<PAGE> 1
File No. 333-61001
As filed with the Securities and Exchange Commission
on October 19, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
A. Exact name of Trust:
NASDAQ GOLD(SM) TRUST, SERIES l
B. Name of Depositor (Sponsor):
INVESTMENT PRODUCT SERVICES, INC.
C. Complete address of Sponsor's principal executive offices:
INVESTMENT PRODUCT SERVICES, INC.
c/o THE NASDAQ STOCK MARKET, INC.
1735 K Street, N.W.
Washington, D.C. 20006
D. Name and complete address of agent for service:
John L. Jacobs
INVESTMENT PRODUCT SERVICES, INC.
c/o THE NASDAQ STOCK MARKET, INC.
1735 K Street, N.W.
Washington, D.C. 20006
Copy to:
David M. Mahle
JONES, DAY, REAVIS & POGUE
599 Lexington Avenue, 32nd Floor
New York, New York 10022
<PAGE> 2
E. Title and amount of securities being registered:
An indefinite number of units of beneficial interest pursuant to
Rule 24f-2 under the Investment Company Act of 1940.
F. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT.
[ ] Check box if it is proposed that this filing will become
effective on (date) at (time) pursuant to Rule 487.
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, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE> 3
NASDAQ GOLD(SM) TRUST, SERIES 1
Cross Reference Sheet
Pursuant to Regulation C
Under the Securities Act of 1933, as amended
(Form N-8B-2 Items required by Instruction 1
as to Prospectus in Form S-6)
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
- ------------- -----------------------
I. Organization and General Information
---------------------------------------
<S> <C>
l. (a) Name of Trust............................................. Prospectus Front Cover
(b) Title of securities issued................................ Prospectus Front Cover
2. Name, address and Internal Revenue Service Employer Sponsor
Identification Number of sponsor...............................
3. Name, address and Internal Revenue Service Employer Trustee
Identification Number of trustee...............................
4. Name, address and Internal Revenue Service Employer *
Identification Number of principal underwriter.................
5. State of organization of Trust................................. Prospectus Summary - The
Trust
6. (a) Dates of execution and termination of Trust
Agreement................................................. Prospectus Summary - The
Trust; Prospectus Summary -
Termination; The Trust;
Administration of the Trust -
Termination
(b) Dates of execution and termination of Trust
Agreement................................................. Same as set forth in 6(a)
7. Changes of name................................................ *
8. Fiscal Year.................................................... *
9. Material Litigation............................................ *
</TABLE>
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* Not applicable, answer negative or not required.
- i -
<PAGE> 4
<TABLE>
<CAPTION>
II. General Description of the Trust and Securities of the Trust
----------------------------------------------------------------
<S> <C>
10. (a) Registered or bearer securities........................... The Trust - Book-Entry-Only
System
(b) Cumulative or distributive................................ Prospectus Summary -
Distributions
(c) Rights of holders as to withdrawal or redemption.......... Prospectus Summary -
Redemption; Redemption of
Nasdaq GOLD;
Administration of the Trust -
Rights of Beneficial Owners
(d) Rights of holders as to conversion, transfer, etc......... Prospectus Summary -
Redemption; Administration
of the Trust - Register of
Ownership and Transfer; -
Rights of Beneficial Owners;
Redemption of Nasdaq
GOLD
(e) Lapses or defaults in principal payments with respect *
to periodic payment plan certificates.....................
(f) Voting rights............................................. Administration of the Trust -
Voting
(g) Notice to holders as to change in:
(l) Composition of Trust assets.......................... *
(2) Terms and conditions of Trust's securities........... Administration of the Trust -
Amendment
(3) Provisions of Trust Agreement........................ Same as set forth in 10(g) (2)
(4) Identity of sponsor and trustee...................... Resignation, Removal and
Liability - The Trustee; - The
Sponsor
(h) Consent of holders required to change:
(1) Composition of Trust assets.......................... *
(2) Terms and conditions of Trust's securities........... Administration of the Trust -
Amendment
</TABLE>
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* Not applicable, answer negative or not required.
- ii -
<PAGE> 5
<TABLE>
<S> <C>
(3) Provisions of Trust Agreement........................ Same as set forth in 10(h) (2)
(4) Identity of sponsor and trustee ..................... Resignation, Removal and
Liability - The Sponsor; - The
Trustee
(i) Other principal features of the securities................ Prospectus Summary
11. Type of securities comprising units............................ The Prospectus - Front
Cover; Prospectus Summary -
The Trust; The Portfolio; The
Index
12. Certain information regarding securities comprising *
periodic payment certificates..................................
13. (a) Certain information regarding loads, fees, expenses Expenses of the Trust;
and charges............................................... Redemption of Nasdaq
GOLD - Procedure for
Redemption of Nasdaq
GOLD
(b) Certain information regarding periodic payment plan *
certificates..............................................
(c) Certain percentages....................................... Expenses of the Trust; The
Trust - Creation of Creation
Units; Redemption of Nasdaq
GOLD - Procedure for
Redemption of Nasdaq
GOLD
(d) Reasons for certain differences in price.................. *
(e) Certain other loads, fees or charges payable by Prospectus Summary -
holders................................................... Transaction Fee; The Trust -
Creation of Creation Units;
Redemption of Nasdaq
GOLD - Procedure for
Redemptions of Nasdaq
GOLD
(f) Certain profits receivable by sponsor, principal Same as set forth in 13(a) and
underwriters, custodian, trustee or affiliated persons also The Portfolio -
Adjustments to the Portfolio;
License Agreement
(g) Ratio of annual charges and deductions to income.......... *
</TABLE>
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* Not applicable, answer negative or not required.
- iii -
<PAGE> 6
<TABLE>
<S> <C>
14. Issuance of Trust's securities................................. The Trust - Creation of
Creation Units; - Book-Entry-
Only System
15. Receipt and handling of payments from purchasers............... The Trust
16. Acquisition and disposition of underlying securities........... The Trust - Creation of
Creation Units; The Portfolio;
Administration of the Trust;
Redemption of Nasdaq
GOLD - Procedure for
Redemption of Nasdaq
GOLD
17. (a) Withdrawal or redemption by holders....................... Administration of the Trust -
Register of Ownership and
Transfer; - Rights of
Beneficial Owners;
Redemption of Nasdaq
GOLD
(b) Persons entitled or required to redeem or repurchase Same as set forth in 17(a)
securities................................................
(c) Cancellation or resale of repurchased or redeemed Same as set forth in 17(a)
securities................................................
18. (a) Receipt, custody and disposition of income................ Administration of the Trust -
Distributions to Beneficial
Owners
(b) Reinvestment of distributions............................. Dividend Reinvestment
Service
(c) Reserves or special funds................................. Same as set forth in 18(a)
(d) Schedule of distributions................................. *
19. Records, accounts and reports.................................. Administration of the Trust -
Records; - Distributions to
Beneficial Owners; -
Statements to Beneficial
Owners; - Register of
Ownership and Transfer
20. Certain miscellaneous provisions of Trust Agreement
</TABLE>
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* Not applicable, answer negative or not required.
- iv -
<PAGE> 7
<TABLE>
<S> <C>
(a) Amendments................................................ Administration of the Trust -
Amendment
(b) Extension or termination.................................. Administration of the Trust -
Amendment; - Termination
(c) Removal or resignation of trustee......................... Resignation, Removal and
Liability - The Trustee
(d) Successor trustee......................................... Same as set forth in 20(c)
(e) Removal or resignation of sponsor......................... Resignation, Removal and
Liability - The Sponsor
(f) Successor sponsor......................................... Same as set forth in 20(c) and
20(e)
21. Loans to security holders...................................... *
22. Limitations on liabilities..................................... Resignation, Removal and
Liability - The Trustee; - The
Sponsor
23. Bonding arrangements........................................... *
24. Other material provisions of Trust Agreement................... *
III. Organization, Personnel and Affiliated Persons of Sponsor
--------------------------------------------------------------
25. Organization of sponsor........................................ Sponsor
26. Fees received by sponsor....................................... License Agreement
27. Business of sponsor............................................ Sponsor
28. Certain information as to officials and affiliated persons of Sponsor
sponsor........................................................
29. Ownership of voting securities of sponsor...................... Sponsor
30. Persons controlling sponsor.................................... *
31. Renumeration of officers of sponsor to Trust................... *
32. Renumeration of directors of sponsor........................... *
33. Remuneration of employees of sponsor for certain *
services rendered to Trust.....................................
34. Compensation of other persons for certain services *
rendered to Trust..............................................
</TABLE>
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* Not applicable, answer negative or not required.
- v -
<PAGE> 8
<TABLE>
<S> <C>
IV. Distribution and Redemption of Securities
---------------------------------------------
35. Distribution of Trust's securities in states................... Distribution of Nasdaq
GOLD; Continuous offering
of Nasdaq GOLD
36. Suspension of sales of Trust's securities...................... *
37. Denial or revocation of authority to distribute................ *
38. (a) Method of distribution.................................... Prospectus Summary -
Underwriting; The Trust;
Marketplace Listing;
Continuous Offering of
Nasdaq GOLD
(b) Underwriting agreements................................... Prospectus Summary -
Underwriting; - Distribution;
Continuous Offering of
Nasdaq GOLD; The Trust -
Placement of Creation Orders
using the Nasdaq GOLD
Clearing Process
(c) Selling agreements........................................ Same as set forth in 38(b)
39. (a) Organization of principal underwriter..................... Prospectus Summary -
Underwriting
(b) NASD membership of principal underwriter.................. Prospectus Summary -
Underwriting
40. Certain fees received by principal underwriters................ *
41. (a) Business of principal underwriters........................ Prospectus Summary -
Underwriting
(b) Branch offices of principal underwriters.................. *
(c) Salesmen of principal underwriters........................ *
42. Ownership of Trust's securities by certain persons............. *
43. Certain brokerage commissions received by principal *
underwriters ..................................................
44. (a) Method of valuation for determining offering price........ The Portfolio; Valuation
(b) Schedule as to components of offering price............... *
</TABLE>
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* Not applicable, answer negative or not required.
- vi -
<PAGE> 9
<TABLE>
<S> <C>
(c) Variation in offering price to certain persons............ *
45. Suspension of redemption rights................................ *
46. (a) Certain information regarding redemption or Valuation; Redemption of
withdrawal valuation...................................... Nasdaq GOLD
(b) Schedule as to components of redemption price............. *
47. Maintenance of position in underlying securities............... The Trust; The Portfolio;
Valuation; Administration of
the Trust - Distributions to
Beneficial Owners;
Redemption of Nasdaq Gold;
Continuous Offering of
Nasdaq GOLD
V. Information Concerning the Trustee or Custodian
--------------------------------------------------
48. Organization and regulation of trustee......................... Trustee
49. Fees and expenses of trustee................................... Prospectus Summary -
Transaction Fee; Expenses of
the Trust
50. Trustee's lien................................................. Expenses of the Trust;
Redemption of Nasdaq
GOLD
VI. Information Concerning Insurance of Holders of Securities
-------------------------------------------------------------
51. (a) Name and address of insurance company..................... *
(b) Types of policies......................................... *
(c) Types of risks insured and excluded....................... *
(d) Coverage.................................................. *
(e) Beneficiaries............................................. *
(f) Terms and manner of cancellation.......................... *
(g) Method of determining premiums............................ *
(h) Aggregate premiums paid................................... *
(i) Recipients of premiums.................................... *
(j) Other material provisions of Trust Agreement *
relating to insurance.....................................
</TABLE>
- ---------------
* Not applicable, answer negative or not required.
- vii -
<PAGE> 10
<TABLE>
<S> <C>
VII. Policy of Registrant
-------------------------
52. (a) Method of selecting and eliminating securities from The Trust - Creation of
the Trust................................................. Creation Units; The Portfolio;
Administration of the Trust;
Redemption of Nasdaq
GOLD - Procedure for
Redemption of Nasdaq
GOLD
(b) Elimination of securities from the Trust.................. *
(c) Policy of Trust regarding substitution and Same as set forth in 52(a)
elimination of securities.................................
(d) Description of any other fundamental policy of the *
Trust.....................................................
53. (a) Taxable status of the Trust............................... Tax Status of the Trust
(b) Qualification of the Trust as a regulated investment Same as set forth in 53(a)
company...................................................
VIII. Financial and Statistical Information
-------------------------------------------
54. Information regarding the Trust's last ten fiscal years........ *
55. Certain information regarding periodic payment plan *
certificates...................................................
56. Certain information regarding periodic payment plan *
certificates...................................................
57. Certain information regarding periodic payment plan *
certificates...................................................
58. Certain information regarding periodic payment plan *
certificates...................................................
59. Financial statements (Instruction 1(c) to Form S-6)............ *
</TABLE>
- ------------------------
* Not applicable, answer negative or not required.
- viii -
<PAGE> 11
This Prospectus and the information contained herein is subject to change,
completion and amendment without notice. Nasdaq GOLD may not be sold nor may an
offer to buy be accepted prior to the time the Prospectus is delivered in final
form. Under no circumstances shall this Prospectus constitute an offer to sell
or the solicitation of an offer to buy, nor shall there be any sale of Nasdaq
GOLD, in any jurisdiction in which such offer, solicitation, or sale would be
unlawful prior to registration of qualification under the securities laws of any
such jurisdiction.
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1998
PRELIMINARY PROSPECTUS
NASDAQ GOLD(SM) TRUST, SERIES 1
A UNIT INVESTMENT TRUST
------------------------
The Nasdaq GOLD Trust, Series 1 (the "Trust") was formed by Investment
Product Services, Inc., a Delaware corporation (the "Sponsor") and a
wholly-owned subsidiary of The Nasdaq Stock Market, Inc. ("Nasdaq"), to provide
investors with the opportunity to purchase units of beneficial interest in the
Trust representing proportionate undivided interests in the portfolio of
securities held by the Trust (the "Securities") consisting of substantially all
of the securities, in substantially the same weighting, as the component
securities of the Nasdaq-100 Index(R) (the "Index").* While the investment
objective of the Trust is to provide investment results that generally
correspond to the price and yield performance of the Index, there is no
assurance that this investment objective can be achieved. Each unit of
fractional undivided interest in the Trust is referred to as a share of Nasdaq
GOLD(SM) ("Nasdaq GOLD"(SM)).* The value of the Securities and, consequently,
the value of Nasdaq GOLD, will fluctuate. The minimum number of shares of Nasdaq
GOLD that may be created or redeemed at any one time as described below is
25,000, which aggregation is referred to herein as a "Creation Unit."
Nasdaq GOLD has been approved for listing on [the Nasdaq Stock Market or
the American Stock Exchange ("Amex")] subject to official notice of issuance.
The market symbol for Nasdaq GOLD will be "__________". Once created, Nasdaq
GOLD may be traded in the secondary market on a per share of Nasdaq GOLD basis,
and need not be traded in Creation Unit size aggregations. Prior to the date of
this Prospectus, there has been no market for shares of Nasdaq GOLD trading
individually or in Creation Unit size aggregations and, consequently, there can
be no assurance that active trading markets will develop, nor is there a certain
basis for predicting the actual price levels at which Nasdaq GOLD may trade.
------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------------------
Prospectus dated __________, 1998
------------------------------------
NASDAQ GOLD(SM)
------------------------------------
Investors are advised to read and retain this Prospectus for future
reference.
------------------------------------------------
* The "Nasdaq-100 Index(R)", "Nasdaq-100(R)", "Nasdaq(R)", "The Nasdaq
Stock Market(R)", and "Nasdaq GOLD(SM)" are trademarks and service marks
of Nasdaq and have been licensed for use for certain purposes by
Investment Product Services, Inc. pursuant to a License Agreement with
Nasdaq.
COPYRIGHT (C) 1998 by Investment Product Services, Inc., all rights reserved
<PAGE> 12
ESSENTIAL INFORMATION AS OF _____________, 1998+
<TABLE>
<S> <C> <C> <C>
Number of shares of Nasdaq GOLD
------------
Fractional Undivided Interest
in Trust Represented by each
share of Nasdaq GOLD 1/ th
----------
Net Asset Value per share of Nasdaq
GOLD (based on the value of the
Securities, other net assets of the
Trust, and the number of shares of
Nasdaq GOLD outstanding) $
-------
Estimated Annual Trust Ordinary
Operating Expenses (as a percentage As a % of Amount per
of average net assets)* Average Net Share of
Assets Nasdaq Gold **
-------------- --------------
0.10%*** $0.13
Trustee's Fee 0.04% $0.05
Licensee Fee
Other Operating 0.04% $0.05
Expenses ------- ---------
Total Expenses 0.18%**** $0.24
======= =========
</TABLE>
- ---------------
* Estimated on the basis of average net assets of the Trust at a $500
million level. The estimated expenses do not include expenses incident to
the organization of the Trust as the Sponsor has agreed to assume these
expenses. For a more complete description of the various costs and
expenses of the Trust, see "Expenses of the Trust."
** Assumes the per share of Nasdaq GOLD net asset value is $133. The
discrepancy between the amounts listed and the total thereof is due to
rounding.
*** The Trustee's annual fee will range from 0.06% to 0.10%, based on the net
asset value of the Trust. See "Expenses of the Trust."
**** Until further notice, the Sponsor has undertaken that up to and including
the fiscal year ending September 30, 2000, the ordinary operating
expenses of the Trust as calculated by the Trustee will not be permitted
to exceed an amount which, on a per-annum basis, is 0.18% of the net
asset value of the Trust. The estimated expenses shown here are net of
expenses projected to be assumed by the Sponsor pursuant to this
undertaking. Gross expenses of the Trust, without regard to this
undertaking, are estimated to be 0.22% of the net asset value of the
Trust, also based on average net assets of the Trust at a $500 million
level. After September 30, 2000, the Sponsor may, in its sole discretion,
discontinue its undertaking to limit ordinary operating expenses of the
Trust or renew this undertaking for an additional period of time, and if
renewed such 0.18% level may be changed and may exceed 0.18%. See
"Expenses of the Trust."
2
<PAGE> 13
Dividend Payment Dates: Quarterly, on the last Business Day of
April, July, October, and January.
Distributions (if any) will be of the
dividends accumulated in respect of the
Securities held by the Trust net of Trust
fees and expenses. Based on historical
rates of dividend payments of the portfolio
of securities comprising the Index and
estimated ordinary operating expenses of
the Trust, little or no net dividend
distributions to Beneficial Owners of
Nasdaq GOLD are expected to be made.++
Record Dates: Quarterly, on the second Business Day
following the third Friday in each of
March, June, September, and December.++
Evaluation Time: Closing time of the regular trading session
on the Nasdaq Stock Market (ordinarily 4:00
p.m. New York time).
Licensor: The Nasdaq Stock Market, Inc.
Mandatory Termination Date: The first to occur of (i) _________, 2123
or (ii) the date 20 years after the death
of the last survivor of fifteen persons
named in the Trust Agreement, the oldest of
whom was born in 1986 and the youngest of
whom was born in 1996.
Discretionary Termination: The Trust may be terminated if at any time
after six months following and prior to
three years following the Initial Date of
Deposit the value of the Securities held by
the Trust is less than $150,000,000 or if
at any time on or after three years
following the Initial Date of Deposit the
value of the Securities held by the Trust
is less than $350,000,000, as such amount
shall be adjusted for inflation.+++
3
<PAGE> 14
Minimum and Maximum A transaction fee is payable to the Trustee
Transaction Fee in connection with each creation and each
redemption of Nasdaq GOLD. The minimum
transaction fee payable for the creation
or redemption of Creation Unit size
aggregations of shares of Nasdaq GOLD is
$1,000, and the maximum transaction fee
payable for the creation or redemption
of Creation Unit size aggregations of
shares of Nasdaq GOLD is $4,000.++++
- ---------------
+ The Trust Agreement became effective and the initial deposit was made on
____________, 1998 (the "Initial Date of Deposit").
++ See "Administration of the Trust--Distributions to Beneficial Owners" and
"Special Considerations and Risk Factors--Little or No Expected Net
Dividend Distributions to Beneficial Owners."
+++ The Trust may also be terminated under other circumstances. See
"Administration of the Trust --Termination."
++++ See "Prospectus Summary -- Transaction Fee."
4
<PAGE> 15
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
OBJECTIVES
The Sponsor formed the Trust to provide investors with the opportunity to
purchase units of beneficial interest in the Trust representing proportionate
undivided interests in the Securities which consist of substantially all of the
securities, in substantially the same weighting, as the component securities of
the Nasdaq-100 Index(R) (the "Index") in the form of a security that closely
tracks the Index and that may be traded as a share of common stock. The
investment objective of the Trust is to provide investment results that
generally correspond to the price and yield performance of the component
securities of the Index (the component securities of the Index are sometimes
referred to herein as "Index Securities"). There can be no assurance that this
investment objective will be met fully. For example, it may not be possible for
the Trust to replicate and maintain exactly the composition of the Index
Securities. It is also possible that, from time to time, the Trust will be
unable to purchase all of the Index Securities. In certain circumstances, the
Trust may also be required to make distributions in excess of the yield
performance of the Index Securities (see "Tax Status of the Trust"). The value
of the Securities and, consequently, the value of shares of Nasdaq GOLD, are
subject to changes in the value of common stocks generally and to other factors.
Further, the payment, if any, of dividends (net of Trust fees and expenses) and
the maintenance of capital are subject to a number of conditions, including the
financial condition of the issuers of the Securities (see "Special
Considerations and Risk Factors").
5
<PAGE> 16
THE TRUST
The Trust is a unit investment trust organized under the laws of the
State of New York. The Trust is governed by a trust agreement (the "Trust
Agreement") between The Bank of New York, a corporation organized under the laws
of the State of New York with trust powers (the "Trustee"), and the Sponsor
dated and executed as of ___________, 1998.
DISTRIBUTOR
The Distributor for Nasdaq GOLD is ________________________, a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. (see "Underwriting").
PORTFOLIO DEPOSITS
All orders to create Nasdaq GOLD in Creation Unit size aggregations must
be placed with the Distributor (see "Underwriting" and "The Trust--Procedures
for Creation of Creation Units"). To be eligible to place orders with the
Distributor to create Creation Unit size aggregations of Nasdaq GOLD, an entity
or person either must be (1) a "Participating Party", as hereinafter defined or
(2) a Depository Trust Company Participant (see "Book Entry Ownership of Nasdaq
GOLD"), and in each case must have executed a Nasdaq GOLD Participant Agreement,
as hereinafter defined (see "The Trust--Procedures for Creation of Creation
Units" and "The Trust--Placement of Creation Orders Using the Nasdaq GOLD
Clearing Process"). As used herein, the term "Participating Party" means a
broker-dealer or other participant in the Nasdaq GOLD Clearing Process, as
hereinafter defined, through the Continuous Net Settlement ("CNS") System of the
National Securities Clearing Corporation ("NSCC"), a clearing agency that is
registered with the Securities and Exchange Commission (the "Commission").* Upon
acceptance of an order to create Nasdaq GOLD, the
- --------------
* As of September 30, 1998, National Clearing Corporation, a wholly owned
subsidiary of the National Association of Securities Dealers, Inc., owns
33 1/3% of the issued and outstanding shares of common stock of NSCC. The
National Association of Securities Dealers, Inc. is also the parent
company of Nasdaq.
6
<PAGE> 17
Distributor will transmit such order to the Trustee and instruct the Trustee to
initiate the book entry movement of the appropriate number of shares of Nasdaq
GOLD to the account of the entity placing the order. Payment for orders to
create Nasdaq GOLD will be made by deposits with the Trustee of a portfolio of
securities that is substantially similar in composition and weighting to the
Index Securities (see "The Trust--Creation of Nasdaq GOLD"), together, in
certain cases, with a cash payment in an amount which shall be equal to the
Income Net of Expense Amount (as hereinafter defined), plus or minus, as the
case may be, the Balancing Amount (as hereinafter defined). The "Income Net of
Expense Amount" is an amount equal, on a per Creation Unit basis, to the
dividends on all the Securities with ex-dividend dates within the period
beginning on the most recent ex-dividend date for Nasdaq GOLD (generally, the
third Friday in each of March, June, September, and December, see
"Distributions") through and including the current Business Day (the
"Accumulation Period") as if all of the Securities had been held for such
period, net of accrued expenses and liabilities for such period not previously
deducted (including, without limitation, (x) taxes or other governmental charges
against the Trust not previously deducted, if any, and (y) accrued fees of the
Trustee and other expenses of the Trust (including legal and auditing expenses)
and other expenses not previously deducted (see "Expenses of the Trust")). The
"Balancing Amount" serves the function of compensating for any differences
between (1) the value of the portfolio of securities deposited with the Trustee
in connection with a creation of Nasdaq GOLD, together with the Income Net of
Expense Amount, and (2) the net asset value of the Trust on a per Creation Unit
basis (see "The Portfolio--Adjustments to the Portfolio Deposit" for a further
description thereof).
The Income Net of Expense Amount and the Balancing Amount are
collectively referred to herein as the "Cash Component" and the deposit of such
a portfolio of securities and the Cash Component are collectively referred to
herein as a "Portfolio Deposit." In connection with an order
7
<PAGE> 18
to create Nasdaq GOLD on any given day, the Cash Component of the Portfolio
Deposit may be payable either by the Trustee on behalf of the Trust to the
creator of Nasdaq GOLD or by the creator of Nasdaq GOLD to the Trustee on behalf
of the Trust, depending upon the respective amounts of the Income Net of Expense
Amount and the Balancing Amount. For example, if the sum of dividends on all
Securities with ex-dividend dates within the Accumulation Period, plus or minus
the Balancing Amount, exceeds the accrued expenses and liabilities of the Trust
for such period (i.e., the Cash Component has a positive value), then the
creator of Nasdaq GOLD will be obligated to pay such amount to the Trustee on
behalf of the Trust in connection with an order to create Nasdaq GOLD.
Conversely, if the sum of dividends on all Securities with ex-dividend dates
within the Accumulation Period, plus or minus the Balancing Amount, is less than
the accrued expenses and liabilities of the Trust for such period (i.e., the
Cash Component has a negative value), then the Trustee on behalf of the Trust
will pay such Cash Component to the entity placing an order to create Nasdaq
GOLD.
All matters as to the number of shares of each of the Index Securities
and the amount of the Cash Component comprising the Portfolio Deposit shall be
determined by the Trustee in its discretion, whose determination shall be final
and binding. In certain instances, the securities portion of the Portfolio
Deposit may differ in composition and weighting relative to the composition and
weighting of the securities in the Index. For example, in connection with the
creation of Nasdaq GOLD, in the event that the Trustee determines, in its
discretion, that one or more Index Securities are likely to be unavailable for
delivery or available in insufficient quantity for delivery to the Trust upon
the creation of Nasdaq GOLD in Creation Unit size aggregations, then the Trustee
shall have the right in its discretion to permit the cash equivalent value of
such Index Security or Index Securities to be included in the Portfolio Deposit
in the calculation of the Cash Component in lieu of
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the inclusion of such Index Security or Index Securities in the securities
portion of the Portfolio Deposit (see "The Portfolio--Adjustments to the
Portfolio Deposit").
Similarly, in connection with the creation of Nasdaq GOLD, if a creator
is restricted by regulation or otherwise from investing or engaging in a
transaction in one or more Index Securities, the Trustee shall have the right,
in its discretion, to permit the cash equivalent value of such Index Security or
Index Securities to be included in the Portfolio Deposit, based on the market
value of such Index Security or Index Securities as of the Evaluation Time on
the date such creation order is deemed received by the Distributor, in the
calculation of the Cash Component in lieu of the inclusion of such Index
Security or Index Securities in the securities portion of the Portfolio Deposit.
In such case the creator will pay the Trustee the standard Transaction Fee
described below, plus an additional amount per Creation Unit not to exceed three
(3) times the Transaction Fee applicable for one Creation Unit.
An entity or person placing creation orders with the Distributor must
either (i) initiate instructions pertaining to Portfolio Deposits through the
CNS clearing processes of NSCC, as such processes have been enhanced to effect
creations and redemption of Creation Unit size aggregations of Nasdaq GOLD, such
processes being referred to herein as the "Nasdaq GOLD Clearing Process", or
(ii) deposit Portfolio Deposits with the Trustee outside the Nasdaq GOLD
Clearing Process (i.e., through the facilities of The Depository Trust Company).
TRANSACTION FEE
A transaction fee is payable to the Trustee in connection with each
creation and each redemption made through the Nasdaq GOLD Clearing Process of
Creation Unit size aggregations of Nasdaq GOLD (the "Transaction Fee"), subject
to the changes, modifications or waivers, if any,
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described below. Such Transaction Fee is non-refundable, regardless of the net
asset value of the Trust.
Until further notice is given as described below, the Transaction Fee
charged in connection with each creation of Creation Units through the Nasdaq
GOLD Clearing Process (see "The Trust--Procedures for Creation of Creation
Units") is $1,000 per Participating Party per day, regardless of the number of
Creation Units created on such day by such Participating Party. Likewise, until
further notice is given as described below, the Transaction Fee charged in
connection with the redemption of Creation Units through the Nasdaq GOLD
Clearing Process is $1,000 per Participating Party per day, regardless of the
number of Creation Units redeemed on such day by such Participating Party. This
Transaction Fee may subsequently be changed by the Trustee, upon the consent of
the Sponsor, but will not in any event exceed 10/100 of one percent (10 basis
points) of the value of a Creation Unit at the time of creation or redemption as
the case may be (the "10 Basis Point Limit").* No modifications to, or
reductions, discounts or waivers of, the Transaction Fee charged in connection
with the creation of Creation Units are scheduled or currently contemplated by
the Sponsor or the Trustee.
If Creation Units are created or redeemed outside the Nasdaq GOLD
Clearing Process, an additional amount not to exceed three (3) times the
applicable Transaction Fee will be charged to the creator or redeemer. Under the
current schedule, therefore, the total fee charged in connection with the
creation or redemption of Creation Units outside the Nasdaq GOLD Clearing
Process would be $1,000 (the Transaction Fee for the creation or redemption of a
Creation Unit) plus an additional amount not to exceed $3,000 (3 times $1,000)
for a total of $4,000.
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* The amount of the Transaction Fee currently in effect will be available
from the Trustee.
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From time to time, and for such periods as the Sponsor and the Trustee
together may determine, the Transaction Fee (as well as any additional amounts
charged in connection with creations and/or redemptions outside the Nasdaq GOLD
Clearing Process) may be increased, decreased, or otherwise modified or waived
in its entirety for certain numbers of Creation Units of Nasdaq GOLD created or
redeemed, or for creations and/or redemptions made under certain specified
circumstances, in each case without the consent of Beneficial Owners, subject to
certain conditions (see "The Trust--Creation of Creation Units" and "The
Trust--Procedures for Redemption of Nasdaq GOLD"). The Sponsor also reserves the
right, from time to time, to vary the number of shares of Nasdaq GOLD per
Creation Unit (currently 25,000 shares) and such change may or may not be made
in conjunction with a change to the Transaction Fee. Any change to the
Transaction Fee so made will not cause the amount of the Transaction Fee to
exceed the 10 Basis Point Limit at the time of a creation, or redemption, as the
case may be. Such changes or variations will be effected by an amendment to the
current Trust prospectus. The amount of the Transaction Fee in effect at any
given time will be available from the Trustee.
