A COMMON STOCK

The Company is a pioneer in the cosmetics industry and believes it is a
leader in the industry due to the global recognition of its brand names, its
leadership in product innovation, its strong market position in key geographic
markets and the consistently high quality of its products. The Company sells
products principally through limited distribution channels to complement the
images associated with its brands. These channels, encompassing over 9,000
points of sale, consist primarily of upscale department stores, speciality
retailers, upscale perfumeries and pharmacies and, to a lesser extent,
free-standing company stores, stores on cruise ships, in-flight and duty free
shops in airports and cities. The Company believes that its strategy of pursuing
limited distribution strengthens its relationships with retailers, enables its
brands to be among the best selling product lines at the stores and heightens
the aspirational quality of its brands. With the acquisitions of jane and Aveda
in fiscal 1998, the Company has broadened its distribution to include new
channels, namely self-select outlets and salons.

The Company's fiscal year ends on June 30.

The shares of Class A Common Stock are traded on the NYSE. The following
table sets forth, for the calendar quarters indicated, the reported high and low
sales prices of the shares of Class A Common Stock on the NYSE Consolidated Tape
and the cash dividends per share of Class A Common Stock. As of February 9,
1999, there were 2,566 record holders of the Class A Common Stock, including The
Depository Trust Company, which holds shares of Class A Common Stock on behalf
of an indeterminate number of beneficial owners.

<TABLE>
<CAPTION>
CASH
DIVIDEND
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C>
FISCAL 1998
First Quarter................................................................. $50 15/16 $44 3/4 $.085
Second Quarter................................................................ 56 3/8 39 .085
Third Quarter................................................................. 69 48 1/2 .085
Fourth Quarter................................................................ 73 15/16 60 7/8 .085

FISCAL 1999
First Quarter................................................................. $70 1/4 $49 1/2 $.085
Second Quarter................................................................ 86 1/2 46 11/16 .085
Third Quarter (through February 11, 1999)..................................... 85 3/4 76 3/4 .085(1)
</TABLE>

- ------------------
(1) The third-quarter dividend with respect to the Class A Common Stock is
payable on April 6, 1999 to holders of record on March 16, 1999.

13
<PAGE>

Holders will not be entitled to any rights with respect to the Class A
Common Stock (including voting rights and rights to receive dividends or other
distributions on the Class A Common Stock) unless they actually receive shares
of Class A Common Stock in exchange for the Securities.

Please refer to the attached Company Prospectus, dated February , 1999
(pages A-1 through A- hereto), which describes the Company and the Class A
Common Stock. The Company is not affiliated with the Trust and will not receive
any of the proceeds from the sale of the Securities. The Company Prospectus
relates to an aggregate of shares of Class A Common Stock (and an
additional aggregate shares if the Underwriter exercises its
over-allotment option).

THE CONTRACT

The Trust will enter into a Contract with the Seller obligating the Seller
to deliver to the Trust on the Exchange Date a number of shares of Class A
Common Stock equal to the product of the Exchange Rate (as defined below) times
the initial number of shares of Class A Common Stock covered by the Contract.
The aggregate initial number of shares of Class A Common Stock under the
Contract will equal the aggregate number of Securities offered by this
prospectus (and will be increased if the Underwriter exercises its
over-allotment option).

The aggregate purchase price that the Trust will pay under the Contract
will be $ . The Trust will pay this purchase price on the closing date of
this offering (or, for the portion of the Contract relating to the Securities to
be sold under the Underwriter's over-allotment option, on the closing date for
the exercise of that option). This purchase price was arrived at by arm's-length
negotiation between the Trust and the Seller, taking into consideration factors
including the price, the expected dividend level and volatility of the Class A
Common Stock, current interest rates, the term of the Contract, current market
volatility generally, the collateral pledged by the Seller, the value of other
similar instruments and the costs and anticipated proceeds of the offering of
the Securities.

The Contract provides that if the Seller delivers Securities to the Trust
on or before the Exchange Date, the Seller's obligation to deliver Class A
Common Stock (or cash) will be proportionately reduced. The delivery of
Securities in partial or complete satisfaction of the Seller's obligations will
not, however, affect the amount of Class A Common Stock or cash that will be
received by the holder of each Security that remains outstanding on the Exchange
Date.

All matters relating to the administration of the Contract will be the
responsibility of either the Administrator or the Custodian.

THE EXCHANGE RATE. The "Exchange Rate" will be calculated by a formula
based on the "Average Market Price" of the Class A Common Stock on the Exchange
Date:

o If the Average Market Price is less than $ (the "Appreciation
Threshold Price") but equal to or greater than $ (the "Initial
Price"), the Exchange Rate will be the number of shares of Class A Common
Stock having a value (determined at the Average Market Price) equal to
the Initial Price.

o If the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be shares of Class A
Common Stock.

o If the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Class A Common Stock.

This formula will be adjusted if the Company takes certain steps that combine,
split or dilute the value of the Class A Common Stock. See "--The
Contract--Dilution Adjustments". The Exchange Rate will be rounded upward or
downward to the nearest 1/10,000 (or if there is not a nearest 1/10,000, to the
next lower 1/10,000). If this formula would require the Trust to deliver a
fraction of a share of Class A Common Stock to any holder, the Trust will
instead deliver cash equal to the value of that fraction of a share.

14
<PAGE>

The "Average Market Price" per share of Class A Common Stock on any date
means the average Closing Price of a share of Class A Common Stock on the 20
Trading Days immediately before but not including that date. The Average Market
Price will be calculated in a different manner if a Seller carries out a
Rollover Offering (as defined below), as described under "--Cash Settlement;
Rollover Offerings".

The "Closing Price" of the Class A Common Stock (or any other common equity
security) on any date means the closing sale price (or, if no closing sale price
is reported, the last reported sale price) of that security as reported on the
NYSE Consolidated Tape on that date or, if the security is not listed for
trading on the NYSE on that date, as reported in the composite transactions for
the principal United States national or regional securities exchange on which
the security is so listed, or if the security is not listed on a United States
national or regional securities exchange on that date, as reported by the NASDAQ
National Market or, if the security is not reported by that market on that date,
the last quoted bid price for the security in the over-the-counter market as
reported by the National Quotation Bureau or any similar organization. However,
if any event that results in an adjustment to the number of shares of Class A
Common Stock deliverable under the Contract, as described under "--The
Contract--Dilution Adjustments", occurs before the Exchange Date, the Closing
Price as determined pursuant to the foregoing will be appropriately adjusted, in
the manner described under "--The Contract--Dilution Adjustments" to reflect the
occurrence of that event.

A "Trading Day" for any common equity security means a day on which the
security (A) is not suspended from trading on any United States national or
regional securities exchange or association or over-the-counter market at the
close of business and (B) has traded at least once on the United States national
or regional securities exchange or association or over-the-counter market that
is the primary market for the trading of that security.

For illustrative purposes only, the following chart shows the number of
shares of Class A Common Stock that a holder would receive for each Security at
various Average Market Prices. The chart assumes that there would be no
adjustments to the number of shares of Class A Common Stock deliverable under
the Contract by reason of the occurrence of any of the events described under
"-The Contract-Dilution Adjustments". There can be no assurance that the Average
Market Price on the Exchange Date will be within the range set forth below.
Given the Initial Price of $ per Security and the Appreciation Threshold
Price of $ , a holder would receive in connection with the exchange of
Securities on the Exchange Date the following number of shares of Class A Common
Stock:

<TABLE>
<CAPTION>
NUMBER OF SHARES
AVERAGE MARKET PRICE OF CLASS A COMMON STOCK
OF CLASS A COMMON STOCK PER SECURITY
------------------------ -----------------------

EXTENSION AND ACCELERATION OF THE EXCHANGE DATE AT THE OPTION OF THE
SELLER. The Seller has the right to extend the Exchange Date under the Contract
to May , 2002. If the Seller extends the Exchange Date, it will not be
required to deliver the shares of Class A Common Stock or cash until May ,
2002. However, once the Seller extends the Exchange Date, it can then accelerate
the delivery of shares or cash to any date between February , 2002 and May ,
2002. If the Seller extends or accelerates the Exchange Date, the holders of the
Securities will not receive shares or cash in exchange for the Securities until
the extended or accelerated Exchange Date, and the number of shares and amount
of cash to be delivered would be calculated as of the extended or

15
<PAGE>

accelerated Exchange Date. However, the holders of the Securities would receive
an additional, partial cash distribution on the Securities on the extended or
accelerated Exchange Date.

The amount of the additional, partial distribution that would be paid on
the Securities would be pro-rated to reflect the number of days by which the
Exchange Date is extended beyond February , 2002. For example, if the Exchange
Date is extended to May , 2002 and then accelerated to April , 2002 (i.e.,
two-thirds of the time between February , 2002 and May , 2002), the
additional distribution would be equal to two-thirds of the regular quarterly
distribution.

CASH SETTLEMENT; ROLLOVER OFFERINGS. The Seller may elect to deliver cash,
instead of shares of Class A Common Stock, on the Exchange Date (whether or not
extended or accelerated) under the Contract. If the Seller chooses to deliver
cash instead of shares of Class A Common Stock, the amount of that cash will be
equal to the value, based on the Average Market Price at the Exchange Date, of
the number of shares that the Seller would otherwise be required to deliver on
the Exchange Date.

The Seller also may choose to deliver cash, instead of shares of Class A
Common Stock, in connection with a "Rollover Offering". A "Rollover Offering" is
a reoffering or refinancing of Securities effected by the Seller not earlier
than February , 2002, by means of a completed public offering or offerings, or
another similar offering (which may include one or more exchange offers), by or
on behalf of the Seller. If the Seller chooses to carry out a Rollover Offering,
the "Average Market Price" will be the Closing Price per share of Class A Common
Stock on the Trading Day immediately before the date that the Rollover Offering
is priced (the "Pricing Date") or, if the Rollover Offering is priced after
4:00 P.M., New York City time, on the Pricing Date, the Closing Price per share
on the Pricing Date.

If the Seller carries out a Rollover Offering that is consummated on or
before the Exchange Date, the cash payable by the Seller will be delivered to
the Trust within five Trading Days of the Exchange Date (which may be extended
and accelerated as described above), instead of on the Exchange Date itself.
Accordingly, the holders of the Securities may not receive a portion of the cash
deliverable in exchange for the Securities until the fifth Trading Day after the
Exchange Date.

