<PAGE>
As filed with the Securities and Exchange Commission on April 25, 1997
File No. 33-89088
811-8972
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 3
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:
MIDCAP SPDR TRUST SERIES 1
B. Name of Depositor:
PDR SERVICES CORPORATION
C. Complete address of Depositor's principal executive office:
PDR SERVICES CORPORATION
c/o AMERICAN STOCK EXCHANGE, INC.
86 Trinity Place
New York, New York 10006
D. Name and complete address of agent for service:
James F. Duffy
PDR SERVICES CORPORATION
c/o AMERICAN STOCK EXCHANGE, INC.
86 Trinity Place
New York, New York 10006
Copy to:
Kathleen H. Moriarty, Esq.
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
E. Title and amount of securities being registered:
An indefinite number of units of Beneficial Interest pursuant
to Rule 24f-2 under the Investment Company Act of 1940.
F. Proposed maximum aggregate offering price to the public of the
securities being registered:
Indefinite pursuant to Rule 24f-2
G. Amount of filing fee:
In accordance with Rule 24f-2, a registration fee in the amount of
$26,104.52 was paid on February 28, 1997 in connection with the filing
of the Rule 24f-2 Notice for the Trust's most recent fiscal year.
H. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT.
/x/ Check box if it is proposed that this filing
should become effective on April 25, 1997 at 4:00
p.m. pursuant to paragraph (b) of Rule 485.
================================================================================
<PAGE>
MIDCAP SPDR TRUST SERIES 1
Cross Reference Sheet
Pursuant to Regulation C
Under the Securities Act of 1933, as amended
(Form N-8B-2 Items required by Instruction 1
as to Prospectus in Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
- ----------- ---------------------
I. Organization and General Information
1. (a) Name of Trust............... Prospectus Front Cover
(b) Title of securities issued.. Prospectus Front Cover
2. Name, address and Internal
Revenue Service Employer
Identification Number of
depositor....................... Sponsor
3. Name, address and Internal
Revenue Service Employer
Identification Number of
trustee......................... Trustee
4. Name, address and Internal
Revenue Service Employer
Identification Number
of principal underwriter........ *
5. State of organization of Trust.. Prospectus Summary - The
Trust
6. (a) Dates of execution and
termination of Trust
Agreement................... Prospectus Summary - The
Trust; Prospectus Summary
- Termination
(b) Dates of execution and
termination of Trust
Agreement................... Same as set forth in 6(a)
7. Changes of name................. *
8. Fiscal Year..................... *
9. Material Litigation............. *
- ----------
* Not applicable, answer negative or not required.
i
<PAGE>
II. General Description of the Trust
and Securities of the Trust
10. (a) Registered or bearer
securities.................. Prospectus Summary - The
Trust
(b) Cumulative or distributive.. Prospectus Summary -
Distributions
(c) Rights of holders as to
withdrawal or redemption.... Prospectus Summary -
Redemption; Redemption of
MidCap SPDRs;
Administration of the
Trust - Rights of
Beneficial Owners
(d) Rights of holders as to
conversion, transfer, etc... Prospectus Summary -
Redemption;
Administration of the
Trust - Register of
Ownership and Transfer;
- Rights of Beneficial
Owners; Redemption
(e) Lapses or defaults in
principal payments with
respect to periodic payment
plan certificates........... *
(f) Voting rights............... Administration of the
Trust - Voting
(g) Notice to holders as to
change in:
(1) Composition of Trust
assets.................. *
(2) Terms and conditions
of Trust's securities... Administration of the
Trust - Amendment
(3) Provisions of Trust
Agreement............... Same as set forth in
10(g)(2)
(4) Identity of depositor
and trustee............. Resignation, Removal and
Liability - The Trustee;
- The Sponsor
- ----------
* Not applicable, answer negative or not required.
ii
<PAGE>
(h) Consent of holders
required to change:
(1) Composition of Trust
assets................... *
(2) Terms and conditions
of Trust's securities.... Administration of the Trust
- Amendment
(3) Provisions of Trust
Agreement................ Same as set forth in
10(h)(2)
(4) Identity of depositor
and trustee.............. Resignation, Removal and
Liability - The Sponsor;
- The Trustee
(i) Other principal
features of the securities... Prospectus Summary - The
Trust
11. Type of securities
comprising units................. The Prospectus - Front
Cover; Prospectus Summary -
The Trust; The Portfolio;
The S&P MidCap 400 Index
12. Certain information regarding
securities comprising periodic
payment certificates............. *
13. (a) Certain information regarding
loads, fees, expenses
and charges.................. Prospectus Summary -
Redemption; Expenses of the
Trust; Redemption of MidCap
SPDRs
(b) Certain information regarding
periodic payment plan
certificates................. *
(c) Certain percentages.......... Same as set forth in 13(a)
(d) Reasons for certain
differences in prices........ *
(e) Certain other loads, fees, or
charges payable by holders... *
- ----------
* Not applicable, answer negative or not required.
iii
<PAGE>
(f) Certain profits receivable
by depositor, principal
underwriters, custodian,
trustee or affiliated
persons...................... The Portfolio - Adjustments
to the Portfolio
(g) Ratio of annual charges and
deductions to income......... *
14. Issuance of Trust's securities... The Trust - Creation of
Creation Units
15. Receipt and handling of
payments from purchasers......... The Trust
16. Acquisition and disposition of
underlying securities............ The Trust - Creation of
Creation Units; The
Portfolio; Administration of
the Trust
17. (a) Withdrawal or redemption by
holders...................... Administration of the Trust
- Rights of Beneficial
Owners; Redemption of MidCap
SPDRs
(b) Persons entitled or required
to redeem or repurchase
securities................... Same as set forth in 17(a)
(c) Cancellation or resale of
repurchased or redeemed
securities................... Same as set forth in 17(a)
18. (a) Receipt, custody and
disposition of income........ Administration of the Trust
- Distributions to
Beneficial Owners
(b) Reinvestment of distribu-
tions........................ *
(c) Reserves or special funds.... Same as set forth in 18(a)
(d) Schedule of distributions.... *
- ----------
* Not applicable, answer negative or not required.
iv
<PAGE>
19. Records, accounts and reports.. The S&P MidCap Index;
Distribution of MidCap
SPDRs; Expenses;
Administration of the Trust
- Records; - Distributions
to Beneficial Owners; -
Statements to Beneficial
Owners; - Register of
Ownership and Transfer
20. Certain miscellaneous provi-
sions of Trust Agreement
(a) Amendments................. Administration of the Trust
- Amendment
(b) Extension or termination... Administration of the Trust
- Amendment; - Termination
(c) Removal or resignation of
trustee.................... Resignation, Removal and
Liability - The Trustee
(d) Successor trustee.......... Same as set forth in 20(c)
(e) Removal or resignation of
depositor.................. Resignation, Removal and
Liability - The Sponsor
(f) Successor depositor........ Same as set forth in 20(e)
21. Loans to security holders...... *
22. Limitations on liabilities..... Resignation, Removal and
Liability - The Trustee; -
The Sponsor
23. Bonding arrangements........... *
24. Other material provisions of
Trust Agreement................ *
III. Organization, Personnel and
Affiliated Persons of Depositor
25. Organization of depositor...... Sponsor
26. Fees received by depositor..... *
- ----------
* Not applicable, answer negative or not required.
v
<PAGE>
27. Business of depositor.......... Sponsor
28. Certain information as to
officials and affiliated
persons of depositor........... Sponsor
29. Ownership of voting securities
of depositor................... Sponsor
30. Persons controlling depositor.. *
31. Payments by depositor for
certain services rendered
to Trust....................... *
32. Payments by depositor for
certain other services
rendered to Trust.............. *
33. Remuneration of employees of
depositor for certain
services rendered to Trust..... *
34. Compensation of other persons
for certain services rendered
to Trust....................... *
IV. Distribution and Redemption of Securities
35. Distribution of Trust's
securities in states........... Distribution of MidCap
SPDRs
36. Suspension of sales of Trust's
securities..................... *
37. Denial or revocation of
authority to distribute........ *
38. (a) Method of distribution..... Prospectus Summary -
Underwriting; The Trust -
Creation of Creation
Units; Distribution of
MidCap SPDRs
(b) Underwriting agreements.... Prospectus Summary -
Underwriting;
Distribution of MidCap
SPDRs
(c) Selling agreements......... Same as set forth in
38(b)
- ----------
* Not applicable, answer negative or not required.
vi
<PAGE>
39. (a) Organization of principal
underwriter................ Underwriter
(b) NASD membership of
principal underwriter...... Prospectus Summary -
Underwriting; Underwriter
40. Certain fees received by
principal underwriters......... *
41. (a) Business of principal
underwriters............... Prospectus Summary -
Underwriting; Underwriter
(b) Branch offices of
principal underwriters..... *
(c) Salesmen of principal
underwriters............... *
42. Ownership of Trust's securities
by certain persons............. *
43. Certain brokerage commissions
received by principal
underwriters................... *
44. (a) Method of valuation for
determining offering price. The Portfolio; Valuation
(b) Schedule as to components of
offering price............. *
(c) Variation in offering
price to certain persons... *
45. Suspension of redemption
rights......................... *
46. (a) Certain information
regarding redemption or
withdrawal valuation....... Valuation; Redemption of
MidCap SPDRs
(b) Schedule as to components
of redemption price........ *
- ----------
* Not applicable, answer negative or not required.
vii
<PAGE>
47. Maintenance of position in
underlying securities.......... The Trust; The Portfolio;
Distribution of MidCap
SPDRs; Valuation;
Administration of the
Trust - Distribution to
Beneficial Owners
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of
trustee........................ Trustee
49. Fees and expenses of trustee... Expenses of the Trust;
Redemptions of MidCap
SPDRs
50. Trustee's lien................. Expenses of the Trust;
Redemption of MidCap
SPDRs
VI. Information Concerning Insurance of Holders of Securities
51. (a) Name and address of
insurance company........... *
(b) Types of policies........... *
(c) Types of risks insured and
excluded.................... *
(d Coverage.................... *
(e) Beneficiaries............... *
(f) Terms and manner of
cancellation................ *
(g) Method of determining
premiums.................... *
(h) Aggregate premiums paid..... *
(i) Recipients of premiums...... *
(j) Other material provisions
of Trust Agreement relating
to insurance................ *
- ----------
* Not applicable, answer negative or not required.
viii
<PAGE>
VII. Policy of Registrant
52. (a) Method of selecting and
eliminating securities from
the Trust................... The Trust - Creation of
Creation Units; The
Portfolio; Administration
of the Trust
(b) Elimination of securities
from the Trust.............. *
(c) Policy of Trust regarding
substitution and elimina-
tion of securities.......... Same as set forth in
52(a)
(d) Description of any other
fundamental policy of the
Trust....................... *
53. (a) Taxable status of the Trust. Tax Status of the Trust
(b) Qualification of the Trust
as a regulated investment
company..................... Same as set forth in
53(b)
VIII. Financial and Statistical Information
54. Information regarding the
Trust's last ten fiscal years... *
55. Certain information regarding
periodic payment plan certifi-
cates........................... *
56. Certain information regarding
periodic payment plan certifi-
cates........................... *
57. Certain information regarding
periodic payment plan certifi-
cates........................... *
- ----------
* Not applicable, answer negative or not required.
ix
<PAGE>
58. Certain information regarding
periodic payment plan certifi-
cates........................... *
59. Financial statements
(Instruction 1(c) to Form S-6).. *
x
<PAGE>
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.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This amendment to the Registration Statement on Form S-6 comprises the following
papers and documents:
The facing sheet.
The cross-reference sheet.
The prospectus
The undertaking to file reports.
The signatures.
Written consents of the following persons:
Price Waterhouse LLP
(included in Exhibit Ex-99.C3)
Carter, Ledyard & Milburn
(included in Exhibit Ex-99.C1)
The following exhibits:
Ex-27 Financial Data Schedule
Ex-99.C1 Opinion of Counsel as to legality of
securities being registered.
Ex-99.C2 Opinion of Counsel as to certain
tax aspects of the Trust.
Ex-99.C3 Consent of Independent Accountants.
FINANCIAL STATEMENTS
1. Statement of Financial Condition of the Trust as shown in the
current Prospectus for this series herewith.
2. Financial Statements of the Depositor:
PDR Services Corporation - Financial Statements, as part of
American Stock Exchange, Inc. current consolidated financial
statements incorporated by reference to Form 1-A, amendment
No. 311 filed on June 27, 1996.