SIZE OF CREATION UNIT AGGREGATIONS OF NASDAQ GOLD
Nasdaq GOLD may be created or redeemed only in Creation Unit size
aggregations of 25,000 shares, or in multiples thereof (e.g., 50,000, 75,000,
100,000 shares of Nasdaq GOLD), and in no event will fractional Creation Units
be created or redeemed. The Sponsor reserves the right to direct the Trustee to
declare a split or reverse split in the number of shares of Nasdaq GOLD
outstanding and a corresponding change in the number of shares of Nasdaq GOLD
constituting a Creation Unit in the event that the per share of Nasdaq GOLD
price in the secondary market changes to an amount that the Sponsor believes
falls outside a desirable retail range. For example, if a 2-for-1 split were
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declared, the number of shares of Nasdaq GOLD in a Creation Unit size
aggregation of Nasdaq GOLD would double (e.g., from 25,000 to 50,000 shares of
Nasdaq GOLD per Creation Unit).
PORTFOLIO ADJUSTMENTS
To maintain the correspondence between the composition and weighting of
Securities held in the Trust and that of the Index Securities, the composition
and weighting of the Securities are adjusted from time to time to conform to
periodic changes in the composition and weighting of the Index Securities made
by Nasdaq. The Trustee aggregates certain of these adjustments and makes
conforming changes to the Trust's portfolio at least monthly; adjustments are
made more frequently, however, in the case of changes to the Index that are
significant (see "The Portfolio--Adjustments to the Portfolio"). The composition
and weighting of the securities portion of a Portfolio Deposit are also adjusted
to conform to changes in the Index. Any change in the identity or weighting of
an Index Security will result in a corresponding adjustment to the prescribed
Portfolio Deposit effective on the Business Day (a "Business Day" being any day
that the Nasdaq Stock Market is open for business) on which the change to the
Index takes effect. Changes to the Index are made after the close of the market
(see "The Portfolio--Adjustments to the Portfolio Deposit").
BOOK ENTRY OWNERSHIP OF NASDAQ GOLD
The Depository Trust Company, New York, New York, a limited purpose trust
company organized under the laws of the State of New York (referred to herein as
"DTC" or the "Depository") or its nominee will be the record or registered owner
of all outstanding shares of Nasdaq GOLD. Beneficial ownership of Nasdaq GOLD
will be shown on the records of the Depository or its participants. Certificates
will not be issued for Nasdaq GOLD, whether in Creation Unit size aggregations
or otherwise (see "The Trust--Book-Entry-Only System").
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EXPENSES
The Trustee's fees are set forth generally in the "Summary of Essential
Information" and more specifically in "Expenses of the Trust" below. Other
expenses of the Trust are also described more fully in "Expenses of the Trust."
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to cover Trust fees and expenses
(which would currently be the case if the Trust were in existence and its
ordinary operating expenses were 0.18% per annum of the net asset value of the
Trust consistent with the Sponsor's undertaking to limit the Trust's ordinary
operating expenses, see "Expenses of the Trust"), then the Trustee will be
required to sell Securities in an amount sufficient to pay the shortfall. Such a
sale of Securities will ordinarily be required to occur whenever the Trustee
determines that projected annualized fees and expenses accrued on a daily basis
exceed projected annualized dividends and other Trust income accrued on a daily
basis by more than 1/100 of one percent (0.01%) of the net asset value of the
Trust and will ordinarily be made no later than the next occurring adjustment to
the Securities held in the Trust to conform to changes in the composition and
weighting of the Index Securities (see "Expenses of the Trust" and "The
Portfolio--Adjustments to the Portfolio").
FEDERAL INCOME TAX CONSIDERATIONS
The Trust intends to adopt a fiscal year ending on September 30 of each
year. The Trust intends to qualify for and elect tax treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and to distribute annually its entire investment company
taxable income and net capital gain. Distributions that are taxable as ordinary
income to Beneficial Owners generally are expected to constitute dividend income
for federal income tax purposes and to be eligible for the dividends-received
deduction available to many corporations to the extent of qualifying dividend
income received by the Trust (see "Tax Status of
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<PAGE> 24
the Trust"). The quarterly distributions, if any, made by the Trust will be
based on the dividend performance of the Securities held during such quarterly
distribution period, net of Trust fees and expenses, rather than the actual
taxable income of the Trust. (See "Administration of the Trust--Distributions to
Beneficial Owners.") As a result, a portion of any such distributions of the
Trust may be treated as a return of capital or a capital gain dividend for
federal income tax purposes or the Trust may be required to make additional
distributions to maintain its status as a regulated investment company or to
avoid imposition of income or excise taxes on undistributed income (see "Tax
Status of the Trust" and "Administration of the Trust--Distributions to
Beneficial Owners").
ERISA CONSIDERATIONS
In considering the advisability of an investment in Nasdaq GOLD,
fiduciaries of pension, profit sharing, or other tax-qualified retirement plans
(including Keogh Plans) and welfare plans (collectively, "Plans") subject to the
fiduciary responsibility requirements of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), should consider whether an investment in
Nasdaq GOLD is permitted by the documents and instruments governing the Plan and
whether the investment satisfies the exclusive benefit, prudence, and
diversification requirements of ERISA. Individual retirement account ("IRA")
investors should consider that an IRA may make only such investments as are
authorized by its governing instruments.
The fiduciary standards and prohibited transactions rules of ERISA and
Section 4975 of the Code will not apply to transactions involving the Trust's
assets while Nasdaq GOLD is held by a Plan or IRA. Unlike many other investment
vehicles offered to Plans and IRAs, the Trust's assets will not be treated as
"plan assets" of the Plans or IRAs which acquire or purchase Nasdaq GOLD.
Although ERISA imposes certain duties on Plan fiduciaries and ERISA and/or
Section 4975 of the Code prohibit certain transactions involving "plan assets"
between Plans or IRAs and their fiduciaries or
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certain related persons, those rules will not apply to transactions involving
the Trust's assets because Nasdaq GOLD represents an interest in the Trust, and
the Trust is registered as an investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"). ERISA, the Code, and U.S. Department
of Labor regulations contain unconditional language exempting the assets of
registered investment companies from treatment as "plan assets" in applying the
fiduciary and prohibited transaction provisions of ERISA and the Code.
RESTRICTIONS ON PURCHASES BY INVESTMENT COMPANIES
The acquisition of Nasdaq GOLD by registered investment companies is
subject to the restrictions set forth in section 12(d)(l) of the 1940 Act.
INVESTMENT MANAGEMENT
The Trust will hold the Securities and cash and will not be actively
"managed" by traditional methods, which typically involve effecting changes in
the Securities on the basis of judgments made relating to economic, financial,
and market considerations. The composition of the Securities will be adjusted,
however, to conform to changes in the composition of the Index Securities in the
manner set forth in the Trust Agreement as described herein (see "The
Portfolio--Adjustments to the Portfolio").
DISTRIBUTIONS
Distributions by the Trust will be made quarterly to the extent that
dividends accumulated in respect of the Securities and other income, if any,
received by the Trust exceed Trust fees and expenses accrued during the
quarterly Accumulation Period which ends on the Business Day preceding each
ex-dividend date for Nasdaq GOLD. The regular quarterly ex-dividend date with
respect to net dividends, if any, for Nasdaq GOLD will be the third Friday in
each of March, June, September, and December, unless such day is not a Business
Day, in which case the ex-dividend date
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will be the immediately preceding Business Day (the "Ex-Dividend Date").
However, no net dividend distribution will be made in any given quarter, and any
net dividend amounts will be rolled into the next Accumulation Period, if the
aggregate net dividend distribution would be in an amount less than 5/100 of one
percent (0.05%) of the net asset value of the Trust, unless the Trustee
determines that such distribution is required to be made in order to maintain
the Trust's status as a regulated investment company or to avoid the imposition
of income or excise taxes on undistributed income. (See "Administration of the
Trust--Distributions to Beneficial Owners.")
At present, and possibly for extended periods of time during the life of
the Trust, the expenses of the Trust may be as great as or in excess of the
dividend and other income to be received by the Trust during any quarter and,
under such circumstances, no quarterly net dividend distributions would be made
(see "Special Consideration and Risk Factors--Little or No Expected Net Dividend
Distributions to Beneficial Owners"). Distributions (if any) will be made on
Dividend Payment Dates to Beneficial Owners via the Depository and its
participants (see "The Trust--Book-Entry-Only System"). For federal income tax
purposes, a portion of any net dividend distributions may result in a return of
capital to Beneficial Owners of Nasdaq GOLD (see "Tax Status of the Trust").
Any net capital gains recognized by the Trust in any taxable year will be
distributed at least annually. The Trust may make additional distributions after
the end of the year in order to satisfy certain distribution requirements
imposed by the Code (see "Tax Status of the Trust" and "Administration of the
Trust--Distributions to Beneficial Owners"). Although income distributions, if
any, are currently planned to be made on a quarterly basis, the Trustee reserves
the right to vary the frequency of distributions (see "Administration of the
Trust--Distributions to Beneficial Owners").
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REDEMPTION
Nasdaq GOLD in Creation Unit size aggregations is ordinarily redeemable
in kind only and is not redeemable for cash except under certain circumstances
(see "Redemption of Nasdaq GOLD"). Nasdaq GOLD can be redeemed only in Creation
Unit size aggregations effected by a Participating Party (with respect to
redemptions through the Nasdaq GOLD Clearing Process) or a DTC Participant (with
respect to redemptions outside the Nasdaq GOLD Clearing Process), in either case
which has executed a Nasdaq GOLD Participant Agreement (see "Redemption of
Nasdaq GOLD--Procedure for Redemption of Nasdaq GOLD"). Individual shares of
Nasdaq GOLD are not redeemable, but entitle the owners thereof to certain
payments upon termination of the Trust (see "Administration of the
Trust--Termination"). Prior to termination, Nasdaq GOLD owners may aggregate
individual shares of Nasdaq GOLD to Creation Unit size or multiples thereof
(e.g., 25,000, 50,000 shares, etc.) and request that the Trustee redeem the
Nasdaq GOLD so aggregated. There can be no assurance, however, that there will
always be sufficient depth and liquidity in the public trading market to
complete all such transactions (see "Special Considerations and Risk Factors").
Owners of Nasdaq GOLD in less than Creation Unit size aggregations may have to
pay brokerage fees and commissions to acquire sufficient Nasdaq GOLD (i.e.,
25,000 shares) to constitute a Creation Unit. Persons redeeming Nasdaq GOLD in
Creation Unit size aggregations may also be entitled to receive, or be required
to pay, a Cash Redemption Amount (as hereinafter defined, see "Redemption of
Nasdaq GOLD--Procedure for Redemption of Nasdaq GOLD"). On any given Business
Day, the Cash Redemption Amount will be an amount typically identical to the
Cash Component of a Portfolio Deposit.
In the event that the Trustee determines in its discretion that an Index
Security is likely to be unavailable for delivery or available in insufficient
quantity for delivery by the Trust upon the
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redemption of Nasdaq GOLD in Creation Unit size aggregations, then the Trustee
shall have the right in its discretion to include the cash equivalent value of
such Index Security or Index Securities, based on the market value of such Index
Security or Index Securities as of the Evaluation Time on the date such
redemption order is deemed received by the Trustee (see "Redemption of Nasdaq
GOLD"), in the calculation of the Cash Redemption Amount in lieu of delivering
the Index Security or Index Securities to the redeeming investor.
Similarly, in connection with the redemption of Nasdaq GOLD, if a
redeeming investor requests redemption in cash, rather than in kind, with
respect to one or more Index Securities (for example, because a redeeming
investor is restricted by regulation or otherwise from investing or engaging in
a transaction in one or more Index Securities), the Trustee shall have the right
in its discretion to include the cash equivalent value of such Index Security or
Index Securities, based on the market value of such Index Security or Index
Securities as of the Evaluation Time on the date such redemption order is deemed
received by the Trustee, in the calculation of the Cash Redemption Amount in
lieu of delivering such Index Security or Index Securities to the redeeming
investor. In all such cases, such investor will pay the Trustee the standard
Transaction Fee, plus an additional amount not to exceed three (3) times the
Transaction Fee applicable for a Creation Unit.
The Trustee, in its discretion, upon the request of a redeeming investor,
may redeem Creation Units in whole or in part by providing such redeeming
investor with a Portfolio Deposit differing in composition, but not differing in
net asset value, from the then-current Portfolio Deposit. Such a redemption is
likely to be made only if it were determined to be appropriate in order to
maintain the Trust Portfolio's correspondence to the composition and weighting
of the Index when a change to the composition and/or weighting of the Index
Securities occurs (see "The Portfolio", "The Index", and "The Index--Rebalancing
of the Index").
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The Transaction Fee will be charged in connection with the redemption of
Creation Unit size aggregations of Nasdaq GOLD. If a request for redemption is
made directly to the Trustee outside the Nasdaq GOLD Clearing Process, an
additional amount not to exceed three (3) times the Transaction Fee applicable
for a Creation Unit will be charged to the redeemer due to the increased expense
associated with delivery outside the Nasdaq GOLD Clearing Process (see
"Transaction Fee").
TERMINATION
The Trust will terminate by its terms on the first to occur of: (i) the
date one hundred twenty-five (125) years from the Initial Date of Deposit (i.e.,
__________, 2123) or (ii) the date twenty (20) years after the death of the last
survivor of fifteen persons named in the Trust Agreement, the oldest of whom was
born in 1986 and the youngest of whom was born in 1996 (the "Mandatory
Termination Date"). The Trust may also be terminated earlier upon the agreement
of the Beneficial Owners of 66 2/3% of the then outstanding shares of Nasdaq
GOLD. The Sponsor will also have the discretionary right to direct the Trustee
to terminate the Trust if at anytime after six months following and prior to
three years following the Initial Date of Deposit the net asset value of the
Trust falls below $150,000,000 and if on or after three years following the
Initial Date of Deposit the net asset value of the Trust is less than
$350,000,000, as such dollar amount shall be adjusted for inflation in
accordance with the National Consumer Price Index for All Urban Consumers (the
"CPI-U")* as published by the United States Department of Labor, such adjustment
to take effect at the end of the fourth year following the Initial Date of
Deposit and at the end of each year thereafter and to be made so as to reflect
the percentage increase in consumer prices as set forth in the CPI-U for the
twelve month period ending in the month preceding the month in which such
adjustment is made. The
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* The CPI-U, as published by the United States Department of Labor,
measures the inflation rate of specified commodities deemed
representative of the purchases of all urban consumers.
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Trustee shall have the right to terminate the Trust in the event that (a) the
Sponsor resigns or becomes incapable of discharging its duties and a successor
is not appointed; (b) the Depository is unable or unwilling to continue to
perform its functions as set forth under the Trust Agreement and a suitable
replacement is unavailable; (c) NSCC no longer provides clearance services with
respect to Nasdaq GOLD and a suitable replacement is unavailable, or if the
Trustee is no longer a member of NSCC or any successor to NSCC providing
clearance services; (d) Nasdaq ceases publishing the Index; (e) Nasdaq GOLD is
delisted from the [Nasdaq Stock Market or Amex] and is not subsequently relisted
on a national securities exchange or a quotation medium operated by a national
securities association (see "Marketplace Listing"); or (f) the License Agreement
(as hereinafter defined) is terminated. The License Agreement currently is
scheduled to terminate five years from the commencement date of trading of
Nasdaq GOLD, subject to a five-year renewal period following such date (see
"License Agreement"). The Trust shall also terminate if the Trustee resigns or
becomes incapable of discharging its duties and a successor is not appointed
(see "Administration of the Trust--Termination").
UNDERWRITING
________________________________ (the "Distributor") acts as underwriter
of Nasdaq GOLD on an agency basis. All orders to create Nasdaq GOLD in Creation
Unit size aggregations must be placed with the Distributor, and it is the
responsibility of the Distributor to transmit such orders to the Trustee. The
Distributor will furnish to those placing such orders confirmation that the
orders have been accepted, but the Distributor will reject any order which is
not submitted in proper form. Upon acceptance of an order to create Nasdaq GOLD,
the Distributor will instruct the Trustee to initiate the book-entry movement of
the appropriate number of shares of Nasdaq GOLD to the account of the entity
placing the order. The Distributor is also responsible for delivering a
prospectus
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to those persons creating Nasdaq GOLD. The Distributor also maintains records of
both the orders placed with it for the creation of Nasdaq GOLD and the
confirmations of acceptance issued by it. In addition, the Distributor maintains
a record of the instructions given to implement delivery of Nasdaq GOLD in
response to orders placed with it. The Distributor may also provide certain
other administrative services, such as those related to state securities law
compliance. The Distributor is a corporation organized under the laws of the
State of _________ and is located at ___________________________________. The
Distributor is a registered broker-dealer and a member of the National
Association of Securities Dealers, Inc. The Sponsor pays the Distributor for its
services a flat annual fee. The Sponsor will not seek reimbursement for such
payment from the Trust without obtaining prior exemptive relief from the
Commission.
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SPECIAL CONSIDERATIONS AND RISK FACTORS
GENERAL
Investment in the Trust should be made with an understanding that the
value of the Securities may fluctuate in accordance with changes in the
financial condition of the issuers of the Securities, the value of common stocks
generally, and other factors. The composition and weighting of the Index
Securities and hence the composition and weighting of the Securities held in the
Trust also change from time to time (see "The Portfolio--Adjustments to the
Portfolio", "The Portfolio--Selection and Acquisition of Securities", and "The
Index--Rebalancing of the Index"). There can be no assurance that the issuers of
the Securities will pay dividends on outstanding shares of common stock.
Distributions on the Securities will generally depend upon the declaration of
dividends by the issuers of the Securities; the declaration of such dividends
generally depends upon various factors, including the financial condition of the
issuers and general economic conditions. As discussed above, the Trust, unlike a
managed investment company, will not be actively "managed" by traditional
methods, and therefore the adverse financial condition of an issuer will not
result in the elimination of its securities from the Securities held by the
Trust unless the Securities of such issuer are removed from the Index (see "The
Portfolio--Adjustments to the Portfolio").
An investment in the Trust should also be made with an understanding of
the risks inherent in an investment in equity securities, including the risk
that the financial condition of the issuers of the Securities may become
impaired or that the general condition of the stock market may deteriorate
(either of which may cause a decrease in the value of the Securities and thus in
the value of Nasdaq GOLD). Common stocks are susceptible to general stock market
fluctuations and to volatile increases and decreases in value as market
confidence in and perceptions of their issuers change. These investor
perceptions are based on various and unpredictable factors including
expectations
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regarding government, economic, monetary and fiscal policies, inflation and
interest rates, economic expansion or contraction, and global or regional
political, economic, and banking crises. As discussed above, the Trust will not
be actively "managed" and therefore securities held by the Trust will not be
disposed of as a result of or in anticipation of normal fluctuations in the
market.
Holders of common stocks of any given issuer incur more risk than holders
of preferred stocks and debt obligations of such issuer because common
stockholders, as owners of such issuer, have generally inferior rights to
receive payments from such issuer in comparison with the rights of creditors of,
or holders of debt obligations or preferred stocks issued by, such issuer.
Further, unlike debt securities which typically have a stated principal amount
payable at maturity (whose value, however, will be subject to market
fluctuations prior thereto), or preferred stocks which typically have a
liquidation preference and which may have stated optional or mandatory
redemption provisions, common stocks have neither a fixed principal amount nor a
maturity. Common stock values are subject to market fluctuations as long as the
common stock remains outstanding. The value of the Securities may therefore be
expected to fluctuate over the entire life of the Trust to values higher or
lower than those prevailing on the Initial Date of Deposit (see "Market Risks").
All of the Securities are currently listed on the Nasdaq Stock Market.
The existence of a liquid trading market for certain Securities may depend on
whether dealers will make a market in such Securities. There can be no assurance
that a market will be made for any of the Securities, that any market for the
Securities will be maintained, or that any such market will be or remain liquid.
The price at which the Securities may be sold and the value of the Trust will be
adversely affected if trading markets for the Securities are limited or absent.
An investment in the Trust should also be made with an understanding that
the Trust will not be able to replicate exactly the performance of the Index
because the total return generated by the
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Securities will be reduced by transaction costs incurred in adjusting the actual
balance of the Securities and other Trust expenses, whereas such transaction
costs and expenses are not included in the calculation of the Index. It is also
possible that for a short period of time, the Trust may not fully replicate the
performance of the Index due to the temporary unavailability of certain Index
Securities in the secondary market or due to other extraordinary circumstances.
Such events are unlikely to continue for an extended period of time, because the
Trustee is required to correct such imbalances by means of adjusting the
composition of Portfolio Securities (see "The Portfolio--Adjustments to the
Portfolio"). It is also possible that the composition of the Trust may not
exactly replicate the composition of the Index if the Trust has to adjust its
Portfolio holdings in order to continue to qualify as a "regulated investment
company" under the Code (see "Tax Status of the Trust").
Neither the Depository nor Beneficial Owners of Nasdaq GOLD are entitled
either to dispose of any of the Securities in the Trust, as such, or to vote the
Securities. As the beneficial owner of the Securities, the Trustee has the right
to vote all of the voting Securities (see "Administration of the
Trust--Voting").
Except as otherwise specifically noted, the time frames for delivery of
Securities, cash, or Nasdaq GOLD in connection with creation and redemption
activity within the Nasdaq GOLD Clearing Process as set forth herein are based
on NSCC's current "regular way" settlement period of three (3) days during which
NSCC is open for business (each such day an "NSCC Business Day"). NSCC may, in
the future, reduce or increase such "regular way" settlement period, in which
case it is anticipated that there would be a corresponding reduction or increase
in settlement periods applicable to Nasdaq GOLD creations and redemptions.
Investors should note that NSCC Business Days do not always coincide with the
days during which the Trustee is open for business.
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LITTLE OR NO EXPECTED NET DIVIDEND DISTRIBUTIONS TO BENEFICIAL OWNERS
The Trust Agreement provides for quarterly distributions to Beneficial
Owners via the Depository and its participants (see "The Trust--Book-Entry-Only
System") on Dividend Payment Dates in the event that dividends accumulated in
respect of the Securities and other income, if any, received by the Trust exceed
Trust fees and expenses accrued during the quarterly Accumulation Period which
ends on the Business Day preceding each Ex-Dividend Date; subject, however, to
such amount falling below a floor for de-minimus distributions, in which event a
net dividend distribution may not be paid and such amount will be rolled into
the next Accumulation Period (see "Administration of the Trust--Distributions to
Beneficial Owners"). Historically, the portfolio of securities comprising the
Index has paid relatively low dividends when compared to the securities
comprising other broad-based stock indices. For example, for the 1995, 1996, and
1997 calendar years, the ratio of the aggregate dividends paid to total
capitalization for the securities comprising the Index in those periods was
0.26%, 0.11%, and 0.13%, respectively. In comparison, the comparable dividend
ratio for the securities comprising the Standard & Poor's 500 Index (R) in those
periods was 2.24%, 2.01%, and 1.60%, respectively. (See "The Index" for the
historical aggregate dividend yields of the securities comprising the Index.)
The Sponsor has undertaken that on each day during each fiscal year up to
and including the fiscal year ending September 30, 2000, the ordinary operating
expenses of the Trust will not be permitted to exceed an amount which is 18/100
of one percent (0.18%) per annum of the daily net asset value of the Trust (see
"Expenses of the Trust"). Notwithstanding such limitation on Trust expenses, the
fees and expenses of the Trust may exceed the dividend and other income on the
Securities received by the Trust during each quarter. In such event, no net
dividend distributions would be made by the Trust. Based on the 1997 dividend
yield noted above of the securities
25
<PAGE> 36
comprising the Index in that year, no net dividend distributions would have been
made by Trust if it were in existence during the 1997 calendar year and if
ordinary operating expenses were 0.18% per annum of the net asset value of the
Trust consistent with the Sponsor's undertaking to limit the Trust's ordinary
operating expenses.
Moreover, after September 30, 2000, the Sponsor may, in its sole
discretion, discontinue its undertaking to limit ordinary operating expenses of
the Trust, or may renew this undertaking for an additional period of time but at
a different level which may be higher than 0.18%. In such event, the likelihood
may increase that expenses of the Trust would exceed the dividend and other
income received by the Trust during each quarter. The Trust will pay any such
excess expenses with the proceeds realized from the sale of Securities effected
ordinarily whenever the Trustee determines that projected annualized fees and
expenses accrued on a daily basis exceed projected annualized dividends and
other Trust income accrued on a daily basis by more than 1/100 of one percent
(0.01%) of the net asset value of the Trust (see "Expenses of the Trust"). Such
a sale of Securities will ordinarily be required to occur no later than the next
occurring adjustment to the Securities held in the Trust to conform to changes
in the composition and weighting of the Index Securities (see "The
Portfolio--Adjustments to the Portfolio").
Dividend payment rates of the securities comprising the Index may change
based on numerous factors, including the financial condition of the issuers and
general economic conditions, as well as from changes to the price level of Index
Securities, and from changes to the composition of Index Securities (i.e., the
substitution of one security in the Index with another paying higher or lower
dividends than the security being replaced). (See "The Index" for a discussion
of the selection criteria for determining the Index Securities.) In addition,
the Trust has no operating history by which to measure Trust expenses and
although the amounts of certain ordinary Trust expenses can be
26
<PAGE> 37
estimated, the growth rate of the Trust, which cannot be anticipated, will
directly affect the level of Trust expenses as a percentage of the Trust's net
asset value (i.e., as the Trust grows in net asset value, certain relatively
fixed Trust expenses will be borne by a greater number of holders of Nasdaq
GOLD). Accordingly, no assurances can be given as to the actual level of
dividends payable by the issuers of the Securities or the actual level of Trust
expenses, and no representations are being made as to the level of net dividend
distributions, if any, that may be payable by the Trust.
NET ASSET VALUE AND MARKET PRICES
The Trust's assets consist primarily of the Securities. Therefore, the
net asset value of Nasdaq GOLD in Creation Unit size aggregations and,
proportionately, the net asset value per share of Nasdaq GOLD changes as
fluctuations occur in the market value of the Securities. Investors should also
be aware that the aggregate public trading market price of 25,000 shares of
Nasdaq GOLD may be different from the net asset value of a Creation Unit
aggregation of Nasdaq GOLD (i.e., 25,000 shares of Nasdaq GOLD may trade at a
premium over or at a discount to the net asset value of a Creation Unit) and
similarly the public trading market price per share of Nasdaq GOLD may be
different from the net asset value of a Creation Unit on a per share of Nasdaq
GOLD basis (see "--Market Risks"). This price difference may be due, in large
part, to the fact that supply and demand forces at work in the secondary trading
market for Nasdaq GOLD will be closely related to, but not identical to, the
same forces influencing the prices of the Index component securities trading
individually or in the aggregate at any point in time. The expenses of the Trust
are reflected in the net asset value of Nasdaq GOLD in Creation Unit size
aggregations and the expenses of the Trust are accrued daily (see "Expenses of
the Trust").
27
<PAGE> 38
TRADING CONSIDERATIONS
Prior to the date of this Prospectus, there has been no market for shares
of Nasdaq GOLD trading individually or in Creation Unit size aggregations and,
consequently, there can be no assurance that active trading markets will
develop, nor is there a certain basis for predicting the actual price levels at
which Nasdaq GOLD may trade.
Further, there can be no assurance that Nasdaq GOLD will experience
trading or pricing patterns similar to those of market-traded securities which
are issued by investment companies based upon indexes other than the Index
(e.g., SPDRs(R), MidCap SPDRs(TM), DIAMONDS(SM), and WEBS(SM)).*
The Sponsor's aim in designing Nasdaq GOLD was to provide investors with
a security whose initial market value would approximate one-tenth (1/10th) the
value of the Index. Thus, for example, if the Index were at 1200, investors
might expect a share of Nasdaq GOLD to trade initially at approximately $120.
Investors should be aware, however, that the market price of a share of Nasdaq
GOLD may be affected by supply and demand, market volatility, sentiment, and
other factors. In addition, due to these factors as well as other factors
including required distributions for tax purposes (see "Tax Status of the
Trust") or the sale of Securities to meet Trust expenses in excess of the
dividends received on the Securities (see "Expenses of the Trust"), the
one-tenth (1/10th) relationship between the initial value of a share of Nasdaq
GOLD and the value of the Index is not expected to persist indefinitely.
The Sponsor does not maintain a secondary market in Nasdaq GOLD. Nasdaq
GOLD has been accepted for listing on the [Nasdaq Stock Market or Amex] subject
to official notice of
- -------------------
* SPDRs(R) and MidCap SPDRs(TM) are trademarks of the McGraw-Hill
Companies, Inc., DIAMONDS(SM) is a service mark of Dow Jones & Company,
Inc., and WEBS(SM) is a service mark of Morgan Stanley, Dean Witter,
Discover & Co.
28
<PAGE> 39
issuance.* The market symbol for Nasdaq GOLD will be "____". Trading in Nasdaq
GOLD on the [Nasdaq Stock Market or Amex] may be halted due to market conditions
or, in light of [Nasdaq Stock Market or Amex] rules and procedures, for reasons
that, in the view of the [Nasdaq Stock Market or Amex], make trading in Nasdaq
GOLD inadvisable. In addition, trading in Nasdaq GOLD on the [Nasdaq Stock
Market or Amex] is subject to trading halts caused by extraordinary market
volatility pursuant to [Nasdaq Stock Market or Amex] "circuit breaker" rules
that require trading in securities on the [Nasdaq Stock Market or Amex] to be
halted for a specified time period based on a specified market decline. There
can be no assurance that the requirements of the [Nasdaq Stock Market or Amex]
necessary to maintain the listing of Nasdaq GOLD will continue to be met or will
remain unchanged. The Trust will be terminated in the event Nasdaq GOLD is
delisted from the [Nasdaq Stock Market or Amex] and is not subsequently relisted
on a national securities exchange or a quotation medium operated by a national
securities association. (For a description of the conditions for the listing of
Nasdaq GOLD and the circumstances under which the [Nasdaq Stock Market or Amex]
would consider the suspension of trading in or the delisting of Nasdaq GOLD, see
"Marketplace Listing.") Further, the Trust may be terminated, among other
reasons, in the event that the net asset value of the Trust falls below a
specified level (see "Administration of the Trust--Termination").
MARKET RISKS
Nasdaq GOLD is subject to the risks of an investment in a broad market
portfolio of equity securities, including the risk that the general level of
stock prices may decline, thereby adversely affecting the value of such
investment. Nasdaq GOLD is also subject to the risks of an investment in a
portfolio of equity securities in economic sectors in which the Index may be
highly concentrated
- ---------------------
* A decision as to where shares of Nasdaq GOLD will be listed will be made
prior to the effective date of the Trust.
29
<PAGE> 40
(e.g., technology, see "The Index") as well as to the risks specific to the
performance of a few individual component securities which currently represent a
highly concentrated weighting in the Index (e.g., Microsoft Corporation and
Intel Corporation, see "The Index"). In addition, because it is the policy of
the Trust to invest in the securities that comprise the Index, if the Index is
concentrated in an industry or group of industries, the portfolio of Securities
also will be concentrated in that industry or group of industries. These include
the risks that the level of stock prices in these sectors or the stock prices of
these specific companies may decline, thereby adversely affecting the value of
Nasdaq GOLD. Furthermore, investors should be aware that in the event that one
or more stocks which currently have a highly concentrated weighting in the Index
were to leave the Nasdaq Stock Market, if a company with a large market
capitalization were to list its shares on the Nasdaq Stock Market, or if there
were a significant rebalancing of the Index (see "The Index -- Rebalancing of
the Index"), then the composition and weighting of the Index, and hence the
composition and weighting of the Securities in the Trust, would change
significantly and the performance of Nasdaq GOLD would reflect the performance
of the new Index as reconfigured (see "The Portfolio--Adjustments to the
Portfolio").