DILUTION ADJUSTMENTS. The Exchange Rate will be adjusted if the Company
(i) pays a stock dividend or makes a distribution with respect to the Class A
Common Stock in shares of that stock, (ii) subdivides or splits its outstanding
shares of Class A Common Stock, (iii) combines its outstanding shares of Class A
Common Stock into a smaller number of shares, or (iv) issues by reclassification
of its shares of Class A Common Stock any shares of other common stock of the
Company. In any such event, the Exchange Rate will be adjusted as follows: for
each share of Class A Common Stock that would have been deliverable under a
Security upon exchange before the adjustment, the holder of that Security will
receive the number of shares of Class A Common Stock (or, in the case of a
reclassification referred to in clause (iv) above, the number of shares of other
common stock of the Company issued pursuant to that reclassification), or the
fraction of such shares, that a stockholder who held one share of Class A Common
Stock immediately before that event would be entitled solely by reason of that
event to hold immediately after that event.

In addition, if the Company issues rights or warrants to all holders of
Class A Common Stock entitling them to purchase shares of Class A Common Stock
at a price per share less than the Then-Current Market Price (as defined below)
of the Class A Common Stock (other than rights to purchase Class A Common Stock
pursuant to a plan for the reinvestment of dividends or interest), then the
Exchange Rate will be adjusted pursuant to the following formula:

A = ER x OS + AS
-------
OS + PS

16
<PAGE>

where

ER = the Exchange Rate before the adjustment;

OS = the number of shares of Class A Common Stock outstanding immediately
before the time (determined as described below) the adjustment is
effected by reason of the issuance of those rights or warrants;

AS = the number of additional shares of Class A Common Stock offered for
purchase pursuant to those rights or warrants; and

PS = the number of additional shares of Class A Common Stock that the
aggregate offering price of the total number of shares of Class A
Common Stock so offered for purchase would purchase at the
Then-Current Market Price.

To the extent that, after expiration of those rights or warrants, any of the
shares of Class A Common Stock offered by such rights or warrants are not
actually delivered, the Exchange Rate will be further adjusted to equal the
Exchange Rate that would have been in effect if the foregoing adjustment had
been made upon the basis of delivery of only the number of shares of Class A
Common Stock actually delivered.

The "Then-Current Market Price" of the Class A Common Stock, for the
purpose of making any dilution adjustment, means the average Closing Price per
share of Class A Common Stock for the five Trading Days immediately before the
time that adjustment is effected (or, in the case of an adjustment effected at
the opening of business on the business day after a record date, as described
below, immediately before the earlier of the time the adjustment is effected and
the related "ex-date" on which the shares of Class A Common Stock first trade
regular way on their principal market without the right to receive the relevant
dividend, distribution or issuance).

In addition, if the Company pays a dividend or makes a distribution to all
holders of Class A Common Stock of evidences of its indebtedness or other
non-cash assets (excluding any stock dividends or distributions in shares of
Class A Common Stock described above and any Spin-Off Distributions (as defined
below)) or issues to all holders of Class A Common Stock rights or warrants to
subscribe for or purchase any of its securities (other than rights or warrants
referred to in the second paragraph of this subsection), then the Exchange Rate
will be adjusted pursuant to the following formula:

A = ER x T
-----
T - V

where

ER = the Exchange Rate before the adjustment;

T = the Then-Current Market Price per share of Class A Common Stock; and

V = the fair market value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator) as of the time the adjustment is effected of the portion
of those evidences of indebtedness, non-cash assets or rights or
warrants applicable to one share of Class A Common Stock.

In addition, if the Company distributes cash (other than any Permitted
Dividend (as defined below), any cash distributed in consideration of fractional
shares of Class A Common Stock and any cash distributed in a Reorganization
Event (as defined below)), by dividend or otherwise, to all holders of Class A
Common Stock or makes an Excess Purchase Payment (as defined below), then the
Exchange Rate will be adjusted pursuant to the following formula:

A = ER x T
-----
T - D

17
<PAGE>

where

ER = the Exchange Rate before the adjustment;

T = the Then-Current Market Price per share of Class A Common Stock on the
record date for that distribution; and

D = the amount of that distribution applicable to one share of Class A
Common Stock that would not be a Permitted Dividend or, in the case of
an Excess Purchase Payment, the aggregate amount of that Excess
Purchase Payment divided by the number of outstanding shares of
Class A Common Stock on that record date.

For purposes of these adjustments,

(a) the term "Permitted Dividend" means any quarterly cash dividend on the
Class A Common Stock, other than a quarterly cash dividend that exceeds
the immediately preceding quarterly cash dividend, and then only to the
extent that the per share amount of that dividend results in an
annualized dividend yield on the Class A Common Stock above 12.5%; and

(b) the term "Excess Purchase Payment" means the excess, if any, of (i) the
cash and the value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator) of all other consideration paid by the Company with
respect to one share of Class A Common Stock acquired in a tender offer
or exchange offer by the Company, over (ii) the Then-Current Market
Price per share of Class A Common Stock.

If any adjustment in the Exchange Rate must be made pursuant to the
formulas described above, corresponding adjustments will be made to the Initial
Price and the Appreciation Threshold Price.

Dilution adjustments will be effected: (i) in the case of any dividend,
distribution or issuance described above, as of the opening of business on the
business day after the record date for determination of holders of Class A
Common Stock entitled to receive that dividend, distribution or issuance or, if
the announcement of any such dividend, distribution or issuance is after that
record date, at the time that dividend, distribution or issuance is announced by
the Company; (ii) in the case of any subdivision, split, combination or
reclassification described above, on the effective date of that transaction;
(iii) in the case of any Excess Purchase Payment for which the Company
announces, at or before the time it commences the relevant share repurchase, the
repurchase price for those shares to be repurchased, on the date of that
announcement; and (iv) in the case of any other Excess Purchase Payment, on the
date that the holders of Class A Common Stock become entitled to payment with
respect to that Excess Purchase Payment. There will be no adjustment under the
Contract for any dividends, distributions, issuances or repurchases that may be
declared or announced after the Exchange Date.

If an adjustment is made because the Company announces or declares a record
date for a dividend, distribution, issuance or repurchase, and the dividend,
distribution, issuance or repurchase does not actually occur, then the Exchange
Rate will be further adjusted to equal the Exchange Rate that would have been in
effect if the adjustment for that dividend, distribution, issuance or repurchase
had not been made. If an adjustment is made because the Company announces a
share repurchase, and the Company reduces the repurchase price or repurchases
fewer shares than announced, then upon completion of that share repurchase, the
Exchange Rate will be further adjusted to equal the Exchange Rate that would
have been in effect if the adjustment for that repurchase had been based on the
actual price and amount repurchased. All dilution adjustments will be rounded
upward or downward to the nearest 1/10,000 (or if there is not a nearest
1/10,000, to the next lower 1/10,000). No adjustment in the Exchange Rate will
be required unless that adjustment would require an increase or decrease of at
least one percent in the Exchange Rate.

18
<PAGE>

However, any adjustments that are not required to be made because of this limit
will be carried forward and taken into account in any subsequent adjustment.

REORGANIZATION EVENTS. If a Reorganization Event occurs, the Seller will
be required to deliver on the Exchange Date, in lieu of each share of Class A
Common Stock subject to the Contract, cash in an amount equal to:

o If the Transaction Value (as defined below) is less than the Appreciation
Threshold Price but equal to or greater than the Initial Price, the
Initial Price.

o If the Transaction Value is greater than or equal to the Appreciation
Threshold Price, 0. multiplied by the Transaction Value.

o If the Transaction Value is less than the Initial Price, the Transaction
Value.

This amount of cash is referred to as the "Basic Reorganization Event Amount".

If the consideration received by the holders of Class A Common Stock in the
Reorganization Event (the "Merger Consideration") includes Marketable
Securities, the Seller may choose to deliver those Marketable Securities on the
Exchange Date in lieu of delivering the cash value of those Marketable
Securities as described above. If the Seller chooses to deliver Marketable
Securities on the Exchange Date, the holders of the Securities will be
responsible for paying all brokerage and other transaction costs when they
resell those securities.

Notwithstanding the foregoing, if at least 30% of the Merger Consideration
consists of cash or cash equivalents (a "Cash Merger"), then delivery of the
Merger Consideration, other than any consideration consisting of Marketable
Securities, will be accelerated as follows. The Seller will be required:

o within five business days after the Seller receives the Merger
Consideration, to deliver to the Trust the portion of the Merger
Consideration, other than Marketable Securities, calculated as described
below (the "Accelerated Portion") (and the Trust will promptly distribute
this property to the holders of the Securities); and

o on the Exchange Date, to deliver to the Trust the number of Marketable
Securities calculated as described below.

Instead of delivering any non-cash consideration after a merger, the Seller
may choose to deliver cash equal to the Value of those assets. Similarly,
instead of delivering Marketable Securities on the Exchange Date, the Seller may
choose to deliver cash equal to the value, based on the Average Market Price at
the Exchange Date, of the number of Marketable Securities that the Seller would
otherwise be required to deliver on the Exchange Date.

The Accelerated Portion per Security will be the portion of the Merger
Consideration, other than Marketable Securities, that has a Value (as defined
below) equal to the amount determined pursuant to the following formula:

AP = BREA x OC
--
TV

where

AP = the Value of the Accelerated Portion;

BREA = the Basic Reorganization Event Amount;

OC = the Value of the portion of the Merger Consideration received in
exchange for a single share of Common Stock that consists of assets
other than Marketable Securities; and

19
<PAGE>

TV = the Transaction Value.

The number of Marketable Securities that the Trust will be required to
deliver on the Exchange Date in exchange for each Security will be determined by
applying the Exchange Rate, adjusted as described below, to the Average Market
Price of the Marketable Securities on the Exchange Date. To calculate the
Exchange Rate, the Initial Price will be adjusted pursuant to the following
formula:

A = IP x MS
--
TV

where

IP = the Initial Price before the adjustment;

MS = the Value of a share of the Marketable Securities; and

TV = the Transaction Value.

Similarly, the Appreciation Threshold Price will be adjusted pursuant to
the following formula:

A = ATP x MS
--
TV

where

ATP = the Appreciation Threshold Price before the adjustment;

MS = the Value of a share of the Marketable Securities; and

TV = the Transaction Value.

The Exchange Rate will be adjusted pursuant to the following formula:

A = ER x SC
--
MS

where

ER = the Exchange Rate (computed on the basis of the adjusted Initial Price
and Appreciation Threshold Price and the Average Market Price of the
Marketable Securities);

SC = the aggregate Value of the Marketable Securities included in the
Merger Consideration received in exchange for a single share of
Class A Common Stock; and

MS = the Value of a share of the Marketable Securities.