<PAGE>
PROSPECTUS
STANDARD & POOR'S MIDCAP 400 DEPOSITARY RECEIPTS (TM) ("MIDCAP SPDRS") (TM)
MIDCAP SPDR TRUST, SERIES 1
A UNIT INVESTMENT TRUST
----------------
This Trust (the "Trust") was formed by PDR Services Corporation, a Delaware
corporation (the "Sponsor") and a wholly-owned subsidiary of the American Stock
Exchange, Inc. (the "Exchange"), to provide investors with the opportunity to
purchase units of beneficial interest in the Trust representing proportionate
undivided interests in the portfolio of securities held by the Trust (the
"Securities") consisting of substantially all of the common stocks, in
substantially the same weighting, as the component common stocks of the
Standard & Poor's MidCap 400 Index (the "S&P MidCap 400 Index").* While the
investment objective of the Trust is to provide investment results that
generally correspond to the price and yield performance of the S&P MidCap 400
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
Standard & Poor's MidCap 400 Depositary Receipt ("MidCap SPDR"). The value of
the Securities and, consequently, the value of MidCap SPDRs, will fluctuate.
The minimum number of MidCap SPDRs 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".
MidCap SPDRs are listed on the Exchange. MidCap SPDRs are traded in the
secondary market on a per-MidCap SPDR basis, and need not be traded in Creation
Unit size aggregations.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
Prospectus dated April 25, 1997
LOGO
Investors are advised to read and retain this Prospectus for future reference.
----------------
* "Standard & Poor's MidCap 400 Index", "S&P MidCap 400 Index", "Standard &
Poor's MidCap 400 Depositary Receipts" and "MidCap SPDRs" are trademarks of
The McGraw-Hill Companies, Inc. PDR Services Corporation and the American
Stock Exchange, Inc. are permitted to use these trademarks pursuant to a
License Agreement with Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. The Trust, however, is not sponsored by or affiliated with
Standard & Poor's or The McGraw-Hill Companies, Inc.
COPYRIGHT (C) 1994 BY PDR SERVICES CORPORATION
<PAGE>
ESSENTIAL INFORMATION AS OF DECEMBER 31, 1996*
Number of MidCap SPDRs: 3,027,765
Fractional Undivided
Interest in Trust
Represented by each MidCap 1/3,027,765th
SPDR:
Record Date: Quarterly, on the second (2nd) Business Day
after the third Friday in each of March, June,
September and December**.
Dividend Payment Dates: Quarterly, on the last Business Day of April,
July, October and January**.
Trustee's Annual Fee: From 10/100 of one percent to 14/100 of one
percent, based on net asset value of the Trust,
as the same may be reduced by certain amounts,
plus the Transaction Fee***.
Estimated Ordinary Operating
Expenses of the Trust:
30/100 of one percent (inclusive of Trustee's
annual fee)***
Net Asset Value per MidCap
SPDR (based on the value of
the Securities, other net
assets of the Trust and
number of MidCap SPDRs
outstanding):
$49.79
Evaluation Time: Closing time of the regular trading session on
the New York Stock Exchange, Inc. (ordinarily
4:00 p.m. New York time).
Licensor: Standard & Poor's, a division of The McGraw-
Hill Companies, Inc.
Mandatory Termination Date: The first to occur of (i) April 27, 2120 or
(ii) the date 20 years after the death of the
last survivor of eleven persons named in the
Agreement, the oldest of whom was born in 1990
and the youngest of whom was born in 1993.
Discretionary Termination: Trust may be terminated if at any time after
six months following and prior to three years
following the Initial Date of Deposit the value
of the securities held by the Trust is less
than $25,000,000 or if at any time after three
years following the Initial Date of Deposit
such value is less than $100,000,000, as such
amount shall be adjusted for inflation****.
- --------
* The Trust Agreement became effective and the initial deposit was made on
April 27, 1995 (the "Initial Date of Deposit").
** See "Administration of the Trust--Distributions to Beneficial Owners".
*** See "Expenses of the Trust".
**** The Trust may also be terminated under other circumstances. See
"Administration of the Trust--Termination".
2
<PAGE>
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
common stocks, in substantially the same weighting, as the component common
stocks of the S&P MidCap 400 Index, in the form of a security that closely
tracks the S&P MidCap 400 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
common stocks of the S&P MidCap 400 Index (the "Index Securities"). There can
be no assurance that this investment objective will be met fully. For example,
it will not be possible for the Trust to replicate and maintain exactly the
composition and relative weightings of the Index Securities. It is also
possible that, from time to time, the Trust will be unable to purchase all of
the Index Securities. In certain circumstances, the Trust may be required to
make distributions in excess of the yield performance of the Index Securities
(see "Tax Status of the Trust"). The value of the Securities and, consequently,
the value of MidCap SPDRs, is subject to changes in the value of common stocks
generally and to other factors. Further, the payment of dividends and
maintenance of capital are subject to a number of conditions, including the
financial condition of the issuers of the Securities (see "Special
Considerations").
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 New
York with powers of a trust company under the New York Banking Law (the
"Trustee"), and the Sponsor dated and executed as of April 27, 1995.
DISTRIBUTOR
The Distributor for MidCap SPDRs is PDR Distributors, Inc., a registered
broker-dealer, a member of the National Association of Securities Dealers, Inc.
and a wholly-owned subsidiary of Signature Financial Group, Inc. (see
"Underwriting").
PORTFOLIO DEPOSITS
All orders to create MidCap SPDRs in Creation Unit size aggregations must be
placed with the Distributor (see "Underwriting" and "Procedure for Creation of
Creation Units"). To be eligible to place orders with the Distributor to create
Creation Unit size aggregations of MidCap SPDRs, 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 MidCap SPDRs"), and in
each case must have executed a Participant Agreement, as hereinafter defined
(see "The Trust--Procedures for Creation of Creation Units" and "The Trust--
Placement of Creation Orders Using MidCap SPDR Clearing Process"). As used
herein, the term "Participating Party" means a broker-dealer or other
participant in the MidCap SPDR 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 MidCap SPDRS, the Distributor will transmit such order to the
Trustee and instruct the Trustee to initiate the book entry movement of the
appropriate number of MidCap SPDRs to the account of the entity placing the
order. Payment for orders to
3
<PAGE>
create MidCap SPDRs 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 MidCap SPDRs"), together with a
cash payment in an amount which shall be equal to the Dividend Equivalent
Payment (as hereinafter defined), plus or minus, as the case may be, the
Balancing Amount (as hereinafter defined--see "The Portfolio--Adjustments to
the Portfolio Deposit"). The "Dividend Equivalent Payment" enables the Trustee
to make a distribution of dividends on the next Dividend Payment Date (as
hereinafter defined), and is an amount equal, on a per Creation Unit basis, to
the dividends on all the Securities with ex-dividend dates within the
accumulation period, net of expenses and liabilities for such period
(including, without limitation, (x) taxes or other governmental charges against
the Trust not previously deducted, if any, and (y) accrued fees of the Trustee
and other expenses of the Trust (including legal and auditing expenses) and
other expenses not previously deducted (see "Expenses of the Trust")), as if
all of the Securities had been held for the entire accumulation period for such
distribution. For federal income tax purposes, a portion of dividend
distributions may result in a return of capital to Beneficial Owners (as
hereinafter defined) of MidCap SPDRs (see "Tax Status of the Trust").
The Dividend Equivalent Payment and the Balancing Amount are collectively
referred to herein as the "Cash Component" and the deposit of such a portfolio
of securities and the Cash Component are collectively referred to herein as a
"Portfolio Deposit". In connection with the creation of MidCap SPDRs, 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 MidCap
SPDRs in Creation Unit size aggregations, then the Trustee shall have the right
in its discretion to permit the cash equivalent value of such Index Security or
Index Securities to be included in the Portfolio Deposit as a part of the Cash
Component in lieu of the inclusion of such Index Security or Index Securities
in the securities portion of the Portfolio Deposit (see "The Trust--Creation of
Creation Units"). If an Index Security is not eligible for transfer through the
MidCap SPDR Clearing Process, the Trustee shall include the cash equivalent
value of such Index Security as a part of the Cash Component to be received
from the creator in the manner discussed in the preceding sentence. Such cash
equivalent value will be based on the market value of such Index Security or
Index Securities as of the Evaluation Time on the date such creation order is
deemed received by the Distributor (see "Procedures for Creation of Creation
Units", "Placement of Creation Orders Using MidCap SPDR Clearing Process" and
"Placement of Creation Orders Outside MidCap SPDR Clearing Process".) As of the
Initial Date of Deposit, one of the Index Securities, the common stock issued
by Overseas Shipholding Group Inc. ("OSG"), is not eligible for transfer
through the MidCap SPDR Clearing Process. Therefore, creators will provide the
Trustee with the cash equivalent value of OSG stock as a part of the Cash
Component in lieu of including OSG stock in the securities portion of a
Portfolio Deposit. Pursuant to the Trust Agreement, the Trustee will use such
cash to purchase the appropriate number of OSG shares and will hold such
securities in physical form. If OSG stock subsequently becomes eligible for
transfer through the MidCap SPDR Clearing Process, the Trustee shall notify the
Distributor and DTC. Thereafter, OSG stock would be included in the Portfolio
Deposit and would be treated in the same manner as other Index Securities.
In connection with the creation of MidCap SPDRs, if a creator is restricted
by regulation or otherwise from investing or engaging in a transaction in one
or more Index Securities, the Trustee shall have the right, in its discretion,
to permit the cash equivalent value of such Index Security or Index Securities
to be included in the Portfolio Deposit based on the market value of such Index
Security or Index Securities as of the Evaluation Time on the date such
creation order is deemed received by the Distributor (see "Placement of
Creation Orders Outside MidCap SPDR Clearing Process") as part of the Cash
Component in lieu of the inclusion of such Index Security or Index Securities
in the securities portion of the Portfolio Deposit. In such case such creator
will pay the Trustee the standard Transaction Fee, plus an additional amount
per Creation Unit not to exceed three (3) times the Transaction Fee applicable
for one Creation Unit, as described below.
Investors should be aware that when the Trustee receives a Cash Component, a
portion of which is to be used to purchase certain Index Securities under
certain circumstances discussed above and under "The Trust
4
<PAGE>
- --Creation of Creation Units," the Trust will bear brokerage commissions
incurred in connection with the purchase of such Index Securities as well as
the risk of any market price increase or decrease that may occur with regard to
such Index Security until the cash is used by the Trustee to purchase such
Index Security (see "Special Considerations and Risk Factors--General").
An entity or person placing creation orders with the Distributor must deposit
Portfolio Deposits either (i) through the CNS clearing processes of NSCC, as
such processes have been enhanced to effect creations and redemptions of
Creation Unit size aggregations of MidCap SPDRs, such processes being referred
to herein as the "MidCap SPDR Clearing Process", or (ii) with the Trustee
outside the MidCap SPDR Clearing Process (i.e., through the facilities of DTC).
TRANSACTION FEE
A transaction fee is payable to the Trustee in connection with each creation
and each redemption made through the MidCap SPDR Clearing Process of Creation
Unit size aggregations of MidCap SPDRs (the "Transaction Fee") subject to the
changes, modifications or waivers, if any, described below. Such Transaction
Fee is non-refundable, regardless of the net asset value of the Trust.
Until further notice is given as described below, the Transaction Fee charged
in connection with each creation of Creation Units through the MidCap SPDR
Clearing Process (see "Procedures for Creation of Creation Units") is $3,000
per Participating Party per day, regardless of the number of Creation Units
created on such day. This $3,000 charge is subject to a limit not to exceed
20/100 of one percent (20 basis points) of the value of one Creation Unit at
the time of creation (the "20 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.
Until further notice is given as described below, the Transaction Fee charged
in connection with the redemption of Creation Units through the MidCap SPDR
Clearing Process shall be as set forth in the table below:
REDEMPTIONS PER PARTICIPATING PARTY PER DAY
<TABLE>
<S> <C>
1 Creation Unit $3,000
2-9 Creation Units $1,500 for each additional Creation Unit redeemed
10 and more $3,000 total, regardless of the number of Creation Units redeemed
</TABLE>
No modifications to, or reductions, discounts or waivers of, the Transaction
Fee charged in connection with redemptions of Creation Units are scheduled or
currently contemplated by the Sponsor.
If Creation Units are created or redeemed outside the MidCap SPDR Clearing
Process, an additional amount not to exceed three (3) times the Transaction Fee
applicable for one Creation Unit will be charged to the creator or redeemer per
Creation Unit per day. Under the current schedule, therefore, the total fee
charged in connection with the creation or redemption of one Creation Unit
outside the MidCap SPDR Clearing Process would be $3,000 (the Transaction Fee
for the creation or redemption of one Creation Unit) plus an additional amount
of $9,000 (3 times $3,000) for a total of $12,000.
- ---------
* The amount of the Transaction Fee currently in effect will be available from
the Trustee.
5
<PAGE>
From time to time and for such periods as the Sponsor, in its sole
discretion, may determine, the Transaction Fee (as well as any additional
amounts charged in connection with creations and/or redemptions made outside
the MidCap SPDR Clearing Process) may be increased, decreased, otherwise
modified or waived in its entirety for certain lot-size creations and/or
redemptions of MidCap SPDRs, or for creations and/or redemptions made under
certain specified circumstances, without consent of Beneficial Owners, subject
to certain conditions (see "The Trust--Creation of Creation Units" and
"Procedures for Redemption of MidCap SPDRs"). The Sponsor also reserves the
right, from time to time, to vary the lot-size of the creations and/or
redemptions of MidCap SPDRs subject to such an increase or decrease and/or
entitled to such waiver of the Transaction Fee. Any change so made will not
cause the amount of the Transaction Fee to exceed the 20 Basis Point Limit at
the time of a creation, or redemption, as the case may be. Such changes and
variations will be effected by an amendment to the current Trust prospectus.