Furthermore, due to the concentration of the Index in sectors
characterized by relatively higher volatility in price performance when compared
to other economic sectors, the performance of the Index may be more volatile
when compared to other broad based stock indices. For example, the annual
volatility of the Index for the 12 months ending June 30, 1998 was 26.1%, while
the annual volatility of the Standard & Poor's 100 Index (R) and the Standard &
Poor's 500 Index(R) for the same period was 18.4% and 17.5%, respectively. For
this reason, it is anticipated that the price volatility of Nasdaq GOLD may be
greater than the price volatility of other market-traded securities which are
issued by investment companies based upon indices other than the Index.
30
<PAGE> 41
Nasdaq GOLD is also subject to risks other than those associated with an
investment in a broad market portfolio of equity securities in that the
selection of the securities included in the Trust's portfolio, the expenses
associated with the Trust, or other factors distinguishing an ownership interest
in a trust from the direct ownership of a portfolio of securities may affect
trading in Nasdaq GOLD as compared with trading in a broad market portfolio of
equity securities. Nasdaq GOLD is further subject to the risk that extraordinary
events may cause any of the parties providing services to the Trust, such as the
Trustee, the Sponsor, the Distributor, the Depository, NSCC, or Nasdaq (as the
licensor of the Index and the Index calculator) to be closed or otherwise unable
to perform such party's obligations as set forth herein and in the agreements
between and among such parties. According to the terms of the Trust Agreement,
if any of the above named entities fails or is otherwise unable to perform
adequately its duties, a successor entity may be named or appointed to assume
all duties and obligations of its predecessor. If, however, no suitable
successor is available or willing to undertake all such duties and obligations,
under the Trust Agreement the Trust will then be terminated (see "Administration
of the Trust--Termination").
The Trustee will ordinarily deliver a portfolio of Securities for each
Creation Unit size aggregation of Nasdaq GOLD delivered for redemption,
identical in composition to the Securities portion of a Portfolio Deposit as in
effect on the date a request for redemption is deemed received by the Trustee
(see "Redemption of Nasdaq GOLD"). If a redemption is processed through the
Nasdaq GOLD Clearing Process, to the extent that the Securities to be delivered
on settlement date are not delivered, they will be covered by NSCC's guarantee
of the completion of such delivery. Any Securities not received on settlement
date will be marked to the market on a daily basis until delivery is completed.
The Trust, to the extent it has not already done so, remains obligated to
deliver such Securities to NSCC, and the market risk of any increase in the
value of such Securities until delivery
31
<PAGE> 42
is made by the Trust to NSCC could adversely affect the net asset value of the
Trust. Investors should note that the Securities to be delivered to a redeemer
submitting a redemption request outside of the Nasdaq GOLD Clearing Process that
are not delivered to such redeemer are not covered by NSCC's guarantee of
completion of such delivery.
Investors should also note that the size of the Trust in terms of total
assets held may change substantially over time and from time to time as Nasdaq
GOLD in Creation Unit size aggregations is created and redeemed. Such
fluctuations in Trust size should not adversely impact the net asset value per
share of Nasdaq GOLD at any time because the amount of the Cash Component or the
Cash Redemption Amount upon creations or redemptions, respectively, of Nasdaq
GOLD in Creation Unit size aggregations, is determined each day to equate the
value of the Portfolio Deposit to the net asset value of the Trust, on a per
Creation Unit basis, at the close of business on the day such request is deemed
received by the Trustee (see "The Portfolio--Adjustments to the Portfolio
Deposit").
Investors in the Trust should also be aware that there are tax
consequences associated with the ownership of Nasdaq GOLD resulting from the
distribution, if any, of Trust net dividends and sales of Nasdaq GOLD, as well
as the sale of underlying Securities held by the Trust in connection with
redemptions or changes in the Index under certain circumstances (see "Tax Status
of the Trust--Tax Consequences to Beneficial Owners").
RECENT REVISIONS TO THE INDEX
Effective on __________, 1998, the method for calculating the Index was
revised to a "modified capitalization weighted" methodology which resulted in
changes to the weighting of the component securities in the Index on such date.
This methodology is expected to promote portfolio weight diversification
(thereby limiting domination of the Index by a few large common stocks) while
retaining in general the economic attributes of capitalization weighting. Under
this methodology, the
32
<PAGE> 43
Index share weights of the component securities of the Index are subject to
quarterly rebalancing, if necessary, to ensure that the relative weighting of
the Index Securities continues to meet minimum pre-established requirements for
a diversified portfolio (see "The Index--Rebalancing of the Index").
Accordingly, the composition and weighting of the Securities in the Trust will
be based upon the Index as calculated in accordance with this new methodology.
IMPACT OF THE YEAR 2000 PROBLEM
Like other investment funds and financial and business organizations
around the world, the Trust relies significantly upon the smooth functioning of
computer systems. The Trust could be adversely affected if computer systems,
including those used by the Trustee in the administration of the Trust or those
used by Nasdaq in the calculation of the Index, do not properly process and
calculate date-related information concerning dates after January 1, 2000. Many
computer systems in use today were originally written using two digits rather
than four to define a particular year. As a result, these computer programs have
time-sensitive software that may recognize a date using "00" as the year 1900
rather than the year 2000. That failure could have a negative impact on the
handling of securities trades, pricing, and trust services, among other things.
This is commonly known as the "Year 2000 Problem."
Both Nasdaq and the Trustee have taken steps in their view reasonably
necessary to address the Year 2000 Problem with respect to the computer systems
they use and to monitor Year 2000 compliance by vendors and external service
providers. In 1996, Nasdaq's parent, the National Association of Securities
Dealers, Inc., and the Trustee each established offices responsible for
coordinating all Year 2000 compliance activities. All Nasdaq systems have been
analyzed and a determination has been made about whether to retire, replace, or
repair systems. The target month for Year 2000 compliance for mission critical,
mission essential and other applications (including the
33
<PAGE> 44
programs responsible for calculating the Index) is December 1998. Nasdaq has
also established a test center which has begun testing external systems that
interact with Nasdaq; ongoing testing is expected to continue through 1999.
Nasdaq is also in the process of providing for independent back-up calculations
of the Index to be performed on an intra-day basis beginning well in advance of
the Year 2000. Similarly, Year 2000 remediation and internal certification
testing by the Trustee of all of its mission critical systems is also expected
to be completed in December 1998. This will provide the opportunity to test
these systems with customers and external agencies in 1999. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact to the Trust, and interaction with other non-complying
computer systems of other service providers, including DTC and NSCC, may have an
adverse effect on the Trust.
In addition, the Year 2000 Problem is expected to affect business
entities, including issuers whose securities are included in the Index, to
varying extents based upon a number of factors, including, but not limited to,
industry sector and level of technological sophistication. The Sponsor is unable
to predict what impact, if any, the Year 2000 Problem will have on issuers of
securities included in the Index and hence included in the Trust.
AFFILIATED RELATIONSHIPS AND TRANSACTIONS
Investors in the Trust should be aware that the Sponsor of the Trust is a
wholly-owned subsidiary of Nasdaq. Nasdaq is the proprietor of the Index as well
as the operator of the Nasdaq Stock Market, the marketplace where the Index
Securities trade and [where Nasdaq GOLD has been approved for listing] or [which
is affiliated through the National Association of Securities Dealers, Inc. with
the Amex, where Nasdaq GOLD has been approved for listing]. Under the terms of a
license agreement with Nasdaq, the Sponsor has been granted a license to use the
Index as a basis for determining the composition of the Trust and to use certain
trademarks of Nasdaq in connection with
34
<PAGE> 45
the Trust (see "License Agreement"). Under the terms of the license agreement,
the Sponsor pays to Nasdaq an annual licensing fee for use of the Index. The
Sponsor ordinarily will seek reimbursement from the Trust for the amount of
licensing fees (see "Expenses of the Trust"). However, the Sponsor has committed
not to seek reimbursement from the Trust for licensing fees to Nasdaq for the
period through the Trust's fiscal year ending September 30, 1999. Thereafter,
the Sponsor intends to charge the Trust for the annual licensing fee. The Trust
is not required to pay a listing fee to the [Nasdaq Stock Market or Amex] in
connection with the listing of Nasdaq GOLD on the [Nasdaq Stock Market or Amex].
The Index is determined, composed, and calculated by Nasdaq without
regard to the Sponsor, the Trust, or the Beneficial Owners of Nasdaq GOLD.
Nasdaq has complete control and sole discretion in determining, composing, or
calculating the Index or in modifying in any way its method for determining,
composing, or calculating the Index in the future.
35
<PAGE> 46
NASDAQ GOLD TRUST, SERIES 1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
[to be provided upon completion of audit]
36
<PAGE> 47
NASDAQ GOLD TRUST, SERIES 1
STATEMENT OF FINANCIAL CONDITION
OPENING OF BUSINESS, __________, 1998
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------
ASSETS
Investment in Securities, at market value (cost $ ) (Note 1)...................
----------
Receivable for balancing cash (Note 1)..................................................
TOTAL ASSETS....................................................
---------------
LIABILITIES AND INTEREST OF NASDAQ GOLD HOLDERS
TOTAL LIABILITIES...............................................
---------------
TOTAL NET ASSETS..............................................................
===============
NET ASSET VALUE PER SHARE OF NASDAQ GOLD......................................
===============
(comprised of $ /[number of shares of Nasdaq GOLD] outstanding)
------
</TABLE>
NOTES TO STATEMENT OF FINANCIAL CONDITION:
1. Nasdaq GOLD Trust, Series 1 (the "Trust") is a unit investment trust
created under the laws of the State of New York and registered under the
Investment Company Act of 1940. On the Initial Date of Deposit, Portfolio
Deposits were received by The Bank of New York, the Trust's Trustee, in the form
of executed securities transactions which will settle within three business days
of the Initial Date of Deposit, in exchange for __ ( ) Creation Units of the
Trust equivalent to _______ shares of Nasdaq GOLD. An irrevocable letter of
credit issued by ____________________, in the amount of $__________ has been
delivered to the Trustee, to be drawn on if necessary, for the benefit of the
Trust to collateralize the settlement of the executed securities transactions.
The value of the Securities is based on the __________, 1998 closing sale
prices therefor on The Nasdaq Stock Market.
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<PAGE> 48
2. It is anticipated that the Trust will pay the expenses of its
operation, including the fees of its Trustee and payments to Nasdaq for a
license to use the Nasdaq-100 Index(R) as a basis for determining the
composition and weighting of Securities held by the Trust, as described under
"Expenses of the Trust" and "License Agreement" in this Prospectus. The Sponsor
has agreed to pay fees and expenses incurred in connection with the organization
of the Trust and its registration as an investment company, and such expenses
will not be borne by the Trust.
The Sponsor has also undertaken that on each day during each fiscal year
up to and including the fiscal year ending September 30, 2000, the ordinary
operating expenses of the Trust as calculated by the Trustee will not be
permitted to exceed an amount which is 18/100 of one percent (0.18%) per annum
of the daily net asset value of the Trust. To the extent during such period the
ordinary operating expenses of the Trust do exceed such 0.18% amount, the
Sponsor will reimburse the Trust or assume invoices on behalf of the Trust for
such excess ordinary operating expenses. The Sponsor retains the ability to be
repaid by the Trust for expenses so reimbursed or assumed to the extent that
subsequently during the fiscal year expenses fall below the 0.18% per annum
level on any given day (see "Expenses of the Trust" in this Prospectus). The
Sponsor has also undertaken for the fiscal year ending September 30, 1999, not
to seek reimbursement from the Trust for licensing fees to Nasdaq for use of the
Index during such period (see "Licensing Agreement" in this Prospectus).
3. Nasdaq GOLD is created and redeemed by the Trust only in Creation
Unit size aggregations of 25,000 shares of Nasdaq GOLD. Transaction fees of
varying amounts are charged to those persons creating or redeeming Creation
Units. See "Prospectus Summary - Portfolio Deposits" and "The Trust - Creation
of Creation Units" in this Prospectus for further description.
38
<PAGE> 49
NASDAQ GOLD TRUST, SERIES 1
SCHEDULE OF INVESTMENTS
SECURITIES REQUIRED FOR A PORTFOLIO DEPOSIT
ON THE OPENING OF BUSINESS, , 1998
----------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name of Issuer and Title of Issue Shares Value
- --------------------------------- ------ -----
$
<S> <C> <C>
Total Investments-(Cost $_____________) $
==========
</TABLE>
See accompanying notes to Statement of Financial Condition.
39
<PAGE> 50
THE TRUST
The Trust is a unit investment trust created under the laws of the State
of New York pursuant to the Trust Agreement.* The Securities held by the Trust
consist of a portfolio of equity securities or, in the case of securities not
yet delivered in connection with purchases made by the Trust or Portfolio
Deposits, confirmations of contracts to purchase such securities (collectively,
the "Portfolio").
CREATION OF CREATION UNITS
On the Initial Date of Deposit, Portfolio Deposits will be deposited with
the Trustee via instructions submitted through the clearing processes of NSCC,
following placement with the Distributor of orders to create Nasdaq GOLD. The
Distributor shall reject any order that is not submitted in proper form. To
permit the Trustee to ensure that the process of settlement is working
satisfactorily, there shall be no further Portfolio Deposits accepted by the
Trustee for a period of three (3) Business Days following the Initial Date of
Deposit, and the Sponsor and the Trustee shall jointly announce the day
thereafter on which further Portfolio Deposits will be accepted, and trading of
Nasdaq GOLD on the [Nasdaq Stock Market or Amex] shall not commence until such
date. On or after such date, Portfolio Deposits may be deposited with the
Trustee via instructions submitted through the clearing processes of NSCC,
following placement with the Distributor of orders to create Nasdaq GOLD.
Investors may deposit Portfolio Deposits through the Nasdaq GOLD Clearing
Process or directly with the Trustee outside the Nasdaq GOLD Clearing Process.
The Transaction Fee will be charged at the time of creation of a Creation Unit
size aggregation of Nasdaq GOLD. An additional amount not to exceed three (3)
times the Transaction Fee applicable for a Creation Unit
- -------------
* Reference is hereby made to the Trust Agreement (a copy of which is
available to prospective purchasers of Nasdaq GOLD at the corporate trust
office of the Trustee at 101 Barclay Street, New York, New York 10286
during normal business hours), and any statements contained herein are
qualified in their entirety by the provisions of the Trust Agreement.
40
<PAGE> 51
will be charged to a creator creating outside the Nasdaq GOLD Clearing Process
(i.e., depositing Portfolio Deposits directly with the Trustee through DTC), in
part due to the increased expense associated with settlement outside the Nasdaq
GOLD Clearing Process. See "Prospectus Summary--Transaction Fee" for a detailed
description of the amount of the Transaction Fee and the additional amounts and
reductions, limitations, and waivers applicable thereto, if any. The shares of
the common stock of the Index Securities in a Portfolio Deposit on the Initial
Date of Deposit had an aggregate market value of $_______________ (see "Schedule
of Investments"). There will be a cash amount included in the Portfolio Deposit
on the Initial Date of Deposit in order to make the value of each share of
Nasdaq GOLD equal to 1/10th of the value of the Index (see "Marketplace
Listing").
The Trustee and the Sponsor, from time to time and for such periods as
they may determine, together may increase* or reduce the amount and/or waive the
imposition altogether of the Transaction Fee (and/or the additional amounts
charged in connection with creations and/or redemptions outside the Nasdaq GOLD
Clearing Process) for certain numbers of Creation Units of Nasdaq GOLD created
or redeemed, whether applied solely to creations and/or redemptions made through
the Nasdaq GOLD Clearing Process (see "Procedures for Creation of Creation
Units"), solely to creations and/or redemptions made outside the Nasdaq GOLD
Clearing Process, or to both methods of creation and/or redemption. The Sponsor
also reserves the right, from time to time, to vary the number of shares of
Nasdaq GOLD per Creation Unit (currently 25,000 shares) and such change may or
may not be made in conjunction with a change to the Transaction Fee. The
occurrence of any increase, reduction, or waiver of the Transaction Fee (as well
as any additional amounts, if applicable) and the number of Creation Units
created or redeemed to which such increase,
- ---------------
* Such increase is subject to the 10 Basis Point Limit discussed above
under "Prospectus Summary--Transaction Fee."
41
<PAGE> 52
reduction, or waiver applies shall be disclosed in the current Nasdaq GOLD
Prospectus (see "Prospectus Summary--Transaction Fee"). As of the date hereof,
the Sponsor and the Trustee do not contemplate the increase, reduction,
variation by lot-size, or waiver of Transaction Fees in connection with the
creation or redemption of Nasdaq GOLD or of the additional amounts charged in
connection with the creation or redemption of Nasdaq GOLD outside the Nasdaq
GOLD Clearing Process beyond that which is discussed herein under the caption
"Prospectus Summary--Transaction Fee."
The shares of common stock of the securities portion of a Portfolio
Deposit on any date of deposit will reflect the composition and weighting of the
component securities of the Index on such day. The portfolio of Index Securities
that is the basis for a Portfolio Deposit varies as changes are made in the
composition and weighting of the Index Securities (see "The
Portfolio--Adjustments to the Portfolio Deposit"). The Trustee will make
available to NSCC prior to the commencement of trading on each Business Day a
list of the names and required number of shares of each of the Index Securities
in the current Portfolio Deposit as well as the amount of the Income Net of
Expense Amount for the previous Business Day. Under certain extraordinary
circumstances which may make it impossible for the Trustee to provide such
information to NSCC on a given Business Day, NSCC shall use the information
regarding the identity and share amounts of the Index Securities of the
Portfolio Deposit on the previous Business Day. The identity and share amounts
of each of the Index Securities required for a Portfolio Deposit, as in effect
on the Initial Date of Deposit, is set forth in the above Schedule of
Investments.
The Sponsor intends to make available, or may designate other persons to
make available, on each Business Day, a list of the names and the required
number of shares for each of the securities in the current Portfolio Deposit as
well as the Income Net of Expense Amount effective through and
42
<PAGE> 53
including the previous Business Day per outstanding share of Nasdaq GOLD. The
Sponsor may choose within its discretion to make available, frequently
throughout each Business Day, a number representing, on a per share of Nasdaq
GOLD basis, the sum of the Income Net of Expense Amount effective through and
including the previous Business Day plus the current value of the securities
portion of a Portfolio Deposit as in effect on such day (which value will
occasionally include a cash-in-lieu amount to compensate for the omission of a
particular Index Security from such Portfolio Deposit, see "The
Portfolio--Adjustments to the Portfolio Deposit"). If the Sponsor elects to make
such information available, it would be calculated based upon the best
information available to the Sponsor and may be calculated by other persons
designated to do so by the Sponsor. If the Sponsor elects to make such
information available, the inability of the Sponsor or its designee to provide
such information for any period of time will not in itself result in a halt in
the trading of Nasdaq GOLD on the [Nasdaq Stock Market or Amex]. If such
information is made available, investors interested in creating Nasdaq GOLD or
purchasing Nasdaq GOLD in the secondary market should not rely solely on such
information in making investment decisions but should also consider other market
information and relevant economic and other factors (including, without
limitation, information regarding the Index, the Index Securities, and financial
instruments based on the Index).
Upon receipt of a Portfolio Deposit or Deposits, following placement with
the Distributor of an order to create Nasdaq GOLD, the Trustee will deliver
Nasdaq GOLD in Creation Unit size aggregations to the Depository. In turn, the
Nasdaq GOLD position will be removed from the Trustee's account at the
Depository and will be allocated to the account of the DTC Participant acting on
behalf of the depositor creating Creation Unit(s) (see "Procedures for Creation
of Creation Units" and "Book-Entry-Only System"). Each share of Nasdaq GOLD will
represent a fractional undivided interest in the Trust in an amount equal to one
(1) divided by the total number of shares of Nasdaq
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<PAGE> 54
GOLD outstanding. The Trustee may reject a request to create Creation Units made
by any depositor or group of depositors if such depositor(s), upon the
acceptance by the Trustee of such request and the issuance to such depositor(s)
of Nasdaq GOLD, would own eighty percent (80%) or more of the outstanding shares
of Nasdaq GOLD (see "Tax Status of the Trust"). The Trustee also may reject any
Portfolio Deposit or any component thereof under certain other circumstances
(see "Procedures for Creation of Creation Units").
Additional Nasdaq GOLD in Creation Unit size aggregations will be created
upon receipt of the appropriate Portfolio Deposits from creators. As additional
Nasdaq GOLD in Creation Unit size aggregations is created, the aggregate value
of the Portfolio will be increased and the fractional undivided interest in the
Trust represented by each share of Nasdaq GOLD will be decreased. As discussed
above, under certain circumstances (1) a portion of the securities portion of a
Portfolio Deposit may consist of contracts to purchase certain Index Securities
or (2) a portion of the Cash Component may consist of cash in an amount to
enable the Trustee to purchase such Index Securities (e.g., in the event that
the Trustee determines that one or more Index Securities are likely to be
unavailable or available in insufficient quantity, or if an entity placing an
order to create Nasdaq GOLD is restricted by regulation or otherwise from
engaging in a transaction in an Index Security, see "The Portfolio--Adjustments
to the Portfolio Deposit"). In the event there is a failure to deliver the Index
Securities which are the subject of such contracts to purchase or the Cash
Component includes cash in lieu of the delivery of one or more Index Securities,
the Trustee will be instructed pursuant to the Trust Agreement to acquire such
Index Securities in an expeditious manner. To the extent the price of any such
Index Security increases or decreases between the time of creation and the time
any such Index Security is purchased and delivered, shares of Nasdaq GOLD will
represent fewer or more shares of such Index Security and more or fewer of the
other Index Securities in the
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<PAGE> 55
Trust. Hence, price fluctuations during the period from the time the cash is
received by the Trustee to the time the requisite Index Securities are purchased
and delivered will affect the value of all shares of Nasdaq GOLD.
The identity and appropriate number of shares of the Index Securities
required for a Portfolio Deposit are determined in the manner described herein.
Due to changes in the composition and weighting of the Index Securities, the
composition and weighting of the Securities and the prescribed Portfolio Deposit
will also change from time to time (see "The Portfolio--Adjustments to the
Portfolio" and "The Portfolio--Adjustments to the Portfolio Deposit"). The
composition and weighting of the Index Securities to be delivered as part of a
Portfolio Deposit are determined daily and reflect the composition of the Index
and, together with the Cash Component, have a value equal to the net asset value
of the Trust on a per Creation Unit basis at the close of business on the day of
request for creation. The composition of the Portfolio is also adjusted from
time to time to conform to changes to the Index as described herein and as set
forth in the Trust Agreement. As the composition and weighting of the Index
Securities change, substantially identical changes to the composition and
weighting of the securities portion of the required Portfolio Deposit are made
contemporaneously. Corresponding adjustments to the composition and weighting of
the Portfolio, however, are not necessarily made contemporaneously with
adjustments to the required Portfolio Deposit, but in all cases will be made in
accordance with the specifications set forth herein and in the Trust Agreement
(see "The Portfolio--Adjustments to the Portfolio"). Although the composition
and weighting of the securities portion of a Portfolio Deposit change from time
to time, the interests of Beneficial Owners will not be adversely affected
because the composition of such securities and the aggregate value thereof
together with the Cash Component (which may itself have a positive or
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<PAGE> 56
negative value, as the case may be), will be calculated based upon the
proportionate net asset value of the Trust (see "The Portfolio--Adjustments to
the Portfolio").
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create Nasdaq GOLD
in Creation Unit size aggregations, an entity or person must be (1) a
Participating Party, with respect to creations through the Nasdaq GOLD Clearing
Process or (2) a DTC Participant with respect to creations/redemptions outside
the Nasdaq GOLD Clearing Process. All Nasdaq GOLD, however created, will be
entered on the records of the Depository in the name of Cede & Co. for the
account of a DTC Participant (see "The Trust--Book-Entry-Only System").
All orders to create Nasdaq GOLD must be placed in multiples of 25,000
shares of Nasdaq GOLD (Creation Unit size). All orders to create Nasdaq GOLD,
whether through the Nasdaq GOLD Clearing Process or outside the Nasdaq GOLD
Clearing Process, must be received by the Distributor by no later than the
closing time of the regular trading session on the Nasdaq Stock Market ("Closing
Time") (ordinarily 4:00 p.m. New York time) in each case on the date such order
is placed in order for creation of Nasdaq GOLD to be effected based on the net
asset value of the Trust as determined on such date. The date on which a
creation order (or order to redeem as discussed below) is placed is herein
referred to as the "Transmittal Date." Orders must be transmitted by telephone
or other transmission method acceptable to the Distributor and Trustee, pursuant
to procedures set forth in the Nasdaq GOLD Participant Agreement, as described
below (see "Placement of Creation Orders Using the Nasdaq GOLD Clearing Process"
and "Placement of Creation Orders Outside the Nasdaq GOLD Clearing Process").
Severe economic or market changes or disruptions, or telephone or other
communication failure, may impede the ability to reach the Trustee, the
Distributor, a Participating Party, or a DTC Participant.
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<PAGE> 57
Orders to create Creation Unit size aggregations of Nasdaq GOLD shall be
placed with a Participating Party or DTC Participant, as applicable, in the form
required by such Participating Party or DTC Participant. Investors should be
aware that their particular broker may not have executed a Nasdaq GOLD
Participant Agreement, and that, therefore, orders to create Creation Unit size
aggregations of Nasdaq GOLD may have to be placed by the investor's broker
through a Participating Party or a DTC Participant who has executed a Nasdaq
GOLD Participant Agreement. At any given time there may be only a limited number
of broker-dealers that have executed a Nasdaq GOLD Participant Agreement. Those
placing orders to create Nasdaq GOLD through the Nasdaq GOLD Clearing Process
should afford sufficient time to permit proper submission of the order to the
Distributor prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the Nasdaq GOLD Clearing
Process are likely to require transmittal by the DTC Participant earlier on the
Transmittal Date than orders effected using the Nasdaq GOLD Clearing Process.
Those persons placing orders outside the Nasdaq GOLD Clearing Process should
ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire
system by contacting the operations department of the broker or depository
institution effectuating such transfer of securities and the Cash Component (if
required) The DTC Participant notified of an order to create Nasdaq GOLD outside
the Nasdaq GOLD Clearing Process shall be required to effect a transfer of (1)
the requisite Index Securities through DTC by 11:00 a.m. on the next Business
Day immediately following the Transmittal Date in such a way as to replicate the
Portfolio Deposit established on the Transmittal Date by the Trustee in
calculating the net asset value of the Trust and (2) the Cash Component (if
required) through the Federal Reserve Bank wire system so as to be received by
the Trustee by 1:00 p.m. on the next Business Day immediately following the
Transmittal Date. If the Trustee does not receive both the Index Securities by
11:00 a.m. and the Cash
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<PAGE> 58
Component (if required) by 1:00 p.m. on the Business Day immediately following
the Transmittal Date, such order shall be canceled. Upon written notice to the
Distributor, such canceled order may be resubmitted the following Business Day
using a Portfolio Deposit as newly constituted to reflect the current net asset
value of the Trust. If the Cash Component has a negative value, requiring
payment of such amount by the Trustee on behalf of the Trust to the creator of
Nasdaq GOLD outside the Nasdaq GOLD Clearing Process (i.e., if the sum of
dividends on all Securities with ex-dividend dates within the Accumulation
Period, plus or minus the Balancing Amount, is less than the accrued expenses
and liabilities of the Trust for such period) then payment of such amount by the
Trustee to the creator of Nasdaq GOLD via the Depository and the DTC
Participants is required to be made no later than 1:00 p.m. on the third (3rd)
Business Day immediately following the Transmittal Date.
All questions as to the number of shares of each of the Index Securities,
the amount and identity of the payor of the Cash Component (i.e., the Trustee on
behalf of the Trust or the Nasdaq GOLD creator), and the validity, form,
eligibility (including time of receipt) and acceptance for deposit of any Index
Securities to be delivered shall be determined by the Trustee, whose
determination shall be final and binding. The Trustee reserves the absolute
right to reject a creation order transmitted to it by the Distributor in respect
of any Portfolio Deposit or any component thereof if (a) the depositor or group
of depositors, upon obtaining the Nasdaq GOLD ordered, would own 80% or more of
the current outstanding shares of Nasdaq GOLD (see "Tax Status of the Trust");
(b) the Portfolio Deposit is not in proper form; (c) acceptance of the Portfolio
Deposit would have certain adverse tax consequences (see "Tax Status of the
Trust"); (d) the acceptance of the Portfolio Deposit would, in the opinion of
counsel, be unlawful; (e) the acceptance of the Portfolio Deposit would
otherwise, in the discretion of the Trustee, have an adverse effect on the Trust
or the rights
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<PAGE> 59
of Beneficial Owners; or (f) in the event that circumstances outside the control
of the Trustee make it for all practical purposes impossible to process
creations of Nasdaq GOLD. The Trustee will provide notice of its reasons for
rejection of a creation order in respect of a Portfolio Deposit or any component
thereof. The Trustee and the Sponsor shall not incur any liability in connection
with any notification of defects or irregularities in the delivery of Portfolio
Deposits or any component thereof or in connection with the rejection of a
creation order.
A list of the Participating Parties or DTC Participants that have
executed a Nasdaq GOLD Participant Agreement (as hereinafter defined) is
available at the office of the Trustee at 101 Barclay Street, New York, New York
10286 and the office of the Distributor at _______________________ during normal
business hours.
PLACEMENT OF CREATION ORDERS USING THE NASDAQ GOLD CLEARING PROCESS
Portfolio Deposits created through the Nasdaq GOLD Clearing Process must
be delivered through a Participating Party (see "Prospectus Summary--Portfolio
Deposits") that has executed a participant agreement with the Distributor and
with the Trustee (as the same may be from time to time amended in accordance
with its terms, the "Nasdaq GOLD Participant Agreement"). The Nasdaq GOLD
Participant Agreement authorizes the Trustee to transmit to NSCC on behalf of
the Participating Party such trade instructions as are necessary to effect the
Participating Party's creation order. Pursuant to such trade instructions from
the Trustee to NSCC, the Participating Party agrees to transfer the requisite
Index Securities (or contracts to purchase such Index Securities that are
expected to be delivered in a "regular way" manner by the third (3rd) NSCC
Business Day) and the Cash Component (if required) to the Trustee, together with
such additional information as may be required by the Trustee. An order to
create Nasdaq GOLD through the Nasdaq GOLD Clearing Process is deemed received
by the Distributor on the Transmittal Date if (i) such order is received by
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<PAGE> 60
the Distributor not later than the Closing Time on such Transmittal Date and
(ii) all other procedures set forth in the Nasdaq GOLD Participant Agreement are
properly followed.
Nasdaq GOLD may also be created in advance of the receipt by the Trustee
of all or a portion of the securities portion of the Portfolio Deposit relating
to such shares of Nasdaq GOLD. In such cases, the Participating Party will
remain liable for the full deposit of the missing portion(s) of the Portfolio
Deposit and will be required to post collateral with the Trustee consisting of
cash at least equal to 115% of the marked-to-market value of such missing
portion(s). The Trustee will hold such collateral in an account separate and
apart from the Trust. Information concerning the procedures for such cash
collateralization is available from the Distributor. The Nasdaq GOLD Participant
Agreement for any Participating Party intending to follow such procedures will
contain terms and conditions permitting the Trust to use such collateral to buy
the missing portion(s) of the Portfolio Deposit at any time and will subject
such Participating Party to liability for any shortfall between the cost to the
Trust of purchasing such securities and the value of such collateral. The Trust
will have no liability for any such shortfall. The Trustee will return any
unused portion of the collateral to the Participating Party once the entire
Portfolio Deposit has been properly received by the Trustee and deposited into
the Trust.