For purposes of the foregoing formulas, "Value" means (i) in respect of
cash, the amount of such cash; (ii) in respect of any property other than cash
or Marketable Securities, an amount equal to the market value on the date the
Reorganization Event is consummated (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator); and (iii) in respect of any share of Marketable Securities, an
amount equal to the average Closing Price per share of those Marketable
Securities for the 20 Trading Days immediately before the date the
Reorganization Event is consummated.

A "Reorganization Event" is (A) any consolidation or merger of the Company,
or any surviving entity or subsequent surviving entity of the Company (a
"Company Successor"), with or into another entity (other than a merger or
consolidation in which the Company is the continuing corporation and in which
the Class A Common Stock outstanding immediately before the merger or
consolidation is not exchanged for cash, securities or other property of the
Company or another corporation), (B) any

20
<PAGE>

sale, transfer, lease or conveyance to another corporation of the property of
the Company or any Company Successor as an entirety or substantially as an
entirety, (C) any statutory exchange of securities of the Company or any Company
Successor with another corporation (other than in connection with a merger or
acquisition) or (D) any liquidation, dissolution or winding up of the Company or
any Company Successor.

"Transaction Value" means the sum of (i) for any cash received in the
Reorganization Event, the amount of such cash received per share of Class A
Common Stock, (ii) for any property other than cash or Marketable Securities
received in the Reorganization Event, an amount equal to the market value on the
date the Reorganization Event is consummated of the property received per share
of Class A Common Stock (as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Administrator) and
(iii) for any Marketable Securities received in the Reorganization Event, an
amount equal to the average Closing Price per share of those Marketable
Securities for the 20 Trading Days immediately before the Exchange Date (or, in
the case of a Cash Merger, for the 20 Trading Days immediately before the date
the Reorganization Event is consummated) multiplied by the number of those
Marketable Securities received for each share of Class A Common Stock.

The number of shares of Marketable Securities included in the calculation
of Transaction Value for purposes of the preceding clause (iii) will be adjusted
if a dilution event of the type described under "--Dilution Adjustments" occurs
with respect to the issuer of the Marketable Securities between the time of the
Reorganization Event and the Exchange Date.

"Marketable Securities" means any common equity securities (whether voting
or non-voting) listed on a U.S. national or regional securities exchange or
reported by the NASDAQ National Market.

No dilution adjustments will be made for events, other than those described
above, such as offerings of Class A Common Stock (other than through the
issuance of rights or warrants described above) for cash or in connection with
acquisitions.

SPIN-OFF DISTRIBUTIONS. If the Company makes a "Spin-Off Distribution"
during the term of the Contract, then the Seller will be required to deliver on
the Exchange Date, together with each share of Class A Common Stock delivered
under the Contract, the number of Marketable Securities distributed in respect
of a single share of Class A Common Stock in that Spin-Off Distribution. After
the Company makes such a distribution, the "Closing Price" of Class A Common
Stock, for purposes of calculating the Exchange Rate and for all other purposes
under the Contract, will be determined by reference to (A) the Closing Price per
share of the Class A Common Stock and (B) the product of (x) the Closing Price
per share of the spun-off Marketable Securities and (y) the number of shares of
such Marketable Securities distributed per share of Class A Common Stock in the
Spin-Off Distribution. The number of shares of Marketable Securities that the
Seller is required to deliver, and the formula for determining the "Closing
Price" in the preceding sentence, will be adjusted if any event that would, if
it had occurred with respect to the Class A Common Stock or the Company, have
required an adjustment pursuant to the provisions described under "--Dilution
Adjustments" occurs with respect to those Marketable Securities or their issuer
between the time of the Spin-Off Distribution and the Exchange Date.

A "Spin-Off Distribution" means a distribution by the Company to holders of
Class A Common Stock of Marketable Securities issued by an issuer other than the
Company.

COLLATERAL ARRANGEMENTS; ACCELERATION UPON DEFAULT BY THE SELLER. The
Seller's obligations under the Contract initially will be secured by a security
interest in the maximum number of shares of Class A Common Stock deliverable
under the Contract (adjusted in accordance with the dilution adjustment
provisions of the Contract, described above), pursuant to the Collateral
Agreement.

21
<PAGE>

If a Reorganization Event occurs, the Collateral Agreement will require the
Seller to pledge as alternative collateral all Marketable Securities deliverable
in such event in exchange for the maximum number of shares of Class A Common
Stock deliverable under the Contract at the time of the Reorganization Event,
plus cash in an amount equal to 100% of the Seller's Cash Delivery Obligations
(as defined below). Instead of delivering cash, the Seller may choose to deliver
U.S. Government obligations with an aggregate market value, when pledged and at
daily mark-to-market valuations after that time, of not less than 105% of those
Cash Delivery Obligations. The Collateral Agent will be required, under the
Collateral Agreements, to invest any such cash in U.S. Treasury securities
maturing on or before February , 2002. The Seller's "Cash Delivery
Obligations" will be the Transaction Value of any Merger Consideration, other
than Marketable Securities, in respect of the maximum number of shares covered
by the Contract at the time of the Reorganization Event. The number of shares of
Marketable Securities required to be pledged will be adjusted if any event
requiring a dilution adjustment under the Contract occurs. If the Reorganization
Event is a Cash Merger, the collateral in respect of the Seller's Cash Delivery
Obligations will be released when the Seller delivers the Accelerated Portion.

If the Company makes a Spin-Off Distribution, the Collateral Agreement will
require the Seller to pledge as additional collateral all Marketable Securities
deliverable in such distribution in respect of the maximum number of shares of
Class A Common Stock deliverable under the Contract at the time of such Spin-Off
Distribution. The number of these Marketable Securities required to be pledged
will also be adjusted if any event requiring a dilution adjustment under the
Contract occurs.

Unless the Seller is in default in its obligations under the Collateral
Agreement, the Seller will be permitted to substitute for the pledged shares of
Class A Common Stock collateral consisting of short-term, direct obligations of
the U.S. Government. The Seller may substitute short-term, direct U.S.
Government obligations in substitution for the pledge shares of Marketable
Securities at any time. Any U.S. Government obligations pledged as substitute
collateral for the Class A Common Stock, or for Marketable Securities received
in a Reorganization Event or Spin-Off Distribution, will be required to have an
aggregate market value at the time of delivery and at daily mark-to-market
valuations after that time of not less than 150% (or, from and after any
Insufficiency Determination that is not cured by the close of business on the
next business day, as described below, 200%) of the product of the market price
of the Class A Common Stock or Marketable Securities at the time of each
valuation times the number of shares of Class A Common Stock or Marketable
Securities for which those obligations are being substituted.

The Collateral Agent will promptly pay over to the Seller any dividends,
interest, principal or other payments received by the Collateral Agent on any
collateral pledged by the Seller, including any substitute collateral, unless
the Seller is in default in its obligations under the Collateral Agreement, or
unless the payment of that amount to the Seller would cause the collateral to
become insufficient under the Collateral Agreement. The Seller will have the
right to vote any pledged shares of Marketable Securities for so long as those
shares are owned by it and pledged under the Collateral Agreement, unless an
event of default occurs under the Contract or Collateral Agreement.

If the Collateral Agent determines (an "Insufficiency Determination") that
the collateral pledged by the Seller fails to meet the foregoing requirements at
any valuation, and that failure is not cured by the close of business on the
business day after that determination, then, unless a Collateral Event of
Default (as defined below) under the Collateral Agreement has occurred and is
continuing, the Collateral Agent will commence (i) sales of the collateral
consisting of U.S. Government obligations and (ii) purchases, using the proceeds
of those sales, of shares of Class A Common Stock or Marketable Securities in an
amount sufficient to cause the collateral to meet the requirements under the
Collateral Agreement. The Collateral Agent will discontinue those sales and
purchases if a Collateral Event of Default occurs under the Collateral
Agreement.

A "Collateral Event of Default" under the Collateral Agreement means, at
any time, (A) if no U.S. Government obligations are pledged as substitute
collateral at that time, failure of the collateral

22
<PAGE>

to include at least the maximum number of shares of Class A Common Stock covered
by the Contract at that time (or, if a Reorganization Event or Spin-Off
Distribution has occurred at or before that time, failure of the collateral to
include the maximum number of shares of any Marketable Securities required to be
pledged as described above); (B) if any U.S. Government obligations are pledged
as substitute collateral for shares of Class A Common Stock (or shares of
Marketable Securities) at that time, failure of those U.S. Government
obligations to have a market value at that time of at least 105% of the market
price per share of Class A Common Stock (or Shares of Marketable Securities)
times the difference between (x) the maximum number of shares of Class A Common
Stock (or shares of Marketable Securities) deliverable under the Contract at
that time and (y) the number of shares of Class A Common Stock (or shares of
Marketable Securities) pledged as collateral at that time; and (C) at any time
after a Reorganization Event in which consideration other than Marketable
Securities was delivered, failure of any U.S. Government obligations pledged as
collateral for Cash Delivery Obligations to have a market value at that time of
at least 105% of those Cash Delivery Obligations, if that failure is not cured
within one business day after notice of that failure is delivered to the Seller.

If a Collateral Event of Default occurs under the Collateral Agreement, or
the Seller suffers a bankruptcy or insolvency, the Seller's obligations under
the Contract will automatically be accelerated. In that event, the Seller will
become obligated to deliver the number of shares of Class A Common Stock (or,
after a Reorganization Event or Spin-Off Distribution, the Marketable Securities
or cash or a combination of Marketable Securities and cash deliverable instead
of or in addition to those shares of Class A Common Stock) then deliverable
under the Contract, or any U.S. Government obligations then pledged as
collateral for the Seller's obligations.

If the Contract is accelerated, (i) the Collateral Agent will distribute to
the Trust, for distribution to the holders of the Securities, the shares of
Class A Common Stock and Marketable Securities then pledged by the Seller and/or
cash generated from the sale of U.S. Government obligations then pledged by the
Seller and (ii) the Custodian will sell the stripped U.S. Treasury securities
acquired by the Trust at the closing of this offering and then held by the
Trust, and distribute the proceeds pro rata to the holders. If, by the Exchange
Date, any substitute collateral has not been replaced by Class A Common Stock
(or, after a Reorganization Event or Spin-Off Distribution, cash or Marketable
Securities, as applicable) sufficient to meet the Seller's obligations under the
Contract, the Collateral Agent will distribute to the Trust for distribution pro
rata to the holders the market value of the Class A Common Stock and Marketable
Securities required to be delivered under the Contract, in the form of any
shares of Class A Common Stock or Marketable Securities then pledged by the
Seller plus cash generated from the sale of U.S. Government obligations then
pledged by the Seller (or, after a Reorganization Event, the market value of the
alternative consideration required to be delivered under the Contract, in the
form of any Marketable Securities then pledged, plus any cash then pledged, plus
cash generated from the sale of U.S. Government obligations then pledged).