The amount of the new Transaction Fee in effect at any given time will be
available from the Trustee.
SIZE OF CREATION UNIT AGGREGATIONS OF MIDCAP SPDRS
MidCap SPDRs may be created or redeemed only in Creation Unit size
aggregations of 25,000 MidCap SPDRs, or in multiples thereof (e.g., 50,000,
75,000, 100,000 MidCap SPDRs), 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 MidCap SPDRs outstanding
and a corresponding change in the number of MidCap SPDRs constituting a
Creation Unit in the event that the per MidCap SPDR 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 declared, the number of
MidCap SPDRs in a Creation Unit size aggregation of MidCap SPDRs would double
(e.g., from 25,000 to 50,000 MidCap SPDRs per Creation Unit).
PORTFOLIO ADJUSTMENTS
To maintain the correlation between the composition and weighting of
Securities and that of the Index Securities, the composition and weightings of
the Securities are adjusted from time to time to conform to periodic changes in
the identity and/or relative weightings of the Index Securities made by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., ("Standard &
Poor's" or "S&P"). 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 S&P MidCap 400
Index that are significant (see "The Portfolio--Adjustments to the Portfolio").
The composition and weightings of the securities portion of a Portfolio Deposit
are also adjusted to conform to changes in the S&P MidCap 400 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 New York Stock Exchange
is open for business) following the third (3rd) day on which the change to the
S&P MidCap 400 Index takes effect after the close of the market (see "The
Portfolio--Adjustments to the Portfolio Deposit").
BOOK ENTRY OWNERSHIP OF MIDCAP SPDRS
The Depository Trust Company, New York, New York, a limited purpose trust
company organized under the laws of the State of New York (the "Depository") or
its nominee will be the record or registered owner of all outstanding MidCap
SPDRs. Beneficial ownership of MidCap SPDRs will be shown on the records of the
Depository or its participants. Certificates will not be issued for MidCap
SPDRs, whether in Creation Unit size aggregations or otherwise (see "The
Trust--Book-Entry-Only System").
EXPENSES
The expenses incident to the organization of the Trust and its registration
as an investment company were capitalized and are being amortized on a straight
line basis over five years following the Initial Date of
- --------
* See "Dividend Reinvestment Service", however, for a description of the sole
case in which MidCap SPDRs may be created by the Trustee in less than a
Creation Unit size aggregation of 25,000 MidCap SPDRs.
6
<PAGE>
Deposit (see "Expenses of the Trust"). The Trustee's fees are set forth
generally in the Summary of Essential Information and more specifically in
"Expenses of the Trust" below. Other expenses of the Trust are also described
more fully in "Expenses of the Trust".
FEDERAL INCOME TAX CONSIDERATIONS
For the period ended December 31, 1996, the Trust believes that it qualified
for tax treatment as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). The Trust intends to
continue to so qualify 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 the Trust"). The
Trust's regular quarterly distributions are based on the dividend performance
of the Securities held during such quarterly distribution period rather than
the actual taxable income of the Trust. As a result, a portion of the
distributions of the Trust may be treated as a return of capital or a capital
gain dividend for federal income tax purposes or the Trust may be required to
make additional distributions to maintain its status as a regulated investment
company or to avoid imposition of income or excise taxes on undistributed
income (see "Tax Status of the Trust" and "Administration of the Trust--
Distributions to Beneficial Owners").
ERISA CONSIDERATIONS
In considering the advisability of an investment in MidCap SPDRs, 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 MidCap
SPDRs is permitted by the documents and instruments governing the Plan and
whether the investment satisfies the diversification requirements of ERISA.
Individual retirement account ("IRA") investors should consider that an IRA may
make only such investments as are authorized by its governing instruments.
The fiduciary standards and prohibited transaction rules of ERISA and the
Code will not apply to transactions involving the Trust's assets while MidCap
SPDRs are held by a Plan or IRA. Unlike many other investment vehicles offered
to Plans and IRAs, the Trust's assets will not be treated as "plan assets" of
the Plans or IRAs which acquire or purchase MidCap SPDRs. Although ERISA
imposes certain duties on Plan fiduciaries and ERISA and/or Section 4975 of the
Code prohibit certain transactions involving "plan assets" between Plans or
IRAs and their fiduciaries or certain related persons, those rules will not
apply to transactions involving the Trust's assets because MidCap SPDRs
represent an interest in the Trust, and the Trust is registered as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). ERISA, the Code and U.S. Department of Labor regulations contain
unconditional language exempting the assets of registered investment companies
from treatment as "plan assets" in applying the fiduciary and prohibited
transaction provisions of ERISA and the Code.
RESTRICTIONS ON PURCHASES BY INVESTMENT COMPANIES
The acquisition of MidCap SPDRs by registered investment companies is subject
to the restrictions set forth in section 12(d)(1) of the 1940 Act.
INVESTMENT MANAGEMENT
The Trust holds the Securities and cash and is not actively "managed" by
traditional methods, which typically involve effecting changes in the
Securities on the basis of judgments made relating to economic, financial and
market considerations. The composition and relative weightings of the
Securities are, however,
7
<PAGE>
adjusted to conform to changes in the composition and weighting of the Index
Securities in the manner set forth in the Trust Agreement (see "The Portfolio--
Adjustments to the Portfolio").
DISTRIBUTIONS
Quarterly distributions based on the amount of dividends payable with respect
to Securities held by the Trust and other income, if any, received by the
Trust, net of fees and expenses, are made via the Depository and its
participants to Beneficial Owners (see "The Trust--Book-Entry-Only System") on
each Dividend Payment Date (see "Administration of the Trust--Distributions to
Beneficial Owners"). Any capital gain income recognized by the Trust in any
taxable year that is not previously treated as distributed during the year
ordinarily is to be distributed at least annually in January of the following
taxable year. The Trust may make additional distributions shortly 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 all distributions are currently
made quarterly, the Trustee reserves the right to vary the periodicity with
which distributions are made (see "Administration of the Trust--Distributions
to Beneficial Owners"). Those Beneficial Owners interested in reinvesting their
quarterly distributions may participate through DTC Participants in the DTC
book-entry Dividend Reinvestment Service (the "Service") available through
certain brokers. (See "Dividend Reinvestment Service" for a brief description
thereof.)
REDEMPTION
MidCap SPDRs in Creation Unit size aggregations are redeemable in kind only
and are not redeemable for cash (see "Redemption of MidCap SPDRs"). MidCap
SPDRs can be redeemed only in Creation Unit size aggregations effected by a
Participating Party (with respect to redemptions through the MidCap SPDR
Clearing Process) or a DTC Participant (with respect to redemptions outside the
MidCap SPDR Clearing Process), in either case which has executed a Participant
Agreement (see "Redemption of MidCap SPDRs--Procedure for Redemption of MidCap
SPDRs"). Individual MidCap SPDRs 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, MidCap SPDR owners may
aggregate individual MidCap SPDRs to Creation Unit size or multiples thereof
(e.g., 25,000, 50,000 MidCap SPDRs, etc.) and request that the Trustee redeem
the MidCap SPDRs so aggregated. There can be no assurance, however, that there
always will be sufficient depth and liquidity in the public trading market to
complete all such transactions (see "Special Considerations"). Owners of MidCap
SPDRs in less than Creation Unit size aggregations may have to pay brokerage
fees and commissions to acquire sufficient MidCap SPDRs (i.e., 25,000 MidCap
SPDRs) to constitute a Creation Unit. Each redemption will also be accompanied
by a Cash Redemption Payment (as hereinafter defined, see "Redemption of MidCap
SPDRs--Procedure for Redemption of MidCap SPDRs") which on any given Business
Day is an amount identical to the Cash Component of a Portfolio Deposit.
In the event that the Trustee determines in its discretion that an Index
Security is likely to be unavailable for delivery or available in insufficient
quantity for delivery by the Trust upon the redemption of MidCap SPDRs in
Creation Unit size aggregations, then the Trustee shall have the right in its
discretion to deliver the cash equivalent value of such Index Security or Index
Securities, based on the market value of such Index Security or Index
Securities as of the Evaluation Time on the date such redemption order is
deemed received by the Trustee (see "Procedure for Redemption of MidCap
SPDRs"), as part of the Cash Redemption Payment in lieu of delivering such
Index Security or Index Securities to the redeemer. If an Index Security is not
eligible for transfer through the MidCap SPDR Clearing Process, the Trustee
shall include the cash equivalent value of such Index Security as a part of the
Cash Redemption Payment to the redeemer in the manner discussed in the
preceding sentence. As discussed above, OSG stock is currently not eligible for
transfer through the MidCap SPDR Clearing Process. Therefore, the Trustee will
deliver the cash equivalent value of OSG stock as a part of the Cash Redemption
Payment in lieu of delivering OSG stock to the redeemer. If OSG stock
subsequently becomes eligible for transfer through the MidCap SPDR Process,
8
<PAGE>
the Trustee will deliver OSG stock to all redeemers in the same manner as all
the Index Securities transferring through the MidCap SPDR Clearing Process.
In connection with the redemption of MidCap SPDRs, if a redeemer is
restricted by regulation or otherwise from investing or engaging in a
transaction in one or more Index Securities, the Trustee shall have the right
in its discretion to deliver the cash equivalent value of such Index Security
or Index Securities based on the market value of such Index Security or Index
Securities as of the Evaluation Time on the date such redemption order is
deemed received by the Trustee (see "Placement of Redemption Orders Outside
MidCap SPDR Clearing Process") as a part of the Cash Redemption Payment in lieu
of delivering such Index Security or Index Securities to the redeemer. In such
case, such investor will pay the Trustee the Standard Transaction Fee, plus an
additional amount per Creation Unit not to exceed three (3) times the
Transaction Fee applicable for one Creation Unit.
MidCap SPDR owners may also be required to pay Excess Cash Amounts, (as
hereinafter defined) when applicable, in connection with a redemption of MidCap
SPDRs (see "Redemption of MidCap SPDRs--Procedure for Redemption of SPDRs.")
The Transaction Fee will be charged in connection with the redemption of each
Creation Unit size aggregation of MidCap SPDRs. If a request for redemption is
made directly to the Trustee outside the MidCap SPDR Clearing Process, an
additional amount not to exceed three (3) times the Transaction Fee applicable
for one Creation Unit will be charged to the redeemer due to the increased
expense associated with delivery outside the MidCap SPDR Clearing Process (see
"Prospectus Summary--Transaction Fee").
TERMINATION
The Trust will terminate by its terms on the first to occur of: (i) the date
one hundred twenty-five (125) years from the Initial Date of Deposit (i.e.
April 27, 2120) or (ii) the date twenty (20) years after the death of the last
survivor of eleven persons named in the Agreement, the oldest of whom was born
in 1990 and the youngest of whom was born in 1993 (the "Termination Date"). The
Trust may also be terminated earlier upon the agreement of the Beneficial
Owners of 66 2/3% of the then outstanding MidCap SPDRs or in the event that
MidCap SPDRs are de-listed from the Exchange (see "Exchange Listing"). The
Sponsor will also have the discretionary right 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 shall fall below $25,000,000
or if at any time after three years following the Initial Date of Deposit such
value is less than $100,000,000, as such dollar amount shall be adjusted for
inflation in accordance with the National Consumer Price Index for All Urban
Consumers (the "CPI-U")* as published by the United States Department of Labor,
such adjustment to take effect at the end of the fourth year following the
Initial Date of Deposit and at the end of each year thereafter and to be made
so as to reflect the percentage increase in consumer prices as set forth in the
CPI-U for the twelve month period ending in the month preceding the month in
which such adjustment is made. The Trustee shall also have the right to
terminate the Trust in the event that (a) the Sponsor resigns or becomes
incapable of discharging its duties and a successor is not appointed; (b) the
Depository is unable or unwilling to continue to perform its functions as set
forth under the Trust Agreement and a comparable replacement is unavailable;
(c) NSCC no longer provides clearance services with respect to MidCap SPDRs, or
if the Trustee is no longer a member of NSCC; (d) Standard & Poor's ceases
publishing the S&P MidCap 400 Index; or (e) the License Agreement (as
hereinafter defined) is terminated. The License Agreement is currently
scheduled to expire on April 27, 2020. 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").
- --------
* 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.