The requirement to post collateral will not apply in instances where the
Trustee, in its discretion, has included in the Cash Component of a Portfolio
Deposit the cash equivalent value of one or more Index Securities either because
the Trustee determines that one or more Index Securities are likely to be
unavailable or available in insufficient quantity, or if the entity placing an
order to create Nasdaq GOLD is restricted by regulation or otherwise from
engaging in a transaction in an Index Security (see "The Portfolio--Adjustments
to the Portfolio Deposit").
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<PAGE> 61
PLACEMENT OF CREATION ORDERS OUTSIDE THE NASDAQ GOLD CLEARING PROCESS
Portfolio Deposits created outside the Nasdaq GOLD Clearing Process must
be delivered through a DTC Participant that has executed a Nasdaq GOLD
Participant Agreement with the Distributor and with the Trustee. A DTC
Participant who wishes to place an order creating Nasdaq GOLD to be effected
outside the Nasdaq GOLD Clearing Process need not be a Participating Party, but
such orders must state that the DTC Participant is not using the Nasdaq GOLD
Clearing Process and that the creation of Nasdaq GOLD will instead be effected
through a transfer of securities and cash. The Portfolio Deposit transfer must
be ordered by the DTC Participant in a timely fashion so as to ensure the
delivery of the requisite number of Index Securities through DTC to the account
of the Trustee by no later than 11:00 a.m. of the next Business Day immediately
following the Transmittal Date. All questions as to the number of Index
Securities to be delivered, and the validity, form, and eligibility (including
time of receipt) for the deposit of any tendered securities will be determined
by the Trustee, whose determination shall be final and binding. On days when the
Cash Component is an amount payable to the Trustee (i.e., when the Cash
Component has a positive value), the cash equal to the Cash Component must be
transferred directly to the Trustee through the Federal Reserve Bank wire system
in a timely manner so as to be received by the Trustee no later than 1:00 p.m.
on the next Business Day immediately following the Transmittal Date. An order to
create Nasdaq GOLD outside the Nasdaq GOLD Clearing Process is deemed received
by the Distributor on the Transmittal Date if (i) such order is received by the
Distributor not later than the Closing Time on such Transmittal Date and (ii)
all other procedures set forth in the Nasdaq GOLD Participant Agreement are
properly followed. However, if the Trustee does not receive both the requisite
Index Securities and the Cash Component (if required) in a timely fashion on the
next Business Day immediately following the Transmittal Date, such order will be
canceled. Upon written notice to the
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<PAGE> 62
Distributor, such canceled order may be resubmitted the following Business Day
using a Portfolio Deposit as newly constituted to reflect the current net asset
value of the Trust. The delivery of Nasdaq GOLD so created will occur no later
than the third (3rd) Business Day following the day on which the creation order
is deemed received by the Distributor. The payment of the Cash Component (at
times when such amount is to be paid to the creator of Nasdaq GOLD from the
Trustee) is required to be made through the Federal Reserve Bank wire system no
later than the third (3rd) Business Day immediately following the Transmittal
Date. Under the current schedule, the total fee charged in connection with the
creation of one Creation Unit outside the Nasdaq GOLD Clearing Process would be
an amount not to exceed $4,000 (see "Prospectus Summary--Transaction Fee").
BOOK-ENTRY-ONLY SYSTEM
The Depository acts as securities depository for Nasdaq GOLD. Shares
of Nasdaq GOLD are represented by a single global security (the "Global
Security"), which is registered in the name of Cede & Co., as nominee for the
Depository and deposited with, or on behalf of, the Depository. Certificates
will not be issued for Nasdaq GOLD.
The Depository has advised the Sponsor and the Trustee as follows: The
Depository is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. The Depository was created to hold
securities of its participants (the "DTC Participants") and to facilitate the
clearance and settlement of securities transactions among the DTC Participants
in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing
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corporations, and certain other organizations, some of whom (and/or their
representatives) own the Depository.* Access to the Depository system is also
available to others such as banks, brokers, dealers, and trust companies that
clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly (the "Indirect Participants"). The Depository
agrees with and represents to its participants that it will administer its
book-entry system in accordance with its rules and by-laws and requirements of
law.
Upon the settlement date of any creation, transfer, or redemption of
Nasdaq GOLD, the Depository will credit or debit, on its book-entry registration
and transfer system, the number of shares of Nasdaq GOLD so created,
transferred, or redeemed to the accounts of the appropriate DTC Participants.
The accounts to be credited and charged shall be designated by the Trustee to
NSCC, in the case of a creation or redemption through the Nasdaq GOLD Clearing
Process, or by the Trustee and the DTC Participant, in the case of a creation or
redemption transacted outside of the Nasdaq GOLD Clearing Process (see "The
Trust--Procedures for Creation of Creation Units" and "Redemption of Nasdaq
GOLD"). Beneficial ownership of Nasdaq GOLD is limited to DTC Participants,
Indirect Participants, and persons holding interests through DTC Participants
and Indirect Participants. Ownership of beneficial interests in Nasdaq GOLD
(owners of such beneficial interests are referred to herein as "Beneficial
Owners") will be shown on, and the transfer of ownership will be effected only
through, records maintained by the Depository (with respect to DTC Participants)
and on the records of DTC Participants (with respect to Indirect Participants
and Beneficial Owners that are not DTC Participants). Beneficial Owners are
expected to receive from or through the DTC Participant a written confirmation
relating to their purchase of Nasdaq GOLD.
- ---------------
* As of September 30, 1998, the National Association of Securities Dealers,
Inc., the parent company of Nasdaq, owns 4.65211% of the issued and
outstanding shares of common stock of the Depository. Also as of such
date, the Trustee owns 4.19892% of the issued and outstanding shares of
the common stock of the Depository.
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The laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability of certain investors to acquire beneficial interests in
Nasdaq GOLD.
So long as Cede & Co., as nominee of the Depository, is the registered
owner of Nasdaq GOLD, references herein to the registered or record owners of
Nasdaq GOLD shall mean Cede & Co. and shall not mean the Beneficial Owners of
Nasdaq GOLD. Beneficial Owners of Nasdaq GOLD will not be entitled to have
Nasdaq GOLD registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form, and will not be
considered the record or registered holder thereof under the Trust Agreement.
Accordingly, each Beneficial Owner must rely on the procedures of the
Depository, the DTC Participant, and any Indirect Participant through which such
Beneficial Owner holds its interests, to exercise any rights of a holder of
Nasdaq GOLD under the Trust Agreement. The Trustee and the Sponsor understand
that under existing industry practice, in the event the Trustee requests any
action of Nasdaq GOLD holders, or a Beneficial Owner desires to take any action
that the Depository, as the record owner of all outstanding shares of Nasdaq
GOLD, is entitled to take, the Depository would authorize the DTC Participants
to take such action and that the DTC Participants would authorize the Indirect
Participants and Beneficial Owners acting through such DTC Participants to take
such action or would otherwise act upon the instructions of Beneficial Owners
owning through them.
As described above, the Trustee recognizes the Depository or its nominee
as the owner of all Nasdaq GOLD for all purposes except as expressly set forth
in the Trust Agreement. Conveyance of all notices, statements, and other
communications to Beneficial Owners is effected as follows. Pursuant to the
agreement between the Trustee and the Depository (as the same may be from time
to time amended in accordance with its terms, the "Depository Agreement"), the
Depository is
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required to make available to the Trustee upon request and for a fee to be
charged to the Trust a listing of the Nasdaq GOLD holdings of each DTC
Participant. The Trustee shall inquire of each such DTC Participant as to the
number of Beneficial Owners holding Nasdaq GOLD, directly or indirectly, through
such DTC Participant. The Trustee shall provide each such DTC Participant with
copies of such notice, statement, or other communication, in such form, number,
and at such place as such DTC Participant may reasonably request, in order that
such notice, statement, or communication may be transmitted by such DTC
Participant, directly or indirectly, to such Beneficial Owners. In addition, the
Trustee on behalf of the Trust shall pay to each such DTC Participant a fair and
reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Nasdaq GOLD distributions shall be made to the Depository or its nominee,
Cede & Co., as the registered owner of all Nasdaq GOLD. The Trustee and the
Sponsor expect that the Depository or its nominee, upon receipt of any payment
of distributions in respect of Nasdaq GOLD, shall credit immediately DTC
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in Nasdaq GOLD as shown on the records of the
Depository or its nominee. The Trustee and the Sponsor also expect that payments
by DTC Participants to Indirect Participants and Beneficial Owners of Nasdaq
GOLD held through such DTC Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in a "street name,"
and will be the responsibility of such DTC Participants. Neither the Trustee nor
the Sponsor has or will have any responsibility or liability for any aspect of
the records relating to or notices to Beneficial Owners, or payments made on
account of beneficial ownership interests in Nasdaq GOLD, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the
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<PAGE> 66
relationship between the Depository and the DTC Participants or the relationship
between such DTC Participants and the Indirect Participants and Beneficial
Owners owning through such DTC Participants.
The Depository may determine to discontinue providing its service with
respect to Nasdaq GOLD at any time by giving notice to the Trustee and the
Sponsor and discharging its responsibilities with respect thereto under
applicable law. Under such circumstances, the Trustee and the Sponsor shall take
action either to find a replacement for the Depository to perform its functions
at a comparable cost or, if such a replacement is unavailable, to terminate the
Trust (see "Administration of the Trust--Termination").
THE PORTFOLIO
Because the objective of the Trust is to provide investment results that
correspond substantially to the price and yield performance of the Index, the
Portfolio will at any time consist of as many of the Index Securities as is
practicable and under most circumstances, all of the Index Securities. It is
anticipated that cash or cash items normally would not be a substantial part of
the Trust's net assets. Although the Trust may at any time fail to own certain
of the Index Securities, the Trust will be substantially invested in Index
Securities and the Sponsor believes that such investment should result in a
close correspondence between the investment performance of the Index and that
derived from ownership of Nasdaq GOLD.
ADJUSTMENTS TO THE PORTFOLIO
The Index is a modified capitalization-weighted index of 100 of the
largest non-financial companies listed on the Nasdaq National Market tier of the
Nasdaq Stock Market (see "The Index"). At any moment in time, the value of the
Index equals the aggregate value of the then-current Index
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share weights of each of the component 100 Index Securities multiplied by each
such security's respective last sale price on the Nasdaq Stock Market, and
divided by a scaling factor (the "divisor") which becomes the basis for the
reported Index value. The divisor serves the purpose of scaling such aggregate
value (otherwise in the hundreds of billions) to a lower order of magnitude
which is more desirable for Index reporting purposes.*
Periodically (typically, several times per quarter), Nasdaq may determine
that total shares outstanding have changed in one or more Index Securities due
to secondary offerings, repurchases, conversions, or other corporate actions.
Under such circumstances, in accordance with Nasdaq policies and procedures for
making adjustments to the Index, the Index share weights would be adjusted by
the same percentage amounts by which the total shares outstanding have changed
in such Index Securities. Additionally, Nasdaq may periodically (ordinarily,
several times per quarter) replace one or more component securities in the Index
due to mergers, acquisitions, bankruptcies, or other market conditions, or due
to delistings if an issuer chooses to list its securities on another
marketplace, or if the issuers of such component securities fail to meet the
criteria for continued inclusion in the Index (see "The Index"). For example,
for the 1996 and 1997 calendar years, there were 7 and 8 company changes,
respectively, made during those years due to corporate actions (e.g., mergers,
acquisitions, bankruptcies) and 15 and 11 other company changes, respectively,
made at year-end in connection with Nasdaq's annual evaluation process for
determining the securities comprising the Index for the upcoming year (see "The
Index--Index Security Eligibility Criteria and Annual Ranking Review"). The
ratio of the market capitalization of the securities replaced in the
- ---------------
* For example, on October 9, 1998 the aggregate value of the then current
Index share weights of each of the Index Securities multiplied by their
respective last sale price on the Nasdaq Stock Market was
$993,152,270,000, the divisor was 829,099,920, and the reported Index
value was 1,197.87.
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Index in 1996 and 1997 to the total market capitalization of the securities
comprising the Index at year-end was 9.0% and 5.7%, respectively.
The Index share weights, which are based upon the total shares
outstanding in each of the 100 Index Securities, are additionally subject, in
certain cases, to a rebalancing in order to ensure that the relative weightings
of the Index Securities continue to meet minimum pre-established requirements
for a diversified portfolio (see "The Index--Rebalancing of the Index").
Ordinarily, whenever there is a change in Index share weights or a change in a
component security included in the Index, Nasdaq adjusts the divisor to assure
that there is no discontinuity in the value of the Index which might otherwise
be caused by any such change.
Because the investment objective of the Trust is to provide investment
results that generally correspond to the price and yield performance of the
Index, composition and weighting changes, and associated divisor changes to the
Index, create the need for the Trustee to make corresponding adjustments to the
Securities held in the Trust as described below.
The Trustee adjusts the composition of the Portfolio from time to time to
conform to changes in the composition and/or weighting of the Index Securities.
The Trustee aggregates certain of these adjustments and makes conforming changes
to the Trust's portfolio at least monthly; however, adjustments are made more
frequently in the case of changes to the Index that are significant.
Specifically, the Trustee is required to adjust the composition of the Portfolio
at any time that there is a change in the identity of any Index Security (i.e.,
a substitution of one security in replacement of another), which adjustment is
to be made within three (3) Business Days before or after the day on which the
change in the identity of such Index Security is scheduled to take effect at the
close of the market. Although the investment objective of the Trust is to
provide investment results which resemble the performance of the Index, it is
not always efficient to replicate identically the share
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composition of the Index if the transaction costs incurred by the Trust in so
adjusting the Portfolio would exceed the expected misweighting that would ensue
by failing to replicate identically minor and insignificant share changes to the
Index. Accordingly, to further the investment objective of the Trust, minor
misweightings are generally permitted within the guidelines set forth below. The
Trustee is required to adjust the composition of the Portfolio at any time that
the weighting of any Security varies in excess of one hundred and fifty percent
(150%) of a specified percentage (a "Misweighting Amount"), from the weighting
of such Security in the Index (a "Misweighting"). The Misweighting Amounts vary
depending on the net asset value of the Trust and are set forth in the table
below:
<TABLE>
<CAPTION>
Net Asset Value Misweighting
of the Trust Amount
--------------- ------------
<S> <C>
Less than $25,000,000 0.25%
$25,000,000 - $99,999,999 0.20%
$100,000,000 - $499,999,999 0.10%
$500,000,000 - $999,999,999 0.05%
$1,000,000,000 and over 0.02%
</TABLE>
The Trustee shall examine each Security in the Portfolio on each Business
Day, comparing the weighting of each such Security in the Portfolio to the
weighting of the corresponding Index Security in the Index, based on prices at
the close of the market on the preceding Business Day (a "Weighting Analysis").
In the event that there is a Misweighting in any Security in excess of one
hundred and fifty percent (150%) of the applicable Misweighting Amount, the
Trustee shall calculate an adjustment to the Portfolio in order to bring the
Misweighting of such Security within the Misweighting Amount, based on prices at
the close of the market on the day on which such Misweighting occurs. Also, on a
monthly basis, the Trustee shall perform a Weighting Analysis for each Security
in the Portfolio, and in any case where there exists a Misweighting exceeding
one
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<PAGE> 70
hundred percent (100%) of the applicable Misweighting Amount, the Trustee shall
calculate an adjustment to the Portfolio in order to bring the Misweighting of
such Security within the applicable Misweighting Amount, based on prices at the
close of the market on the day on which such Misweighting occurs. In the case of
any adjustment to the Portfolio due to a Misweighting as described herein, the
purchase or sale of securities necessitated by such adjustment shall be made
within three (3) Business Days of the day on which such Misweighting is
determined. In addition to the foregoing adjustments, the Trustee reserves the
right to make additional adjustments periodically to Securities that may be
misweighted by an amount within the applicable Misweighting Amount in order to
reduce the overall Misweighting of the Portfolio.
The foregoing guidelines with respect to Misweightings shall also apply
to any Index Security that (1) is likely to be unavailable for delivery or
available in insufficient quantity for delivery or (2) cannot be delivered to
the Trustee due to restrictions prohibiting a creator from engaging in a
transaction involving such Index Security. Upon receipt of an order for a
Creation Unit that will involve such an Index Security, the Trustee shall
determine whether the substitution of cash for such Index Security will cause a
Misweighting in the Trust's Portfolio with respect to such Index Security. If a
Misweighting results, the Trustee shall purchase the required number of shares
of such Index Security on the opening of the market on the following Business
Day. If a Misweighting does not result and the Trustee would not hold cash in
excess of the permitted amounts described below, the Trustee may hold such cash
or, if such an excess would result, make the required adjustments to the
Portfolio in accordance with the procedures described herein.
Pursuant to these guidelines the Trustee shall calculate the required
adjustments and shall purchase and sell the appropriate securities. As a result
of the purchase and sale of securities in accordance with these requirements, or
the creation of Creation Units, the Trust may hold some
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amount of residual cash (other than cash held temporarily due to timing
differences between the sale and purchase of securities or cash delivered in
lieu of Index Securities or undistributed income or undistributed capital gains)
as a result of such transactions, which amount shall not exceed for more than
five (5) consecutive Business Days 5/10th of 1 percent of the aggregate value of
the Securities. In the event that the Trustee has made all required adjustments
and is left with cash in excess of 5/10th of 1 percent of the aggregate value of
the Securities, the Trustee shall use such cash to purchase additional Index
Securities that are under-weighted in the Portfolio as compared to their
relative weighting in the Index, although the Misweighting of such Index
Securities may not be in excess of the applicable Misweighting Amount.
In addition to adjustments to the Portfolio from time to time to conform
to changes in the composition or weighting of the Index Securities, the Trustee
is also ordinarily required to sell Securities to obtain sufficient cash
proceeds for the payment of Trust fees and expenses at any time that projected
annualized fees and expenses accrued on a daily basis exceed projected
annualized dividends and other Trust income accrued on a daily basis by more
than 1/100 of one percent (0.01%) of the net asset value of the Trust (see
"Expenses of the Trust"). Whenever the 0.01% threshold is exceeded, the Trustee
will sell sufficient Securities to cover such excess no later than the next
occasion it is required to make adjustments to the Portfolio due to a
Misweighting, unless the Trustee determines, in its discretion, that such a sale
is unnecessary because the cash to be generated is not needed by the Trust at
that time for the payment of expenses then due or because the Trustee otherwise
determines that such a sale is not warranted or advisable. At the time of the
sale, the Trustee shall first sell Securities that are over-weighted in the
Portfolio as compared to their relative weighting in the Index.
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All adjustments to the Portfolio held by the Trustee shall be made by the
Trustee pursuant to the foregoing specifications and as set forth in the Trust
Agreement and shall be non-discretionary. All portfolio adjustments will be made
as described herein unless such adjustments would cause the Trust to lose its
status as a "regulated investment company" under Subchapter M of the Internal
Revenue Code. Additionally, the Trustee is required to adjust the composition of
the Portfolio at any time if it is necessary to ensure the continued
qualification of the Trust as a regulated investment company (see "Tax Status of
the Trust"). The adjustments provided herein are intended to conform the
composition and weighting of the Portfolio, to the extent practicable, to the
composition and weighting of the Index Securities. Such adjustments are based
upon the Index as it is currently determined by Nasdaq. To the extent that the
method of determining the Index is changed by Nasdaq in a manner that would
affect the adjustments provided for herein, the Trustee and the Sponsor shall
have the right to amend the Trust Agreement, without the consent of the
Depository or Beneficial Owners, to conform the adjustments provided herein and
in the Trust Agreement to such changes so that the objective of tracking the
Index is maintained.
In making the adjustments described herein, the Trustee shall rely on
information made publicly available by Nasdaq as to the composition and
weighting of the Index Securities. If the Trustee becomes incapable of obtaining
or processing such information or NSCC is unable to receive such information
from the Trustee on any Business Day, then the Trustee shall use the composition
and weighting of the Index Securities for the most recently effective Portfolio
Deposit for the purposes of all adjustments and determinations described herein
(including, without limitation, determination of the securities portion of the
Portfolio Deposit) until the earlier of (a) such time as current information
with respect to the Index Securities is available or (b) three (3) consecutive
Business Days have elapsed. If such current information is not available and
three (3) consecutive
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<PAGE> 73
Business Days have elapsed, the composition and weighting of the Securities (as
opposed to the Index Securities) shall be used for the purposes of all
adjustments and determinations herein (including, without limitation,
determination of the securities portion of the Portfolio Deposit) until current
information with respect to the Index Securities is available.
At such time as the Trustee gives written notice of the termination of
the Trust (see "Administration of the Trust--Termination"), from and after the
date of such notice the Trustee shall use the composition and weighting of the
Securities held in the Trust as of such notice date (as opposed to the
composition and weighting of the Index Securities) for the purpose and
determination of all redemptions or other required uses of the securities
portion of the Portfolio Deposit.
From time to time Nasdaq may make adjustments to the composition of the
Index as a result of a merger or acquisition involving one or more of the Index
Securities. In such cases, the Trust, as shareholder of securities of an issuer
that is the object of such merger or acquisition activity, may receive various
offers from would-be acquirors of the issuer. The Trustee is not permitted to
accept any such offers until such time as it has been determined that the
securities of the issuer will be removed from the Index. In selling the
securities of such issuer after it has been determined that the security will be
removed from the Index, the Trust may receive, to the extent that market prices
do not provide a more attractive alternative, whatever consideration is being
offered to the shareholders of such issuer that have not tendered their shares
prior to such time. Any cash received in such transactions will be reinvested in
Index Securities in accordance with the criteria set forth above. Any securities
received as a part of the consideration that are not Index Securities will be
sold as soon as practicable and the cash proceeds of such sale will be
reinvested in accordance with the criteria set forth above.
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Purchases and sales of Securities resulting from the adjustments
described above will be made in the share amounts dictated by the foregoing
specifications, whether round lot or odd lot. Certain Index Securities, however,
may at times not be available in the quantities that the foregoing calculations
require. For this and other reasons, precise duplication of the proportionate
relationship between the Portfolio and the Index Securities may not ever be
attained but nevertheless will continue to be the objective of the Trust in
connection with all acquisitions and dispositions of Securities.
The Trust is a unit investment trust registered under the 1940 Act and is
not a managed fund. Traditional methods of investment management for a managed
fund typically involve frequent changes to a portfolio of securities on the
basis of economic, financial, and market analyses. The Portfolio held by the
Trust, however, is not managed. Instead, the only purchases and sales that are
made with respect to the Portfolio will be those necessary to create, to the
extent feasible, a portfolio that is designed to replicate the Index to the
extent practicable, taking into consideration the adjustments referred to above.
Since no attempt is made to "manage" the Trust in the traditional sense, the
adverse financial condition of an issuer will not be the basis for the sale of
its securities from the Portfolio unless the issuer is removed from the Index.
The Trust will be liquidated on the fixed Mandatory Termination Date
unless terminated earlier under certain circumstances (see "Administration of
the Trust--Termination"). In addition, Beneficial Owners of Nasdaq GOLD in
Creation Unit size aggregations have the right to redeem in kind (see
"Redemption of Nasdaq GOLD").
ADJUSTMENTS TO THE PORTFOLIO DEPOSIT
On each Business Day following the Initial Date of Deposit (each such day
an "Adjustment Day") , the number of shares and/or identity of each of the Index
Securities in a Portfolio Deposit is adjusted in accordance with the following
procedure. At the close of the market on each Adjustment
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<PAGE> 75
Day, the Trustee calculates the net asset value of the Trust (see "Valuation").
The net asset value is divided by the number of all outstanding shares of Nasdaq
GOLD multiplied by 25,000 shares in one Creation Unit aggregation resulting in a
net asset value per Creation Unit (the "NAV Amount"). The Trustee then
calculates the number of shares (without rounding) of each of the component
securities of the Index in a Portfolio Deposit for the following Business Day
("Request Day"), such that (1) the market value at the close of the market on
Adjustment Day of the securities to be included in the Portfolio Deposit on
Request Day, together with the Income Net of Expense Amount effective for
requests to create or redeem on Adjustment Day, equals the NAV Amount and (2)
the identity and weighing of each of the securities in a Portfolio Deposit
mirrors proportionately the identity and weighting of the securities in the
Index, each as in effect on Request Day. For each security, the number resulting
from such calculation is rounded to the nearest whole share, with a fraction of
0.50 being rounded up. The identities and number of shares of the securities so
calculated constitute the securities portion of the Portfolio Deposit effective
on Request Day and thereafter until the next subsequent Adjustment Day, as well
as the Securities ordinarily to be delivered by the Trustee in the event of a
request for redemption of Nasdaq GOLD in Creation Unit size aggregations on
Request Day and thereafter until the following Adjustment Day (see "Redemption
of Nasdaq GOLD"). In addition to the foregoing adjustments, in the event that
there shall occur a stock split, stock dividend, or reverse split with respect
to any Index Security, the Portfolio Deposit shall be adjusted to take account
of such stock split, stock dividend, or reverse split by applying the stock
split, stock dividend, or reverse stock split multiple (e.g., in the event of a
two-for-one stock split of an Index Security, by doubling the number of shares
of such Index Security in the prescribed Portfolio Deposit), in each case
rounded to the nearest whole share, with a fraction of 0.50 being rounded up.
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On Request Day and on each day that a request for the creation or
redemption of Nasdaq GOLD in Creation Unit size aggregations is deemed received,
the Trustee calculates the market value of the securities portion of the
Portfolio Deposit as in effect on Request Day as of the close of the market and
adds to that amount the Income Net of Expense Amount effective for requests to
create or redeem on Request Day (such market value and Income Net of Expense
Amount are collectively referred to herein as the "Portfolio Deposit Amount").
The Trustee then calculates the NAV Amount, based on the close of the market on
Request Day. The difference between the NAV Amount so calculated and the
Portfolio Deposit Amount is the "Balancing Amount." The Balancing Amount serves
the function of compensating for any differences between the value of the
Portfolio Deposit Amount and the NAV Amount at the close of trading on Request
Day due to, for example, (1) differences in the market value of the securities
in the Portfolio Deposit and the market value of the Securities on Request Day
and (2) any variances from the proper composition of the Portfolio Deposit.
Notwithstanding the foregoing, on any Adjustment Day on which (a) no
change in the identity and/or share weighting of any Index Security is scheduled
to take effect that would cause the Index divisor to be adjusted after the close
of the market on such Business Day,* and (b) no stock split, stock dividend, or
reverse stock split with respect to any Index Security has been declared to take
effect on the corresponding Request Day, the Trustee reserves the right to
forego making any adjustment to the securities portion of the Portfolio Deposit
and to use the composition and weighting of the Index Securities for the most
recently effective Portfolio Deposit for the Request Day following such
Adjustment Day. In addition, the Trustee further reserves the right to calculate
the adjustment to the number of shares and/or identity of the Index Securities
in a Portfolio Deposit as described
- -------------
* Nasdaq normally publicly announces changes in the identity and/or
weighting of the Index Securities in advance of the actual changes.
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above except that such calculation would be employed two (2) Business Days
rather than one (1) Business Day prior to Request Day.
As previously discussed, the sum of the Income Net of Expense Amount and
the Balancing Amount in effect at the close of business on Request Day are
collectively referred to as the Cash Component (with respect to creations of
Nasdaq GOLD) or the Cash Redemption Amount (with respect to redemptions of
Nasdaq GOLD) (see "Prospectus Summary--Portfolio Deposits" and "Prospectus
Summary-- Redemption"). If the resulting Cash Component has a positive value,
then the creator of Nasdaq GOLD will be obligated to pay such cash to the
Trustee in connection with orders to create Nasdaq GOLD; if the resulting Cash
Component has a negative value, then such cash shall be paid by the Trustee on
behalf of the Trust to the creator of Nasdaq GOLD. Similarly, if the resulting
Cash Redemption Amount has a positive value, then such cash shall be transferred
to a redeemer by the Trustee on behalf of the Trust in connection with orders to
redeem Nasdaq GOLD; if the resulting Cash Redemption Amount has a negative
value, then such cash shall be paid by the redeemer of Nasdaq GOLD to the
Trustee on behalf of the Trust.
In the event that the Trustee has included the cash equivalent value of
one or more Index Securities in the Portfolio Deposit because the Trustee has
determined that such Index Securities are likely to be unavailable or available
in insufficient quantity for delivery, the Portfolio Deposit so constituted
shall dictate the Index Securities to be delivered in connection with the
creation of Nasdaq GOLD in Creation Unit size aggregations and upon the
redemption of Nasdaq GOLD in Creation Unit size aggregations for all purposes
hereunder until such time as the securities portion of the Portfolio Deposit is
subsequently adjusted. Brokerage commissions incurred by the Trustee in
connection with the acquisition of any such Index Securities will be at the
expense of the Trust and will affect the value of all Nasdaq GOLD.
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In connection with the creation or redemption of Nasdaq GOLD, if an
investor is restricted by regulation or otherwise from investing or engaging in
a transaction in one or more Index Securities, the Trustee, in its discretion,
shall have the right to include the cash equivalent value of such Index
Securities in the Portfolio Deposit in the calculation of the Cash Component (or
the Cash Redemption Amount as the case may be) in lieu of the inclusion of such
Index Securities in the securities portion of the Portfolio Deposit for the
particular affected investor. The amount of such cash equivalent payment shall
be used by the Trustee in accordance with the guidelines regarding allowable
Misweightings and permitted amounts of cash (see "Adjustments to the Portfolio")
which may require the Trustee to purchase the appropriate number of shares of
the Index Security that such investor was unable to purchase. In any such case
such investor shall pay the Trustee the standard Transaction Fee, plus an
additional amount per Creation Unit aggregation not to exceed (3) times the
Transaction Fee applicable for a Creation Unit.
The Trustee, in its discretion, upon the request of the redeeming
investor, may redeem Creation Units in whole or in part by providing such
redeemer with a portfolio of Securities differing in exact composition from the
Index Securities but not differing in net asset value from the then-current
Portfolio Deposit. Such a redemption is likely to be made only if it were to be
determined that this composition would be appropriate in order to maintain the
Portfolio of the Trust in correlation to the modified capitalization-weighted
composition of the Index, for instance in connection with a replacement of one
of the Index Securities (e.g., due to a merger, acquisition, or bankruptcy).
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SELECTION AND ACQUISITION OF SECURITIES
In prescribing the method described above for selecting the Index
Securities that constitute the prescribed Portfolio Deposit from time to time,
the Sponsor intends to replicate, to the extent practicable, the composition and
weighting of the Index Securities as of the relevant date.
Because certain of the Securities from time to time may be sold or their
relative percentages changed under certain circumstances as described herein, no
assurance can be given that the Trust will retain for any length of time its
size and composition (see "Adjustments to the Portfolio"). Also, the deposit of
additional Portfolio Deposits and the redemption of Nasdaq GOLD in Creation Unit
size aggregations will affect the size and composition of the Trust. Neither the
Sponsor nor the Trustee shall be liable in any way for any default, failure, or
defect in any of the Securities.
THE INDEX
The Sponsor selected the Nasdaq-100 Index(R) as the basis for the
selection of the Securities to be held by the Trust because, in the opinion of
the Sponsor, the Index constitutes a broadly diversified segment of the largest
and most actively traded securities listed on the Nasdaq Stock Market.