CALCULATION OF MARKET PRICES. In calculating any market price, including
any Average Market Price, Then-Current Market Price, Value or Transaction Value:

o If no Closing Price for the Class A Common Stock is determined for one or
more (but not all) of the Trading Days during the relevant period, those
Trading Days will be disregarded in the calculation of the market price.
No additional Trading Days will be added to the calculation period.

o If no Closing Price for the Class A Common Stock is determined for any of
the Trading Days during the relevant period, the market price will be the
most recently available Closing Price for the Class A Common Stock before
that period began.

THE SELLER. The Seller is The Estee Lauder 1994 Trust. Please see the
caption "TRACES Stockholder" in the Company Prospectus for information about the
Seller.

23
<PAGE>

THE U.S. TREASURY SECURITIES

The Trust will purchase and hold a series of zero-coupon ("stripped") U.S.
Treasury securities with face amounts and maturities corresponding to the
distributions payable with respect to the Securities and the payment dates under
the Securities. See "Description of Securities--Distributions". Up to 30% of the
Trust's total assets may be invested in these U.S. Treasury securities. If the
Contract is accelerated, then the U.S. Treasury securities then held in the
Trust will be sold by the Administrator and the proceeds of that sale will be
distributed pro rata to the holders, together with the amounts distributed upon
acceleration. See "--Collateral Arrangements; Acceleration Upon Default By the
Seller" and "The Trust--Trust Termination".

If the Seller extends the Exchange Date to May , 2002, it will be
required to deliver additional U.S. Treasury securities to the Trust to pay the
additional, partial distribution described above under
"--The Contract-Extension and Acceleration of the Exchange Date at the Option of
the Seller". If the Seller later accelerates the Exchange Date, the Seller will
be required to repurchase those additional U.S. Treasury securities from the
Trust on or before the Exchange Date, at a price equal to the total amount of
unpaid distributions on the Securities through the Exchange Date.

TEMPORARY INVESTMENTS

For cash management purposes, the Trust may invest the proceeds of the U.S.
Treasury securities and any other cash held by the Trust in short-term
obligations of the U.S. Government maturing no later than the business day
before the next distribution date. Under the Paying Agent Agreement, the Paying
Agent is responsible for investing, as instructed by the Trustees, all such cash
that is not paid to cover Trust expenses in short-term U.S. Treasury securities
maturing on or shortly before the next quarterly distribution date. Not more
than 5% of the Trust's total assets will be invested in those short-term
obligations or held in cash at any one time.

DESCRIPTION OF SECURITIES

Each Security represents an equal proportional interest in the Trust, and a
total of Securities will be issued (assuming that the Underwriter does
not exercise its over-allotment option). The Securities have no preemptive,
redemption or conversion rights. The Securities are fully paid and nonassessable
by the Trust. The only securities that the Trust is authorized to issue are the
Securities offered hereby and those sold to the initial holder referred to
below. See "Underwriting".

DISTRIBUTIONS

AMOUNT AND TIMING. The Trust intends to distribute to holders on a
quarterly basis an amount equal to $ per Security. This amount equals the
pro rata portion of the fixed quarterly cash distributions from the proceeds of
the maturing U.S. Treasury securities held by the Trust. The first distribution
will be made on March , 1999 to holders of record as of the preceding business
day. Distributions will then be made on March , June , September and
December of each year to holders of record as of the preceding business day.
Part of each distribution will be treated as a tax-free return of the holder's
investment. See "--Tax Treatment of Distributions" and "Certain Federal Income
Tax Considerations--Recognition of Original Issue Discount on the U.S. Treasury
Securities".

Upon termination of the Trust, as described under the caption "The
Trust--Trust Termination", each holder will receive any remaining net assets of
the Trust.

Quarterly distributions on the Securities will consist solely of the cash
received from the U.S. Treasury securities. The Trust will not be entitled to
any dividends that may be declared on the Class A Common Stock. See "Risk
Factors--Shareholder Rights".

24
<PAGE>

The Trust does not permit the reinvestment of distributions.

TAX TREATMENT OF DISTRIBUTIONS. The following table sets forth information
regarding the distributions to be received on the stripped U.S. Treasury
securities described under "Investment Objective and Policies" above (assuming
that the Underwriter does not exercise its over-allotment option), the portion
of each year's distributions that will constitute a return of capital for U.S.
federal income tax purposes and the amount of original issue discount accruing
(assuming a yield-to-maturity accrual election in respect of any short-term U.S.
Treasury securities) on those U.S. Treasury securities with respect to a holder
that acquires its Securities at the issue price from the Underwriter pursuant to
the original offering. See "Certain Federal Income Tax Considerations--
Recognition of Original Issue Discount on the U.S. Treasury Securities".

<TABLE>
<CAPTION>
ANNUAL GROSS
ANNUAL GROSS DISTRIBUTIONS FROM
DISTRIBUTIONS FROM U.S. TREASURY ANNUAL RETURN OF ANNUAL INCLUSION OF
U.S. TREASURY SECURITIES CAPITAL PER ORIGINAL ISSUE DISCOUNT
YEAR SECURITIES PER SECURITY SECURITY IN INCOME PER SECURITY
- ---------------------------- ------------------ ------------------ ---------------- -----------------------
<S> <C> <C> <C> <C>
1999........................
2000........................
2001........................
2002........................
</TABLE>

VOTING

Holders are entitled to a full vote for each Security held on all matters
to be voted on by holders and are not able to cumulate their votes in the
election of Trustees. The Trustees have been selected initially by Goldman
Sachs, as the Trust's sponsor and the initial holder of the Trust's Securities.
The Trust intends to hold annual meetings as required by the rules of the NYSE.
The Trustees may call special meetings of holders for action by holder vote as
may be required by either the Investment Company Act or the Trust Agreement. The
holders have the right, upon the declaration in writing or vote of more than
two-thirds of the outstanding Securities, to remove a Trustee. The Trustees will
call a meeting of holders to vote on the removal of a Trustee upon the written
request of the holders of record of 10% of the Securities or to vote on other
matters upon the written request of the holders of record of 51% of the
Securities (unless substantially the same matter was voted on during the
previous 12 months). The Trustees will establish, and notify the holders in
writing of, the record date for each such meeting. The record date must be not
less than 10 nor more than 50 days before the meeting date. Holders at the close
of business on the record date will be entitled to vote at the meeting. The
Trust will also assist in communications with other holders as required by the
Investment Company Act.

BOOK-ENTRY-ONLY ISSUANCE

The Depository Trust Company ("DTC") will act as securities depository for
the Securities. The information in this section concerning DTC and DTC's
book-entry system is based upon information obtained from DTC. The Securities
will be issued only as fully-registered securities registered in the name of
Cede & Co. (as nominee for DTC). One or more fully-registered global Security
certificates will be issued, representing in the aggregate the total number of
Securities, and will be deposited with DTC or ChaseMellon Shareholder Services,
L.L.C., as DTC's custodian.

DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts,

25
<PAGE>

eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
Access to the DTC system is also available to others such as securities brokers
and dealers, banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants").

Purchases of Securities within the DTC system must be made by or through a
Direct Participant, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of a Security
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Securities. Transfers of ownership
interests in Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Securities,
except upon a resignation of DTC.

DTC has no knowledge of the actual Beneficial Owners of the Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts those Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.

Payments on the Securities will be made to DTC. DTC's practice is to credit
Direct Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on that payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of that Participant and not
of DTC or the Trust, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of dividends to DTC is the
responsibility of the Trust, disbursement of those payments to Direct
Participants is the responsibility of DTC, and disbursement of those payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.

Except as provided herein, a Beneficial Owner of an interest in a global
Security will not be entitled to receive physical delivery of Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Securities.

DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Trust.
Under those circumstances, if a successor securities depository is not obtained,
certificates representing the Securities will be printed and delivered in
accordance with DTC's instructions.

26
<PAGE>

RISK FACTORS

INTERNAL MANAGEMENT; NO PORTFOLIO MANAGEMENT AND NO CHANGE IN ASSETS

The Trust will not be managed like a typical closed-end investment company.
The Trust will be internally managed by its Trustees and will not have any
separate investment adviser.

The Trust will not dispose of the Contract even if the price of the Class A
Common Stock falls significantly or the financial condition of the Company
suffers (or if, after a Reorganization Event or Spin-Off Distribution,
comparable developments occur affecting any Marketable Securities or the issuer
of those Marketable Securities).

Similarly, the Trust will not dispose of the U.S. Treasury securities held
by the Trust before they mature or the Trust terminates, whichever comes first,
even if their value falls significantly.

LIMITED OPPORTUNITY FOR INCREASE IN VALUE; RISK OF DECREASE IN VALUE OF CLASS A
COMMON STOCK

Because the Contract allows the Seller to deliver less than a full share of
Class A Common Stock for each outstanding Security if the Average Market Price
is higher than the Initial Price, the Securities have more limited appreciation
potential than the Class A Common Stock. If the price of Class A Common Stock
rises, a holder of a Security will not receive all of this increase in value.
Holders will not receive any of this increase if the average market price of the
Class A Common Stock at the Exchange Date is below $ . Holders will
receive only % of any increase in the value of the Class A Common Stock
over $ . On the other hand, holders of Securities will bear all of any
decrease in the value of the Class A Common Stock. The value of the Class A
Common Stock to be received by holders on the Exchange Date (and any cash
received in lieu of those shares) may be less than the amount paid for the
Securities. Furthermore, the Securities may trade below the value of the Class A
Common Stock if the Class A Common Stock appreciates in value.

FIXED RATE OF DISTRIBUTIONS

The distributions on the Securities will be at a fixed rate for the entire
term of the Trust. If the dividend on the Class A Common Stock is raised,
distributions on the Securities may be lower than the dividends paid on the
Class A Common Stock.

DILUTION ADJUSTMENTS

The number of shares of Class A Common Stock that holders are entitled to
receive at the termination of the Trust will be adjusted for some events, like
stock splits and combinations, stock dividends and certain other actions of the
Company that modify its capital structure. See "Investment Objective and
Policies--The Contract--Dilution Adjustments". The number of shares to be
received by holders may not be adjusted for other events, such as offerings of
Class A Common Stock for cash or in connection with acquisitions, that may
adversely affect the price of the Class A Common Stock. These other events may
adversely affect the trading price of the Securities. There can be no assurance
that the Company will not take any of the foregoing actions, or that it will not
make offerings of Class A Common Stock, or that major stockholders will not sell
any Class A Common Stock, in the future, or as to the amount of any such
offerings or sales.