9
<PAGE>
UNDERWRITING
PDR Distributors, Inc. (the "Distributor") acts as underwriter of MidCap
SPDRs on an agency basis. All orders to create MidCap SPDRs in Creation Unit
size aggregations must be placed with the Distributor, and it is the
responsibility of the Distributor to transmit such orders to the Trustee. The
Distributor will furnish to those placing such orders confirmation that the
orders have been accepted, but the Distributor shall reject any order which is
not submitted in proper form. Upon acceptance of an order to create MidCap
SPDRs, the Distributor instructs the Trustee to initiate the book-entry
movement of the appropriate number of MidCap SPDRs to the account of the entity
placing the order. The Distributor is also responsible for delivering a
prospectus to those persons creating MidCap SPDRs. The Distributor also
maintains records of both the orders placed with it for the creation of MidCap
SPDRs and the confirmations of acceptance issued by it. In addition, the
Distributor maintains a record of the instructions given to implement delivery
of MidCap SPDRs 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 in 1991
under the laws of the State of Delaware and is located at 6 St. James Avenue,
Boston, MA 02116. The Distributor is a registered broker-dealer, a member of
the National Association of Securities Dealers, Inc. and a wholly-owned
subsidiary of Signature Financial Group, 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.
10
<PAGE>
SPECIAL CONSIDERATIONS AND RISK FACTORS
GENERAL
Investment in the Trust should be made with an understanding that the value
of the Securities may fluctuate in accordance with changes in the financial
condition of the issuers of the Securities (particularly those that are heavily
weighted in the S&P MidCap 400 Index), the value of common stocks generally and
other factors. The identity and weighting of the Index Securities and the
Securities also changes from time to time (see "The Portfolio--Adjustments to
the Portfolio" and "The Portfolio--Selection and Acquisition of Securities").
There can be no assurance that the issuers of the Securities will pay dividends
on outstanding shares of common stock. Distributions on the Securities will
generally depend upon the declaration of dividends by the issuers of the
Securities; the declaration of such dividends generally depends upon various
factors, including the financial condition of the issuers and general economic
conditions. As discussed above, the Trust, unlike a managed investment company,
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 S&P MidCap 400 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
MidCap SPDRs). Common stocks are susceptible to general stock market
fluctuations and to volatile increases and decreases in value as market
confidence in and perceptions of their issuers change. These investor
perceptions are based on various and unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic and banking crises. As discussed above, the Trust
is not actively "managed" and therefore common stocks held by the Trust will
not be disposed of as a result of 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 thus may be
expected to fluctuate over the entire life of the Trust to values higher or
lower than those prevailing on the Initial Date of Deposit (see "Market
Risks"). 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 S&P MidCap
400 Index because the total return generated by the Securities will be reduced
by transaction costs incurred in adjusting the actual balance of the Portfolio
Securities and other Trust expenses, whereas such transaction costs and
expenses are not included in the calculation of the S&P MidCap 400 Index. It is
also possible that for a period of time, the Trust may not fully replicate the
performance of the S&P MidCap 400 Index due to the 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 or weighting of Portfolio Securities (see "The
Portfolio--Adjustments to the Portfolio").
11
<PAGE>
Investors should also be aware that when the Trustee receives a Cash
Component, a portion of which is to be used to purchase certain Index
Securities under the circumstances discussed under "The Trust--Creation of
Creation Units" (e.g., when a security is ineligible for transfer through the
MidCap SPDR Clearing Process), the Trust will bear the risk of any price
increase or decrease that may occur with regard to such Index Security during
the period beginning with the receipt of the Cash Component and ending when
such cash is used by the Trustee to purchase some or all of the appropriate
number of shares of such Index Security. Beneficial Owners of MidCap SPDRs will
also be at risk, therefore, because if the price of such Index Security were to
increase, Beneficial Owners would have an interest in fewer shares of such
Index Security than if such Index Security had been either tendered as part of
the Portfolio Deposit or purchased on the date on which the Cash Component was
delivered to the Trustee. Conversely, if the price of such Index Security were
to decrease, Beneficial Owners would have an interest in a greater number of
shares of such Index Security than if such Index Security had been either
tendered as part of the Portfolio Deposit or purchased on the date on which the
Cash Component was delivered to the Trustee.
Neither the Depository nor Beneficial Owners of MidCap SPDRs 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 MidCap SPDRs in connection with creation and redemption
activity within the MidCap SPDR Clearing Process as set forth herein are based
on NSCC's current "regular way" settlement period of three (3) days during
which NSCC is open for business (each such day an "NSCC Business Day"). NSCC
may in the future, reduce such "regular way" settlement period, in which case it
is anticipated that there would be a corresponding reduction in settlement
periods applicable to MidCap SPDR 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.
NET ASSET VALUE AND MARKET PRICES
The Trust's assets consist primarily of the Securities. Therefore, the net
asset value of MidCap SPDRs in Creation Unit size aggregations and,
proportionately, the net asset value per MidCap SPDR, changes as fluctuations
occur in the market value of Securities. Investors should also be aware that
the aggregate public trading market price of 25,000 MidCap SPDRs may be
different from the net asset value of a Creation Unit aggregation of MidCap
SPDRs (i.e., 25,000 MidCap SPDRs 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 MidCap SPDR may be different from the net asset value of a
Creation Unit on a per MidCap SPDR basis (see "Special Considerations and Risk
Factors--Market Risks"). This price difference may be due, in large part, to
the fact that supply and demand forces at work in the secondary trading market
for MidCap SPDRs will be closely related to, but not identical to, the same
forces influencing the prices of the S&P MidCap 400 Index stocks trading
individually or in the aggregate at any point in time. The expenses of the
Trust are reflected in the net asset value of MidCap SPDRs in Creation Unit
size aggregations and the expenses of the Trust are accrued daily (see
"Expenses of the Trust").
TRADING CONSIDERATIONS
The Sponsor does not maintain a secondary market in MidCap SPDRs. MidCap
SPDRs are listed for trading on the Exchange. The market symbol for MidCap
SPDRs is MDY. Trading in MidCap SPDRs on the Exchange may be halted due to
market conditions or, in light of Exchange rules and procedures, for reasons
that, in the view of the Exchange, make trading in MidCap SPDRs inadvisable. In
addition, trading in MidCap SPDRs on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange "circuit
breaker" rules that require trading in securities on the Exchange to be halted
for a specified time period based on a specified market decline. There can be
no assurance that the requirements of the Exchange necessary to maintain the
listing of MidCap SPDRs will continue to be met or will remain unchanged. The
Trust will be terminated in the event MidCap SPDRs are delisted from the
12
<PAGE>
Exchange. (For a description of the conditions to listing of MidCap SPDRs and
the circumstances under which the Exchange would consider the suspension of
trading in or the delisting of MidCap SPDRs, see "Exchange Listing".) Further,
the Trust may be terminated, among other reasons, in the event that the License
Agreement is terminated or the net asset value of the Trust falls below a
specified level (see "Administration of the Trust--Termination").
MARKET RISKS
MidCap SPDRs are subject to the risks of an investment in a broad-based
portfolio of common stocks, including the risk that the general level of stock
prices may decline, thereby adversely affecting the value of such investment.
Investors should also note that the S&P MidCap 400 Index contains the stocks of
mid-capitalization issuers and such stocks may be subject to liquidity and
trading patterns and market and performance cycles different from those
experienced by stocks issued by larger capitalization issuers. MidCap SPDRs are
also subject to risks other than those associated with an investment in a
broadly based portfolio of common stocks in that the selection of the stocks
included in the Trust's portfolio, the expenses associated with the Trust or
other factors distinguishing an ownership interest in a trust from the direct
ownership of a portfolio of securities may affect trading in MidCap SPDRs as
compared with trading in a broadly based portfolio of common stocks. MidCap
SPDRs are further subject to the risk that extraordinary events may cause any
of the parties providing services to the Trust, such as the Trustee, the
Sponsor, the Distributor, the Depository or NSCC, to be closed or otherwise
unable to perform such party's obligations as set forth herein and in the
agreements between and among such parties. According to the terms of the Trust
Agreement, if any of the above named entities fails or is otherwise unable to
perform adequately its duties, a successor entity may be named or appointed to
assume all duties and obligations of its predecessor. If, however, no suitable
successor is available or willing to undertake all such duties and obligations,
under the Trust Agreement the Trust will then be terminated (see
"Administration of the Trust--Termination").
The Trustee will deliver a portfolio of Securities for each Creation Unit
size aggregation of MidCap SPDRs delivered for redemption, identical in
weighting and composition to the securities portion of a Portfolio Deposit as
in effect on the date request for redemption is deemed received by the Trustee
(see "Redemption of MidCap SPDRs"). If a redemption is processed through the
MidCap SPDR 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 until delivery is completed. The Trust, to
the extent it has not already done so, remains obligated to deliver such
Securities to NSCC, and the market risk of any increase in the value of such
Securities until delivery is made by the Trust to NSCC could adversely affect
the net asset value of the Trust. Investors should note that the Securities to
be delivered to a redeemer submitting a redemption request outside the MidCap
SPDR 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 MidCap
SPDRs in Creation Unit size aggregations are created and redeemed. Such
fluctuations in Trust size should not adversely impact the net asset value at
any time, because the amount of the Cash Component or the Cash Redemption
Payment upon creations or redemptions, respectively, of MidCap SPDRs 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 MidCap SPDRs resulting from the distribution
of Trust dividends and sales of MidCap SPDRs as well as the sales of underlying
Securities held by the Trust in connection with redemptions under certain
circumstances (see "Tax Status of the Trust--Tax Consequences to Beneficial
Owners").
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEE AND THE UNITHOLDERS OF MIDCAP SPDR TRUST, SERIES 1:
In our opinion, the accompanying statement of financial condition, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MidCap SPDR Trust, Series 1 ( the
"Trust") at December 31, 1996, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
period April 27, 1995 (commencement of operations) through December 31, 1995
and the year ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 21, 1997
14
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment in securities at value (cost $147,547,620)........... $152,933,788
Cash............................................................ 389,533
Dividends receivable............................................ 139,415
Receivable for securities sold.................................. 2,135,617
Deferred organization costs..................................... 129,501
------------
Total Assets.................................................... $155,727,854
============
<CAPTION>
LIABILITIES:
<S> <C>
Payable for securities purchased................................ 2,013,058
Distribution payable............................................ 2,700,664
Organizational expenses payable ................................ 168,501
Accrued liabilities............................................. 107,932
------------
Total Liabilities............................................... 4,990,155
------------
Net Assets........................................................ $150,737,699
============
<CAPTION>
NET ASSETS REPRESENTED BY:
<S> <C>
Interest of Unitholders (3,027,765 units of fractional undivided
interest (MidCap SPDRs) outstanding)
Cost to investors of outstanding units.......................... $145,311,775
Accumulated undistributed net investment income................. 373,795
Distributions in excess of net realized gains on investment..... (334,039)
Unrealized appreciation on investments.......................... 5,386,168
------------
Net assets........................................................ $150,737,699
============
Net asset value per MidCap SPDR ($150,737,699/3,027,765 MidCap $ 49.79
SPDRs)............................................................ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Dividend income................................................... $ 1,889,445
-----------
EXPENSES
Trustee fees and expenses........................................ 149,634
Audit fees....................................................... 25,500
Amortization of organization costs............................... 39,000
Legal fees....................................................... 158,763
License fees..................................................... 30,218
Printing and distribution expenses............................... 185,362
-----------
Total expenses................................................... 588,477
Less: expenses assumed by the Sponsor (see Note 3)............... (318,356)
-----------
Net expenses..................................................... 270,121
-----------
Net investment income.............................................. 1,619,324
===========
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains............................................... 1,822,286
Net realized gains from in-kind redemptions...................... 8,134,366
Net change in unrealized appreciation of investments............. 2,962,996
-----------
Net realized and unrealized gains (losses) on investments........ 12,919,648
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................................... $14,538,972
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FISCAL YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995*
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income........................... $ 1,619,324 $ 403,960
Realized gain on investments and in-kind redemp-
tions.......................................... 9,956,652 286,107
Net change in unrealized appreciation of invest-
ments.......................................... 2,962,996 2,423,172
------------- ------------
Net increase in net assets resulting from opera-
tions.......................................... 14,538,972 3,113,239
------------- ------------
Dividends and Distributions to Unitholders from:
Net investment income........................... (1,308,513) (340,976)
Net realized gains.............................. (2,212,679) (229,753)
------------- ------------
Total increase................................ 11,017,780 2,542,510
------------- ------------
Unitholder Transactions:
Proceeds from subscriptions of MidCap SPDR
units.......................................... 132,790,764 51,569,121
Reinvestment of dividends and distributions .... 115,579 8,895
Less: Redemptions of MidCap SPDR units ......... (47,306,950) --
------------- ------------
Increase in net assets due to unitholder trans-
actions........................................ 85,599,393 51,578,016
Net Assets:
Beginning of period............................. 54,120,526 --
------------- ------------
End of period (including undistributed net in-
vestment income of $373,795 and $62,984 respec-
tively)........................................ $ 150,737,699 $ 54,120,526
============= ============
</TABLE>
* For the period April 27, 1995 (commencement of operations) through December
31, 1995.