Additionally, the Index has achieved wide acceptance by both investors and
market professionals. Specifically, the Index is composed of 100 of the largest
and most actively traded non-financial companies listed on the Nasdaq National
Market tier of the Nasdaq Stock Market.
The Index was first published in January 1985, and includes companies
across a variety of major industry groups. As of _______, 1998, the major
industry groups covered in the Index (listed according to their respective
capitalization in the Index) were as follows: computer and office equipment
(___%), computer software/services (___%), telecommunications (___%),
retail/wholesale trade (___%), biotechnology (___%), services (___%), health
care (___%), manufacturing (___%)
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and transportation (___%). The identity and capitalization weightings of the
five largest companies represented in the Index as of ______, 1998 were as
follows: Microsoft Corporation (____%), Intel Corporation (___%), Cisco
Systems, Inc. (___%), Dell Computer Corporation (___%), and MCI WORLDCOM, Inc.
(___%). Current information regarding the market value of the Index is
available from Nasdaq as well as numerous market information services. The
Index is determined, comprised, and calculated by Nasdaq without regard to the
Trust.
The Sponsor, which is wholly-owned by Nasdaq, has been granted a license
to use the Index as a basis for determining the composition of the Trust and to
use certain trademarks of Nasdaq in connection with the Trust (see "License
Agreement"). Nasdaq is not responsible for and shall not participate in the
creation or sale of Nasdaq GOLD or in the determination of the timing of, prices
at, or quantities and proportions in which purchases or sales of Index
Securities or Securities shall be made.
The Index share weights of the component securities of the Index at any
time are based upon the total shares outstanding in each of the 100 Index
Securities and are additionally subject, in certain cases, to rebalancing to
ensure that the relative weighting of the Index Securities continues to meet
minimum pre-established requirements for a diversified portfolio (see
"Rebalancing of the Index"). Accordingly, each Index Security's influence on the
value of the Index is directly proportional to the value of its Index share
weight. The percentage of the Trust's assets invested in each of the Index
Securities is intended to approximate the percentage each Index Security
represents in the Index.
The following table shows the actual performance of the Index for the
years 1985 through September 1998. Stock prices fluctuated widely during this
period and were higher at the end than at the beginning. The results shown
should not be considered as a representation of the income yield or capital gain
or loss that may be generated by the Index in the future, nor should the results
be
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considered as a representation of the performance of the Trust. In addition, on
_______, 1998 the Index share weights of the component securities in the Index
were rebalanced in accordance with the "modified capitalization weighted"
methodology implemented on such date (see "Rebalancing of the Index"). Hence,
the performance of the Index after ________, 1998 will reflect the performance
of the securities in the Index as calculated in accordance with the revised
Index methodology.
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<TABLE>
<CAPTION>
POINT CHANGE IN CALENDAR YEAR-
CALENDAR YEAR-END INDEX VALUE* INDEX FOR YEAR % CHANGE END DIVIDEND
YEAR (JANUARY 31, 1985= 125.00) CALENDAR YEAR* IN INDEX* YIELD**
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1985*** ................ 132.29 7.29 5.83% N/A
1986 ................ 141.41 9.12 6.89% 0.33%
1987 ................. 156.25 14.84 10.49% 0.41%
1988 ................ 177.41 21.16 13.54% 0.47%
1989 ................ 223.84 46.43 26.17% 0.91%
1990 ................ 200.53 -23.31 -10.41% 1.07%
1991 ................ 330.86 130.33 64.99% 0.53%
1992 ................ 360.19 29.33 8.86% 0.55%
1993 ................ 398.28 38.09 10.57% 0.52%
1994 ................ 404.27 5.99 1.50% 0.46%
1995 ................ 576.23 171.96 42.54% 0.26%
1996 ................ 821.36 245.13 42.54% 0.11%
1997 ................ 990.80 169.44 20.63% 0.13%
1998 (as of September 30, 1998) 1345.48 354.68 35.80% 0.06%****
</TABLE>
* Source: Nasdaq. Year-end index values shown do not reflect reinvestment
of dividends or costs, such as brokerage charges and transaction costs.
** Source: Nasdaq. Dividend yields are obtained by dividing the aggregate
cash dividends for the year by the aggregate market value of the
component securities in the Index at year-end.
*** 1985 data is for the eleven month period from January 31, 1985 through
December 31, 1985.
**** Nine month dividend yield for the period from January 1, 1998 through
September 30, 1998. By comparison, the twelve month dividend yield for
the period from September 30, 1997 through September 30, 1998 was 0.09%.
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INDEX SECURITY ELIGIBILITY CRITERIA AND ANNUAL RANKING REVIEW
To be eligible for inclusion in the Index, a security must be traded on
the Nasdaq National Market tier of the Nasdaq Stock Market and meet the
following criteria:
- - the security must be of a non-financial company;
- - only one class of security per issuer is allowed;
- - the security may not be issued by an issuer currently in bankruptcy
proceedings;
- - the security must have average daily trading volume of at least 100,000
shares per day;
- - the security must have "seasoned" on the Nasdaq Stock Market or another
recognized market (generally, a company is considered to be seasoned by
Nasdaq if it has been listed on a market for at least two years; in the
case of spin-offs, the operating history of the spin-off will be
considered);
- - if a security would otherwise qualify to be in the top 25% of the issuers
included in the Index by market capitalization, then the "seasoning"
criteria would not apply; and
- - if the security is of a foreign issuer, the company must have a worldwide
market value of at least $10 billion, a U.S. market value of at least $4
billion, and average trading volume on the Nasdaq Stock Market of at
least 200,000 shares per day; in addition, foreign securities must be
eligible for listed options trading.
The Index Securities are evaluated annually based on market data as of
the end of October as follows (such evaluation is referred to herein as the
"Annual Ranking Review"). Securities listed on the Nasdaq Stock Market which
meet the above eligibility criteria are ranked by market value as of the end of
October. Index-eligible securities which are already in the Index and which are
in the top 150 eligible securities (based on market value) are retained in the
Index provided that such security was ranked in the top 100 eligible securities
as of the previous year's annual review. Securities not meeting such criteria
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are replaced. The replacement securities chosen are those Index-eligible
securities not currently in the Index which have the largest market
capitalization. The list of annual additions and deletions is publicly announced
via a press release in the early part of December. Replacements are made
effective after the close of trading on the third Friday in December. Moreover,
if at any time during the year an Index Security is no longer traded on the
Nasdaq Stock Market, or is otherwise determined by Nasdaq to become ineligible
for continued inclusion in the Index, the security will be replaced with the
largest market capitalization security not currently in the Index and meeting
the Index eligibility criteria listed above.
In addition to the Annual Ranking Review, the securities in the Index are
monitored every day by Nasdaq with respect to changes in total shares
outstanding arising from secondary offerings, stock repurchases, conversions, or
other corporate actions. Nasdaq has adopted the following quarterly scheduled
weight adjustment procedures with respect to such changes. If the change in
total shares outstanding arising from such corporate action is greater than or
equal to 5.0%, such change is ordinarily made to the Index on the evening prior
to the effective date of such corporate action. Otherwise, if the change in
total shares outstanding is less then 5%, then all such changes are accumulated
and made effective at one time on a quarterly basis after the close of trading
on the third Friday in each of March, June, September, and December. In either
case, the Index Share weights for such Index Securities are adjusted by the same
percentage amount by which the total shares outstanding have changed in such
Index Securities. Ordinarily, whenever there is a change in Index share weights
or a change in a component security included in the Index, Nasdaq adjusts the
divisor to assure that there is no discontinuity in the value of the Index which
might otherwise be caused by any such change.
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REBALANCING OF THE INDEX
Effective as of ____________, the Index has been calculated under a
"modified capitalization- weighted" methodology, which is a hybrid between equal
weighting and conventional capitalization weighting. This methodology is
expected to: (1) retain in general the economic attributes of capitalization
weighting; (2) promote portfolio weight diversification (thereby limiting
domination of the Index by a few large stocks); (3) reduce Index performance
distortion by preserving the capitalization ranking of companies; and (4) reduce
market impact on the smallest component securities from necessary weight
rebalancings.
Under the methodology employed, on a quarterly basis coinciding with
Nasdaq's quarterly scheduled weight adjustment procedures, the Index Securities
are categorized as either "Large Stocks" or "Small Stocks" depending on whether
their current percentage weights (after taking into account such scheduled
weight adjustments due to stock repurchases, secondary offerings, or other
corporate actions) are greater than, or less than or equal to, the average
percentage weight in the Index (i.e., as a 100-stock index, the average
percentage weight in the Index is 1.0%).
Such quarterly examination will result in an Index rebalancing if either
one or both of the following two weight distribution requirements are not met:
(1) the current weight of the single largest market capitalization stock in the
Index must be less than or equal to 24.0% and (2) the "collective weight" of
those stocks whose individual current weights are in excess of 4.5%, when added
together, must be less than or equal to 48.0%.
If either one or both of these weight distribution requirements are not
met upon quarterly review, a weight rebalancing will be performed in accordance
with the following plan. First, relating to weight distribution requirement (1)
above, if the current weight of the single largest stock in the Index exceeds
24.0%, then the weights of all Large Stocks will be scaled down proportionately
towards 1.0% by enough
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for the adjusted weight of the largest stock to be set to 20.0%. Second,
relating to weight distribution requirement (2) above, for those stocks whose
individual current weights or adjusted weights in accordance with the preceding
step are in excess of 4.5%, if their "collective weight" exceeds 48.0%, then the
weights of all Large Stocks will be scaled down proportionately towards 1.0% by
just enough for the "collective weight," so adjusted, to be set to 40.0%.
The aggregate weight reduction among the Large Stocks resulting from
either or both of the above rescalings will then be redistributed to the Small
Stocks in the following iterative manner. In the first iteration, the weight of
the largest Small Stock will be scaled upwards by a factor which sets it equal
to the average index weight of 1.0%. The weights of each of the smaller
remaining Small Stocks will be scaled up by the same factor reduced in relation
to each stock's relative ranking among the Small Stocks such that the smaller
the stock in the ranking, the less the scale-up of its weight.
In the second iteration, the weight of the second largest Small Stock,
already adjusted in the first iteration, will be scaled upwards by a factor
which sets it equal to the average index weight of 1.0%. The weights of each of
the smaller remaining Small Stocks will be scaled up by this same factor reduced
in relation to each stock's relative ranking among the Small Stocks such that,
once again, the smaller the stock in the ranking, the less the scale-up of its
weight.
Additional iterations will be performed until the accumulated increase in
weight among the Small Stocks exactly equals the aggregate weight reduction
among the Large Stocks from rebalancing in accordance with weight distribution
requirement (1) and/or weight distribution requirement (2).
Then, to complete the rebalancing procedure, once the final percent
weights of each stock in the Index are set, the Index share weights will be
determined based upon the last sale prices and aggregate capitalization of the
Index at the close of trading on the Thursday in the week immediately preceding
the week of the third Friday in March, June, September, and December. Changes to
the Index weights will
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be made effective after the close of trading on the third Friday in March,
June, September, and December and an adjustment to the Index divisor will be
made to ensure continuity of the Index. Effective on ________, 1998, the Index
was rebalanced in accordance with the above methodology. As a result of the
rebalancing, the Index share weights of the five (5) stocks whose unadjusted
weights were in excess of 4.5% were adjusted downwards on such date as follows:
Microsoft Corporation (from ___% to ___%), Intel Corporation (from ___% to
___%), Cisco Systems, Inc. (from ___% to ___%), Dell Computer Corporation (from
___% to ___%), and MCI WORLDCOM, Inc. (from ___% to ___%).
LICENSE AGREEMENT
Under the terms of a license agreement with Nasdaq (the "License
Agreement"), the Sponsor has been granted a license to use the Index as a basis
for determining the composition of the Trust and to use certain trade names,
trademarks, and service marks of Nasdaq in connection with the Trust. The
License Agreement may be amended by the parties thereto without the consent of
any of the Beneficial Owners of Nasdaq GOLD. Currently, the License Agreement is
scheduled to expire five years from the commencement date of trading of Nasdaq
GOLD, in accordance with its terms and is subject to a five year renewal period
following such date. The parties thereto may extend the term of the License
Agreement beyond such date without the consent of any of the Beneficial Owners
of Nasdaq GOLD.
Under the terms of the License Agreement, the Sponsor pays to Nasdaq an
annual licensing fee for use of the Index. The Sponsor ordinarily will seek
reimbursement from the Trust for the amount of licensing fees (see "Expenses of
the Trust"). However, the Sponsor has committed not to seek reimbursement from
the Trust for licensing fees to Nasdaq for the period through the Trust's fiscal
year ending September 30, 1999. Thereafter, the Sponsor intends to charge the
Trust for the annual licensing fee.
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None of the Trust, the Trustee, the Distributor, the Depository, or any
Beneficial Owner of Nasdaq GOLD is entitled to any rights whatsoever under the
foregoing licensing arrangements or to use the trademarks and service marks
"Nasdaq-100 Index(R)", "Nasdaq-100(R)", "Nasdaq(R)", "The Nasdaq Stock
Market(R)", or "Nasdaq GOLD(sm)" or to use the Index except as specifically
described herein or as may be specified in the Trust Agreement.
The Index is determined, composed, and calculated by Nasdaq without
regard to the Sponsor, the Trust, or the Beneficial Owners of Nasdaq GOLD.
Nasdaq has complete control and sole discretion in determining, comprising, or
calculating the Index or in modifying in any way its method for determining,
comprising, or calculating the Index in the future.
NASDAQ DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
INDEX OR ANY DATA USED TO CALCULATE THE INDEX OR DETERMINE THE INDEX COMPONENTS.
NASDAQ DOES NOT GUARANTEE THE UNINTERRUPTED OR UN- DELAYED CALCULATION OR
DISSEMINATION OF THE INDEX. NASDAQ SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. NASDAQ DOES NOT GUARANTEE THAT THE INDEX
ACCURATELY REFLECTS PAST, PRESENT, OR FUTURE MARKET PERFORMANCE. NASDAQ MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE SPONSOR, THE
TRUST, BENEFICIAL OWNERS OF NASDAQ GOLD, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE INDEX OR ANY DATA INCLUDED THEREIN. NASDAQ MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE, WITH RESPECT TO THE INDEX OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
NASDAQ HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT,
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PUNITIVE, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
MARKETPLACE LISTING
Nasdaq GOLD has been approved for listing on the [Nasdaq Stock Market or
Amex], subject to official notice of issuance. Transactions involving Nasdaq
GOLD in the public trading market are subject to customary brokerage charges and
commissions.
The Sponsor's aim in designing Nasdaq GOLD was to provide investors with
a security whose initial market value would approximate one-tenth (1/10th) the
value of the Index. Thus, for example, if the Index were at 1200, investors
might expect a Nasdaq GOLD share to trade initially at approximately $120. Note,
however, that the market price of a Nasdaq GOLD share may be affected by supply
and demand, market volatility, sentiment, and other factors (see "Special
Considerations and Risk Factors"). Note also, that due to these factors as well
as other factors including required distributions for tax purposes (see "Tax
Status of the Trust") or the sale of Securities to meet Trust expenses in excess
of the dividends received on the Securities (see "Expenses of the Trust"), the
one-tenth (1/10th) relationship between the initial value of a share of Nasdaq
GOLD and the value of the Index is not expected to persist indefinitely.
There can be no assurance that Nasdaq GOLD will always be listed on the
[Nasdaq Stock Market or Amex]. The [Nasdaq Stock Market or Amex] will consider
the suspension of trading in or removal from listing of Nasdaq GOLD:
(a) if the Trust has more than 60 days remaining until
termination and there are fewer than 50 record and/or
beneficial holders of Nasdaq GOLD for 30 or more
consecutive trading days;
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(b) if the Index is no longer calculated or available; or
(c) if such other event shall occur or condition exists which,
in the opinion of the [Nasdaq Stock Market or Amex], makes
further dealings on the [Nasdaq Stock Market or Amex]
inadvisable.
The Trust is not required to pay a listing fee to the [Nasdaq Stock
Market or Amex].
The Trust will be terminated in the event that Nasdaq GOLD is delisted
from the [Nasdaq Stock Market or Amex] and is not subsequently relisted on a
national securities exchange or a quotation medium operated by a national
securities association (see "Administration of the Trust--Termination").
TAX STATUS OF THE TRUST
The Trust intends to qualify for and elect tax treatment as a "regulated
investment company" under Subchapter M of the Code. The Trust intends to adopt a
year ending on September 30 of each year. To qualify as a regulated investment
company, the Trust must, among other things, (a) derive in each taxable year at
least 90% of its gross income from dividends, interest, gains from the sale or
other disposition of stock, securities or foreign currencies, or certain other
sources, (b) meet certain diversification tests, and (c) distribute in each year
at least 90% of its investment company taxable income. If the Trust qualifies as
a regulated investment company, subject to certain conditions and requirements,
the Trust will not be subject to federal income tax to the extent its income is
distributed in a timely manner. Any undistributed income may be subject to tax,
including a four percent (4%) excise tax imposed by section 4982 of the Code on
certain undistributed income of a regulated investment company that does not
distribute to shareholders in a timely manner at least ninety-eight percent
(98%) of its taxable income (including capital gains).
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TAX CONSEQUENCES TO BENEFICIAL OWNERS
Any net dividends paid by the Trust from its investment company taxable
income (which includes dividends, interest, and the excess of net short-term
capital gains over net long-term capital losses) will be taxable to Beneficial
Owners as ordinary income. A net dividend, if any, paid in January will be
considered for federal income tax purposes to have been paid by the Trust and
received by Beneficial Owners on the preceding December 31 if the net dividend
was declared in the preceding October, November, or December to Beneficial
Owners of record shown on the records of the Depository and the DTC Participants
(see "The Trust--Book-Entry-Only System") on a date in one of those months.
Distributions paid by the Trust from the excess of net long-term capital
gains over net short-term capital losses ("net capital gain") are taxable as
long-term capital gain, regardless of the length of time an investor has owned
Nasdaq GOLD. Any loss on the sale or exchange of a share held for six months or
less may be treated as a long-term capital loss to the extent of any capital
gain dividends received by the Beneficial Owner. For corporate investors, net
dividends from net investment income (but not return of capital distributions or
capital gain dividends) generally will qualify for the corporate
dividends-received deduction to the extent of qualifying dividend income
received by the Trust, subject to the limitations contained in the Code.
Investors should note that the quarterly net dividends paid by the Trust, if
any, will not be based on the Trust's investment company taxable income and net
capital gain, but rather will be based on the dividends paid with respect to the
Securities net of accrued expenses and liabilities of the Trust. As a result, a
portion of the distributions of the Trust may be treated as a return of capital
or a capital gain dividend for federal income tax purposes or the Trust may make
additional distributions in excess of the yield performance of the Securities in
order to distribute all of its investment company taxable income and net capital
gain.
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Distributions in excess of the Trust's current or accumulated earnings
and profits (as specially computed) generally will be treated as a return of
capital for federal income tax purposes and will reduce a Beneficial Owner's tax
basis in Nasdaq GOLD. Return of capital distributions may result, for example,
if a portion of the net dividends, if any, declared represents cash amounts
deposited in connection with Portfolio Deposits rather than dividends actually
received by the Trust. Under certain circumstances, a significant portion of any
quarterly net dividends of the Trust could be treated as return of capital
distributions. Such circumstances may be more likely to occur in periods during
which the number of outstanding shares of Nasdaq GOLD fluctuates significantly,
as may occur during the initial years of the Trust. Beneficial Owners will
receive annually notification from the Trustee through the DTC Participants as
to the tax status of the Trust's distributions (see "The Trust--Book-Entry-Only
System"). A distribution, if any, paid shortly after a purchase or creation of
Nasdaq GOLD may be taxable even though in effect it may represent a return of
capital.
The sale of Nasdaq GOLD by a Beneficial Owner is a taxable event, and may
result in a gain or loss, which generally should be a capital gain or loss for
Beneficial Owners that are not dealers in securities.
Under the Code, an in-kind redemption of Nasdaq GOLD will not result in
the recognition of taxable gain or loss by the Trust but generally will
constitute a taxable event for the redeeming shareholder. Upon redemption, a
Beneficial Owner generally will recognize gain or loss measured by the
difference on the date of redemption between the aggregate value of the cash and
securities received and its tax basis in the Nasdaq GOLD redeemed. Securities
received upon redemption (which will be comprised of the securities portion of
the Portfolio Deposit in effect on the date of redemption) generally will have
an initial tax basis equal to their respective market values on the date of
redemption. The U.S. Internal Revenue Service ("IRS") may assert that any
resulting loss may not be deducted by a Beneficial
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Owner on the basis that there has been no material change in such Beneficial
Owner's economic position or that the transaction has no significant economic or
business utility apart from the anticipated tax consequences. Beneficial Owners
of Nasdaq GOLD in Creation Unit size aggregations should consult their own tax
advisors as to the consequences to them of the redemption of Nasdaq GOLD.
Net dividend distributions, capital gains distributions, and capital
gains from sales or redemptions may also be subject to state, local and foreign
taxes.
Deposit of a Portfolio Deposit with the Trustee in exchange for Nasdaq
GOLD in Creation Unit size aggregations will not result in the recognition of
taxable gain or loss by the Trust but generally will constitute a taxable event
to the depositor under the Code, and a depositor generally will recognize gain
or loss with respect to each security deposited equal to the difference between
the amount realized in respect of the security and the depositor's tax basis
therein. The amount realized with respect to a security deposited should be
determined by allocating the value on the date of deposit of the Nasdaq GOLD
received (less any cash paid to the Trust, or plus any cash received from the
Trust, in connection with the deposit) among the securities deposited on the
basis of their respective fair market values at that time. The IRS may assert
that any resulting losses may not be deducted by a depositor on the basis that
there has been no material change in the depositor's economic position or that
the transaction has no significant economic or business utility or purpose apart
from the anticipated tax consequences. Depositors should consult their own tax
advisors as to the tax consequences to them of a deposit to the Trust.
After the initial deposit of Portfolio Deposits with the Trustee, the
Trustee has the right to reject the order to create Creation Units transmitted
to it by the Distributor if the depositor or group of depositors, upon obtaining
the Nasdaq GOLD ordered, would own eighty percent (80%) or more of the
outstanding shares of Nasdaq GOLD, and if pursuant to section 351 of the Code
such a circumstance
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would result in the Trust having a basis in the securities deposited different
from the market value of such securities on the date of deposit. The Trustee has
the right to require information regarding Nasdaq GOLD ownership pursuant to the
Nasdaq GOLD Participant Agreement and from the Depository and to rely thereon to
the extent necessary to make the foregoing determination as a condition to the
acceptance of a Portfolio Deposit.
Ordinary income dividends received via the Depository by Beneficial
Owners who are non-resident aliens will be subject to a thirty percent (30%)
United States withholding tax unless a reduced rate of withholding or a
withholding exemption is provided under applicable tax treaties. Non-resident
shareholders are urged to consult their own tax advisors concerning the
applicability of United States withholding tax.
Backup withholding at a rate of 31% will apply to dividends, capital gain
distributions, redemptions and sales of Nasdaq GOLD unless (a) the Beneficial
Owner is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
The amount of any backup withholding from a payment to a Beneficial Owner will
be allowed as a credit against the holder's U.S. federal income tax liability
and may entitle such holder to a refund from the IRS, provided that the required
information is furnished to the IRS.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN
THE TRUST, INCLUDING THE EFFECT OF POSSIBLE LEGISLATIVE CHANGES.
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CONTINUOUS OFFERING OF NASDAQ GOLD
Nasdaq GOLD in Creation Unit size aggregations will be offered
continuously to the public by the Trust through the Distributor and will be
delivered upon the deposit of a Portfolio Deposit (see "The Trust--Procedures
for Creation of Creation Units"). A list of the identity and number of shares of
each of the Index Securities in the current Portfolio Deposit and the amount of
the Income Net of Expense Amount effective through and including the previous
Business Day is made available by the Trustee to NSCC on each Business Day.
Under certain extraordinary circumstances which may make it impossible for the
Trustee to provide such information to NSCC on a given Business Day, NSCC shall
use the composition and weighting of the Index Securities of the Portfolio
Deposit on the previous Business Day. The minimum number of shares of Nasdaq
GOLD that may be created as described herein is 25,000 or one Creation Unit.
Persons making Portfolio Deposits and creating Creation Unit size aggregations
of Nasdaq GOLD will receive no fees, commissions, or other form of compensation
or inducement of any kind from the Sponsor or the Distributor, nor will any such
person have any obligation or responsibility to the Sponsor or Distributor to
effect any sale or resale of Nasdaq GOLD. Notwithstanding the above, the Sponsor
reserves the right, in its sole discretion, to periodically reimburse in whole
or in part the Transaction Fees paid by eligible entities in connection with the
creation or redemption of certain lot-sizes of Nasdaq GOLD.
Because new shares of Nasdaq GOLD can be created and issued on an ongoing
basis, at any point during the life of the Trust a "distribution", as such term
is used in the Securities Act of 1933, as amended (the "Securities Act"), may be
occurring. Broker-dealers and other persons are cautioned that some activities
on their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus-delivery and liability
provisions of the Securities Act. For example, a broker-dealer firm or
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its client may be deemed a statutory underwriter if it takes Creation Units
after placing a creation order with the Distributor, breaks them down into the
constituent shares of Nasdaq GOLD, and sells the Nasdaq GOLD directly to its
customers, or if it chooses to couple the creation of a supply of new shares of
Nasdaq GOLD with an active selling effort involving solicitation of secondary
market demand for Nasdaq GOLD. A determination of whether one is an underwriter
must take into account all the facts and circumstances pertaining to the
activities of the broker-dealer or its client in the particular case, and the
examples mentioned above should not be considered a complete description of all
the activities that could lead to categorization as an underwriter.
Dealers who are not "underwriters" but are participating in a
distribution (as contrasted to ordinary secondary trading transactions), and
thus dealing with Nasdaq GOLD that are part of an "unsold allotment" within the
meaning of Section 4(3)(C) of the Securities Act, would be unable to take
advantage of the prospectus-delivery exemption provided by Section 4(3) of the
Securities Act. [Firms that do incur a prospectus delivery obligation with
respect to Nasdaq GOLD are reminded that under Securities Act Rule 153, a
prospectus-delivery obligation under Section 5(b)(2) of the Securities Act owed
to an Amex member in connection with a sale on the Amex is satisfied by the fact
that Nasdaq GOLD prospectuses will be available at the Amex upon request. Of
course, the prospectus-delivery mechanism provided in Rule 153 is only available
with respect to transactions on an exchange.]-- included if Amex listed
The Sponsor intends to market Nasdaq GOLD through broker-dealers who are
members of the National Association Securities Dealers, Inc. Investors intending
to create or redeem Creation Unit size aggregations of Nasdaq GOLD in
transactions not involving a broker-dealer registered in such investor's state
of domicile or residence should consult counsel regarding applicable
broker-dealer or securities regulatory requirements under such state securities
laws prior to such creation or redemption.
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EXPENSES OF THE TRUST
Until further notice, the Sponsor has undertaken that on each day during
each fiscal year up to and including the fiscal year ending September 30, 2000,
the ordinary operating expenses of the Trust as calculated by the Trustee will
not be permitted to exceed an amount which is 18/100 of one percent (0.18%) per
annum of the daily net asset value of the Trust. To the extent during such
period the ordinary operating expenses of the Trust do exceed such 0.18% level,
the Sponsor will reimburse the Trust or assume invoices on behalf of the Trust
for such excess ordinary operating expenses. The Sponsor retains the ability to
be repaid by the Trust for expenses so reimbursed or assumed to the extent that
subsequently during the fiscal year expenses fall below the 0.18% per annum
level on any given day. For purposes of this undertaking by the Sponsor,
ordinary operating expenses of the Trust shall not include taxes, brokerage
commissions, and such extraordinary non-recurring expenses as may arise,
including without limitation the cost of any litigation to which the Trust or
Trustee may be a party. After September 30, 2000, the Sponsor may discontinue
its undertaking to limit ordinary operating expenses of the Trust or renew this
undertaking for an additional period of time, or may choose to reimburse or
assume certain Trust expenses in later periods in order to keep Trust expenses
at a level lower than what would reflect ordinary operating expenses of the
Trust, but is not obligated to do so. In any event, it is possible that, on any
day and during any period over the life of the Trust, total fees and expenses of
the Trust may exceed 0.18% per annum.
Subject to any applicable cap, the Sponsor reserves the right to charge
the Trust a special sponsor fee from time to time in reimbursement for certain
services it may provide to the Trust which would otherwise be provided by the
Trustee in an amount not to exceed the actual cost of providing such services.
The Sponsor or the Trustee from time to time may voluntarily assume some
expenses or reimburse the Trust so that total expenses of the Trust are reduced,
although neither the Sponsor nor the Trustee is obligated to do so and either
one or both parties may discontinue such voluntary assumption
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of expenses or reimbursement at any time without notice. In connection
therewith, the Sponsor has agreed to assume the expenses incident to the
organization of the Trust and its registration as an investment company, and
such expenses will not be borne by the Trust.
The following charges are or may be accrued and paid by the Trust: (a)
the Trustee's fee as discussed more fully below; (b) fees payable to transfer
agents for the provision of transfer agency services; (c) fees of the Trustee
for extraordinary services performed under the Trust Agreement; (d) various
governmental charges; (e) any taxes, fees, and charges payable by the Trustee
with respect to Nasdaq GOLD (whether in Creation Unit size aggregations or
otherwise); (f) expenses and costs of any action taken by the Trustee or the
Sponsor to protect the Trust and the rights and interests of Beneficial Owners
of Nasdaq GOLD (whether in Creation Unit size aggregations or otherwise); (g)
indemnification of the Trustee or the Sponsor for any losses, liabilities or
expenses incurred by them in the administration of the Trust without gross
negligence, bad faith, wilful misconduct, or wilful malfeasance on their part or
reckless disregard of their obligations and duties; (h) expenses incurred in
contacting Beneficial Owners of Nasdaq GOLD during the life of the Trust and
upon termination of the Trust; (i) brokerage commissions incurred by the Trustee
when acquiring or selling Index Securities pursuant to the provisions of the
Trust Agreement; and (j) other out-of-pocket expenses of the Trust incurred
pursuant to actions permitted or required under the Trust Agreement.
In addition to the specific expenses discussed in the previous paragraph,
the following expenses are or may be charged to the Trust: (a) reimbursement to
the Sponsor of amounts paid by it to Nasdaq in respect of annual licensing fees
pursuant to the License Agreement (the Sponsor has committed not to seek
reimbursement from the Trust for licensing fees paid for the period through the
Trust's fiscal year ending September 30, 1999, see "License Agreement"), (b)
federal and state annual registration fees for the issuance of Nasdaq GOLD, and
(c) expenses of the Sponsor relating to the printing and distribution
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of marketing materials describing Nasdaq GOLD and the Trust (including, but not
limited to, associated legal, consulting, advertising, and marketing costs and
other out-of-pocket expenses such as printing). Pursuant to the provisions of an
exemptive order, the expenses set forth in this paragraph may be charged to the
Trust by the Trustee in an amount equal to the actual costs incurred, but in no
case shall such charges exceed 20/100 of 1% (0.20%) per annum of the daily net
asset value of the Trust.
Trust fees and expenses will first be paid out of income received by the
Trust in the form of dividends and other distributions on the Securities. It is
currently expected that Trust income may be insufficient to cover Trust fees and
expenses (see "Special Considerations and Risk Factors--Little or No Expected
Net Dividend Distributions to Beneficial Owners"). In such circumstances, the
Trustee will sell Securities in an amount sufficient to pay the excess of
accrued fees and expenses over the dividends and other Trust accrued income.