NON-DIVERSIFIED STATUS

The Trust is considered non-diversified under the Investment Company Act,
which means that the Trust is not limited in the proportion of its assets that
may be invested in the obligations of a single issuer. The only assets held by
the Trust will be the U.S. Treasury securities and the Contract, and potentially
a small amount of other short-term investments. As a result, an investment in
the Trust will be riskier than an investment in an investment company with
diversified investments.

27
<PAGE>

TRADING VALUE AFFECTED BY CLASS A COMMON STOCK PRICE AND OTHER FACTORS

The Trust is a newly organized closed-end investment company with no
previous operating history and the Securities are innovative securities. It is
not possible to predict how the Securities will trade in the secondary market.

The trading prices of the Securities in the secondary market will be
directly affected by the trading prices of the Class A Common Stock in the
secondary market. The trading prices of the Class A Common Stock may fluctuate,
due to changes in the Company's financial condition, results of operations or
prospects, or because of complex and interrelated political, economic, financial
and other factors that can affect the capital markets generally, the stock
exchanges or quotation systems on which the Class A Common Stock is traded and
the market segment of which the Company is a part. The trading price of the
Securities may also fluctuate due to, among other things, fluctuations in
interest rates and other factors that are difficult to predict and beyond the
Trust's control. The Trust believes, however, that because of the yield on the
Securities and the formula for determining the number of shares of Class A
Common Stock to be delivered on the Exchange Date, the Securities will tend to
trade at a premium to the market value of the Class A Common Stock if the Class
A Common Stock price falls and at a discount to the market value of the Class A
Common Stock if the Class A Common Stock price rises. There can, however, be no
assurance that the Securities will trade at a premium to the market value of the
Class A Common Stock.

Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic of investments in a closed-end
investment company is a risk separate and distinct from the risk that the
Trust's net asset value will fall. The Trust cannot predict whether its shares
will trade at, below or above net asset value. The risk of purchasing
investments in a closed-end investment company that might trade at a discount
may be greater for investors who wish to sell their investments soon after
completion of an initial public offering because for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance.

LIMITED TRADING MARKET FOR SECURITIES

Goldman Sachs currently intends, but is not obligated, to make a market in
the Securities. There can be no assurance that a secondary market will develop
or, if a secondary market does develop, that it will provide the holders with
liquidity of investment or that it will continue for the life of the Securities.
Goldman Sachs may stop making a market in the Securities at any time without
notice. The Trust will apply to list the Securities on the NYSE. If that
application is accepted, there can be no assurance that the Securities will not
later be delisted or that trading in the Securities on the NYSE will not be
suspended. If the Securities are delisted or suspended from trading on that
exchange, the Trust will apply for listing of the Securities on another national
or regional securities exchange or for quotation on another trading market. If
the Securities are not listed or traded on any securities exchange or trading
market, or if trading of the Securities is suspended, pricing information for
the Securities may be more difficult to obtain, and the price and liquidity of
the Securities may be adversely affected.

SHAREHOLDER RIGHTS

Holders of the Securities will not be entitled to any rights with respect
to the Class A Common Stock unless and until they actually receive Class A
Common Stock in exchange for the Securities. For example, holders of Securities
will not be entitled to vote the shares of Class A Common Stock or receive
dividends.

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<PAGE>

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion of the principal United States federal income tax
consequences of ownership of Securities represents the opinion of Sullivan &
Cromwell, counsel to the Trust. It deals only with Securities held as capital
assets by a holder who acquires its Securities at the issue price from the
Underwriter pursuant to the original offering, and not with special classes of
holders, such as dealers in securities or currencies, traders that elect to mark
to market, banks, life insurance companies, persons who are not United States
Holders (as defined below), persons that hold Securities that are part of a
hedging transaction, straddle or conversion transaction, or persons whose
functional currency is not the U.S. dollar. The summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), its legislative history, existing
and proposed regulations under the Code, published rulings and court decisions,
all as currently in effect and all subject to change or different interpretation
at any time, perhaps with retroactive effect. It should be noted that the Trust
has not sought a ruling from the Internal Revenue Service with respect to the
federal income tax consequences of ownership of Securities, and the Internal
Revenue Service is not required to agree with the opinion of Sullivan &
Cromwell.

PROSPECTIVE PURCHASERS OF SECURITIES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE CONSEQUENCES, IN THEIR PARTICULAR CIRCUMSTANCES, UNDER THE CODE
AND THE LAWS OF ANY STATE, LOCAL OR OTHER TAXING JURISDICTION, OF OWNERSHIP OF
SECURITIES.

A "United States Holder" is a beneficial owner of Securities who or that is
(i) a citizen or resident of the United States, (ii) a domestic corporation,
(iii) an estate the income of which is subject to United States federal income
tax without regard to its source or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust.

Holders should be aware that there are alternative characterizations of the
Trust's assets which could result in different federal income tax consequences.
See "--Alternative Characterizations" below. While Sullivan & Cromwell does not
believe these alternative characterizations should apply for federal income tax
purposes, there can be no assurance in this regard, and holders should consult
their tax advisors concerning the risks associated with alternative
characterizations. The following discussion assumes that no such alternative
characterizations will apply.

TAX STATUS OF THE TRUST. The Trust will be treated as a grantor trust for
federal income tax purposes and, under the grantor trust rules of the Code, each
holder will be considered the owner of its pro rata portions of the stripped
U.S. Treasury securities and the Contract in the Trust. Income received by the
Trust will be treated as income of the holders in the manner set forth below.

RECOGNITION OF ORIGINAL ISSUE DISCOUNT ON THE U.S. TREASURY
SECURITIES. The U.S. Treasury securities in the Trust will consist of stripped
U.S. Treasury securities. A holder will be required to treat its pro rata
portion of each U.S. Treasury security initially acquired by the Trust as a bond
that was originally issued on the date the Trust acquired such security. A
holder will include original issue discount in income over the life of the U.S.
Treasury securities in an amount equal to the holder's pro rata portion of the
excess of the amounts payable on those U.S. Treasury securities over the amount
paid for the U.S. Treasury securities by the Trust. The amount of that excess
will constitute only part of the total amounts payable in respect of U.S.
Treasury securities held by the Trust, however. Consequently, a substantial
portion of each quarterly cash distribution to the holders will be treated as a
tax-free return of the holders' investment in the U.S. Treasury securities and
will not be considered current income for federal income tax purposes. See
"Description of Securities--Distributions--Tax Treatment of Distributions".

A holder (whether on the cash or accrual method of tax accounting) will be
required to include original issue discount (other than original issue discount
on short-term U.S. Treasury securities as defined below) in income for federal
income tax purposes as it accrues on a constant yield basis. The Trust expects
that more than 20% of the holders will be accrual basis taxpayers, in which case
original issue discount on any short-term U.S. Treasury security (i.e., any U.S.
Treasury security with

29
<PAGE>

a maturity of one year or less from the date it is purchased) held by the Trust
also will be required to be included in income by the holders as it is accrued.
Unless a holder elects to accrue the original issue discount on a short-term
U.S. Treasury security according to a constant yield method based on daily
compounding, that original issue discount will be accrued on a straight-line
basis.

EXTENSION OF THE EXCHANGE DATE. Holders should not be required to include
any amounts in income upon the Trust's receipt of additional U.S. Treasury
securities as a result of an extension of the Exchange Date under the Contract
and should not be required to include any original issue discount in respect of
such U.S. Treasury securities. See "Investment Objective and Policies--The
Contract".

Although there is no direct authority for the treatment of the cash
distribution paid on the Securities on the extended Exchange Date, it is likely
that such distribution should not be considered income to a holder upon receipt,
but instead should be considered to reduce a holder's basis with respect to such
holder's pro rata portion of the Contract held by the Trust, by analogy to the
treatment of rebates or option premiums. If this treatment is respected, receipt
of the cash distribution on the extended Exchange Date will increase the amount
of gain (or decrease the amount of loss) recognized by a holder on a sale or
other disposition of the Contract (including a disposition pursuant to cash
settlement of such Contract) or on a subsequent sale or other disposition of the
Class A Common Stock delivered pursuant to such Contract. Because there can be
no assurance that the Internal Revenue Service will agree with this
characterization of the cash distribution paid on the extended Exchange Date,
holders are urged to consult their tax advisors concerning the tax consequences
of receiving such payment.

TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACT. A holder's
initial tax basis in the Contract and the U.S. Treasury securities,
respectively, will equal its pro rata portion of the amounts paid for them by
the Trust. It is currently anticipated that % and % of the net
proceeds of the offering will be used by the Trust to purchase the U.S. Treasury
securities and as payment for the Contract, respectively. A holder's tax basis
in the U.S. Treasury securities will be increased by the amounts of original
issue discount included in income in respect of U.S. Treasury securities and
decreased by each amount of cash received in respect of U.S. Treasury
securities.

TREATMENT OF THE CONTRACT. Each holder will be treated as having entered
into a pro rata portion of the Contract and, at the Exchange Date, as having
received a pro rata portion of the Class A Common Stock, cash or Marketable
Securities or combination of Class A Common Stock, Marketable Securities and
cash delivered to the Trust.

DISTRIBUTION OF THE CLASS A COMMON STOCK. The delivery of Class A Common
Stock to the Trust pursuant to the Contract and the Trust's distribution of
Class A Common Stock to the holders will not be taxable to the holders. Each
holder's basis in its Class A Common Stock will be equal to its basis in its pro
rata portion of the Contract which is settled in Class A Common Stock less the
portion of that basis allocable to any fractional shares of Class A Common Stock
for which cash is received. A holder will recognize short-term capital gain or
loss upon receipt by the Trust of cash in lieu of fractional shares of Class A
Common Stock equal to the difference between the holder's allocable portion of
the amount of cash received and the holder's basis in those fractional shares.
The holding period for the Class A Common Stock will begin on the day after it
is acquired by the Trust.

DISTRIBUTION OF CASH. If the Trust receives cash upon settlement of the
Contract, a holder will recognize capital gain or loss equal to the difference
between the holder's allocable portion of the amount of cash received and the
holder's basis in the Contract settled for cash. Any gain or loss will be
capital gain or loss which is taxable to holders as described below under
"--Sale of Securities".

SALE OF SECURITIES. A holder who sells Securities will be treated as
having sold its pro rata portions of the U.S. Treasury securities and the
Contract underlying the Securities. As a result, the holder will recognize
capital gain or loss equal to the difference between the amount realized and the
holder's aggregate tax bases in its pro rata portions of the U.S. Treasury
securities and the

30
<PAGE>

Contract. Any gain or loss will be long-term capital gain or loss if the holder
has held the Securities for more than one year. Long-term capital gain of an
individual holder will be subject to a maximum tax rate of 20%.