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A MIDCAP SPDR OUTSTANDING DURING THE PERIOD
DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995(1)
------ -------
<S> <C> <C>
Net Asset Value, Beginning of Period........................... $43.29 $36.91
Investment Operations:
Net investment income......................................... 0.72 0.40
Net realized and unrealized gains (losses) on investments..... 7.30 6.51
------ ------
Total from Investment Operations............................... 8.02 6.91
------ ------
Less Distributions from:
Net investment income......................................... (0.64) (0.35)
Net realized gains............................................ (0.88) (0.18)
------ ------
Total Distributions............................................ (1.52) (0.53)
------ ------
Net Asset Value, End of Period................................. $49.79 $43.29
====== ======
Total Investment Return*....................................... 18.59% 18.77%
</TABLE>
<TABLE>
<S> <C> <C>
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's)............................ $150,738 $54,120
Ratio of expenses to average net assets**(2)................. 0.29% 0.26%
Ratio of investment income to average net assets**(2)........ 1.76% 1.65%
Portfolio turnover rate (3).................................. 20.00% 10.45%
Average commission rate per share............................ $ 0.0500 --
</TABLE>
The financial highlights summarize the impact of net investment income, gains
and losses and distributions on a single unit of the Trust for the period.
Additionally, important relationships between certain financial statement items
are expressed in ratio form.
- --------
* Not annualized
** Annualized
(1) For the period April 27, 1995 (commencement of operations) through
December 31, 1995.
(2) Net of expenses reimbursed by the Sponsor. If the Trust had borne all
expenses, the net investment income and expenses to average net assets
ratios would have been 1.42% and 0.63% for the year ended December 31,
1996, and 1.11% and .80% (annualized) for the period ended December 31,
1995.
(3) Portfolio turnover excludes securities received or delivered from
processing creations or redemptions of MidCap SPDRs.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1--ORGANIZATION
MidCap SPDR 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. The Trust was created to provide investors with the
opportunity to purchase a security representing a proportionate undivided
interest in a portfolio of securities consisting of substantially all of the
common stocks, in substantially the same weighting, which comprise the Standard
& Poor's MidCap 400 Composite Price Index (the "S&P MidCap Index"). Each unit
of fractional undivided interest in the Trust is referred to as a Standard &
Poor's Depositary Receipt ("MidCap SPDR"). The Trust commenced operations on
April 27, 1995 upon the initial issuance of 375,000 MidCap SPDRs (equivalent to
15 "Creation Units"--see Note 4) in exchange for a portfolio of securities
assembled to reflect the intended portfolio composition of the Trust.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Trust are prepared in accordance with
generally accepted accounting principles.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported accounts and disclosures. Actual results could differ
from those estimates.
Security Valuation--Portfolio securities are valued based on the closing sale
price on the exchange which is deemed to be the principal market for the
security. If no closing sale price is available, then the security is valued at
the mean between the closing bid and offer prices on the exchange which is
deemed to be the principal market for the security. If there are no closing bid
and offer prices available, valuation will be determined by the Trustee in good
faith based on available information.
Investment Transactions--Investment transactions are recorded on the trade
date. Realized gains and losses from the sale or disposition of securities are
recorded on a specific identification basis. Dividend income is recorded on the
ex-dividend date.
Distributions to Unitholders--The Trust intends to declare and distribute
dividends from net investment income quarterly. The Trust will distribute net
realized capital gains, if any, at least annually.
Federal Income Tax--The Trust has qualified and intends to qualify for and
elect treatment as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended. By so qualifying the Trust is not
subject to federal income taxes to the extent it distributes its taxable
income, including any net realized capital gains, for each fiscal year. In
addition, by distributing during each calendar year substantially all of its
net investment income and capital gains, if any, the Trust is not subject to
federal excise tax.
Organization Costs--The Trust incurred organization costs of $195,000, which
have been capitalized and are being charged to operations ratably over a period
of 60 months from the commencement of operations.
NOTE 3--TRANSACTIONS WITH THE TRUSTEE AND SPONSOR
In accordance with the Trust Agreement, The Bank of New York (the "Trustee")
maintains the Trust's accounting records, acts as custodian and transfer agent
to the Trust, and provides administrative services, including filing of all
required regulatory reports. The Trustee is also responsible for determining
the composition of the portfolio of securities which must be delivered in
exchange for the issuance of Creation Units of the Trust, and for adjusting the
composition of the Trust's portfolio from time to time to conform to changes in
the composition and/or weighting structure of the S&P Midcap 400 Index. For
these services, the Trustee receives a fee at the following annual rates:
19
<PAGE>
<TABLE>
<CAPTION>
NET ASSET VALUE OF THE
TRUST FEE AS A PERCENTAGE OF NET ASSET VALUE OF THE TRUST
- ---------------------- ---------------------------------------------------
<S> <C>
$0-$500,000,000* 14/100 of 1% per annum
$500,000,001-
$1,000,000,000* 12/100 of 1% per annum
$1,000,000,001--and above* 10/100 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.
During the first two years of operation of the Trust, the Trustee's fee shall
be reduced to 12/100 of 1% annum.
For the year ended December 31, 1996, PDR Services Corporation (the
"Sponsor", a wholly-owned subsidiary of the American Stock Exchange, Inc.)
agreed to reimburse the Trust for, or assume, the ordinary operating expenses
of the Trust which exceeded 30/100 of 1% per annum of the daily net asset value
of the Trust as calculated by the Trustee.
The expenses assumed by the Sponsor for the year ended December 31, 1996 were
$318,356. The Sponsor retains the ability to be repaid by the Trust for
expenses so reimbursed or assumed to the extent that expenses fall below the
30/100 of 1% per annum level on any given day during the year.
NOTE 4--TRUST TRANSACTIONS IN MIDCAP SPDRS
TRANSACTIONS IN MIDCAP SPDRS WERE AS FOLLOWS:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995
------------------------ ---------------------
MIDCAP MIDCAP
SPDRS AMOUNT SPDRS AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
MidCap SPDRs sold.............. 2,775,000 $132,790,764 1,250,000 $51,569,121
Dividend reinvestment MidCap
SPDRs issued................... 2,546 115,579 219 8,895
MidCap SPDRs redeemed.......... (1,000,000) (47,306,950) -- --
---------- ------------ --------- -----------
Net increase................... 1,777,546 $ 85,599,393 1,250,219 $51,578,016
========== ============ ========= ===========
</TABLE>
Except under the Trust's dividend reinvestment plan, MidCap SPDRs are issued
and redeemed by the Trust only in Creation Unit size aggregations of 25,000
MidCap SPDRs. Such transactions are only permitted on an in-kind basis, with a
separate cash payment which is equivalent to the undistributed net investment
income per MidCap SPDR and a balancing cash component to equate the transaction
to the net asset value per unit of the Trust on the transaction date.
Transaction fees at scheduled amounts ranging from $250 to $1,500 per Creation
Unit are charged to those persons creating or redeeming Creation Units.
Transaction fees are received by the Trustee and used to offset the expense of
processing orders. During the year ended December 31, 1996, The Bank of New
York earned $13,544 in transaction fees. Throughout the year ended December 31,
1996, the Trustee voluntarily reduced or waived its fee for creations of
Creation Units through the MidCap SPDR clearing process. The Trustee, in its
sole discretion, may terminate such reductions or waivers, or modify its
transaction fee schedule, subject to certain limitations.
NOTE 5--INVESTMENT TRANSACTIONS
For the year ended December 31, 1996, the Trust had in-kind contributions,
in-kind redemptions, purchases and sales of investment securities of
$132,379,590, $47,135,486, $18,546,697 and $18,382,542 respectively. At
December 31, 1996 the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation was $13,823,323 and gross unrealized
depreciation was $8,437,155, resulting in net unrealized appreciation of
$5,386,168
20
<PAGE>
MIDCAP SPDR TRUST, SERIES 1 SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Shares Value
------------------------------------------------------
<S> <C> <C>
360 DEGREE COMMUNICATIONS CORP.* 27,916 $ 645,557
A T CROSS CO. 3,734 43,407
ACNIELSEN CORP.* 12,908 195,233
ACUSON CORP.* 6,341 154,561
ADC TELECOMUNICATIONS INC.* 29,451 916,661
ADOBE SYS INC. 16,317 609,847
ADVANCED TECHNOLOGY LABS* 3,200 99,200
AES CORP.* 17,455 811,657
AFLAC INC. 31,412 1,342,862
AGL RESOURCES 12,546 265,033
AH BELLO CORP. 8,835 308,120
AIRBORNE FREIGHT CORP. 4,793 112,035
AIRGAS INC.* 15,399 338,777
ALASKA AIR GROUP, INC.* 3,255 68,354
ALBANY INTERNATIONAL 6,869 158,845
ALBEMARLE CORP. 12,460 225,837
ALEXANDER & BALDWIN INC. 10,237 255,924
ALIANT COMMUNICATIONS 8,278 140,725
ALLEGHENY POWER SYSTEM 27,521 835,949
ALLEGIANCE CORP.* 12,332 340,671
ALTERA CORP.* 9,893 719,096
ALUMAX, INC.* 12,360 412,514
AMERICA ONLINE* 21,278 707,493
AMERICAN FINANCIAL GROUP 13,819 521,666
AMERICAN POWER CONVERSION* 21,403 583,231
AMERICAN WATER WORKS 17,703 365,123
AMETEK, INC. 7,372 164,026
ANADARKO PETROLEUM CORP. 13,466 871,923
ANALOG DEVICES INC.* 26,838 909,136
ANNTAYLOR STORES CORP.* 5,757 100,747
APACHE CORP. 20,348 719,810
APL LIMITED 5,637 133,173
APRIA HEALTHCARE GROUP* 11,580 217,124
ARNOLD IND. 6,035 95,805
ARROW ELECTRONICS INC.* 11,396 609,685
ARVIN INDUSTRIES INC. 5,067 125,407
AST RESEARCH INC.* 13,042 54,612
ATLANTIC ENERGY INC. NJ 11,896 203,719
ATLANTIC SOUTHEAST AIRLINES 6,777 148,247
ATMEL CORP.* 22,256 737,230
AVNET, INC. 9,830 572,598
B J SERVICES CO* 8,603 438,753
BANCORP HAWAII INC. 9,183 385,686
BANTA CORP. 7,033 160,880
BEAR STEARNS 26,276 732,444
BECKMAN INSTRUMENTS 6,566 251,970
</TABLE>
21
<PAGE>