Specifically, the Trustee will ordinarily be required to sell Securities
whenever the Trustee determines that projected annualized fees and expenses
accrued on a daily basis exceed projected annualized dividends and other Trust
income accrued on a daily basis by more than 1/100 of one percent (0.01%) of the
net asset value of the Trust. Whenever the 0.01% threshold is exceeded, the
Trustee will sell sufficient Securities to cover such excess no later than the
next occasion it is required to make adjustments to the Portfolio due to a
Misweighting (see "The Portfolio--Adjustments to the Portfolio"), unless the
Trustee determines, in its discretion, that such a sale is unnecessary because
the cash to be generated is not needed by the Trust at that time for the payment
of expenses then due or because the Trustee otherwise determines that such sale
is not warranted or advisable. At the time of the sale, the Trustee shall first
sell Securities that are over- weighted in the Portfolio as compared to their
relative weighting in the Index.
The Trustee may also make advances to the Trust to cover expenses. The
Trustee may reimburse itself in the amount of any such advance, plus any amounts
required by the Federal Reserve Board which
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are related to such advances, together with interest thereon at a percentage
rate equal to the then current overnight federal funds rate, by deducting such
amounts from (1) dividend payments or other income of the Trust when such
payments or other income is received, (2) the amounts earned or benefits derived
by the Trustee on cash held by the Trustee for the benefit of the Trust, and (3)
the sale of Securities. Notwithstanding the foregoing, in the event that any
advance remains outstanding for more than forty-five (45) Business Days, the
Trustee shall ordinarily sell Securities to reimburse itself for the amount of
such advance and any accrued interest thereon. Such advances will be secured by
a lien on the assets of the Trust in favor of the Trustee. The expenses of the
Trust are reflected in the net asset value of the Trust (see "Valuation").
For services performed under the Trust Agreement, the Trustee is paid by
the Trust a fee at an annual rate of 6/100 of 1% to 10/100 of 1% of the net
asset value of the Trust, as shown below, such percentage amount to vary
depending on the net asset value of the Trust. Such compensation is computed on
each Business Day on the basis of the net asset value of the Trust on such day,
and the amount thereof is accrued daily and paid monthly. The Trustee, in its
discretion, may waive all or a portion of such fee. Notwithstanding the fee
schedule set forth in the table below, the Trustee shall be paid a minimum
annual fee of $180,000 per annum. To the extent that the amount of the Trustee's
compensation is less than such minimum annual fee, the Sponsor has agreed to pay
the amount of any such shortfall.
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TRUSTEE FEE SCALE
<TABLE>
<CAPTION>
Net Asset Value Fee as a Percentage of Net
of the Trust Asset Value of the Trust
- --------------- --------------------------
<S> <C>
$0-$499,999,999.............................. 10/100 of 1% per annum*
$500,000,000-$2,499,999,999.................. 8/100 of 1% per annum*
$2,500,000,000 and above..................... 6/100 of 1% per annum*
</TABLE>
- ----------------
* The fee indicated applies to that portion of the net asset value of the
Trust which falls in the size category indicated.
REDEMPTION OF NASDAQ GOLD
Nasdaq GOLD in Creation Unit size aggregations is ordinarily redeemable
in kind only and is not redeemable for cash except under certain circumstances.
Nasdaq GOLD in Creation Unit size aggregations may be redeemed by submitting a
request for redemption, the requisite number of shares of Nasdaq GOLD, and the
Cash Redemption Amount (as defined below), if applicable, to the Trustee in the
manner specified below. Beneficial Owners of Nasdaq GOLD may sell Nasdaq GOLD in
the secondary market, but must accumulate enough shares of Nasdaq GOLD to
constitute a Creation Unit (i.e., 25,000 shares) in order to redeem through the
Trust. Nasdaq GOLD can be redeemed only when Creation Unit size aggregations are
owned by a Beneficial Owner and held in the account of a single Participating
Party (with respect to redemptions through the Nasdaq GOLD Clearing Process) or
a single DTC Participant (with respect to redemptions outside the Nasdaq GOLD
Clearing Process). Nasdaq GOLD will remain outstanding until redeemed or until
the termination of the Trust.
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PROCEDURE FOR REDEMPTION OF NASDAQ GOLD
Requests for redemptions of Creation Units may be made on any Business
Day through the Nasdaq GOLD Clearing Process to the Trustee at its trust office
at 101 Barclay Street, New York, New York 10286, or at such other office as may
be designated by the Trustee. Requests for redemptions of Creation Units may
also be made directly to the Trustee outside the Nasdaq GOLD Clearing Process.
Requests for redemption shall not be made to the Distributor. In the case of
redemptions made through the Nasdaq GOLD Clearing Process, the Transaction Fee
will be deducted from the amount delivered to the redeemer or added to the
amount owed by the redeemer to the Trustee, as applicable. In case of
redemptions tendered directly to the Trustee outside the Nasdaq GOLD Clearing
Process, a total fee will be charged equal to the Transaction Fee plus an
additional amount not to exceed three (3) times the Transaction Fee applicable
for a Creation Unit (due in part to the increased expense associated with
delivery outside the Nasdaq GOLD Clearing Process), and such amount will be
deducted from the amount delivered to the redeemer or added to the amount owed
by the redeemer to the Trustee on behalf of the Trust, as applicable (see
"Prospectus Summary--Transaction Fee"). In all cases, the tender of Nasdaq GOLD
for redemption and distributions to the redeemer (or payments to the Trustee, as
applicable) in respect of Nasdaq GOLD redeemed will be effected through the
Depository and the relevant DTC Participant(s) to the Beneficial Owner thereof
as recorded on the book entry system of the Depository or the relevant DTC
Participant, as the case may be (see "The Trust--Book-Entry-Only System").
The Trustee will transfer to the redeeming Beneficial Owner via the
Depository and the relevant DTC Participant(s) a portfolio of Securities for
each Creation Unit size aggregation of Nasdaq GOLD delivered, typically
identical in composition and weighting to the securities portion of a Portfolio
Deposit as in effect (1) on the date a request for redemption is deemed received
by the Trustee as described
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below, in the case of redemptions made either through the Nasdaq GOLD Clearing
Process or outside the Nasdaq GOLD Clearing Process or (2) on the date that
notice of the termination of the Trust is given, in the case of the termination
of the Trust (see "Administration of the Trust--Termination" and "The
Portfolio--Adjustments to the Portfolio"). Each redemption also includes a cash
amount, the "Cash Redemption Amount," which will either be paid to the Trustee
by the redeemer or paid to the redeemer by the Trustee on behalf of the Trust
as described below. On any given Business Day, the Cash Redemption Amount is
typically an amount identical to the amount of the Cash Component and is equal
to a proportional amount of the following: dividends on all the Securities for
the period through the date of redemption, net of accrued expenses and
liabilities for such period including, without limitation, (x) taxes or other
governmental charges against the Trust not previously deducted if any, and (y)
accrued fees of the Trustee and other expenses of the Trust (including legal
and auditing expenses) and other expenses not previously deducted (see
"Expenses of the Trust"), as if all the Securities had been held for the entire
Accumulation Period for such distribution, plus or minus the Balancing Amount.
To the extent the sum of dividends on all Securities with ex-dividend dates
within the Accumulation Period, plus or minus the Balancing Amount, exceeds the
accrued expenses and liabilities of the Trust for such period (i.e., the Cash
Redemption Amount has a positive value), then the Trustee on behalf of the
Trust will transfer payment thereof via the relevant DTC Participant(s) to the
redeeming Beneficial Owner. Conversely, to the extent the sum of dividends on
all Securities with ex-dividend dates within the Accumulation Period, plus or
minus the Balancing Amount, is less than the accrued expenses and liabilities
of the Trust for such period (i.e., the Cash Redemption Amount has a negative
value), then such Beneficial Owner shall be required to deliver payment thereof
via the relevant DTC Participant(s) to the Trustee on behalf of the Trust. In
the case of redemptions made through the Nasdaq GOLD Clearing Process, the
Trustee on behalf of the Trust will effect a transfer of the Cash Redemption
Amount (if
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required) and the securities to the redeeming Beneficial Owner by the third
(3rd) NSCC Business Day following the date on which request for redemption is
deemed received. In the case of redemptions made outside the Nasdaq GOLD
Clearing Process, the Trustee on behalf of the Trust will transfer the Cash
Redemption Amount (if required) and the securities to the redeeming Beneficial
Owner by the third (3rd) Business Day following the date on which the request
for redemption is deemed received. In cases in which the Cash Redemption Amount
is payable by the redeemer to the Trustee, the redeeming Beneficial Owner (via
the Depository and the relevant DTC Participants(s)) is required to make payment
of such cash amount by the third (3rd) NSCC Business Day, for redemptions made
through the Nasdaq GOLD Clearing Process, or the first (1st) Business Day, for
redemptions outside the Nasdaq GOLD Clearing Process, following the date on
which the request for redemption is deemed received. The Trustee will cancel all
Nasdaq GOLD delivered upon redemption.
In the event that the Trustee determines in its discretion that an Index
Security is likely to be unavailable or available in insufficient quantity for
delivery by the Trust upon the redemption of Nasdaq GOLD in Creation Unit size
aggregations, the Trustee shall have the right in its discretion to include the
cash equivalent value of such Index Security or Index Securities, based on the
market value of such Index Security or Index Securities as of the Evaluation
Time on the date such redemption is deemed received by the Trustee (see
"Placement of Redemption Orders Using the Nasdaq GOLD Clearing Process"), in the
calculation of the Cash Redemption Amount in lieu of delivering such Index
Security or Index Securities to the redeemer.
In connection with the redemption of Nasdaq GOLD, if a redeeming investor
requests redemption in cash, rather than in kind, with respect to one or more
Securities (for example, because such a redeemer is restricted by regulation or
otherwise from investing or engaging in a transaction in one or more Index
Securities), the Trustee shall have the right in its discretion to include the
cash equivalent value of such
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Index Security or Index Securities, based on the market
value of such Index Security or Index Securities as of the Evaluation Time on
the date such redemption order is deemed received by the Trustee (see "Placement
of Redemption Orders Outside the Nasdaq GOLD Clearing Process"), in the
calculation of the Cash Redemption Amount in lieu of delivering such Index
Security or Index Securities to the redeemer. In such case, such investor will
pay the Trustee the standard Transaction Fee, plus an additional amount not to
exceed three (3) times the Transaction Fee applicable for a Creation Unit (see
"Prospectus Summary--Transaction Fee").
The Trustee, in its discretion, upon the request of a redeeming investor,
may redeem Creation Units in whole or in part by providing such redeemer with a
portfolio of Securities differing in exact composition from the Index Securities
but not differing in net asset value from the then-current Portfolio Deposit.
Such a redemption is likely to be made only if it were to be determined that
this composition would be appropriate in order to maintain the Portfolio's
correlation to the composition and weighting of the Index, for instance in
connection with a replacement of one of the Index Securities (e.g., due to a
merger, acquisition or bankruptcy). (See "The Portfolio" and "The Index".)
The Trustee may sell Securities to obtain sufficient cash proceeds to
deliver to the redeeming Beneficial Owner. To the extent cash proceeds are
received by the Trustee in excess of the amount required to be provided to the
redeeming Beneficial Owner, such cash amounts shall be held by the Trustee and
shall be applied in accordance with the guidelines applicable to Misweightings
(see "The Portfolio--Adjustments to the Portfolio").
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to allow distribution of the
Cash Redemption Amount to a redeemer of Nasdaq GOLD, the Trustee may advance out
of its own funds any amounts necessary in respect of redemptions of Nasdaq GOLD;
otherwise, the Trustee may sell Securities in an amount sufficient to effect
such
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redemptions. The Trustee may reimburse itself in the amount of such advance,
plus any amounts required by the Federal Reserve Board which are related to such
advance, together with interest thereon at a percentage rate equal to the then
current overnight federal funds rate, by deducting such amounts from (1)
dividend payments or other income of the Trust when such payments or other
income is received, (2) the amounts earned or benefits derived by the Trustee on
cash held by the Trustee for the benefit of the Trust, and (3) the sale of
Securities. Notwithstanding the foregoing, in the event that any advance remains
outstanding for more than forty-five (45) Business Days, the Trustee shall
ordinarily sell Securities to reimburse itself for such advance and any accrued
interest thereon. Such advances will be secured by a lien on the assets of the
Trust in favor of the Trustee.
The Trustee may, in its discretion, and will when so directed by the
Sponsor, suspend the right of redemption, or postpone the date of payment of the
net asset value for more than five (5) Business Days following the date on which
the request for redemption is deemed received by the Trustee (1) for any period
during which the New York Stock Exchange is closed; (2) for any period during
which an emergency exists as a result of which disposal or evaluation of the
Securities is not reasonably practicable; or (3) for such other period as the
Commission may by order permit for the protection of Beneficial Owners. Neither
the Sponsor nor the Trustee is liable to any person or in any way for any loss
or damages which may result from any such suspension or postponement.
To be eligible to place orders with the Trustee to redeem Nasdaq GOLD in
Creation Unit size aggregations, an entity or person must be (1) a Participating
Party, with respect to redemptions through the Nasdaq GOLD Clearing Process, or
(2) a DTC Participant, with respect to redemptions outside the Nasdaq GOLD
Clearing Process.
All orders to redeem Nasdaq GOLD must be placed in multiples of 25,000
shares (Creation Unit size). Orders must be transmitted to the Trustee by
telephone or other transmission method acceptable
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to the Trustee so as to be received by the Trustee not later than the Closing
Time on the Transmittal Date, pursuant to procedures set forth in the Nasdaq
GOLD Participant Agreement. Severe economic or market changes or disruptions, or
telephone or other communication failure, may impede the ability to reach the
Trustee, a Participating Party, or a DTC Participant.
Orders to redeem Creation Unit size aggregations of Nasdaq GOLD
shall be placed with a Participating Party or DTC Participant, as applicable, in
the form required by such Participating Party or DTC Participant. Investors
should be aware that their particular broker may not have executed a Nasdaq GOLD
Participant Agreement, and that, therefore, orders to redeem Creation Unit size
aggregations of Nasdaq GOLD may have to be placed by the investor's broker
through a Participating Party or a DTC Participant who has executed a Nasdaq
GOLD Participant Agreement. At any given time there may be only a limited number
of broker-dealers that have executed a Nasdaq GOLD Participant Agreement. Those
placing orders to redeem Nasdaq GOLD should afford sufficient time to permit (1)
proper submission of the order by a Participating Party or DTC Participant to
the Trustee and (2) the receipt of the Nasdaq GOLD to be redeemed and the Cash
Redemption Amount, if any, by the Trustee in a timely manner, as described
below. Orders for redemption that are effected outside the Nasdaq GOLD Clearing
Process are likely to require transmittal by the DTC Participant earlier on the
Transmittal Date than orders effected using the Nasdaq GOLD Clearing Process.
Those persons placing orders outside the Nasdaq GOLD Clearing Process should
ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire
system by contacting the operations department of the broker or depository
institution effectuating such transfer of Nasdaq GOLD and Cash Redemption
Amount. These deadlines will vary by institution. The Participant notified of an
order to redeem outside the Nasdaq GOLD Clearing Process will be required to
transfer Nasdaq GOLD through DTC and the Cash Redemption Amount, if any, through
the Federal Reserve Bank wire system in a timely manner (see "Placement of
Redemption Orders
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Outside the Nasdaq GOLD Clearing Process"). Information regarding the Cash
Redemption Amount, number of outstanding shares of Nasdaq GOLD, and Transaction
Fees may be obtained from the Trustee at the toll-free number: ____________.
PLACEMENT OF REDEMPTION ORDERS USING THE NASDAQ GOLD CLEARING PROCESS
Orders to redeem Nasdaq GOLD in Creation Unit size aggregations through
the Nasdaq GOLD Clearing Process must be delivered through a Participating Party
(see "Prospectus Summary--Portfolio Deposit") that has executed the Nasdaq GOLD
Participant Agreement with the Distributor and with the Trustee (as the same may
be from time to time amended in accordance with its terms). An order to redeem
Nasdaq GOLD using the Nasdaq GOLD Clearing Process is deemed received by the
Trustee on the Transmittal Date if (i) such order is received by the Trustee not
later than the Closing Time on such Transmittal Date and (ii) all other
procedures set forth in the Nasdaq GOLD Participant Agreement are properly
followed; such order will be effected based on the net asset value of the Trust
as determined as of the Evaluation Time on the Transmittal Date. An order to
redeem Nasdaq GOLD using the Nasdaq GOLD Clearing Process made in proper form
but received by the Trustee after the Closing Time will be deemed received on
the next Business Day immediately following the Transmittal Date. The Nasdaq
GOLD Participant Agreement authorizes the Trustee to transmit to NSCC on behalf
of the Participating Party such trade instructions as are necessary to effect
the Participating Party's redemption order. Pursuant to such trade instructions
from the Trustee to NSCC, the Trustee will transfer the requisite Securities (or
contracts to purchase such Securities which are expected to be delivered in a
"regular way" manner) by the third (3rd) NSCC Business Day following the date on
which such request for redemption is deemed received, and the Cash Redemption
Amount, if any. If the Cash Redemption Amount is owed by the Beneficial Owner to
the Trustee, such amount must be delivered by the third (3rd) NSCC Business Day
following the date on which the redemption request is deemed received. The
calculation of the value
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of the Securities and the Cash Redemption Amount will be made according to the
procedures set forth under "Valuation," computed as of the Evaluation Time on
the Business Day on which a redemption order is deemed received by the Trustee.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE THE NASDAQ GOLD CLEARING PROCESS
Orders to redeem Nasdaq GOLD outside the Nasdaq GOLD Clearing Process
must be delivered through a DTC Participant that has executed the Nasdaq GOLD
Participant Agreement with the Distributor and with the Trustee. A DTC
Participant who wishes to place an order for redemption of Nasdaq GOLD to be
effected outside the Nasdaq GOLD Clearing Process need not be a Participating
Party, but such orders must state that the DTC Participant is not using the
Nasdaq GOLD Clearing Process and that redemption of Nasdaq GOLD will instead be
effected through transfer of Nasdaq GOLD directly through DTC. An order to
redeem Nasdaq GOLD outside the Nasdaq GOLD Clearing Process is deemed received
by the Trustee on the Transmittal Date if (i) such order is received by the
Trustee not later than the Closing Time on such Transmittal Date, (ii) such
order is preceded or accompanied by the requisite number of shares of Nasdaq
GOLD specified in such order, which delivery must be made through DTC to the
Trustee no later than the Closing Time of the regular trading session on the
Nasdaq Stock Market on such Transmittal Date and (iii) all other procedures set
forth in the Nasdaq GOLD Participant Agreement are properly followed. The Cash
Redemption Amount owed by the Beneficial Owner, if any, must be delivered no
later than 1:00 p.m. on the Business Day immediately following the Transmittal
Date.
After the Trustee has deemed an order for redemption outside the Nasdaq
GOLD Clearing Process received, the Trustee will initiate procedures to transfer
the requisite Securities (or contracts to purchase such Securities which are
expected to be delivered within three Business Days) and the Cash Redemption
Amount to the redeeming Beneficial Owner (where such amount is payable from the
Trustee
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to the Beneficial Owner) by the third (3rd) Business Day following the
Transmittal Date on which such redemption order is deemed received by the
Trustee.
The calculation of the value of the Securities and the Cash Redemption
Amount will be made by the Trustee according to the procedures set forth under
"Valuation," computed as of the Evaluation Time on the Business Day on which a
redemption order is deemed received by the Trustee. Therefore, if a redemption
order in proper form is submitted to the Trustee by a DTC Participant not later
than the Closing Time on the Transmittal Date, and the requisite Nasdaq GOLD is
also delivered to the Trustee prior to the Closing Time on such Transmittal
Date, then the value of the Securities and the Cash Redemption Amount will be
determined by the Trustee as of the Evaluation Time on such Transmittal Date.
If, however, a redemption order is submitted to the Trustee by a DTC Participant
not later than the Closing Time on a Transmittal Date but either (1) the
requisite Nasdaq GOLD is NOT delivered by the Closing Time on such Transmittal
Date or (2) the redemption order is not submitted in proper form, then the
redemption order will NOT be deemed received as of such Transmittal Date. In
such case, the value of the Securities and the Cash Redemption Amount will be
computed as of the Evaluation Time on the Business Day that such order is deemed
received by the Trustee, i.e., the Business Day on which the Nasdaq GOLD is
delivered through DTC to the Trustee by the Closing Time on such Business Day
pursuant to a properly submitted redemption order.
VALUATION
The net asset value of the Trust is computed as of the Evaluation Time
shown under "Essential Information" on each Business Day. The net asset value of
the Trust on a per share of Nasdaq GOLD basis is determined by subtracting all
liabilities (including accrued expenses and dividends payable) from
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the total value of the Trust's investments and other assets and dividing the
result by the total number of outstanding shares of Nasdaq GOLD.
The aggregate value of the Securities shall be determined by the Trustee
in good faith in the following manner. The value of a Security shall generally
be based on the closing sale price for the Security on that day (unless the
Trustee deems such price inappropriate as a basis for evaluation) on the Nasdaq
Stock Market or, if there is no such appropriate closing sale price on the
Nasdaq Stock Market, at the closing bid price (unless the Trustee deems such
price inappropriate as a basis for evaluation). If a Security is not so quoted
on the Nasdaq Stock Market or, if so quoted and the principal market therefor is
other than on the Nasdaq Stock Market or there is no such closing bid price
available, such evaluation shall generally be made by the Trustee in good faith
based (a) on the closing price for the Security on another market on which the
Security is traded (unless the Trustee deems such price inappropriate as a basis
for evaluation) or if there is no such appropriate closing price, at the closing
bid price on such other market, (b) on current bid prices on the Nasdaq Stock
Market or such other markets, (c) if bid prices are not available, on the basis
of current bid prices for comparable securities, (d) by the Trustee's appraising
the value of the Securities in good faith on the bid side of the market, or (e)
by any combination thereof.
ADMINISTRATION OF THE TRUST
RECORDS
The Trustee maintains records of the transactions of the Trust, including
a current list of the identity and number of shares of each of the Securities in
the Portfolio. Records of the creation of shares of Nasdaq GOLD in Creation Unit
size aggregations are also maintained by the Distributor. Record of ownership of
Nasdaq GOLD is maintained by the Depository and by DTC Participants as described
above (see "The Trust--Book-Entry-Only System").
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A complete copy of the Trust Agreement is maintained by the Trustee. A
copy of the Trust Agreement is available to Beneficial Owners at the corporate
trust office of the Trustee at 101 Barclay
Street, New York, New York 10286 during normal business hours.
VOTING
The Trustee has the right to vote all of the voting securities in the
Trust. The Trustee votes the voting securities of each issuer in the same
proportionate relationship as all other shares of each such issuer are voted to
the extent permissible and, if not permitted, abstains from voting.
DISTRIBUTIONS TO BENEFICIAL OWNERS
Distributions by the Trust will be made quarterly in the event that
dividends accumulated in respect of the Securities and other income, if any,
received by the Trust, exceed Trust fees and expenses accrued during the
quarterly Accumulation Period which ends on the Business Day preceding each Ex-
Dividend Date. Based on historical dividend payment rates of the portfolio of
securities comprising the Index and estimated ordinary operating expenses of the
Trust, little or no such distributions are currently anticipated (see "Special
Considerations and Risk Factors--Little or No Expected Net Dividend
Distributions to Beneficial Owners").
The regular quarterly Ex-Dividend Date with respect to net dividends, if
any, for Nasdaq GOLD will be the third Friday in each of March, June, September,
and December, unless such day is not a Business Day, in which case the
Ex-Dividend Date will be the immediately preceding Business Day. Beneficial
Owners as reflected on the records of the Depository and the DTC Participants on
the second Business Day following the Ex-Dividend Date (the "Record Date") are
entitled to receive an amount, if any, representing dividends accumulated on the
Securities through the quarterly Accumulation Period which ends on the Business
Day preceding such Ex-Dividend Date (including Securities with ex- dividend
dates falling within such quarterly dividend period), net of the fees and
expenses of the Trust, accrued
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daily for such period. For the purposes of such distributions, dividends per
share of Nasdaq GOLD are calculated at least to the nearest 1/100th of $0.01.
However, there shall be no net dividend distribution in any given quarter, and
any net dividend amounts will be rolled into the next Accumulation Period, if
the aggregate net dividend distribution would be in an amount less than 5/100 of
one percent (0.05%) of the net asset value of the Trust as of the Friday in the
week immediately preceding the Ex- Dividend Date, unless the Trustee determines
that such net dividend distribution is required to be made in order to maintain
the Trust's status as a regulated investment company or to avoid the imposition
of income or excise taxes or undistributed income (see "Tax Status of the
Trust"). When net dividend payments are to be made by the Trust, payment will be
made on the last Business Day in the calendar month following each Ex-Dividend
Date (the "Dividend Payment Date"). Dividend payments will be made through the
Depository and the DTC Participants to Beneficial Owners then of record with
funds received from the Trustee. Nasdaq GOLD is registered in book entry only,
which records are kept by the Depository (see "The Trust--Book-Entry-Only
System").
Dividends payable to the Trust in respect of the Securities are credited
by the Trustee to a non-interest bearing account as of the date on which the
Trust receives such dividends. Other moneys received by the Trustee in respect
of the Securities, including but not limited to the Cash Component, the Cash
Redemption Amount, all moneys realized by the Trustee from the sale of options,
warrants, or other similar rights received or distributed in respect of the
Securities as dividends or distributions and capital gains resulting from the
sale of Securities are also credited by the Trustee to a non-interest bearing
account. All funds collected or received are held by the Trustee without
interest until distributed or otherwise utilized in accordance with the
provisions of the Trust Agreement. To the extent the amounts credited to such
accounts generate interest income or an equivalent benefit to the Trustee, such
interest income or benefit is used to reduce any charges made in connection with
advances made by the Trustee
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on behalf of the Trust to cover Trust expenses in those cases when the Trust
income is insufficient to pay such expenses when due (see "Expenses of the
Trust").
The Trust intends to qualify as a regulated investment company for
federal income tax purposes. A regulated investment company is not subject to
federal income tax on its net investment income and capital gains that it
distributes to shareholders, so long as it meets certain overall distribution
and diversification requirements and other conditions under Subchapter M of the
Code. The Trust intends to satisfy these overall distribution and
diversification requirements and to otherwise satisfy any required conditions.
The Trustee intends to make additional distributions to the minimum extent
necessary (i) to distribute the entire annual investment company taxable income
of the Trust, plus any net capital gains (from sales of securities in connection
with adjustments to the Portfolio, payment of the expenses of the Trust, or to
generate cash for such distributions), and (ii) to avoid imposition of the
excise tax imposed by section 4982 of the Code (see "Tax Status of the Trust").
The additional distributions, if needed, would consist of (a) any amount by
which estimated Trust investment company taxable income and net capital gains
for a fiscal year exceeds the amount of Trust taxable income previously
distributed with respect to such year or, if greater, the minimum amount
required to avoid imposition of such excise tax, and (b) a distribution soon
after the actual annual investment company taxable income and net capital gains
of the Trust have been computed of the amount, if any, by which such actual
income exceeds the distributions already made. The net asset value of the Trust
will be reduced by the amount of such additional distributions. The magnitude of
the additional distributions, if any, will depend upon a number of factors,
including the level of redemption activity experienced by the Trust. Because
substantially all proceeds from the sale of Securities in connection with
adjustments to the Portfolio will have been used to purchase shares of Index
Securities, the Trust may have no cash or insufficient cash with which to pay
any such additional distributions. In that case, the Trustee typically will have
to sell shares of the
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Securities sufficient to produce the cash required to make such additional
distributions. In selecting the Securities to be sold to produce cash for such
distributions, the Trustee will choose among the Securities that are
over-weighted in the Portfolio relative to their weighting in the Index first
and then from among all other Securities in a manner so as to maintain the
weighting of the Securities within the applicable Misweighting Amount (see "The
Portfolio--Adjustments to the Portfolio").
The Trustee further reserves the right to declare special dividends if,
in its reasonable discretion, such action is necessary or advisable to preserve
the status of the Trust as a regulated investment company or to avoid imposition
of income or excise taxes on undistributed income.
The Trustee further reserves the right to vary the frequency with which
periodic distributions, if any, are to be made from the Trust (e.g., from
quarterly to semi-annually) if it is determined by the Sponsor and the Trustee,
in their discretion, that such a variance would be advisable to facilitate
compliance with the rules and regulations applicable to regulated investment
companies or would otherwise be advantageous to the Trust. In addition, the
Trustee reserves the right to change the regular Ex-Dividend Date for Nasdaq
GOLD to another regular date if it is determined by the Sponsor and the Trustee,
in their discretion, that such a change would be advantageous to the Trust.
Notice of any such variance or change (which notice shall include changes to the
Record Date, the Ex-Dividend Date, the Dividend Payment Date, and the
Accumulation Period resulting from such variance) shall be provided to
Beneficial Owners via the Depository and the DTC Participants (see "The
Trust--Book-Entry-Only System").
The Trustee may, in its discretion, advance out of its own funds any
amounts necessary to permit distributions via the Depository to Beneficial
Owners. The Trustee may reimburse itself in the amount of such advance, together
with interest thereon at a percentage rate equal to then current overnight
federal funds rate, plus Federal Reserve Bank requirements, by deducting such
amounts from (1) dividend
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payments or other income of the Trust when such payments or other income is
received, (2) the amounts earned or benefits derived by the Trustee on cash held
by the Trustee for the benefit of the Trust, and (3) the sale of Securities.
Notwithstanding the foregoing, in the event that any advance remains outstanding
for more than forty-five (45) Business Days, the Trustee shall ordinarily sell
Securities to reimburse itself for such advance and any accrued interest
thereon. Such advances will be secured by a lien on the assets of the Trust in
favor of the Trustee.
In addition, as soon as practicable after notice of termination of the
Trust, the Trustee will distribute via the Depository and the DTC Participants
to each Beneficial Owner redeeming Nasdaq GOLD in Creation Unit size
aggregations prior to the termination date specified in such notice, a portion
of the Securities and cash as described above (see "Redemption of Nasdaq GOLD"
and "Administration of the Trust--Termination"). Otherwise, the Trustee will
distribute to each Beneficial Owner (whether in Creation Unit size aggregations
or otherwise), as soon as practical after termination of the Trust, such
Beneficial Owner's pro rata share of the net asset value of the Trust (see
"Administration of the Trust--Termination").
All distributions are made by the Trustee through the Depository and the
DTC Participants to Beneficial Owners as recorded on the book entry system of
the Depository and the DTC Participants (see "The Trust--Book-Entry-Only
System").
The settlement date for the creation of Nasdaq GOLD in Creation Unit size
aggregations or the purchase of Nasdaq GOLD in the secondary market must occur
on or prior to the Record Date in order for such creator or purchaser to receive
any distributions made by the Trust on the next Dividend Payment Date. If the
settlement date for such creation or a secondary market purchase occurs after
the Record Date, the distribution will be made to the prior security holder or
Beneficial Owner as of such Record Date.
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TRUST SUPERVISION
The Trust's Portfolio Securities are not managed and therefore the
adverse financial condition of an issuer of securities in the Trust does not, in
itself, require the sale of Securities from the Portfolio. The Trustee shall, on
a non-discretionary basis, make changes to the Portfolio as described above (see
"The Portfolio--Adjustments to the Portfolio").