ALTERNATIVE CHARACTERIZATIONS. Sullivan & Cromwell believes the Contract
should be treated for federal income tax purposes as a prepaid forward contract
for the purchase of a variable number of shares of Class A Common Stock.

The Internal Revenue Service could conceivably seek to treat the Contract
differently. The Internal Revenue Service might, for example, seek to treat the
cash paid to the Seller pursuant to the Contract as loans to the Seller in
exchange for contingent debt obligations of the Seller. If the Internal Revenue
Service were to prevail in making such an assertion, a holder might be required
to include original issue discount in income over the life of the Securities at
a market rate of interest for the Seller, taking account of all the relevant
facts and circumstances. In addition, a holder would be required to include
interest (rather than capital gain) in income on the Exchange Date in an amount
equal to the excess, if any, of the value of the Class A Common Stock received
on the Exchange Date (or the proceeds from cash settlement of the Contract) over
the aggregate of the basis of the Contract and any interest on the Contract
previously included in income (or might be entitled to an ordinary deduction to
the extent of interest previously included in income and not ultimately
received) and any gain or loss attributable to the sale of the Contract could be
treated as ordinary income or loss. The Internal Revenue Service could also
conceivably take the view that a holder should include in income the amount of
cash actually received each year on the Securities.

BACKUP WITHHOLDING AND INFORMATION REPORTING. The payments of principal
and original issue discount on the U.S. Treasury securities, and the proceeds
received from cash settlement of the Contract or the sale of Securities, may be
subject to U.S. backup withholding tax at the rate of 31% if the holder of those
Securities fails to supply an accurate taxpayer identification number or
otherwise to comply with applicable U.S. information reporting or certification
requirements. Any amounts so withheld will be allowed as a credit against that
holder's U.S. federal income tax liability and may entitle that holder to a
refund, provided that the required information is furnished to the Internal
Revenue Service.

After the end of each calendar year, the Trust will furnish to each record
holder of Securities an annual statement containing information relating to the
payments on the U.S. Treasury securities received by the Trust. The Trust will
also furnish annual information returns to each record holder of the Securities
and to the Internal Revenue Service.

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<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Trust has agreed to sell the Securities to the Underwriter, and the Underwriter
has agreed to purchase the Securities from the Trust. Under the terms and
conditions of the Underwriting Agreement, the Underwriter is committed to take
and pay for all of the Securities offered hereby, if any are taken.

Securities sold by Goldman Sachs to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
Securities sold by Goldman Sachs to securities dealers may be sold at a discount
of up to $ per Security from the initial public offering price. Any such
securities dealers may resell any Securities purchased from Goldman Sachs to
certain other brokers or dealers at a discount of up to $ per Security from
the initial public offering price. If all the Securities are not sold at the
initial public offering price, Goldman Sachs may change the initial public
offering price and the other selling terms. The sales load of $ per Security
is equal to % of the initial public offering price. Investors must pay for
any Securities purchased in the initial public offering on or before February
, 1999.

In connection with the offering, Goldman Sachs may purchase and sell
Securities in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the Underwriter of a greater number of
Securities than it is required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the Securities while
the offering is in progress.

These activities by Goldman Sachs may stabilize, maintain or otherwise
affect the market price of the Securities. As a result, the price of the
Securities may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by Goldman
Sachs at any time. These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.

In light of the fact that proceeds from the sale of the Securities will be
used by the Trust to purchase the Contract from the Seller, the Underwriting
Agreement provides that the Seller will pay to the Underwriter the Underwriter's
Compensation of $ per Security.

The Trust has granted the Underwriter an option exercisable for 30 calendar
days after the date of this prospectus to purchase up to an aggregate of
additional Securities solely to cover over-allotments, if any. If
the Underwriter exercises its over-allotment option, it will receive the
Underwriter's Compensation referred to above for each Security so purchased.

The Company, Leonard A. Lauder and the Seller (and the trustees of the
Seller, not in their individual capacities but solely as trustees of the Seller)
have agreed that, during the period beginning from the date of this prospectus
and continuing to and including the date 90 days after the date of this
prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any Class A Common Stock or other securities that are substantially similar to
the Class A Common Stock, including but not limited to any securities that are
convertible or exchangeable for, or that represent the right to receive,
Class A Common Stock or any such substantially similar securities (other than
dispositions among Lauder Family Members, as such term is defined in the Company
Prospectus, or pursuant to employee stock option plans and employment agreements
in each case existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this prospectus), without
the prior written consent of Goldman Sachs and except as otherwise provided in
the Underwriting Agreement. The Seller can enter into private exchange
transactions with private exchange funds or partnerships.

The Securities will be a new issue of securities with no established
trading market. Application has been made to list the Securities on the NYSE
under the symbol "ECJ". Goldman Sachs has advised the Company that it intends to
make a market in the Securities, but it is not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Securities.

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<PAGE>

Goldman Sachs has informed the Trust that it does not expect sales to any
accounts over which it exercises discretionary authority to exceed 5% of the
total Securities offered by this prospectus.

The Underwriter and certain of its affiliates have provided, are currently
providing, and expect to provide in the future, commercial and investment
banking services to the Company and certain Lauder Family Members (as defined in
the Company Prospectus) for which the Underwriter or its affiliates have
received and will receive fees and commissions.

The Company and the Seller have agreed to indemnify the Underwriter against
certain liabilities, including certain liabilities under the Securities Act of
1933.

Goldman Sachs has subscribed for one Security at a purchase price of
$100.00. Goldman Sachs will surrender this Security upon the closing of the
offering made by this prospectus. No Securities will be sold to the public until
the Securities subscribed for have been purchased and the purchase price of the
Securities paid in full to the Trust.

VALIDITY OF SECURITIES

The validity of the Securities will be passed upon for the Trust by
Sullivan & Cromwell, New York, New York, and for the Underwriter by Fried,
Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York.

EXPERTS

The financial statement included in this prospectus has been audited by
Pricewaterhouse-Coopers LLP, independent accountants, as stated in their opinion
appearing herein, and has been so included in reliance upon that opinion given
upon the authority of that firm as experts in accounting and auditing.

FURTHER INFORMATION

The Trust has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the Securities offered hereby. More
information concerning the Securities and the Trust may be found in the
Registration Statement of which this prospectus constitutes a part. The
Registration Statement may be inspected without charge at the Commission's
office in Washington, D.C., and copies of all or any part of the Registration
Statement may be obtained from that office after payment of the fees prescribed
by the Commission. The Registration Statement is also available on the
Commission's website (http://www.sec.gov). The Securities will be listed on the
NYSE and information concerning the Trust and the Securities may also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.

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<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Securityholders of
Estee Lauder Automatic Common Exchange Security Trust II:

In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Estee
Lauder Automatic Common Exchange Security Trust II (the "Trust") as of February
1, 1999, 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 statement of assets and
liabilities 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 the Trust's management and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

/s/ PricewaterhouseCoopers LLP

New York, New York
February 1, 1999

34
<PAGE>

ESTEE LAUDER AUTOMATIC COMMON EXCHANGE SECURITY TRUST II
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 1, 1999

<TABLE>
<S> <C>
ASSETS
Cash...................................................................................................... $100
----
Total assets.............................................................................................. $100
----
----

LIABILITIES
$ 0
----

Net Assets
Balance applicable to 1 Security outstanding.............................................................. $100
----
Net asset value per Security.............................................................................. $100
----
----
</TABLE>

- ------------------

(1) Estee Lauder Automatic Common Exchange Security Trust II (the "Trust") was
established on June 17, 1998 and has had no operations to date other than
matters relating to its organization and registration as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. Costs incurred in connection with the Trust's organization
will be paid by the Seller referred to below.

(2) The Trust proposes to sell Trust Automatic Common Exchange Securities (the
"Securities") to the public pursuant to a Registration Statement on Form N-2
under the Securities Act of 1933, as amended, and the Investment Company Act
of 1940.

The Trust is a newly organized, finite-term trust established to purchase
and hold a portfolio of stripped U.S. treasury securities and a forward
purchase contract with an existing stockholder of The Estee Lauder Companies
Inc. (the "Seller") relating to the Class A Common Stock of The Estee Lauder
Companies Inc. The Trust will be internally managed and will not have an
investment adviser. The Trust's administration, which will be overseen by
the trustees, will be carried out by The Chase Manhattan Bank as
administrator of the Trust. The Chase Manhattan Bank will also serve as
custodian for the Trust, and its affiliate, ChaseMellon Shareholder
Services, L.L.C., will serve as paying agent, registrar and transfer agent
with respect to the Securities. Ongoing fees and anticipated expenses for
the term of the Trust will be paid for by the Seller.

(3) The Trust issued one Security on January 28, 1999 to Goldman, Sachs & Co. in
consideration for a purchase price of $100. The Trust Agreement provides
that before the offering, the Trust will split the outstanding Security as
of the date that the price and underwriting discount of the Securities being
offered to the public is determined, but before the sale of the Securities
to Goldman Sachs. The initial Security will be split into the smallest whole
number of Securities that would result in the per Security amount recorded
as shareholders' equity after effecting the split not exceeding the public
offering price per Security.

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<PAGE>

GLOSSARY

"Administration Agreement" means the Administration Agreement, dated as of
February , 1999, between the Trust and The Chase Manhattan Bank, as
Administrator.

"Administrator" means The Chase Manhattan Bank (or its successor) in its
capacity as Administrator under the Administration Agreement.

"Appreciation Threshold Price" means $ , subject to adjustment as
described under "--The Contract--Dilution Adjustments".

"Average Market Price" per share of Class A Common Stock or Marketable
Securities on any date means the average Closing Price per share of Class A
Common Stock or Marketable Securities for the Calculation Period consisting of
the 20 Trading Days immediately prior to but not including such date; provided
that if no Closing Price for the Class A Common Stock or Marketable Securities
is determined for one or more (but not all) of such Trading Days, such Trading
Days shall be disregarded in the calculation of the Average Market Price (but no
additional Trading Days will be added to the Calculation Period). If no Closing
Price for the Class A Common Stock or Marketable Securities may be determined
for any of such Trading Days, the Average Market Price shall be the Closing
Price for the Class A Common Stock or Marketable Securities for the most recent
Trading Day prior to such 20 Trading Days for which a Closing Price for the
Class A Common Stock or Marketable Securities may be determined pursuant to the
definition of "Closing Price". Notwithstanding the foregoing, for purposes of
determining the payment required upon cash settlement of the Contract in
connection with a Rollover Offering, "Average Market Price" means the Closing
Price per share of Class A Common Stock or Marketable Securities on the Trading
Day immediately prior to the date that the Rollover Offering is priced (the
"Pricing Date") or, if the Rollover Offering is priced after 4:00 P.M., New York
City time, on the Pricing Date, the Closing Price per share on the Pricing Date.