MIDCAP SPDR TRUST, SERIES 1 SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Shares Value
----------------------------------------------------
<S> <C> <C>
BED BATH & BEYOND* 15,493 $ 375,705
BERGEN BRUNSWIG CORP. 9,037 257,555
BEST BUY INC.* 9,743 103,519
BETZ DEARBORN INC. 6,327 370,130
BIOGEN INC.* 16,320 632,400
BLACK HILLS INC. 3,257 91,603
BMC SOFTWARE INC.* 22,845 945,212
BOB EVANS FARMS INC. 9,653 130,316
BOWATER INC. 8,401 316,088
BRINKER INTERNATIONAL INC.* 17,497 279,952
BROOKLYN UNION GAS CO. 11,240 338,605
BRUSH WELLMAN INC. 3,681 60,276
BUFFETS INC.* 10,140 92,528
BURLINGTON INDUSTRIES* 14,119 155,309
CABOT CORP. 16,168 406,221
CADENCE DESIGN SYSTEMS* 18,684 742,689
CALENERGY* 14,411 484,570
CALGON CARBON CORP. 8,962 109,785
CALLAWAY GOLF CO. 16,466 473,398
CALMAT CO. 5,238 98,213
CARDINAL HEALTH INC. 22,682 1,321,227
CARLISLE COMPANIES INC. 3,435 207,818
CARPENTER TECHNOLOGY CORP. 3,741 137,014
CARTER WALLACE INC. 10,479 163,734
CENTOCOR INC.* 15,648 559,416
CENTRAL FIDELITY BANKS 13,416 345,462
CENTRAL LOUISIANA ELECTRIC 5,066 139,948
CENTRAL MAINE POWER CO. 7,322 85,118
CENTURY TELEPHONE ENTERPRISES 13,541 418,078
CHARLES SCHWAB CORP. 39,658 1,269,056
CHESAPEAKE CORP. 5,304 166,413
CHIRON CORP.* 38,603 718,981
CHRIS CRAFT INDUSTRIES 6,882 288,184
CHURCH & DWIGHT CO INC. 4,437 101,496
CINTAS CORP. 10,729 630,329
CIRCUS CIRCUS ENTERPRISE* 23,554 809,669
CIRRUS LOGIC INC.* 14,705 227,928
CITY NATIONAL CORP. 9,943 215,017
CLAIRES STORES INC. 10,771 140,023
CLAYTON HOMES INC. 26,950 363,825
CLEVELAND CLIFFS INC. 2,563 116,296
CMS ENERGY CORP. 20,948 704,377
COCA COLA ENTERPRISES 28,380 1,376,430
COMDISCO, INC. 11,403 362,045
COMPUWARE CORP.* 9,659 484,157
COMSAT CORP. 10,954 269,742
CONSOLIDATED FREIGHTWAYS CORP.* 3,554 31,542
CONSOLIDATED FREIGHTWAYS INC.* 9,922 220,765
</TABLE>
22
<PAGE>
MIDCAP SPDR TRUST, SERIES 1 SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Shares Value
-------------------------------------------------
<S> <C> <C>
CONSOLIDATED PAPER INC. 10,120 $ 497,145
CONSOLIDATED STORES CORP.* 15,093 484,863
CPI CORP. 2,634 44,120
CRACKER BARREL OLD COUNTRY 13,722 348,196
CRESTAR FINANCIAL CORP. 9,588 713,108
CROMPTON KNOWLES CORP. 16,471 317,067
CYPRESS SEMICONDUCTER CO* 18,240 257,640
CYTEC INDUSTRIES * 10,511 427,009
DANAHER CORP. 13,239 617,268
DATASCOPE CORP.* 3,649 72,980
DAUPHIN DEPOSIT CO. 6,938 228,954
DEAN FOODS CO. 9,092 293,217
DELMARVA POWER & LIGHT 13,702 279,178
DENTSPLY INTL INC. 6,084 288,990
DEXTER CORP. 5,366 171,041
DIAGNOSTIC PRODUCTS CORP. 3,062 79,229
DIAL CORP. 21,585 318,379
DIEBOLD INC. 10,389 653,208
DOLE FOOD INC. 13,602 460,768
DOLLAR GENERAL CORP. 16,563 530,016
DONALDSON CO INC. 5,696 190,816
DREYERS GRAND ICE CREAM 3,020 87,580
DURIRON INC. 5,283 143,301
DUTY FREE INTL INC. 6,169 89,451
ECHELON INTERNATIONAL CORP. 178 2,871
EDWARD A.G. INC. 14,179 476,769
EL PASO NATURAL GAS CO. 12,416 627,008
ELECTRONIC ARTS* 12,136 363,322
ENSCO INTERNATIONAL* 16,037 777,795
EQUIFAX INC. 34,203 1,047,467
ETHYL CORP. 26,752 257,488
EXABYTE CORP.* 4,947 66,166
FAMILY DOLLAR STORES INC. 12,827 261,350
FASTENAL CO. 8,589 392,947
FEDERAL SIGNAL CORP. 10,254 265,322
FEDERAL-MOGUL CORP. 7,924 174,328
FERRO CORP. 5,865 166,419
FHP INTERNATIONAL CORP.* 9,330 346,376
FINGERHUT COS INC. 10,495 128,564
FIRST BRAND CORP. 9,255 262,611
FIRST OF AMERICA BANK CO. 13,649 820,646
FIRST SECURITY CORP. 17,123 577,901
FIRST TENNESSEE NATL CORP. 15,205 570,188
FIRST VIRGINIA BANKS INC. 7,380 353,318
FIRSTAR CORP. 17,021 893,603
FISERV INC.* 10,240 376,320
FLORIDA PROGRESS CORP. 21,961 708,242
</TABLE>
23
<PAGE>
MIDCAP SPDR TRUST, SERIES 1 SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Shares Value
------------------------------------------------------
<S> <C> <C>
FLOWERS INDUSTRIES INC. 13,297 $ 285,886
FOREST LABORATORIES INC.* 9,499 311,092
FOUNDATION HEALTH CORP.* 13,301 422,307
FRANKLIN RESOURCES INC. 18,434 1,260,425
FRED MEYER INC.* 6,898 244,879
FULLER (H.B.) CO. 3,175 149,225
GATX CORP. 4,565 221,403
GENCORP INC. 7,549 136,826
GENZYME CORP.* 16,267 353,807
GEORGIA GULF CORP. 7,818 210,109
GIBSON GREETINGS INC.* 3,651 71,651
GLATFELTER PH & COM. 9,631 173,358
GLOBAL MARINE INC.* 38,265 789,216
GOLDEN BOOKS FAMILY
ENTERTAINMENT* 5,708 63,502
GOULDS PUMPS INC. 4,811 110,352
GRANITE CONSTRUCTION INC. 4,090 77,710
GTECH HOLDINGS CORP.* 9,731 311,392
HANCOCK FABRICS 4,878 50,609
HANNA (M.A.) CO. 11,719 256,353
HANNAFORD BROS CO. 9,543 324,462
HARLEY DAVIDSON INC. 17,120 804,640
HARSCO CORP. 5,609 384,217
HARTFORD STEAM BOILER INC. 4,551 211,053
HAWAIIAN ELECTRIC INDUSTRIES 6,877 248,432
HEALTH CARE & RETIREMENT CORP.* 10,180 291,403
HEALTHCARE COMPARE CORP.* 7,618 322,813
HEALTHSOURCE, INC.* 14,399 188,987
HEALTHSOUTH CORP.* 35,653 1,377,097
HEILG-MEYERS CO. 10,976 178,360
HIBERNIA BANCORP 27,710 367,158
HON INDUSTRIES INC. 6,791 224,103
HORIZON/CMS HEALTHCARE CORP.* 11,768 148,571
HORMEL FOODS CORP.* 17,261 466,047
HOUGHTON MIFFIN 3,312 187,542
HUBBELL INC. (CLASS B) 14,939 646,112
HUNT (JB) TRANPORT SERVICES INC. 8,601 120,414
IBP INC. 21,882 530,639
IDAHO POWER COM. 8,490 264,251
ILLINOIS CENTRAL CO. 13,905 444,960
ILLINOVA CORP. 17,134 471,185
IMATION CORP.* 9,701 272,841
IMC GLOBAL INC.* 20,938 819,199
INDIANA ENERGY INC. 5,071 123,606
INFORMATION RESOURCES INC.* 6,272 87,808
INFORMIX CORP.* 33,973 692,200
</TABLE>
24
<PAGE>
MIDCAP SPDR TRUST, SERIES 1 SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Shares Value
-----------------------------------------------------
<S> <C> <C>
INTEGRATED DEVICE TECHNOLOGY* 17,726 $ 241,517
INTELLIGENT ELECTRONICS* 7,875 63,000
INTERNATIONAL DAIRY QUEEN* 5,023 100,460
INTERNATIONAL GAME TECHNOLOGY 28,412 518,519
INTERNATIONAL MULTIFOODS 4,068 73,733
IPALCO ENTERPRISES 12,892 351,307
IVAX CORP. 27,501 281,885
J M SMUCKER CO. 6,583 116,025
JACOBS ENGINEERING GROUP INC.* 5,788 136,742
JONES APPAREL GROUP* 11,839 442,483
KANSAS CITY POWER & LIGHT 14,014 399,399
KANSAS CITY SOUTHERN INDUSTRIES 8,346 375,570
KAYDON CORP. 3,720 175,305
KELLY SERVICES INC. 8,596 232,092
KENNAMETAL INC. 6,032 234,494
KEYSTONE INTERNATIONAL INC. 8,032 161,644
KOHL'S CORP.* 16,727 656,535
LABORATORY CORP. OF AMERICA
HOLDINGS* 27,753 79,790
LANCASTER COLONY CORP. 6,665 306,590
LANCE INC. 6,782 122,076
LANDS' END INC.* 7,442 197,213
LAWSON PRODUCTS INC. 2,619 57,291
LAWTER INTERNATIONAL INC. 10,184 128,573
LEE ENTERPRISES INC. 10,617 246,845
LEGGETT & PRATT INC. 20,683 716,149
LG & E ENERGY 15,019 367,966
LINEAR TECHNOLOGY CORP. 16,859 739,689
LITTON INDUSTRIES INC.* 10,542 502,063
LONE STAR STEAKHOUSE* 9,206 246,261
LONGVIEW FIBRE CO. 11,688 214,767
LUBIZOL CORP. 13,495 418,345
LUKENS INC. 3,344 67,298
LYONDELL PETROCHEMICAL CO. 18,111 398,442
MAC FRUGALS BARGAINS* 5,871 153,380
MAGNETEK INC.* 5,785 74,482
MANPOWER INC. 18,583 603,948
MAPCO INC. 12,725 432,650
MARK IV INDUSTRIES INC. 14,294 323,402
MARSHALL & ILSLEY CORP. 20,611 713,656
MAXIM INTEGRATED* 13,928 602,386
MAXXAM INC.* 1,952 92,964
MC CORMICK & CO INC. 17,993 423,960
MCKESSON CORP. 9,495 531,720
MCN CORP. 15,213 439,275
MEASUREX CORP. 3,602 86,448
MEDAPHIS CORP. * 16,205 181,293
</TABLE>
25
<PAGE>
MIDCAP SPDR TRUST, SERIES 1 SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Shares Value
-----------------------------------------------------
<S> <C> <C>
MEDIA GENERAL INC. 5,977 $ 180,804
MENTOR GRAPHICS CORP.* 14,513 141,502
MERCANTILE BANCORPORATION 13,615 699,471
MERCANTILE BANKSHARES CO. 10,727 343,264
MICHAEL FOODS INC. 4,362 55,616
MICRO WAREHOUSE, INC.* 7,740 90,945
MIDAMERICAN ENERGY HOLDINGS 22,809 362,093
MILLER HERMAN INC. 5,387 305,039
MINERALS TECHNOLOGIES 5,094 208,854
MINNESOTA POWER AND LIGHT CO. 7,374 202,785
MIRAGE RESORTS INC.* 40,972 886,020
MODINE MANUFACTURING CO. 6,752 180,616
MOLEX INC. 22,799 892,011
MONTANA POWER COMPANY 12,332 263,597
MURPHY OIL CORP. 10,157 564,983
MYLAN LABS 27,600 462,300
NABORS INDS INC.* 19,649 378,243
NATIONAL FUEL GAS CO. 8,551 352,729
NATIONAL PRESTO INDUSTRIES INC. 1,658 61,968
NCH CORP. 1,664 100,256
NCR CORP.* 22,926 765,155
NELLCOR PURITAN BENNETT INC.* 13,623 298,003
NEVADA POWER CO. 10,967 224,824
NEW ENGLAND ELECTRIC SYSTEM 14,691 512,349
NEWPORT NEWS SHIPBUILDING* 7,698 115,470
NEW YORK STATE ELECTRIC & GAS 15,868 343,146
NEXTEL COMMUNICATIONS INC.* 51,132 667,912
NINE WEST GROUP* 8,083 374,849
NIPSCO INDUSTRIES INC. 13,711 543,298
NOBLE AFFILIATES INC. 12,849 615,146
NORDSON CORP. 4,042 257,678
NORTHEAST UTILITIES CO. 29,024 384,568
NORTHERN TRUST CORP. 25,313 917,596
NOVACARE INC.* 13,622 149,842
OCTEL COMMUNICATIONS CORP.* 11,607 203,123
OEA INC. 4,635 212,051
OFFICE DEPOT INC.* 35,568 631,332
OFFICEMAX INC.* 27,897 296,406
OGDEN CORP. 11,221 210,394
OKLAHOMA GAS AND ELECTRIC CO.* 9,137 381,470
OLIN CORP. 11,311 425,576
OLSTEN CORP. 18,092 273,642
OMNICOM GROUP CO. 18,268 835,761
OREGON STEEL MILLS INC. 5,800 97,150
OUTBACK STEAKHOUSE* 10,832 289,756
OVERSEAS SHIPHOLDING GROUP 8,178 139,026
PACIFICARE HEALTH SYSTEM* 7,059 601,780
</TABLE>
26
<PAGE>
MIDCAP SPDR TRUST, SERIES 1 SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Shares Value
-----------------------------------------------------
<S> <C> <C>
PAINEWEBBER GROUP 21,009 $ 590,878
PARAMETRIC TECHNOLOGY CO.* 28,721 1,475,541
PARKER & PARSLEY PETROLEUM CO. 8,041 295,507
PARKER DRILLING CO.* 14,728 141,757
PAYCHEX INC. 16,217 834,162
PAYLESS SHOE* 9,140 342,750
PENTAIR INC. 8,513 274,544
PERRIGO CO.* 17,239 157,306
PHH CORP. 7,902 339,786
PINNACLE WEST CAPITAL 19,790 628,333
PITTSTON BRINK'S GROUP 9,388 253,476
POLICY MANAGEMENT SYSTEM CORP.* 4,099 189,066
PORTLAND GENERAL CORP. 11,592 486,864
POTOMAC ELECTRIC POWER CO. 26,827 690,795
PRECISION CASTPARTS CORP. 5,396 267,777
PROGRESSIVE CORP. OHIO 16,174 1,089,723
PROMUS HOTEL* 11,599 343,620
PROVIDENT COMPANIES, INC. 10,317 499,085
PUBLIC SERVICE CO. NEW MEXICO 9,420 184,868
PUBLIC SERVICE COLORADO 14,664 570,063
PUGET SOUND POWER & LIGHT 14,407 345,768
QUAKER STATE CORP. 8,100 114,413
QUANTUM CORP.* 13,104 375,102
QUESTAR CORP. 9,262 340,379
RANGER OIL LTD 22,261 219,827
RAYONIER INC. 6,648 255,117
REGIONS FINL CORP. 14,168 732,309
REVCO D.S., INC.* 15,546 575,202
REYNOLDS & REYNOLDS 18,334 476,684
ROHR INC.* 5,133 116,134
ROLLINS, INC. 8,006 160,120
RPM, INC. 17,492 297,364
RUDDICK CORP. 10,484 146,776
SAVANNAH FOODS & INDUSTRY 5,922 79,947
SBARRO INC. 4,601 117,326
SCANA CORP. 23,898 639,272
SCHERER (R.P.)* 5,327 267,682
SCHOLASTIC CORP.* 3,608 242,638
SCHULMAN (A) INC. 8,492 208,054
SEAGULL ENERGY CORP.* 14,168 311,696
SEALED AIR CORP.* 9,616 400,266
SENSORMATIC ELECTRONICS 16,745 280,479
SEQUA CORP.* 2,224 87,292
SEQUENT COMPUTER SYSTEMS INC.* 7,689 136,480
SERVICE MERCHANDISE INC.* 22,550 95,838
SHAW INDUSTRIES INC. 30,404 357,247
</TABLE>
27
<PAGE>
MIDCAP SPDR TRUST, SERIES 1 SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Shares Value
--------------------------------------------------
<S> <C> <C>
SMITH INTERNATIONAL INC.* 9,063 $ 406,702
SOLECTRON CORP.* 12,783 682,293