The Trustee will direct its securities transactions only to brokers or
dealers, which may include affiliates of the Trustee, from whom it expects to
obtain the most favorable prices or execution of orders.
STATEMENTS TO BENEFICIAL OWNERS
With each distribution, the Trustee will furnish for distribution to
Beneficial Owners (see "The Trust--Book-Entry-Only System") a statement setting
forth the amount being distributed expressed as a dollar amount per share of
Nasdaq GOLD.
Promptly after the end of each fiscal year, the Trustee will furnish to
the DTC Participants, for distribution to each person who was a Beneficial Owner
of Nasdaq GOLD at the end of such fiscal year, an annual report of the Trust
containing financial statements audited by independent accountants of nationally
recognized standing and such other information as may be required by applicable
laws, rules, and regulations.
REGISTER OF OWNERSHIP AND TRANSFER
The Trustee maintains a record of the creation and redemption of Nasdaq
GOLD in Creation Unit size aggregations. The Depository maintains a record on
its book-entry system of the DTC Participant ownership of Nasdaq GOLD and the
number of shares of Nasdaq GOLD owned (see "The Trust--Book- Entry-Only
System"). Certificates are not issued for Nasdaq GOLD, whether in Creation Unit
size denominations or otherwise. Beneficial Owners have the rights accorded to
holders of "book-entry" securities under applicable law. Beneficial Owners may
transfer Nasdaq GOLD through the Depository
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by instructing the DTC Participant(s) holding the Nasdaq GOLD for such
Beneficial Owner in accordance with standard securities industry procedures.
RIGHTS OF BENEFICIAL OWNERS
Nasdaq GOLD in Creation Unit size aggregations (i.e., 25,000 shares of
Nasdaq GOLD) may be tendered to the Trustee for redemption (see "Redemption of
Nasdaq GOLD"). Beneficial Owners may sell Nasdaq GOLD in the secondary market,
but must accumulate enough shares of Nasdaq GOLD (i.e., 25,000 shares) to
constitute a full Creation Unit in order to redeem through the Trust. The death
or incapacity of any Beneficial Owner will not operate to terminate the Trust
nor entitle such Beneficial Owner's legal representatives or heirs to claim an
accounting or to take any action or proceeding in any court for a partition or
winding up of the Trust. By its purchase of a Nasdaq GOLD share, each Beneficial
Owner expressly waives any right he or she may have under law to require the
Trustee at any time to account, in any manner other than as expressly provided
in the Trust Agreement, for the Securities or moneys from time to time received,
held, and applied by the Trustee under the Trust.
Beneficial Owners shall not have the right to vote concerning the Trust,
except as described below with respect to termination and as otherwise expressly
set forth in the Trust Agreement or in any manner control the operation and
management of the Trust, nor shall any Beneficial Owner be liable to any other
person by reason of any action taken by the Sponsor or the Trustee.
AMENDMENT
The Trust Agreement may be amended from time to time by the Trustee and
the Sponsor without the consent of any Beneficial Owners (a) to cure any
ambiguity or to correct or supplement any provision thereof which may be
defective or inconsistent or to make such other provisions in regard to matters
or questions arising thereunder as will not adversely affect the interests of
Beneficial Owners; (b) to change any provision thereof as may be required by the
Commission; (c) to add or change any provision as may
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be necessary or advisable for the continuing qualification of the Trust as a
"regulated investment company" under the Code; (d) to add or change any
provision thereof as may be necessary or advisable in the event that NSCC or the
Depository is unable or unwilling to continue to perform its functions as set
forth therein; (e) to add or change any provision thereof to conform the
adjustments to the Portfolio and the Portfolio Deposit to changes, if any, made
by Nasdaq in its method of determining the Index; (f) to add or change any
provision thereof as may be necessary to implement a dividend reinvestment plan
or service; (g) to make changes to the Transaction Fee and to other amounts
charged in connection with creations and redemptions of Nasdaq GOLD within the
original parameter set forth in the Trust Agreement; and (h) to make changes to
the level of net dividends below which a dividend distribution will not be paid
in a given quarter and will instead be rolled into the next Accumulation Period.
The Trust Agreement may also be amended from time to time by the Sponsor
and the Trustee with the consent of the Beneficial Owners of 51% of the
outstanding shares of Nasdaq GOLD to add provisions to or change or eliminate
any of the provisions of the Trust Agreement or to modify the rights of
Beneficial Owners; provided, however, that the Trust Agreement may not be
amended without the consent of the Beneficial Owners of all outstanding shares
of Nasdaq GOLD if such amendment would (1) permit, except in accordance with the
terms and conditions of the Trust Agreement, the acquisition of any securities
other than those acquired in accordance with the terms and conditions of the
Trust Agreement; (2) reduce the interest of any Beneficial Owner in the Trust;
or (3) reduce the percentage of Beneficial Owners required to consent to any
such amendment.
Promptly after the execution of any such amendment, the Trustee shall
receive from the Depository, pursuant to the terms of the Depository Agreement,
a list of all DTC Participants holding Nasdaq GOLD. The Trustee shall inquire of
each such DTC Participant as to the number of Beneficial Owners for whom such
DTC Participant holds Nasdaq GOLD, and provide each such DTC Participant
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with sufficient copies of a written notice of the substance of such amendment
for transmittal by each such DTC Participant to such Beneficial Owners (see "The
Trust--Book-Entry-Only System").
TERMINATION
The Trust Agreement provides that the Sponsor has the discretionary right
to direct the Trustee to terminate the Trust if at any time after six months
following and prior to three years following the Initial Date of Deposit the net
asset value of the Trust falls below $150,000,000 or if at any time on or after
three years following the Initial Date of Deposit the net asset value of the
Trust is less than $350,000,000, as such dollar amount shall be adjusted for
inflation in accordance with the CPI-U, such adjustment to take effect at the
end of the fourth year following the Initial Date of Deposit and at the end of
each year thereafter and to be made so as to reflect the percentage increase in
consumer prices as set forth in the CPI-U for the twelve month period ending in
the last month of the preceding fiscal year.
The Trust Agreement also provides that the Trustee shall, at the
direction of the Sponsor, terminate the Trust if within 90 days from the Initial
Date of Deposit the net asset value is less than $100,000. The Trust will also
terminate in the event that Nasdaq GOLD is delisted from the [Nasdaq Stock
Market or Amex] and is not subsequently relisted on a national securities
exchange or a quotation medium operated by a national securities association.
The [Nasdaq Stock Market or Amex] will consider the suspension of trading in or
the delisting of Nasdaq GOLD as discussed above (see "Marketplace Listing").
The Trust may also be terminated (a) by the agreement of the Beneficial
Owners of 66 2/3% of outstanding shares of Nasdaq GOLD; (b) if the Depository is
unable or unwilling to continue to perform its functions as set forth under the
Trust Agreement and a suitable replacement is unavailable; (c) if NSCC no longer
provides clearance services with respect to Nasdaq GOLD and a suitable
replacement is unavailable, or if the Trustee is no longer a participant in NSCC
or any successor to NSCC providing
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clearance services; (d) if Nasdaq ceases publishing the Index; and (e) if the
License Agreement is terminated. Currently, the License Agreement is scheduled
to expire five years from the commencement date of trading of Nasdaq GOLD in
accordance with its terms and is subject to a five year renewal period
following such date. The Trust will also terminate by its terms on the
Mandatory Termination Date.
If either the Sponsor or the Trustee shall resign or be removed and a
successor is not appointed, the Trust will terminate (see "Resignation, Removal
and Liability--The Trustee" and "Resignation, Removal and Liability--The
Sponsor"). The dissolution of the Sponsor or its ceasing to exist as a legal
entity for any cause whatsoever, however, will not cause the termination of the
Trust Agreement or the Trust unless the Trustee deems termination to be in the
best interests of Beneficial Owners.
Prior written notice of the termination of the Trust will be given at
least twenty (20) days prior to termination of the Trust to all Beneficial
Owners in the manner described above (see "The Trust--Book-Entry-Only System").
The notice will set forth the date on which the Trust will be terminated (the
"Termination Date"), the period during which the assets of the Trust will be
liquidated, the date on which Beneficial Owners of Nasdaq GOLD (whether in
Creation Unit size aggregations or otherwise) will receive in cash the net asset
value of the Nasdaq GOLD held, and the date determined by the Trustee upon which
the books of the Trust shall be closed. Such notice shall further state that, as
of the date thereof and thereafter, neither requests to create additional
Creation Units nor Portfolio Deposits will be accepted, and that, as of the date
thereof and thereafter, the portfolio of Securities delivered upon redemption
shall be essentially identical in composition and weighting to the Securities
held in the Trust as of such date rather than the securities portion of the
Portfolio Deposit as in effect on the date request for redemption is deemed
received. Beneficial Owners of Nasdaq GOLD in Creation Unit size aggregations
may, in advance of the Termination Date, redeem in kind directly from the Trust
(see "Redemption of Nasdaq GOLD").
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Within a reasonable period of time after the Termination Date the Trustee
shall, subject to any applicable provisions of law, use its best efforts to sell
all of the Securities not already distributed to redeeming Beneficial Owners of
Creation Units. The Trustee shall not be liable for or responsible in any way
for depreciation or loss incurred by reason of any such sale or sales. The
Trustee may suspend such sales upon the occurrence of unusual or unforeseen
circumstances, including but not limited to a suspension in trading of a
Security, the closing or restriction of trading, the outbreak of hostilities, or
the collapse of the economy. Upon receipt of proceeds from the sale of the last
Security, the Trustee shall deduct therefrom its fees and all other expenses
(see "Expenses of the Trust"). The remaining amount shall be transmitted to the
Depository for distribution via the DTC Participants, together with a final
statement setting forth the computation of the gross amount distributed. Nasdaq
GOLD not redeemed prior to termination of the Trust will be redeemed in cash at
net asset value based on the proceeds of the sale of the Securities. Such
redemptions in cash at net asset value shall be available to all Beneficial
Owners, with no minimum aggregation of shares of Nasdaq GOLD required.
RESIGNATION, REMOVAL AND LIABILITY
THE TRUSTEE
Under the Trust Agreement, the Trustee may resign and be discharged of
the Trust created by the Trust Agreement by executing a notice of resignation in
writing and filing such notice with the Sponsor and mailing a copy of the notice
of resignation to all DTC Participants that are reflected on the records of the
Depository as owning Nasdaq GOLD for distribution to Beneficial Owners as
provided above (see "The Trust--Book-Entry-Only System") not less than sixty
(60) days before the date such resignation is to take effect. Such resignation
will become effective upon the appointment of and the acceptance of the Trust by
a successor Trustee or, if no successor is appointed within sixty (60) days
after
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the date such notice of resignation is given, the Trust shall terminate (see
"Administration of the Trust--Termination"). The Sponsor, upon receiving notice
of such resignation, is obligated to use its best efforts to appoint a successor
Trustee promptly.
In case the Trustee becomes incapable of acting as such or is adjudged a
bankrupt or is taken over by any public authority, the Sponsor may discharge the
Trustee and appoint a successor Trustee as provided in the Trust Agreement.
Notice of such discharge and appointment shall be mailed by the Sponsor to the
Depository and the DTC Participants for distribution to Beneficial Owners.
Upon a successor Trustee's execution of a written acceptance of an
appointment as Trustee for the Trust, such successor Trustee will become vested
with all the rights, powers, duties, and obligations of the original Trustee.
A successor Trustee is required to be a bank, trust company, corporation,
or national banking association organized and doing business under the laws of
the United States or any state thereof, to be authorized under such laws to
exercise corporate trust powers, and to have at all times an aggregate capital,
surplus, and undivided profit of not less than $50,000,000.
Beneficial Owners of 51% of the then outstanding shares of Nasdaq GOLD
may at any time remove the Trustee by written instrument(s) delivered to the
Trustee and the Sponsor. The Sponsor shall thereupon use its best efforts to
appoint a successor Trustee in the manner specified above and in the Trust
Agreement.
The Trust Agreement provides that the Trustee is not liable for any
action taken in reasonable reliance on properly executed documents or for the
disposition of moneys or Securities or for the evaluations required to be made
thereunder, except by reason of its own gross negligence, bad faith, wilful
malfeasance, wilful misconduct, or reckless disregard of its duties and
obligations, nor is the Trustee liable or responsible in any way for
depreciation or loss incurred by reason of the sale by the
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Trustee of any Securities in the Trust. In the event of the failure of the
Sponsor to act, the Trustee may act and is not liable for any such action taken
by it in good faith. The Trustee is not personally liable for any taxes or
other governmental charges imposed upon or in respect of the Securities or upon
the interest thereon or upon it as Trustee or upon or in respect of the Trust
which the Trustee may be required to pay under any present or future law of the
United States of America or of any other taxing authority having jurisdiction.
In addition, the Trust Agreement contains other customary provisions limiting
the liability of the Trustee. The Trustee and its directors, subsidiaries,
shareholders, officers, employees, and affiliates under common control with the
Trustee (each a "Trustee Indemnified Party") will be indemnified from the
assets of the Trust and held harmless against any loss, liability, or expense
incurred without gross negligence, bad faith, wilful misconduct, wilful
malfeasance on the part of such Trustee Indemnified Party, or reckless
disregard of its duties and obligations, arising out of, or in connection with
its acceptance or administration of the Trust, including the costs and expenses
(including counsel fees) of defending against any claim or liability.
THE SPONSOR
If at any time the Sponsor shall fail to undertake or perform or become
incapable of undertaking or performing any of the duties which by the terms of
the Trust Agreement are required of it to be undertaken or performed, or shall
resign, or shall become bankrupt or its affairs shall be taken over by public
authorities, the Trustee may appoint a successor Sponsor as shall be
satisfactory to the Trustee, agree to act as Sponsor itself, or may terminate
the Trust Agreement and liquidate the Trust (see "Administration of the
Trust--Termination"). Notice of the resignation or removal of the Sponsor and
the appointment of a successor shall be mailed by the Trustee to the Depository
and the DTC Participants for distribution to Beneficial Owners (see
"Trust-Book-Entry-Only System"). Upon a successor Sponsor's execution of a
written acceptance of such appointment as Sponsor of the Trust, such successor
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Sponsor shall become vested with all of the rights, powers, duties and
obligations of the original Sponsor. Any successor Sponsor may be compensated
at rates deemed by the Trustee to be reasonable.
The Sponsor may resign by executing and delivering to the Trustee an
instrument of resignation. Such resignation shall become effective upon the
appointment of a successor Sponsor and the acceptance of such appointment by the
successor Sponsor, unless the Trustee either agrees to act as Sponsor or
terminates the Trust Agreement and liquidates the Trust, which the Trustee shall
do if no successor Sponsor is appointed (see "Administration of the
Trust--Termination").
The dissolution of the Sponsor or its ceasing to exist as a legal entity
for any reason whatsoever will not cause the termination of the Trust Agreement
or the Trust unless the Trustee deems termination to be in the best interests of
the Beneficial Owners of Nasdaq GOLD.
The Trust Agreement provides that the Sponsor is not liable to the
Trustee, the Trust, or to the Beneficial Owners of Nasdaq GOLD for taking any
action or for refraining from taking any action made in good faith or for errors
in judgment, but is liable only for its own gross negligence, bad faith, wilful
misconduct, or wilful malfeasance in the performance of its duties or its
reckless disregard of its obligations and duties under the Trust Agreement. The
Sponsor is not liable or responsible in any way for depreciation or loss
incurred by the Trust by reason of the sale of any Securities of the Trust. The
Trust Agreement further provides that the Sponsor and its directors,
subsidiaries, shareholders, officers, employees, and affiliates under common
control with the Sponsor (each a "Sponsor Indemnified Party") shall be
indemnified from the assets of the Trust and held harmless against any loss,
liability, or expense incurred without gross negligence, bad faith, wilful
misconduct, or wilful malfeasance on the part of any Sponsor Indemnified Party
in the performance of its duties or reckless disregard of its obligations and
duties under the Trust Agreement, including the payment of the costs and
expenses (including counsel fees) of defending against any claim or liability.
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SPONSOR
The Sponsor of the Trust is Investment Product Services, Inc., a Delaware
corporation incorporated on August 7, 1998 with offices c/o The Nasdaq Stock
Market, Inc., 1735 K Street NW, Washington, DC 20006-1500. The Sponsor's
Internal Revenue Service Employer Identification Number is 52-2115391. Nasdaq
owns all of the Sponsor's outstanding shares of common stock. Nasdaq is a
"control person" of the Sponsor as such term is defined in the Securities Act.
The Sponsor, at its own expense, may from time to time provide additional
promotional incentives to brokers who sell Nasdaq GOLD to the public. In certain
instances, these incentives may be provided only to those brokers who meet
certain threshold requirements for participation in a given incentive program,
such as selling a significant number of shares of Nasdaq GOLD within a specified
time period.
TRUSTEE
The Trustee is The Bank of New York, a corporation organized under the
laws of the State of New York with trust powers. The Trustee has a trust office
at 101 Barclay Street, New York, New York 10286 and its Internal Revenue Service
Employer Identification Number is 135-160382. The Trustee is subject to
supervision and examination by the Federal Reserve Bank of New York, the Federal
Deposit Insurance Corporation and the New York State Banking Department.
DEPOSITORY
The Depository Trust Company, New York, New York, a limited purpose trust
company and member of the Federal Reserve System, acts as Depository for Nasdaq
GOLD. The Depository receives customary fees for its services.
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LEGAL OPINION
The legality of the shares of Nasdaq GOLD offered hereby has been passed
upon by Jones, Day, Reavis & Pogue, New York, New York, as counsel for the
Sponsor.
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
The statement of financial condition, including the schedule of
investments, as of __________, 1998 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
INFORMATION AND COMPARISON RELATING TO TRUST, SECONDARY MARKET TRADING, NET
ASSET SIZE, PERFORMANCE, AND TAX TREATMENT
Information regarding various aspects of the Trust, including the net
asset size thereof, as well as the secondary market trading, the performance,
and the tax treatment of Nasdaq GOLD, may be included from time to time in
advertisements, sales literature, and other communications as well as in reports
to current or prospective Beneficial Owners.
Information may be provided to prospective investors to help such
investors assess their specific investment goals and to aid in their
understanding of various financial strategies. Such information may present
current economic and political trends and conditions and may describe general
principles of investing such as asset allocation, diversification, and risk
tolerance, as well as specific investment techniques such as indexing and
hedging. In addition, information may be presented to prospective or current
Beneficial Owners regarding the purchase of Nasdaq GOLD in the secondary market,
such as margin requirements, types of orders that may be entered, and
information concerning short sales. Similarly, market data symbols, trading
fractions, other trading information, and the CUSIP number
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relating to Nasdaq GOLD may be included in such information. Comparisons with
other investment vehicles, such as mutual funds, may be made with respect to the
application of such requirements, costs of fund management and administration,
costs and advantages of intraday trading, and rules applicable to short sales.
Information regarding the Trust's net asset size may be stated in
communications to prospective or current Beneficial Owners for one or more time
periods, including annual, year-to-date, or daily periods. Such information may
also be expressed in terms of the total number of shares of Nasdaq GOLD
outstanding as of one or more time periods. Factors integral to the size of the
Trust's net assets, such as creation volume and activity, may also be discussed
and may be specified from time to time or with respect to various periods of
time. Comparisons of such information during various periods may also be made
and may be expressed by means of percentages.
Information may be provided to investors regarding the ability to engage
in short sales of Nasdaq GOLD, including reference to any applicable exemption
from the ["bid test" provision of the Nasdaq Stock Market's "short sale rule"]
- -- if Nasdaq Stock Market listing or ["tick test" provision of the Commission's
"short sale rule" (Rule 10a-1 under the Securities Exchange Act of 1934)] -- if
Amex listing, to permit short sales on "minus" or "zero-minus" [ticks/bids].
Selling short refers to the sale of securities which the seller does not own,
but which the seller arranges to borrow prior to effecting the sale.
Institutional investors may be advised that lending their shares of Nasdaq GOLD
to short sellers may generate stock loan credits which may supplement the return
they can earn from an investment in Nasdaq GOLD. These stock loan credits may
provide a useful source of additional income for certain institutional investors
who can arrange to lend Nasdaq GOLD. Potential short sellers may be advised that
a short rebate (functionally equivalent to partial use of proceeds of the short
sale) may reduce their cost of selling short.
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Information may be provided to investors regarding capital gains
distributions by the Trust, including historical information relating to such
distributions. Comparisons between the Trust and other investment vehicles such
as mutual funds may be made regarding such capital gains distributions, as well
as relative tax efficiencies between the Trust and such other investment
vehicles (e.g., realization of capital gains or losses to the Trust and to such
other investment vehicles in connection with redemption of their respective
securities). (See "Tax Status of the Trust" for discussion of tax consequences
to Beneficial Owners of Nasdaq GOLD in connection with the sale or redemption of
Nasdaq GOLD.) Based on projected differences between Nasdaq GOLD and
conventional mutual funds with regard to capital gains distributions,
projections may be made regarding comparative capital gains distributions and
tax rates for taxable investors holding Nasdaq GOLD over a long period of time.
Comparisons may also be provided regarding the probable tax impact resulting
from rebalancing of the Trust portfolio (see "The Portfolio--Adjustments to the
Portfolio") and adjustments to the portfolio of an actively managed investment
vehicle.
Specifically, information may be provided to prospective or current
investors comparing and contrasting the tax efficiencies of conventional mutual
funds with Nasdaq GOLD. Both conventional mutual funds and the Trust may be
required to recognize capital gains incurred as a result of adjustments to the
composition and weighting of the Index and therefore to their respective
portfolios. From a tax perspective, however, a significant difference between a
conventional mutual fund and the Trust is the process by which their shares are
redeemed. In cases where a conventional mutual fund experiences redemptions in
excess of subscriptions ("net redemptions") and has insufficient cash available
to fund such net redemptions, such fund may have to sell stocks held in its
portfolio to raise and pay cash to redeeming shareholders. A mutual fund will
generally experience a taxable gain or loss when it sells such portfolio stocks
in order to pay cash to redeeming fund shareholders. In contrast, the redemption
mechanism for
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Nasdaq GOLD does not ordinarily involve selling the Securities held by the Trust
in the event of a redemption. Instead, the Trust delivers an actual portfolio of
securities in an "in-kind" exchange to any person redeeming Nasdaq GOLD in
Creation Unit size aggregations (i.e., 25,000 shares of Nasdaq GOLD per Creation
Unit). While this "in-kind" exchange is a taxable transaction to the redeeming
entity (usually a broker/dealer) making the exchange, it generally does not
constitute a taxable transaction at the Trust level and, consequently, there is
no realization of taxable gain or loss by the Trust with respect to such
"in-kind" exchanges. In a period of market appreciation of the Index and,
consequently, appreciation of Nasdaq GOLD, this "in-kind" redemption mechanism
has the effect of eliminating the recognition and distribution of those net
unrealized gains at the Trust level. Investors should note that although the
same result would occur for conventional mutual funds utilizing an "in-kind"
redemption mechanism, the opportunities to redeem fund shares by delivering
portfolio stocks "in-kind" are limited in most mutual funds.
Investors may be informed that, while no unequivocal statement can be
made as to the net tax impact on a conventional mutual fund resulting from the
purchases and sales of its portfolio stocks over a period of time, conventional
funds that have accumulated substantial unrealized capital gains, if they
experience net redemptions and do not have sufficient available cash, may be
required to make taxable capital gains distributions that are generated by
changes in such fund's portfolio. In contrast, the "in-kind" redemption
mechanism of Nasdaq GOLD may make them more tax efficient investments under most
circumstances than comparable conventional mutual fund shares. As discussed
above, the "in-kind" redemption feature of the Trust tends to lower the amount
of annual net capital gains distributions to Nasdaq GOLD holders as compared to
their conventional mutual fund counterparts. Since shareholders are generally
required to pay income tax on capital gains distributions, the smaller the
amount of such distributions, the less taxes that are payable currently. To the
extent that the Trust is not required to
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recognize capital gains, the Nasdaq GOLD holder is able, in effect, to defer tax
on such gains until he sells or otherwise disposes of his shares, or the Trust
terminates. If such holder retains his shares until his death, under current law
the tax basis of such shares would be adjusted to their then fair market value.
Information regarding the secondary market trading activity of Nasdaq
GOLD also may be presented over one or more stated time periods, such as for
daily, monthly, quarterly, or annual periods. Nasdaq GOLD secondary market
trading volume information may be compared with similar information relating to
other issues trading on the [Nasdaq Stock Market or Amex] during the same
reporting period. Average daily secondary market trading volume of shares of
Nasdaq GOLD may also be reported from time to time. Comparisons of such
information during various periods may also be made, and may be expressed by
means of percentages.
Information may also be provided in communications to prospective
investors or current Beneficial Owners comparing and contrasting the relative
advantages of investing in Nasdaq GOLD as compared to other investment vehicles,
such as mutual funds, both on an individual and a group basis (e.g., stock index
mutual funds). Such information may include comparisons of costs and expense
ratios, expressed either in dollars or basis points, stock lending activities,
permitted investments and hedging activities (e.g., engaging in options or
futures transactions), and portfolio turnover data and analyses. In addition,
such information may quote, reprint, or include portions of financial,
scholarly, or business publications or periodicals, including model allocation
schedules or portfolios, as the foregoing relate to the comparison of Nasdaq
GOLD to other investment vehicles, current economic, financial and political
conditions, investment philosophy or techniques, or the desirability of owning
Nasdaq GOLD.
In addition, information on the performance of Nasdaq GOLD on the basis
of changes in price per share of Nasdaq GOLD with or without reinvesting all
dividends, if any, and/or any distributions of capital in additional shares of
Nasdaq GOLD may be included from time to time in such information.
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Average annualized performance may be stated for various periods. Total return
figures may also be stated for a period from the Initial Date of Deposit, a date
at least twelve months prior to the end of the reporting period or for annual
periods for the life of the Trust. Total return measures the percentage growth
in the total dollar value of an investment in Nasdaq GOLD (reflecting dividends,
if any, and capital appreciation but without provision for any income taxes
payable).
Information on the Index contained in this Prospectus, as updated from
time to time, may also be included from time to time in such material. The
performance of the Trust, of the Index (provided information is also given
reflecting the performance of the Trust in comparison to the Index) or both may
also be compared to the performance of money managers as reported in market
surveys such as SEI Fund Evaluation Survey (a leading database of tax-exempt
funds) or mutual funds such as those reported by Lipper Analytical Services
Inc., Money Magazine Fund Watch, Wiesenberger Investment Companies Service,
Morningstar Incorporated, and Value Line Investment Survey, each of which
measures performance following their own specific and well-defined calculation
measures, or of the New York Stock Exchange Composite Index, the American Stock
Exchange Composite Index, the Nasdaq Composite Index (indices of stocks traded
on the New York and American Stock Exchanges and the Nasdaq Stock Market,
respectively), the S&P 500 Index(R) (a broad-based index of 500 publicly traded
companies), the S&P MidCap 400 Index(TM) (a broad-based index of 400 publicly
traded middle capitalization companies), the Dow Jones Industrial Average(SM)
(an index currently comprising 30 publicly traded large capitalization
companies), or similar domestic or foreign measurement standards during the
same period of time. In addition to all other sources of comparative
information, comparative performance figures published by other funds or money
managers may be included from time to time. Information may also be included
regarding the aggregate amount of assets committed to index investing
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generally by various types of investors, such as pension funds and other
institutional investors, which currently exceeds $300 billion.
Information on the relative price performance of Nasdaq GOLD in relation
to other securities and/or indices may be represented in the form of
"correlation." Correlation is a standard measure of the degree of linear
association between two price series, and ranges from minus one hundred percent
(- 100%) (i.e., perfect negative linear association) to positive one hundred
percent (100%) (i.e., perfect positive linear association).
One important difference between Nasdaq GOLD and conventional mutual fund
shares is that Nasdaq GOLD is available for purchase or sale on an intraday
basis on the [Nasdaq Stock Market or Amex]. An investor who buys shares in a
conventional mutual fund will usually buy or sell shares at a price at or
related to the closing net asset value per share, as determined by the fund. In
contrast, Nasdaq GOLD is not offered for purchase or redeemed for cash at a
fixed relationship to closing NAV. Information may be presented to help
investors evaluate potential advantages and disadvantages of Nasdaq GOLD
relative to funds sold and redeemed at prices related to closing NAV.
Information relating to the relative price performance of Nasdaq GOLD may
be compared against a wide variety of investment categories and asset classes,
including common stocks, small capitalization stocks, long and intermediate term
corporate and government bonds, Treasury bills, the rate of inflation in the
United States (based on the Consumer Price Index ("CPI"), and combinations of
various capital markets. Historical returns of these and other capital markets
in the United States may be provided by independent statistical studies and
sources, such as those provided by Ibbotson Associates of Chicago, Illinois. The
performance of these capital markets is based on the returns of different
indices. Information may be presented using the performance of these and other
capital markets to demonstrate general investment strategies. For example, the
performance of Nasdaq GOLD may be compared to the
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performance of selected asset classes such as short-term U.S. Treasury bills,
long-term U.S. Treasury bonds, long-term corporate bonds, mid-capitalization
stocks, foreign stocks, and small capitalization stocks and may also be measured
against the rate of inflation as set forth in well-known indices (such as the
CPI). Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. Performance of Nasdaq GOLD may also
be compared to that of other indices or compilations that may be developed and
made available to the investing public in the future. Of course, such
comparisons will only reflect past performance of Nasdaq GOLD and the investment
categories, indices, or compilations chosen, and no guarantees can be made of
future results regarding the performance of either Nasdaq GOLD or the asset
classes chosen for such comparisons.
DIVIDEND REINVESTMENT SERVICE
The Sponsor reserves the right in the future to make the DTC book-entry
Dividend Reinvestment Service (the "Service") available for use by Beneficial
Owners through DTC Participants for reinvestment of their cash proceeds, if any.
The Sponsor may choose to make the Service available within its discretion and
without the consent of Beneficial Owners. Some or all DTC Participants may not
elect to utilize the Service; therefore, if the Service is made available for
Nasdaq GOLD, an interested Nasdaq GOLD investor may wish to contact his or her
broker to ascertain the availability of the Service through such broker at such
time. Interested Beneficial Owners should also note that each broker may require
investors to adhere to specific procedures and timetables in order to
participate in the Service and investors should ascertain from their broker such
necessary details at the time when the Service is made available for Nasdaq
GOLD.
If and when the Service is utilized, the Trustee may use the cash
proceeds of dividends received from all Beneficial Owners participating in
reinvestment through the Service to obtain Index Securities
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necessary to create the requisite number of shares of Nasdaq GOLD at the close
of business on each Nasdaq GOLD distribution date. Alternatively, the Trustee
may choose to implement the reinvestment of dividends through other means (e.g.,
through trade executions for shares of Nasdaq GOLD on the open market). Any cash
balance remaining after the requisite number of shares of Nasdaq GOLD have been
created or otherwise acquired will be distributed, on a pro rata basis, to all
Beneficial Owners who participated in the Service. Brokerage commissions, if
any, incurred in obtaining the Index Securities necessary to create additional
Nasdaq GOLD with the cash from the distributions, or in purchasing shares of
Nasdaq GOLD on the open market, will be an expense of the Trust.
Nasdaq GOLD acquired pursuant to the Service will be held by the
Beneficial Owners in the same manner, and subject to the same terms and
conditions, as original ownership of Nasdaq GOLD. Distributions reinvested in
additional shares of Nasdaq GOLD through the Service will nevertheless be
taxable dividends to Beneficial Owners to the same extent as if received in
cash.