"Beneficial Owner" means an actual purchaser of a Security, which will not
receive written confirmation from DTC of its purchases of Securities but which
is expected to receive written confirmations providing details of the
transactions, as well as periodic statements of its holdings, from the Direct or
Indirect Participants through which the Beneficial Owner purchased Securities.

"Calculation Period" means any period of Trading Days for which an average
security price must be determined pursuant to the Contract.

"Cash Delivery Obligations" means, at any time, (A) if no Reorganization
Event has occurred, zero, and (B) from and after any Reorganization Event, the
Transaction Value of any Consideration other than Marketable Securities included
in the Merger Consideration in such Reorganization Event, multiplied by the
maximum number of shares of Class A Common Stock covered by the Contract at the
time of the Reorganization Event; provided that if the Reorganization Event is a
Cash Merger, the Seller's Cash Delivery Obligation will be zero after the Seller
delivers the Accelerated Portion as required under the Contract.

"Class A Common Stock" means the Class A Common Stock, par value $0.01 per
share, of the Company.

"Closing Price" of any common equity security (including the Class A Common
Stock or any Marketable Securities) on any date of determination means the
closing sale price (or, if no closing sale price is reported, the last reported
sale price) of such common equity security as reported on the NYSE Consolidated
Tape on such date of determination or, if such common equity security is not
listed for trading on the NYSE on such date, as reported in the composite
transactions for the principal United States national or regional securities
exchange on which such common equity security is so listed, or if such common
equity security is not so listed on a United States national or regional
securities exchange on such date, as reported by the NASDAQ National Market or,
if such common equity security is not so reported on such date, the last quoted
bid price for such common equity security in the over-the-counter market as
reported by the National Quotation Bureau or any

36
<PAGE>

similar organization; provided that if any event that results in an adjustment
to the number of shares of Class A Common Stock or Marketable Securities
deliverable under the Contract, as described under "--The Contract--Dilution
Adjustments", occurs during any Calculation Period, the Closing Price as
determined pursuant to the foregoing for each Trading Day in the Calculation
Period occurring prior to the date on which such adjustment is effected will be
appropriately adjusted to reflect the occurrence of such event.

"Code" means the Internal Revenue Code of 1986, as amended.

"Collateral Agent" means The Chase Manhattan Bank (or its successor) in its
capacity as Collateral Agent under the Collateral Agreements.

"Collateral Agreement" means the Collateral Agreement, dated as of February
, 1999, among the Seller, The Chase Manhattan Bank, as Collateral Agent, and
the Trust, securing the Seller's obligations under the Contract.

"Collateral Event of Default" under the Collateral Agreement means, at any
time, (A) if no U.S. Government obligations are pledged as substitute collateral
at or before that time, failure of the collateral to include at least the
maximum number of shares of Class A Common Stock covered by the Contract at that
time (or, if a Reorganization Event or Spin-Off Distribution has occurred at or
before that time, failure of the collateral to include the maximum number of
shares of any Marketable Securities required to be pledged as described under
"Investment Objective and Policies--The Contract--Collateral Arrangements;
Acceleration Upon Default By the Seller" above); (B) if any U.S. Government
obligations are pledged as substitute collateral for shares of Class A Common
Stock (or shares of Marketable Securities deliverable pursuant to the Contract)
at that time, failure of those U.S. Government obligations to have a market
value at that time of at least 105% of the market price per share of Class A
Common Stock (or shares of Marketable Securities, as the case may be) times the
difference between (x) the maximum number of shares of Class A Common Stock (or
shares of those Marketable Securities) covered by the Contract at that time and
(y) the number of shares of Class A Common Stock (or shares of Marketable
Securities) pledged as collateral at that time; and (C) at any time after a
Reorganization Event in which consideration other than Marketable Securities has
been delivered, failure of any U.S. Government obligations pledged as collateral
for Cash Delivery Obligations to have a market value at that time of at least
105% of those Cash Delivery Obligations, if that failure is not cured within one
business day after notice of that failure is delivered to the Seller.

"Company" means The Estee Lauder Companies Inc., a Delaware corporation.

"Company Prospectus" means the prospectus of the Company, dated February
, 1999 (attached as pages A-1 through A- hereof), which describes the Company
and the Class A Common Stock.

"Company Successor" means a surviving entity or subsequent surviving entity
of the Company.

"Contract" means the forward purchase contracts between the Seller and the
Trust relating to the Class A Common Stock.

"Custodian" means The Chase Manhattan Bank (or its successor) in its
capacity as Custodian under the Custodian Agreement.

"Custodian Agreement" means the Custodian Agreement, dated as of February
, 1999, between the Trust and The Chase Manhattan Bank, as Custodian.

"Direct Participants" means Participants of DTC, including brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, that are direct Participants of DTC.

"DTC" means The Depository Trust Company.

"Excess Purchase Payment" means the excess, if any, of (i) the cash and the
value (as determined by a nationally recognized independent investment banking
firm retained for this purpose

37
<PAGE>

by the Administrator, whose determination shall be final) of all other
consideration paid by the Company with respect to one share of Class A Common
Stock acquired in a tender offer or exchange offer by the Company, over
(ii) the Then-Current Market Price per share of Class A Common Stock.

"Exchange Date" means February , 2002, subject to extension and
acceleration by the Seller under the Contract.

"Exchange Rate" means the rate of exchange of Class A Common Stock for
Securities on the Exchange Date, and will be determined as follows (adjusted in
certain events):

(i) If the Average Market Price is less than the Appreciation
Threshold Price but equal to or greater than the Initial Price, the
Exchange Rate will be a fraction (rounded upward or downward to the nearest
1/10,000th or, if there is not a nearest 1/10,000th, to the next lower
1/10,000th) equal to the Initial Price divided by the Average Market Price.

(ii) If the Average Market Price is equal to or greater than the
Appreciation Threshold Price, the Exchange Rate will be 0. shares of
Class A Common Stock.

(iii) If the Average Market Price is less than the Initial Price, the
Exchange Rate will be one share of Class A Common Stock.

"holders" means the registered holders of the Securities.

"Indirect Participants" means Participants of DTC, such as securities
brokers and dealers, banks and trust companies, that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly.

"Initial Price" means $ , subject to adjustment as described under
"--The Contract--Dilution Adjustments".

"Insufficiency Determination" means a determination by the Collateral Agent
that the collateral pledged by any Seller fails to meet the requirements
described under "Investment Objective and Policies--The Contract--Collateral
Arrangements; Acceleration Upon Default By the Seller".

"Investment Company Act" means the Investment Company Act of 1940, as
amended.

"majority of the Trust's outstanding Securities" means the lesser of (i)
67% of the Securities represented at a meeting at which more than 50% of the
outstanding Securities are represented, and (ii) more than 50% of the
outstanding Securities.

"Managing Trustee" means the Trustee designated to serve as Managing
Trustee.

"Marketable Securities" means any common equity securities (whether voting
or non-voting) listed on a U.S. national or regional securities exchange or
reported by the NASDAQ National Market.

"NYSE" means the New York Stock Exchange, Inc.

"Participants" means participants of DTC.

"Paying Agent" means ChaseMellon Shareholder Services, L.L.C. (or its
successor) in its capacity as transfer agent, registrar and paying agent under
the Paying Agent Agreement.

"Paying Agent Agreement" means the Paying Agent Agreement, dated as of
February , 1999, between the Trust and ChaseMellon Shareholder Services,
L.L.C., as transfer agent, registrar and paying agent.

"Permitted Dividend" means any quarterly cash dividend in respect of the
Class A Common Stock, other than a quarterly cash dividend that exceeds the
immediately preceding quarterly cash dividend, and then only to the extent that
the per share amount of such dividend results in an annualized dividend yield on
the Class A Common Stock in excess of 12.5%.

38
<PAGE>

"Pricing Date" means the date that a Rollover Offering is priced.

"Reorganization Event" means (A) any consolidation or merger of the
Company, or any Company Successor, with or into another entity (other than a
merger or consolidation in which the Company is the continuing corporation and
in which the Class A Common Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other property of the
Company or another corporation), (B) any sale, transfer, lease or conveyance to
another corporation of the property of the Company or any Company Successor as
an entirety or substantially as an entirety, (C) any statutory exchange of
securities of the Company or any Company Successor with another corporation
(other than in connection with a consolidation or merger as referred to in
clause (A)) or (D) any liquidation, dissolution or winding up of the Company or
any Company Successor.

"Rollover Offering" means a reoffering or refinancing of Securities
effected not earlier than February , 2002, by means of a completed public
offering or offerings, or another similar offering (which may include one or
more exchange offers), by or on behalf of the Seller.

"SEC" means the Securities and Exchange Commission.

"Securities" means the Trust's $ Trust Automatic Common Exchange
Securities.

"Seller" means The Estee Lauder 1994 Trust.

"Spin-Off Distribution" means a distribution by the Company to holders of
Class A Common Stock of Marketable Securities issued by an issuer other than the
Company.

"Then-Current Market Price" of the Class A Common Stock, for the purpose of
applying any adjustment described in "Investment Objective and Policies--The
Contract--Dilution Adjustments", means the average Closing Price per share of
Class A Common Stock for the Calculation Period consisting of five Trading Days
immediately prior to the time such adjustment is effected (or, in the case of an
adjustment effected at the opening of business on the business day after a
record date, immediately prior to the earlier of the time such adjustment is
effected and the related ex-date); provided that if no Closing Price for the
Class A Common Stock is determined for one or more (but not all) of such Trading
Days, such Trading Days will be disregarded in the calculation of the Then-
Current Market Price (but no additional Trading Days will be added to the
Calculation Period). If no Closing Price for the Class A Common Stock may be
determined for any of such Trading Days, the Then-Current Market Price shall be
the Closing Price for the Class A Common Stock for the most recent Trading Day
prior to such five Trading Days for which a Closing Price for the Class A Common
Stock may be determined pursuant to the definition of "Closing Price". The
"ex-date" with respect to any dividend, distribution or issuance shall mean the
first date on which the shares of Class A Common Stock trade regular way on
their principal market without the right to receive such dividend, distribution
or issuance.

"Trading Day" in respect of any common equity security means a day on which
such common equity security (A) is not suspended from trading on any United
States national or regional securities exchange or association or
over-the-counter market at the close of business and (B) has traded at least
once on the United States national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of that security.