SONOCO PRODUCTS CO. 20,190 522,416
SOTHEBY'S HOLDINGS INC. 12,586 234,414
SOUTHDOWN INC. 4,921 153,166
SOUTHERN NEW ENGLAND TELECOM 14,858 577,605
SOUTHTRUST CORP. 21,745 758,357
SOUTHWESTERN PUBLIC SERVICE 9,263 327,679
STANDARD REGISTER CO. 6,473 210,373
STANHOME INC. 4,035 106,928
STAPLES INC.* 36,398 657,439
STATE STREET BOSTON 18,142 1,170,159
STERLING COMMERCE INC.* 16,979 598,510
STEWART & STEVENSON 7,457 217,185
STORAGE TECHNOLOGY* 12,916 615,125
STRATUS COMPUTER* 5,320 144,970
STRUCTURAL DYNAMIC* 7,513 150,260
STRYKER CORP. 21,903 654,352
SUMMIT BANCORP. 20,750 907,813
SUNAMERICA INC. 27,018 1,198,924
SUNDSTRAND CORP. 13,726 583,355
SUPERIOR INDUSTRIES 6,391 147,792
SYMANTEC CORP.* 12,346 179,017
SYMBOL TECHNOLOGIES* 5,870 259,748
T. ROWE PRICE 12,959 563,717
TAMBRANDS INC. 8,355 341,511
TCA CABLE TV 5,610 169,001
TECO ENERGY 26,569 640,977
TECUMSEH PRODUCTS 4,940 283,433
TELEFLEX 4,085 212,931
TELEPHONE & DATA SYSTEMS 13,838 501,628
TERADYNE, INC.* 18,782 457,811
THE PMI GROUP INC. 7,927 438,958
THIOKOL CORP. 4,128 184,728
TIDEWATER INC. 14,042 635,401
TIFFANY & CO. 7,789 285,272
TOSCO CORP. 9,879 781,676
TRANSATLANTIC HOLDINGS 5,208 419,244
TRANSOCEAN OFFSHORE INC. 11,649 729,519
TRINITY INDUSTRIES 9,730 364,875
TYSON FOODS 32,815 1,123,914
U.S. ROBOTICS* 19,935 1,435,320
ULTRAMAR DIAMOND SHAMROCK* 16,903 534,557
UNIFI, INC. 14,604 469,154
UNISOURCE WORLDWIDE INC.* 14,746 298,607
UNIVERSAL CORP. 7,916 254,302
UNIVERSAL FOODS 5,735 202,159
</TABLE>
28
<PAGE>
MIDCAP SPDR TRUST, SERIES 1 SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Shares Value
-------------------------------------------------------------
<S> <C> <C>
USA WASTE SERIES* 31,326 $ 998,516
UTILICORP UNITED 11,802 318,654
VALERO ENERGY 9,963 285,191
VALUE HEALTH, INC.* 12,315 240,143
VANGUARD CELLULAR* 9,335 147,026
VARCO INT'L* 7,103 164,257
VARIAN ASSOCIATES 7,016 356,939
VENCOR INC.* 15,657 495,153
VERIFONE* 5,509 162,516
VIAD CORP. 21,567 355,856
VIKING OFFICE PRODUCTS* 18,913 504,741
VISHAY INTERTECHNOLOGY* 13,839 323,487
VONS COMPANIES* 9,722 582,105
VULCAN MATERIAL CO. 7,847 477,686
WABAN INC.* 7,384 191,984
WALLACE COMPUTER 9,862 340,239
WARNACO GROUP, INC. 11,779 348,953
WASHINGTON GAS LIGHT CO. 9,850 222,856
WASHINGTON POST 2,474 829,099
WATSON PHARMACEUTICALS* 8,332 374,419
WATTS INDUSTRIES 6,121 146,139
WAUSAU PAPER MILL 8,216 151,996
WEATHERFORD ENTERTAINMENT* 11,799 353,970
WELLMAN, INC. 7,018 120,183
WILMINGTON TRUST CORP. 7,707 304,427
WISCONSIN ENERGY 25,190 676,981
WITCO CORP. 12,837 391,529
WPL HOLDINGS 6,952 195,525
XILINX, INC.* 16,517 608,032
YORK INTERNATIONAL 9,813 548,301
Total Investments (Cost $147,547,620) $152,933,788
============
</TABLE>
* Designates a security on which no dividends were declared
during the year ended December 31, 1996.
29
<PAGE>
THE TRUST
The Trust is a unit investment trust created under the laws of the State of
New York pursuant to the Trust Agreement*. The Securities held by the Trust
consist of a portfolio of common stocks or, in the case of securities not yet
delivered in connection with purchases made by the Trust or Portfolio Deposits,
confirmations of contracts to purchase such securities (collectively, the
"Portfolio").
CREATION OF CREATION UNITS
Portfolio Deposits may be deposited with the Trustee through the clearing
processes of NSCC, following placement with the Distributor of orders to create
MidCap SPDRs. The Distributor shall reject any order that is not submitted in
proper form. Investors may deposit Portfolio Deposits through the MidCap SPDR
Clearing Process or directly with the Trustee outside the MidCap SPDR Clearing
Process. The Transaction Fee will be charged at the time of creation of a
Creation Unit Size aggregation of MidCap SPDRs, and an additional amount not to
exceed three (3) times the Transaction Fee applicable for one Creation Unit
will be charged per Creation Unit to a creator creating outside the MidCap SPDR
Clearing Process by depositing directly with the Trustee through DTC, in part
due to the increased expense associated with settlement outside the MidCap SPDR
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 Trustee, at the direction of the Sponsor in its sole discretion, from
time to time and for such periods as may be determined by the Sponsor in its
sole discretion, will 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 MidCap SPDR
Clearing Process) for certain lot-size creations and/or redemptions of MidCap
SPDRs, whether applied solely to creations and/or redemptions made through the
MidCap SPDR Clearing Process (see "Procedures for Creation of Creation Units"),
solely to creations and/or redemptions made outside the MidCap SPDR Clearing
Process, or to both methods of creation and/or redemption. The Sponsor also
reserves the right, from time to time, to vary the lot-size of the creations
and/or redemptions of MidCap SPDRs subject to such an increase and/or entitled
to such a reduction or waiver of the Transaction Fee and the additional amounts
charged in connection with creations and/or redemptions outside the MidCap SPDR
Clearing Process. The existence of such increase, reduction or waiver of the
Transaction Fee (as well as any additional amounts, if applicable) and the lot-
size of Creation Units affected shall be disclosed in the current MidCap SPDR
Prospectus (see "Prospectus Summary-- Transaction Fee"). As of the date hereof,
the Sponsor does not contemplate the reduction, variation by lot-size or waiver
of Transaction Fees in connection with the creation or redemption of MidCap
SPDRs or of the additional amounts charged in connection with the creation or
redemption of MidCap SPDRs outside the MidCap SPDR Clearing Process beyond that
which is discussed herein under the caption "Prospectus Summary--Transaction
Fee".
The shares of common stock of the Index Securities in a Portfolio Deposit on
any date of deposit will reflect the composition and relative weightings of the
Index Securities 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 Dividend Equivalent Payment for the
previous Business Day. Under certain extraordinary
- --------
* Reference is hereby made to said Trust Agreement, and any statements
contained herein are qualified in their entirety by the provisions of said
Trust Agreement.
** Such increase is subject to the 20 Basis Point Limit discussed above under
"Prospectus Summary--Transaction Fee."
30
<PAGE>
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 weightings of the Index Securities of the Portfolio
Deposit on the previous Business Day. The identity and number of shares of each
of the Index Securities required for a Portfolio Deposit, as in effect December
31, 1996, is set forth in the above Schedule of Investments. The Sponsor makes
available (a) on each Business Day, the Dividend Equivalent Payment effective
through and including the previous Business Day, per outstanding MidCap SPDR,
and (b) on a minute-by-minute basis throughout the day at the Exchange a number
representing, on a per MidCap SPDR basis, the sum of the Dividend Equivalent
Payment effective through and including the previous Business Day, plus the
current value of the securities portion of a Portfolio Deposit as in effect on
such day (which value will occasionally include a cash in lieu amount to
compensate for the omission of a particular Index Security from such Portfolio
Deposit--see below and also "The Portfolio--Adjustments to the Portfolio
Deposit"). Such information is calculated based upon the best information
available to the Sponsor and may be calculated by other persons designated to
do so by the Sponsor. The inability of the Sponsor to provide such information
will not in itself result in a halt in the trading of MidCap SPDRs on the
Exchange. Investors interested in creating MidCap SPDRs or purchasing MidCap
SPDRs 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 S&P MidCap 400 Index, the Index Securities and
financial instruments based on the S&P MidCap 400 Index).
In the event that an Index Security is not eligible for transfer through the
MidCap SPDR Clearing Process, the Trustee shall include the cash equivalent
value of such Index Security determined in accordance with the procedures
listed under "Valuation" as a part of the Cash Component in lieu of the
inclusion of such Index Security in the securities portion of the Portfolio
Deposit.
From time to time, the Trustee may determine, in its discretion, that one or
more of the Index Securities comprising a Portfolio Deposit is likely to be
unavailable for delivery or available in insufficient quantity for delivery to
the Trust upon the creation of MidCap SPDRs for the following Business Day or
for any period thereafter. In such cases, the Trustee shall have the right in
its discretion to permit the cash equivalent value of such Index Security or
Index Securities, based on the market value of such Index Security or Index
Securities as determined in accordance with the procedures listed under
"Valuation", as a part of the Cash Component in lieu of the inclusion of such
Index Security or Index Securities in the securities portion of the Portfolio
Deposit. In the event that such a determination is made, the Portfolio Deposit
so constituted shall dictate the Index Security or Index Securities to be
delivered in connection with the creation or redemption of MidCap SPDRs for all
purposes until such time as the securities portion of the Portfolio Deposit is
subsequently adjusted or the Index Security at issue becomes available.
In connection with the creation of MidCap SPDRs, if an 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
permit 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 creation order is deemed received by the
Distributor (see "Placement of Creation Orders Outside the MidCap SPDR Clearing
Process") in the Portfolio Deposit as a part of the Cash Component in lieu of
the inclusion of such Index Security or Index Securities in the securities
portion of the Portfolio Deposit 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 "The Portfolio--Adjustments to the Portfolio") which may
require the Trustee to purchase the appropriate number of shares
- --------
* As of December 31, 1996, the American Stock Exchange Clearing Corporation, a
wholly-owned subsidiary of the Exchange, owned 33% of the issued and
outstanding shares of common stock of NSCC.
31
<PAGE>
of the Index Security that such investor was unable to purchase. In any such
case such investor will pay the Trustee the standard Transaction Fee, plus an
additional amount per Creation Unit not to exceed three (3) times the
Transaction Fee applicable for one Creation Unit.
Brokerage commissions incurred in connection with the acquisition by the
Trustee of any Index Security with cash deposited in lieu of such Index
Security will be an expense of the Trust and hence will affect the value of all
MidCap SPDRs.