ADDITIONAL INFORMATION
A Registration Statement on Form S-6, including amendments thereto,
relating to the Trust, of which this Prospectus forms a part, has been filed
with the Commission. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. For further information with respect to the Trust, reference
is made to such Registration Statement and the exhibits thereto. A copy of the
Registration Statement may be inspected by anyone without charge at the
Commission's principal office located at 450 Fifth Street, N.W., Judiciary
125
<PAGE> 136
Plaza, Washington, D.C. 20549, the Northeast Regional Office located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and the Midwest Regional
Office located at Citicorp Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661-2511, and copies of all or any part thereof may be obtained from
the Public Reference Branch of the Commission upon the payment of certain fees
prescribed by the Commission. In addition, the Registration Statement may be
accessed electronically at the Commission's site on the World Wide Web located
at http://www.sec.gov. Such information is also available at the offices of the
Sponsor c/o The Nasdaq Stock Market, Inc., 1735 K Street NW, Washington, DC
20006-1500.
126
<PAGE> 137
<TABLE>
<CAPTION>
GLOSSARY OF DEFINED TERMS
Page
----
<S> <C>
"10 Basis Point Limit".......................................................10
"1940 Act"...................................................................15
"Accumulation Period".........................................................7
"Adjustment Day".............................................................64
["Amex"]......................................................................1
"Annual Ranking Review"......................................................72
"Balancing Amount"...........................................................66
"Beneficial Owners"..........................................................53
"Business Day"...............................................................12
"Cash Component"..............................................................7
"Cash Redemption Amount".....................................................93
"Closing Time"...............................................................46
"Code".......................................................................13
"Commission"..................................................................6
"CPI".......................................................................123
"CPI-U"......................................................................19
"Creation Unit"...............................................................1
"Depository Agreement".......................................................54
"Depository".................................................................12
"Distributor"................................................................20
"Dividend Payment Date".....................................................103
"DTC"........................................................................12
"DTC Participants"...........................................................52
"ERISA"......................................................................14
"Evaluation Time".............................................................3
"Ex-Dividend Date"...........................................................16
"Global Security"............................................................52
"Income Net of Expense Amount"................................................7
"Index Securities"............................................................5
"Index".......................................................................1
"Indirect Participants"......................................................53
"Initial Date of Deposit".....................................................4
"IRA"........................................................................14
"Large Stocks"...............................................................75
"License Agreement"..........................................................77
"Mandatory Termination Date".................................................19
"Nasdaq"......................................................................1
"Nasdaq GOLD".................................................................1
"Nasdaq GOLD Clearing Process"................................................9
"Nasdaq GOLD Participant Agreement"..........................................49
"NAV Amount".................................................................65
"NSCC Business Day"..........................................................24
</TABLE>
127
<PAGE> 138
<TABLE>
<S> <C>
"NSCC"........................................................................6
"Participating Party".........................................................6
"Plans"......................................................................14
"Portfolio Deposit Amount"...................................................66
"Portfolio Deposit"...........................................................7
"Portfolio"..................................................................40
"Record Date"...............................................................102
"Request Day"................................................................65
"Securities Act".............................................................85
"Securities"..................................................................1
"Service"...................................................................124
"Small Stocks"...............................................................75
"Sponsor".....................................................................1
"Sponsor Indemnified Party".................................................115
"Termination Date"..........................................................111
"Transaction Fee".............................................................9
"Transmittal Date"...........................................................46
"Trust Agreement".............................................................6
"Trust".......................................................................1
"Trustee".....................................................................6
"Trustee Indemnified Party".................................................114
</TABLE>
128
<PAGE> 139
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND ANY
INFORMATION OR REPRESENTATIONS NOT STATED IN IT, OR IN THE REGISTRATION
STATEMENT AND EXHIBITS OF WHICH IT IS A PART, MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST, THE SPONSOR OR THE TRUSTEE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, ANY
SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, SECURITIES IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION IN IT IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
THE TRUST IS REGISTERED AS A UNIT INVESTMENT TRUST UNDER THE INVESTMENT
COMPANY ACT OF 1940. REGISTRATION DOES NOT IMPLY THAT THE TRUST OR SHARES OF
NASDAQ GOLD HAVE BEEN GUARANTEED, SPONSORED, RECOMMENDED OR APPROVED BY THE
UNITED STATES OR ANY STATE OR ANY AGENCY OR OFFICER THEREOF.
- -------------------
Until _____________, 1998, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus.
NASDAQ GOLD(SM) TRUST
SERIES 1
----------------------
NASDAQ GOLD(SM)
----------
PROSPECTUS
----------
SPONSOR
INVESTMENT PRODUCT
SERVICES, INC.
----------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ESSENTIAL INFORMATION.........................................................2
PROSPECTUS SUMMARY............................................................5
SPECIAL CONSIDERATIONS AND RISK FACTORS......................................22
REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS...............................................................36
STATEMENT OF FINANCIAL CONDITION.............................................37
SCHEDULE OF INVESTMENTS......................................................39
THE TRUST....................................................................40
THE PORTFOLIO................................................................56
THE INDEX....................................................................69
LICENSE AGREEMENT............................................................77
MARKETPLACE LISTING..........................................................79
TAX STATUS OF THE TRUST......................................................80
CONTINUOUS OFFERING OF NASDAQ GOLD...........................................85
EXPENSES OF THE TRUST........................................................87
REDEMPTION OF NASDAQ GOLD....................................................91
VALUATION...................................................................100
ADMINISTRATION OF THE TRUST.................................................101
RESIGNATION, REMOVAL AND LIABILITY..........................................112
SPONSOR.....................................................................116
TRUSTEE.....................................................................116
DEPOSITORY..................................................................116
LEGAL OPINION...............................................................117
INDEPENDENT AUDITORS AND FINANCIAL
STATEMENTS............................................................117
INFORMATION AND COMPARISON RELATING TO
TRUST, SECONDARY MARKET TRADING, NET
ASSET SIZE, PERFORMANCE, AND TAX
TREATMENT ............................................................117
DIVIDEND REINVESTMENT SERVICE...............................................124
ADDITIONAL INFORMATION......................................................125
GLOSSARY OF DEFINED TERMS...................................................127
</TABLE>
___________, 1998
<PAGE> 140
PART II - ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulations of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet.
The cross-reference sheet.
The prospectus.
The undertaking to file reports.
The signatures.
The following exhibits:
1. Ex. - 5.1 - Opinion of Jones, Day, Reavis & Pogue as to legality
of securities being registered.*
2. Ex. - 8.1 - Opinion of Jones, Day, Reavis & Pogue as to certain
tax aspects of the Trust.*
3. Ex. - 23.1 - Consent of Ernst & Young LLP, Independent Auditors.*
4. Ex. - 23.2 - Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1).
5. Ex. - 24.1 - Power of Attorney (previously filed).
6. Ex. - 27 - Financial Data Schedule*
7. Ex. - 99.A(1)(a) - Standard Terms and Conditions of Trust between
Investment Product Services, Inc., as Sponsor (the "Sponsor"), and
The Bank of New York, as Trustee (the "Trustee").*
* To be supplied by amendment
II-1
<PAGE> 141
8. Ex. - 99.A(1)(b) - Trust Indenture and Agreement between the
Sponsor and the Trustee.*
9. Ex. -99.A(3) - Distribution Agreement among the Sponsor, the
Trust, and the Distributor.*
10. Ex. -99.A6 - Certificate of Incorporation and By-Laws of the
Sponsor.
11. Ex. - 99.A9(a) - Depository Agreement between The Depository Trust
Company, the Sponsor and the Trustee.*
12. Ex. - 99.A9(b) - License Agreement among The Nasdaq Stock Market,
Inc. and the Sponsor.*
13. Ex. - 99.A9(c) - Form of Participant Agreement to be entered into
among the Trustee, the Distributor and various broker-dealers, as
participants.*
FINANCIAL STATEMENTS
l. Form of Statement of Financial Condition of the Trust as shown in
the current Prospectus for this series herewith.
2. Financial Statements of Investment Product Services, Inc., the
Sponsor.*
* To be supplied by amendment
II-2
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Nasdaq GOLD(sm) Trust, Series 1, has duly caused this Pre-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, all in the District of Columbia, on the
19th day of October, 1998.
NASDAQ GOLD TRUST, SERIES 1
----------------------------
(Name of Registrant)
By: INVESTMENT PRODUCT SERVICES, INC.
---------------------------------
(Sponsor)
By: /s/ JOHN L. JACOBS
-------------------
John L. Jacobs
Executive Vice President
II-3
<PAGE> 143
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed on
behalf of Investment Product Services, Inc., the Sponsor, by the following
persons who constitute a majority of its Board of Directors and by the named
persons who are in the following capacities on the date above indicated.
INVESTMENT PRODUCT SERVICES, INC.
<TABLE>
<S> <C>
J. PATRICK CAMPBELL* Director, Chairman
- ------------------------------------
J. Patrick Campbell
SALVATORE F. SODANO* Director, Chief Operating Officer and
- ------------------------------------ Chief Financial Officer
Salvatore F. Sodano
L. BRIAN HOLLAND* Director, President and
- ------------------------------------ Chief Executive Officer
L. Brian Holland
/s/ JOHN L. JACOBS Director, Executive Vice President
- ------------------------------------
John L. Jacobs
DOUGLAS A. PATTERSON* Director, Senior Vice President
- ------------------------------------ and Secretary
Douglas A. Patterson
JAMES R. ALLEN* Director, Senior Vice President
- ------------------------------------ and Treasurer
James R. Allen
BETH E. WEIMER* Director, Senior Vice President
- ------------------------------------
Beth E. Weimer
</TABLE>
* By his signature below, John L. Jacobs, pursuant to a duly executed Power of
Attorney filed with the Securities and Exchange Commission in connection with
the Registration Statement on August 7, 1998, has signed this Pre-Effective
Amendment No. 1 to the Registration Statement on behalf of the persons whose
signatures are printed above, in the capacities set forth opposite their
respective names.
By: /s/ JOHN L. JACOBS
---------------------------
John L. Jacobs
Attorney-in-Fact
II-4
<PAGE> 144
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Title of Document
- ----------- -----------------
<S> <C>
1. Ex. - 5.1 - Opinion of Jones, Day, Reavis & Pogue as to legality of securities being
registered.*
2. Ex. - 8.1 - Opinion of Jones, Day, Reavis & Pogue as to certain tax aspects of the
Trust.*
3. Ex. - 23.1 - Consent of Ernst & Young LLP, Independent Auditors.*
4. Ex. - 23.2 - Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1).
5. Ex. - 24.1 - Power of Attorney (previously filed).
6. Ex. - 27 - Financial Data Schedule*
7. Ex. - 99.A(1)(a) - Standard Terms and Conditions of Trust between Investment
Product Services, Inc., as Sponsor (the "Sponsor"), and The Bank of New York,
as Trustee (the "Trustee").*
8. Ex. - 99A(1)(b) - Trust Indenture and Agreement between the Sponsor and the
Trustee.*
9. Ex. - 99.A(3) - Distribution Agreement among the Sponsor, the Trust, and the
Distributor.*
10. Ex. - 99.A6 - Certificate of Incorporation and By-Laws of the Sponsor.
11. Ex. - 99.A9(a) - Depository Agreement between The Depository Trust Company,
the Sponsor and the Trustee.*
12. Ex. - 99.A9(b) - License Agreement among The Nasdaq Stock Market, Inc. and
the Sponsor.*
13. Ex. - 99.A9(c) - Form of Participant Agreement to be entered into among the
Trustee, the Distributor and various broker-dealers, as participants.*
</TABLE>
*To be supplied by amendment
II-5
<PAGE> 1
As filed with the Secretary of State of
the State of Delaware on August 7, 1998
CERTIFICATE OF INCORPORATION
OF
INVESTMENT PRODUCT SERVICES, INC.
FIRST: The name of the corporation is INVESTMENT PRODUCT
SERVICES, INC.
SECOND: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, State of Delaware in the County of New Castle, 19801. The name of
its registered agent at that address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted
or promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation
shall have authority to issue is 1,000 and the par value of each of such shares
is $.01 amounting in the aggregate to $10.00.
FIFTH: The Board of Directors is authorized to make, alter or
repeal the By-Laws of the Corporation, as provided in the By-Laws. A Director
of this Corporation shall not be liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as the
same exists or may hereafter be amended. Any repeal or modification of the
foregoing shall not adversely affect any right or protection of a Director of
the Corporation existing hereunder with respect to any act or omission
occurring prior to such repeal or modification. Election of directors need not
be by ballot.
SIXTH: The name and mailing address of the Incorporator is:
David M. Mahle, Esq., c/o Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New
York, New York 10022.
THE UNDERSIGNED, being the Incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation
Law of
<PAGE> 2
Delaware, does make this certificate, hereby declaring and certifying that this
is his act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 6th day of August, 1998.
/s/ DAVID M. MAHLE
--------------------------------
David M. Mahle, Incorporator
2
<PAGE> 3
Adopted August 7, 1998
B Y - L A W S
OF
INVESTMENT PRODUCT SERVICES, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.--The registered office shall be
established and maintained at the office of The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware 19801, County of New Castle, and said
corporation shall be the registered agent of this corporation in charge
thereof.
SECTION 2. OTHER OFFICES.--The Corporation may have offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may, from time to time, appoint or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS.--Annual meetings of stockholders
for the election of directors and for such other business as may be stated in
the notice of the meeting, may be called by the directors or any officer
instructed by the directors to call the meeting and shall be held at such
place, either within or without the State of Delaware, and at such time and
date as the Board of Directors, by resolution, shall determine and as set forth
in the notice of the meeting. In the event the Board of Directors fails to so
determine the time, date and place of meeting, the annual meeting of
stockholders, commencing with the year 1999, shall be held on the 16th day of
November.
If the date of the annual meeting shall fall upon a legal
holiday, the meeting shall be held on the next succeeding business day. At
each annual meeting, the stock-holders entitled to vote shall elect a Board of
Directors and they may transact such other corporate business as shall be
stated in the notice of meeting.
<PAGE> 4
SECTION 2. OTHER MEETINGS.--Meetings of stockholders for any
purpose other than the election of directors may be held at such time and
place, within or without the State of Delaware, as shall be stated in the
notice of the meeting.
SECTION 3. TELEPHONIC MEETINGS.--Meetings may be held by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other and
participation in a meeting pursuant to this paragraph shall constitute presence
in person at a meeting.
SECTION 4. VOTING.--Each stockholder entitled to vote in
accordance with the terms of the Certificate of Incorporation and in accordance
with the provisions of these By-Laws shall be entitled to one vote, in person
or by proxy, for each share of stock entitled to vote held by such stockholder,
but no proxy shall be voted after three years from its date unless such proxy
provides for a longer period. Upon demand of any stockholder, the vote for
directors and the vote upon any question before the meeting shall be by ballot.
All elections for directors shall be decided by plurality vote and all other
questions shall be decided by majority vote, except as otherwise provided by
the Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the
ensuing election, arranged in alphabetical order, with the address of each and
the number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
SECTION 5. CONDUCT OF MEETING.--Meetings of the stockholders
shall be presided over by one of the following officers in the order of
seniority and if present and acting: the Chairman of the Board, if any, the
Vice-Chairman of the Board, if any, the President, a Vice-President, or, if
none of the foregoing is in office and present and acting, by a chairman to be
chosen by the stockholders. The Secretary of the Corporation or, in his
absence, an Assistant Secretary, shall act as secretary of every meeting, but
if neither the Secretary nor an Assistant Secretary is present, the Chairman of
the meeting shall appoint a secretary of the meeting.
2
<PAGE> 5
SECTION 6. INSPECTORS--The directors, in advance of any
meeting, may, but need not, appoint one or more Inspectors of Election to act
at the meeting or any adjournment thereof. If an Inspector or Inspectors are
not appointed, the person presiding at the meeting may, but need not, appoint
one or more Inspectors. In case any person who may be appointed as an Inspector
fails to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each Inspector, if any, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
Inspector at such meeting with strict impartiality and according to the best of
his ability. The Inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the Inspector or Inspectors, if
any, shall make a report in writing of any challenge, question or matter
determined by him or them and execute a certificate of any fact found by him or
them.
SECTION 7. QUORUM.--Except as otherwise required by Law, by
the Certificate of Incorporation or by these By-Laws, the presence, in person
or by proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting, from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At such adjourned meeting, the requisite amount of
stock entitled to vote at the meeting, as originally noticed, shall be entitled
to vote at any adjournment or adjournments thereof.
SECTION 8. NOTICE OR WAIVER OF NOTICE OF MEETINGS.--Written
notice, stating the place, date and time of the meeting and the general nature
of the business to be considered, shall be given to each stockholder entitled
to vote thereat at his address as it appears on the records of the Corporation,
not less than ten nor more than sixty days before the date of the meeting. No
business other than that stated in the notice shall be transacted at any
meeting without the unanimous consent of all the stockholders entitled to vote
thereat. Attendance of a stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
3
<PAGE> 6
SECTION 9. ACTION WITHOUT MEETING.--Unless otherwise provided
by the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM.--The number of directors shall
initially be two or more. The directors shall be elected at the annual meeting
of the stockholders and each director shall be elected to serve until his
successor shall be elected and shall qualify. Directors need not be
stockholders.
SECTION 2. RESIGNATIONS.--Any director, member of a committee
or other officer may resign at any time. Such resignation shall be made in
writing, and shall take effect at the time specified therein and, if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES.--If the office of any director, member
of a committee or other office becomes vacant, the remaining directors in
office, though less than a quorum, by a majority vote, may appoint any
qualified person to fill such vacancy, such appointee to hold office for the
unexpired term and until his successor shall be duly chosen.
SECTION 4. REMOVAL.--Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose and the vacancies
thus created may be filled, at the meeting held for the purpose of removal, by
the affirmative vote of a majority in interest of the stockholders entitled to
vote.
4
<PAGE> 7
SECTION 5. INCREASE OR DECREASE OF NUMBER.--The number of
directors may be increased or decreased from time to time by resolution of the
Board of Directors or by majority vote of the stockholders at the annual
meeting or at a special meeting called for that purpose and, by like vote, the
additional directors may be chosen at such meeting to hold office until the
next annual election and until their successors are elected and qualify.
SECTION 6. POWERS.--The Board of Directors shall exercise all
of the powers of the Corporation except such as are by Law, or by the
Certificate of Incorporation of the Corporation or by these By-Laws conferred
upon or reserved to the stockholders.
SECTION 7. COMMITTEES.--The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board, designate
one or more committees, each committee to consist of two or more of the
directors of the Corporation. The Board may designate one or more directors as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified director.
Any such committee, to the extent provided in the resolution
of the Board of Directors, or in these By-Laws, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it; however, no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation; and, unless by resolution, these
By-Laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 8. MEETINGS.--The newly elected directors may hold
their first meeting for the purpose of organization and the transaction of
business if a quorum be present immediately after the annual meeting of the
stockholders or the time and place of such meeting may be fixed by consent in
writing of all the directors. Attendance of a
5
<PAGE> 8
director at a meeting of directors shall constitute a waiver of notice of such
meeting, except when the director attends the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Regular meetings of the directors may be held without notice
at such places and times as shall be determined from time to time by resolution
of the directors.
Special meetings of the Board may be called by the President
or by the Secretary on the written request of any two directors on at least two
days' notice to each director and shall be held at such place or places as may
be determined by the directors, or as shall be stated in the call of the
meeting.
SECTION 9. TELEPHONIC MEETINGS.--Meetings may be held by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other and
participation in a meeting pursuant to this paragraph shall constitute presence
in person at a meeting.
Any member or members of the Board of Directors or of any
committee designated by the Board may participate in a meeting of the Board or
any such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
SECTION 10. QUORUM.--A majority of the Board of Directors
shall constitute a quorum for the transaction of business. If, at any meeting
of the Board, there shall be less than a quorum present, a majority of those
present may adjourn the meeting from time to time until a quorum is obtained,
and no further notice thereof need be given other than by announcement at the
meeting which shall be adjourned.
SECTION 11. COMPENSATION.--Directors shall not receive any
stated salary for their services as directors or as members of committees but,
by resolution of the Board of Directors, fixed fees and expenses of attendance
may be allowed for attendance at each meeting. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation
therefor.
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SECTION 12. ACTION WITHOUT MEETING.--Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if, prior to such action, a
written consent thereto is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of the proceedings of the Board or such committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS.--The officers of the Corporation shall
be a President, a Treasurer, and a Secretary, all of whom shall be elected by
the Board of Directors and who shall hold office until their successors are
elected and qualified. In addition, the Board of Directors may elect a
Chairman, one or more Vice-Presidents and such Assistant Secretaries and
Assistant Treasurers as they may deem proper. None of the officers of the
Corporation need be directors. The officers shall be elected at the first
meeting of the Board of Directors and at each annual meeting. More than two
offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS.--The Board of Directors
may appoint such other officers and agents as it may deem advisable, such
officers to hold their offices for such terms and to exercise such powers and
perform such duties as shall be determined, from time to time, by the Board of
Directors.
SECTION 3. CHAIRMAN.--The Chairman of the Board of Directors,
if one be elected, shall preside at all meetings of the Board of Directors and
he shall have and perform such other duties as, from time to time, may be
assigned to him by the Board of Directors.
SECTION 4. PRESIDENT.--The President shall be the chief
executive officer of the Corporation and shall have the general powers and
duties of supervision and management usually vested in the office of President
of a corporation. He shall preside at all meetings of the stockholders, if
present thereat and in the absence or non-election of the Chairman of the Board
of Directors, and shall have general supervision, direction and control of the
business of the Corporation. Except as the Board of Directors shall authorize
the execution thereof in some other manner, he shall execute bonds, mortgages
and other contracts in behalf of the Corporation and shall cause the seal to be
affixed to
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any instrument requiring it and, when so affixed, the seal shall be attested by
the signature of the Secretary or the Treasurer or an Assistant Secretary or an
Assistant Treasurer.
SECTION 5. VICE-PRESIDENT.--Each Vice-President shall have
such powers and shall perform such duties as shall be assigned to him by the
Board of Directors.
SECTION 6. THE TREASURER.--The Treasurer shall have custody
of the corporate funds and securities and shall keep full and accurate account
of receipts and disbursements in books belonging to the Corporation. He shall
deposit all monies and other valuables in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors.
The Treasurer shall disburse the funds of the Corporation, as
may be ordered by the Board of Directors or the President, taking proper
vouchers for such disbursements. He shall render to the President and the
Board of Directors at the regular meetings of the Board of Directors, or
whenever they may request it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond for the faithful discharge of
his duties in such amount and with such surety as the Board shall prescribe.
SECTION 7. SECRETARY.--The Secretary shall give, or cause to
be given, notice of all meetings of stockholders and directors and all other
notices required by law or by these By-Laws and, in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President or by the directors or by the stockholders,
upon whose requisition the meeting is called as provided in these By-Laws. He
shall record all the proceedings of the meetings of the Corporation and of the
directors in a book to be kept for that purpose and shall perform such other
duties as may be assigned to him by the directors or the President. He shall
have the custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President,
and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT
SECRETARIES.--Assistant Treasurers and Assistant Secretaries, if any, shall be
elected and shall have such powers and shall perform such duties as shall be
assigned to them, respectively, by the directors.
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ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. INDEMNIFICATION. -- (a) The Corporation shall
indemnify, and hold harmless, to the fullest extent then permitted by law, any
person (and the heirs, executors, and administrators of such person) who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation),
by reason of the fact that he or she is or was a member of the Board of
Directors, an officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, trustee, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorney's fees and
disbursements), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding. (b) The Corporation shall indemnify, and hold harmless, to the
fullest extent then permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that the person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fee and disbursements) actually and reasonably incurred
by the person in connection with the defense or settlement of such action or
suit. (c) The Corporation shall pay such fees and expenses as they are
incurred, in advance of the final disposition thereof, and may pay, in the same
manner and to the fullest extent then permitted by law, such expenses incurred
by any other person upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized under
law or this section. (d) Notwithstanding the foregoing or any other provision
of these By-Laws, no advance shall be made by the Corporation to an agent or
non-officer employee if a determination is reasonably and promptly made by the
Board of Directors by a majority vote of those Directors who have not been
named parties to the action, even though less than a quorum, or, if there are
no such Directors of if such Directors so direct, by independent legal counsel,
that, based upon the facts known to the Board of Directors or such counsel at
the time such determination is made: (1) The person seeking advancement of
expenses (i) acted in bad faith, or (ii) did not act in a manner that he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation; (2) with respect to any criminal proceeding, such person believed
or had reasonable cause to believe that his or her conduct was unlawful; or (3)
such person deliberately breached his or her duty to the Corporation. (e) The
indemnification and payment of expenses provided hereby shall not be
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exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under any law, the Certificate of Incorporation, any
agreement, vote of stockholders or disinterested members of the Board of
Directors, or otherwise, both as to action in official capacities and as to
action in another capacity while he or she is a member of the Board of
Directors or an officer of the Corporation, and shall continue as to a person
who has ceased to be a member of the Board of Directors, trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. (f) Notwithstanding the foregoing, but subject to subsection (h), the
Corporation shall be required to indemnify any person identified in subsections
(a) or (b) in connection with a proceeding (or part thereof) initiated by such
person only if the initiation of such proceeding (or part thereof) by such
person was authorized by the Board of Directors. (g) Any repeal or
modification of the foregoing provisions of this Article shall not adversely
affect any right or protection hereunder of any person respecting any act or
omission occurring prior to the time of such repeal or modification. (h) If a
claim for indemnification or advancement of expenses under this Article is not
paid in full within 60 days after a written claim therefor by an indemnified
person has been received by the Corporation, the indemnified person may file
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action, the Corporation shall have the burden of proving that the
indemnified person is not entitled to the requested indemnification or
advancement of expenses under Delaware law.
SECTION 2. INSURANCE. -- The Corporation may, to the fullest
extent then permitted by law and authorized by the Board of Directors, purchase
and maintain insurance or furnish similar protection, including but not limited
to trust funds, letters of credit or self-insurance, on behalf of or for any
persons described in Section 6.1 against any liability asserted against and
incurred by any such person in any such capacity, or arising out of his status
as such, whether or not the Corporation would have the power to indemnify such
person against such liability. Insurance may be purchased from or maintained
with a person in which the Corporation has a financial interest.
SECTION 3. AGREEMENTS. -- The Corporation, upon approval by
the Board of Directors, may enter into agreements with any persons whom the
Corporation may indemnify under these By-Laws or under law, including employees
or agents of the Corporation or those serving at the request of the Corporation
as an employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, and undertake thereby to indemnify such persons and
to pay the expenses incurred by them in defending any action, suit or
proceeding against them, whether or not the Corporation would have the power
under these By-Laws or law to indemnify any such person.
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ARTICLE VI
CONFLICTS OF INTEREST; CONTRACTS AND
TRANSACTIONS INVOLVING DIRECTORS
SECTION 1. CONFLICT OF INTEREST.--A Director or a member of a
committee shall not directly or indirectly participate in any adjudication of
the interests of any party if that Director or committee member has a conflict
of interest or bias, or if circumstances otherwise exist where his or her
fairness might reasonably be questioned. In any such case, the Director or
committee member shall recuse himself or herself or shall be disqualified.
SECTION 2. CONTRACTS AND TRANSACTIONS INVOLVING
DIRECTORS.--No contract or transaction between the Corporation and one or more
of its Directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its Directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason if: (i)
the material facts pertaining to such Director's or officer's relationship or
interest and the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good faith
authorizes the contract or trnasaction by the affirmative vote of a majority of
the disinterested Directors; (ii) the material facts are disclosed or become
known to the Board of Directors or committee after the contract or transaction
is entered into, and the Board of Directors or committee in good faith ratifies
the contract or transaction by the affirmative vote of a majority of the
disinterested Directors; or (iii) the material facts pertaining to the
Director's or officer's relationship or interest and the contract or
transaction are disclosed or are known to the stockholder entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholder. Only disinterested Directors may be counted in
determining the presence of a quorum at the portion of a meeting of the Board
of Directors or of a committee that authorizes the contract or transaction.
This subsection shall not apply to a contract or transaction between the
Corporation and the National Association of Securities Dealers, Inc. ("NASD")
or NASD Regulation.
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ARTICLE VII
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK.--Certificates of stock,
signed by the Chairman or Vice Chairman of the Board of Directors, if they be
elected, the President or Vice-President, and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, shall be issued to each
stockholder certifying the number of shares owned by him in the Corporation.
Any of or all the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES.--A new certificate of stock may
be issued in the place of any certificate theretofore issued by the
Corporation, alleged to have been lost or destroyed, and the directors may, in
their discretion, require the owner of the lost or destroyed certificate, or
his legal representatives, to give the Corporation a bond, in such sum as they
may direct not exceeding double the value of the stock, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate or the issuance of any such new
certificate.
SECTION 3. TRANSFER OF SHARES.--The shares of stock of the
Corporation shall be transferrable only upon its books by the holders thereof
in person or by their duly authorized attorneys or legal representatives and,
upon such transfer, the old certificates shall be surrendered to the
Corporation by the delivery thereof to the person in charge of the stock and
transfer books and ledgers or to such other person as the directors may
designate, by whom they shall be canceled and new certificates shall thereupon
be issued. A record shall be made of each transfer and whenever a transfer
shall be made for collateral security, and not absolutely, it shall be so
expressed in the entry of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE.--In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent
to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or
exchange of stock or for the purposes of any other lawful action, the Board of
Directors may fix, in advance, a record date which shall not be more than sixty
nor less than ten days before the date of such meeting nor more than sixty days
prior to any other action. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
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SECTION 5. DIVIDENDS.--Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, out of funds legally
available therefor, at any regular or special meeting, declare dividends upon
the capital stock of the Corporation as and when they deem such dividends
expedient. Before declaring any dividend, there may be set apart, out of any
funds of the Corporation available for dividends, such sum or sums as the
directors, from time to time, in their discretion, deem proper for working
capital or as a reserve fund to meet contingencies or for equalizing dividends
or for such other purposes as the directors shall deem conducive to the best
interests of the Corporation.
SECTION 6. SEAL.--The corporate seal shall be circular in
form and shall contain the name of the Corporation, the year of its creation
and the words "CORPORATE SEAL DELAWARE". Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR.--The fiscal year of the Corporation
shall be determined by resolution of the Board of Directors.
SECTION 8. CHECKS.--All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers or agent or
agents of the Corporation, and in such manner as shall be determined, from time
to time, by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE.--Whenever any notice
is required to be given by these By-Laws, personal notice is not meant unless
expressly so stated and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the Corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatever is required to be given under the
provisions of any law or under the provisions of the Certificate of
Incorporation of the Corporation or of these By-Laws, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.
Attendance at a meeting shall constitute a waiver of notice of such meeting
except when such attendance is for the express purpose of objecting at the
beginning of
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the meeting to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE VIII
AMENDMENTS
These By-Laws may be altered or repealed and new By-Laws may
be made at any annual meeting of the stockholders or at any special meeting
thereof if notice of the proposed alteration or repeal of any By-Law or By-Laws
to be made be contained in the notice of such special meeting by the
affirmative vote of a majority of the stock issued and outstanding and entitled
to vote thereat or by the affirmative vote of a majority of the Board of
Directors, at any regular or special meeting of the Board of Directors, if
notice of the proposed alteration or repeal of any By-Law or By-Laws to be
made, be contained in the notice of such regular or special meeting.
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