"Transaction Value" means, with respect to any Reorganization Event, the
sum of: (i) for any cash received in such Reorganization Event, the amount of
such cash received per share of Class A Common Stock; (ii) for any property
other than cash or Marketable Securities received in such Reorganization Event,
an amount equal to the market value on the date such Reorganization Event is
consummated of such property received per share of Class A Common Stock (as
determined by a nationally recognized independent investment banking firm
retained for this purpose by the Administrator, whose determination shall be
final); and (iii) for any Marketable Securities received in such Reorganization
Event, an amount equal to the average Closing Price per share of these
Marketable Securities for the Calculation Period of 20 Trading Days immediately
prior to the

39
<PAGE>

Exchange Date (or, in the case of a Cash Merger, for the 20 Trading Days
immediately before the date the Reorganization Event is consummated) multiplied
by the number of such Marketable Securities received for each share of Class A
Common Stock; provided that if no Closing Price for such Marketable Securities
may be determined for one or more (but not all) of such Trading Days, such
Trading Days shall be disregarded in the calculation of such average Closing
Price (but no additional Trading Days shall be added to the Calculation Period).
If no Closing Price for the Marketable Securities may be determined for any of
such Trading Days, the calculation in the preceding clause (iii) will be based
on the Closing Price for the Marketable Securities for the most recent Trading
Day prior to such 20 Trading Days for which a Closing Price for the Marketable
Securities may be determined pursuant to the definition of "Closing Price".

"Trust" means Estee Lauder Automatic Common Exchange Security Trust II.

"Trust Agreement" means the trust agreement dated as of June 17, 1998
pursuant to which the Trust was formed, as amended and restated as of February
, 1999.

"Trustees" means the three trustees who will internally manage the Trust.

"Underwriter" means Goldman, Sachs & Co., the Underwriter of the
Securities.

"Underwriter's Compensation" means the compensation of $ per Security
payable to the Underwriter by the Seller pursuant to the Underwriting Agreement.

"United States Holder" means a beneficial owner of Securities who or that
is (i) a citizen or resident of the United States, (ii) a domestic corporation
or (iii) otherwise covered by United States federal income taxation on a net
income basis in respect of Securities.

"Value" means (i) in respect of cash, the amount of such cash; (ii) in
respect of any property other than cash or Marketable Securities, an amount
equal to the market value on the date the Reorganization Event is consummated
(as determined by a nationally recognized independent investment banking firm
retained for this purpose by the Administrator); and (iii) in respect of any
share of Marketable Securities, an amount equal to the average Closing Price per
share of those Marketable Securities for the 20 Trading Days immediately before
the date the Reorganization Event is consummated; provided that if no Closing
Price for such Marketable Securities may be determined for one or more (but not
all) of such Trading Days, such Trading Days shall be disregarded in the
calculation of such average Closing Price (but no additional Trading Days shall
be added to the Calculation Period). If no Closing Price for the Marketable
Securities may be determined for any of such Trading Days, the calculation in
the preceding clause (iii) will be based on the Closing Price for the Marketable
Securities for the most recent Trading Day prior to such 20 Trading Days for
which a Closing Price for the Marketable Securities may be determined pursuant
to the definition of "Closing Price".

40
<PAGE>

------------------------------------------------------------
------------------------------------------------------------

No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the Securities offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary........................... 2
The Trust.................................... 9
Use of Proceeds.............................. 12
Investment Objective and Policies............ 12
Description of Securities.................... 24
Risk Factors................................. 27
Certain Federal Income Tax Considerations.... 29
Underwriting................................. 32
Validity of Securities....................... 33
Experts...................................... 33
Further Information.......................... 33
Report of Independent Accountants............ 34
Statement of Assets and Liabilities.......... 35
Glossary..................................... 36
Appendix A: Prospectus of The Estee Lauder
Companies Inc.............................. A-1
</TABLE>

------------------

Through and including ,1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these Securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.

------------------------------------------------------------
------------------------------------------------------------

Estee Lauder Automatic
Common Exchange
Security Trust II

$ Trust Automatic Common
Exchange Securities
(TRACES(Trademark)/(Service Mark))

----------------------

PROSPECTUS

----------------------

Goldman, Sachs & Co.

------------------------------------------------------------
------------------------------------------------------------

<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements

<TABLE>
<S> <C> <C>
Part A-- Report of Independent Accountants.
Statement of Assets and Liabilities.
Part B-- None.
</TABLE>

(b) Exhibits

<TABLE>
<S> <C> <C>
2.a.(i) Trust Agreement**
2.a.(ii) Form of Amended and Restated Trust Agreement*
2.d Form of Specimen Certificate of $ Trust Automatic Common Exchange Security (included in
Exhibit 2.a.(ii))*
2.h Form of Underwriting Agreement*
2.j Form of Custodian Agreement*
2.k.(i) Form of Administration Agreement*
2.k.(ii) Form of Paying Agent Agreement*
2.k.(iii) Form of Purchase Contract*
2.k.(iv) Form of Collateral Agreement*
2.k.(v) Form of Fund Expense Agreement*
2.k.(vi) Form of Fund Indemnity Agreement*
2.l Opinion and Consent of Counsel to the Trust*
2.n.(i) Tax Opinion and Consent of Counsel to the Trust*
2.n.(ii) Consent of Independent Public Accountants
2.n.(iii) Consents to Being Named as Trustee**
2.p Subscription Agreement**
2.r Financial Data Schedule*
</TABLE>

- ------------------
* To be filed by amendment.
** Previously filed.

ITEM 25. MARKETING ARRANGEMENTS

See the Form of Underwriting Agreement to be filed as Exhibit 2.h to this
Registration Statement.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:

<TABLE>
<S> <C>
Registration fees.......................................................................... $ 47,955
New York Stock Exchange listing fee........................................................ *
Printing (other than certificates)......................................................... *
Fees and expenses of qualification under state securities laws (excluding fees of
counsel)................................................................................. *
Accounting fees and expenses............................................................... *
Legal fees and expenses.................................................................... *
NASD fees.................................................................................. *
Miscellaneous.............................................................................. *
--------
Total...................................................................................... $
--------
--------
</TABLE>

- ------------------

* To be provided by amendment.

C-1
<PAGE>

ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Before June 17, 1998 the Trust had no existence. As of the effective date,
the Trust will have entered into a Subscription Agreement for one Security with
Goldman, Sachs & Co. and an Underwriting Agreement with respect to
Securities with Goldman, Sachs & Co.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- ---------------------------------------------------------------------------- --------------
<S> <C>
$ Trust Automatic Common Exchange Securities............................ 1
</TABLE>

ITEM 29. INDEMNIFICATION

The Underwriting Agreement, to be filed as Exhibit 2.h to this Registration
Statement, provides for indemnification of the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act").

The Amended and Restated Trust Agreement filed as Exhibit 2.a.(ii) to this
Registration Statement provides for indemnification to each Trustee against any
claim or liability incurred in acting as Trustee of the Trust, except in the
case of willful misfeasance, bad faith, gross negligence or reckless disregard
of the Trustee's duties. The Custodian Agreement, Administration Agreement and
Paying Agent Agreement filed as Exhibits 2.j, 2.k.(i) and 2.k.(ii) to this
Registration Statement provide for indemnification to the Custodian,
Administrator and Paying Agent against any loss or expense incurred in the
performance of their obligations under the respective agreements, unless such
loss or expense is due to willful misfeasance, bad faith, gross negligence or
reckless disregard of their obligations. The Fund Indemnity Agreement filed as
Exhibit 2.k.(vi) to this Registration Statement provides that the Seller will
indemnify the Trust for certain indemnification expenses incurred under the
Trust Agreement, the Custodian Agreement, the Administration Agreement and the
Paying Agent Agreement.

Insofar as indemnification for liability arising under the Securities Act
may be permitted to trustees, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Not Applicable.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

The Trust's accounts, books and other documents are currently located at
the offices of the Registrant, c/o Goldman, Sachs & Co., 85 Broad Street, New
York, New York 10004 and at the offices of The Chase Manhattan Bank, 450 West
33rd Street, New York, New York 10001, the Registrant's Administrator.

C-2
<PAGE>

ITEM 32. MANAGEMENT SERVICES

Not applicable.

ITEM 33. UNDERTAKINGS

(a) The Registrant hereby undertakes to suspend offering of the Securities
until it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value falls more than 10 percent from its
net asset value as of the effective date of the Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.

(b) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; (ii) for the
purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of the securities at that time shall be deemed to be the initial
bona fide offering thereof.

C-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE CITY
OF NEW YORK, STATE OF NEW YORK, ON THE 12TH DAY OF FEBRUARY, 1999.

ESTEE LAUDER AUTOMATIC COMMON
EXCHANGE SECURITY TRUST II

By: /s/ PAUL S. EFRON
----------------------------------
Paul S. Efron
Trustee

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSON, IN THE CAPACITIES AND ON THE DATE
INDICATED.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ---------------------------------------- -------------------
<S> <C> <C>

/s/ PAUL S. EFRON Principal Executive Officer, February 12, 1999
- ------------------------------------------ Principal Financial Officer,
Paul S. Efron Principal Accounting Officer and Trustee
</TABLE>

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------------- --------------------------------------------------------------------------------------- ----------
<S> <C> <C>
2.a.(i) Trust Agreement**
2.a.(ii) Form of Amended and Restated Trust Agreement*
2.d Form of Specimen Certificate of $____ Trust Automatic Common Exchange Security
(included in Exhibit 2.a.(ii))*
2.h Form of Underwriting Agreement*
2.j Form of Custodian Agreement*
2.k.(i) Form of Administration Agreement*
2.k.(ii) Form of Paying Agent Agreement*
2.k.(iii) Form of Purchase Contract*
2.k.(iv) Form of Collateral Agreement*
2.k.(v) Form of Fund Expense Agreement*
2.k(vi) Form of Fund Indemnity Agreement*
2.l Opinion and Consent of Counsel to the Trust*
2.n.(i) Tax Opinion and Consent of Counsel to the Trust*
2.n.(ii) Consent of Independent Public Accountants
2.n.(iii) Consents to Being Named as Trustee**
2.p Subscription Agreement**
2.r Financial Data Schedule*
</TABLE>

- ------------------

* To be filed by amendment.
** Previously filed.

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------

We consent to the inclusion in this Pre-Effective Amendment No. 3 to the
registration statement on Form N-2 (Securities Act File No. 333-57125 and
Investment Company Act File No. 811-8827) of our report dated February 1, 1999,
on our audit of the statement of assets and liabilities of Estee Lauder
Automatic Common Exchange Security Trust II. We also consent to the reference to
our firm under the caption "Experts."

PricewaterhouseCoopers LLP
------------------------------
/s/ PricewaterhouseCoopers LLP

New York, New York
February 11, 1999