Upon receipt of a Portfolio Deposit or Deposits, following placement with the
Distributor of an order to create MidCap SPDRs, the Trustee will deliver MidCap
SPDRs in Creation Unit size aggregations to the Depository. In turn, the MidCap
SPDR position will be removed from the Trustee's account at the Depository and
will be allocated to the account of the DTC Participant acting on behalf of the
depositor creating Creation Unit(s) (see "The Trust--Procedures for Creation of
Creation Units" and "The Trust--Book-Entry-Only System"). Each MidCap SPDR
represents a fractional undivided interest in the Trust in an amount equal to
one (1) divided by the total number of MidCap SPDRs 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 MidCap SPDRs, would own eighty
percent (80%) or more of the outstanding MidCap SPDRs (see "Tax Status of the
Trust"). The Trustee also may reject any Portfolio Deposit or any component
thereof under certain other circumstances (see "The Trust--Procedures for
Creation of Creation Units").
Additional MidCap SPDRs in Creation Unit size aggregations will be created
upon receipt of the appropriate Portfolio Deposits from creators. As additional
MidCap SPDRs in Creation Unit size aggregations are created, the aggregate
value of the Portfolio will be increased and the fractional undivided interest
in the Trust represented by each MidCap SPDR will be decreased. As discussed
above, under certain circumstances (1) a portion of the securities portion of a
Portfolio Deposit may consist of contracts to purchase certain Index Securities
or (2) a portion of the Cash Component may consist of cash in an amount to
enable the Trustee to purchase such Index Securities. In the event there is a
failure to deliver the Index Securities which are the subject of such contracts
to purchase, the Trustee will be instructed pursuant to the Agreement to
acquire such Index Securities in an expeditious manner. To the extent the price
of any such Index Security increases or decreases between the time of creation
and the time any such Index Security is purchased and delivered, MidCap SPDRs
will represent fewer or more shares of such Index Security and more or fewer of
the other Index Securities in the Trust. Hence, price fluctuations during the
period from the time the cash is received by the Trustee to the time the
requisite Index Securities are purchased and delivered will affect the value of
all MidCap SPDRs.
The identity and 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 identity and
weightings of the Index Securities to be delivered as part of a Portfolio
Deposit are determined daily and reflect the relative weighting of the current
S&P MidCap 400 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 the changes to the
S&P MidCap 400 Index as described herein and as set forth in the Trust
Agreement. As the weightings and identities of the Index Securities change,
substantially identical changes to the composition of the required Portfolio
Deposit are made contemporaneously. Corresponding adjustments to the
composition or weighting of the Portfolio, however, are not necessarily made
contemporaneously with adjustments to the required Portfolio Deposit, but are
made in accordance with the specifications set forth herein and in the Trust
Agreement (see "The Portfolio--Adjustments to the Portfolio"). Although the
composition of the securities portion of a Portfolio Deposit changes from time
to time, the interests of Beneficial Owners will not be adversely affected
because the composition of such
32
<PAGE>
securities and the aggregate value thereof, together with the Cash Component,
will be calculated based upon the proportionate net asset value of the Trust
(see "The Portfolio--Adjustments to the Portfolio").
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create MidCap SPDRs in
Creation Unit size aggregations, an entity or person must be (1) a
Participating Party, with respect to creations through the MidCap SPDR Clearing
Process, or (2) a DTC Participant, with respect to creations outside the MidCap
SPDR Clearing Process. All MidCap SPDRs, 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 MidCap SPDRs must be placed in multiples of 25,000
MidCap SPDRs (Creation Unit size). All orders to create MidCap SPDRs, whether
through the MidCap SPDR Clearing Process or outside the MidCap SPDR Clearing
Process must be received by the Distributor by no later than the closing time
of the regular trading session on the New York Stock Exchange, Inc. ("Closing
Time") (ordinarily 4:00 p.m. New York time), in each case on the date such
order is placed in order for creation of MidCap SPDRs to be effected based on
the net asset value of the Trust as determined on such date. The date on which
a creation order (or order to redeem as discussed below) is placed is herein
referred to as the "Transmittal Date". Orders must be transmitted by telephone
or other transmission method acceptable to the Distributor and Trustee,
pursuant to procedures set forth in the Participant Agreement, as described
below (see "Placement of Creation Orders Using MidCap SPDR Clearing Process"
and "Placement of Creation Orders Outside MidCap SPDR Clearing Process").
Orders to create Creation Unit sized aggregations of MidCap SPDRs shall be
placed with a Participating Party or DTC Participant, as applicable, in the
form required by such Participating Party or DTC Participant. Investors should
be aware that their particular broker may not have executed a Participant
Agreement, and that, therefore, orders to create Creation Unit sized
aggregations of MidCap SPDRs may have to be placed by the investor's broker
through a Participating Party or a DTC Participant who has executed a
Participant Agreement. At any given time there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those placing orders
to create MidCap SPDRs through the MidCap SPDR 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 MidCap SPDR Clearing
Process are likely to require transmittal by the DTC Participant earlier on the
Transmittal Date than orders effected using the MidCap SPDR Clearing Process.
Those persons placing orders outside the MidCap SPDR Clearing Process should
ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire
system by contacting the operations department of the broker or depository
institution effectuating such transfer of securities and Cash Component. The
DTC Participant notified of an order to create MidCap SPDRs outside the MidCap
SPDR Clearing Process shall be required to effect a transfer of (1) the
requisite Index Securities through DTC by 11:00 a.m. on the next Business Day
immediately following the Transmittal Date in such a way as to replicate the
Portfolio Deposit established on the Transmittal Date by the Trustee in
calculating the net asset value of the Trust and (2) the Cash Component through
the Federal Reserve wire transfer 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 Component by 1:00 p.m. on the Business Day immediately following
Transmittal Date, such order shall be cancelled. Upon written notice to the
Distributor, such cancelled 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.
All questions as to the number of shares of each of the Index Securities, the
amount of the Cash Component and the validity, form, eligibility (including
time of receipt) and acceptance for deposit of any Index Securities to be
delivered shall be determined by the Trustee, whose determination shall be
final and
33
<PAGE>
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 MidCap SPDRs ordered, would own 80% or more of the current outstanding
MidCap SPDRs, (b) the Portfolio Deposit is not in proper form; (c) acceptance
of the Portfolio Deposit would have certain adverse tax consequences (see "Tax
Status of the Trust"); (d) the acceptance of the Portfolio Deposit would, in
the opinion of counsel, be unlawful; (e) the acceptance of the Portfolio
Deposit would otherwise, in the discretion of the Trustee, have an adverse
effect on the Trust or the rights of Beneficial Owners; or (f) in the event
that circumstances outside the control of the Trustee make it for all practical
purposes impossible to process creations of MidCap SPDRs. The Trustee and the
Sponsor are under no duty to give notification of any defects or irregularities
in the delivery of Portfolio Deposits or any component thereof nor shall either
of them incur any liability for the failure to give any such notification.
A list of the Participating Parties or DTC Participants that have executed a
Participant Agreement (as hereinafter defined) is available at the office of
the Trustee at 101 Barclay Street, New York, New York 10286 and the office of
the Distributor at 6 St. James Avenue, Boston, Massachusetts 02116 during
normal business hours.
PLACEMENT OF CREATION ORDERS USING MIDCAP SPDR CLEARING PROCESS
Portfolio Deposits created through the MidCap SPDR Clearing Process must be
delivered through a Participating Party (see "Prospectus Summary--Portfolio
Deposits") that has executed a Participant Agreement with the Distributor and
with the Trustee (as the same may be from time to time amended in accordance
with its terms, the "Participant Agreement"). The Participant Agreement
authorizes the Trustee to transmit to NSCC on behalf of the Participating Party
such trade instructions as are necessary to effect the Participating Party's
creation order. Pursuant to such trade instructions from the Trustee to NSCC,
the Participating Party agrees to transfer the requisite Index Securities (or
contracts to purchase such Index Securities that are expected to be delivered
in a "regular way" manner by the third (3rd) NSCC Business Day) and the Cash
Component to the Trustee, together with such additional information as may be
required by the Trustee. An order to create MidCap SPDRs through the MidCap
SPDR Clearing Process is deemed received by the Distributor on the Transmittal
Date if (i) such order is received by the Distributor not later than the
Closing Time on such Transmittal Date and (ii) all other procedures set forth
in the Participant Agreement are properly followed.
PLACEMENT OF CREATION ORDERS OUTSIDE MIDCAP SPDR CLEARING PROCESS
Portfolio Deposits created outside the MidCap SPDR Clearing Process must be
delivered through a DTC Participant that has executed a Participant Agreement
with the Distributor and with the Trustee. A DTC Participant who wishes to
place an order creating MidCap SPDRs to be effected outside the MidCap SPDR
Clearing Process need not be a Participating Party, but such orders must state
that the DTC Participant is not using the MidCap SPDR Clearing Process and that
creation of MidCap SPDRs will instead be effected through a transfer of
securities and cash. The Portfolio Deposit transfer must be ordered by the DTC
Participant in a timely fashion so as to ensure the delivery of the requisite
number of Index Securities through DTC to the account of the Trustee by no later
than 11:00 a.m. of the next Business Day immediately following the Transmittal
Date. All questions as to the number of Index Securities to be delivered, and
the validity, form and eligibility (including time of receipt) for the deposit
of any tendered Securities, will be determined by the Trustee, whose
determination shall be final and binding. The cash equal to the Cash Component
must be transferred directly to the Trustee through the Federal Reserve wire
system in a timely manner so as to be received by the Trustee no later than 1:00
p.m. on the next Business Day immediately following the Transmittal Date. An
order to create MidCap SPDRs outside the MidCap SPDR Clearing Process is deemed
received by the Distributor on the Transmittal Date if (i) such order is
received by the Distributor not later than the Closing Time on such Transmittal
Date and (ii) all other procedures set forth in the Participant Agreement are
properly followed. However, if the Trustee does not receive both the
34
<PAGE>
requisite Index Securities and the Cash Component in a timely fashion on the
next Business Day immediately following the Transmittal Date, such order will
be cancelled. Upon written notice to the Distributor, such cancelled 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 MidCap SPDRs so created will occur no later than the third (3rd) Business
Day, as applicable, following the day on which the creation order is deemed
received by the Distributor. Under the current schedule, the total fee charged
in connection with the creation of one Creation Unit outside the MidCap SPDR
Clearing Process would be $12,000 (see "Prospectus Summary--Transaction Fee").
BOOK-ENTRY-ONLY SYSTEM
The Depository acts as securities depository for MidCap SPDRs. MidCap SPDRs
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 MidCap SPDRs.
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 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 MidCap
SPDRs, the Depository will credit or debit, on its book-entry registration and
transfer system, the amount of MidCap SPDRs 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 MidCap SPDR Clearing Process, or by the
Trustee and the DTC Participant, in the case of a creation or redemption
transacted outside of the MidCap SPDR Clearing Process (see "The Trust--
Procedures for Creation of Creation Units" and "Redemption of MidCap SPDRs").
Beneficial ownership of MidCap SPDRs is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and
Indirect Participants. Ownership of beneficial interests in MidCap SPDRs
(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 MidCap SPDRs. 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 MidCap SPDRs.
- --------
* As of December 31, 1996, the Exchange owned 4.61149% of the issued and
outstanding shares of common stock of the Depository and an affiliate of the
Exchange, AMEX Clearing Corp., owned 0.00185% of the issued and outstanding
shares of common stock of the Depository. Also as of such date, the Trustee
owned 2.31948% of the issued and outstanding shares of common stock of the
Depository.
35
<PAGE>
So long as Cede & Co., as nominee of the Depository, is the registered owner
of MidCap SPDRs, references herein to the registered or record owners of MidCap
SPDRs shall mean Cede & Co. and shall not mean the Beneficial Owners of MidCap
SPDRs. Beneficial Owners of MidCap SPDRs will not be entitled to have MidCap
SPDRs 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 MidCap SPDRs under
the Trust Agreement. The Trustee and the Sponsor understand that under existing
industry practice, in the event the Trustee requests any action of MidCap SPDR
holders, or a Beneficial Owner desires to take any action that the Depository,
as the record owner of all outstanding MidCap SPDRs, 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 MidCap SPDRs for all purposes except as expressly set forth in
the Trust Agreement. Conveyance of all notices, statements and other
communications to Beneficial Owners is effected as follows. Pursuant to the
agreement between the Trustee and the Depository (as the same may be from time
to time amended in accordance with its terms, the "Depository Agreement"), the
Depository is required to make available to the Trustee upon request and for a
fee to be charged to the Trust a listing of the MidCap SPDR holdings of each
DTC Participant. The Trustee shall inquire of each such DTC Participant as to
the number of Beneficial Owners holding MidCap SPDRs, directly or indirectly,
through such DTC Participant. The Trustee shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participant a fair
and reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
MidCap SPDR distributions shall be made to the Depository or its nominee,
Cede & Co., as the registered owner of all MidCap SPDRs. The Trustee and the
Sponsor expect that the Depository or its nominee, upon receipt of any payment
of distributions in respect of MidCap SPDRs, shall credit immediately DTC
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in MidCap SPDRs 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
MidCap SPDRs 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
aspects of the records relating to or notices to Beneficial Owners, or payments
made on account of beneficial ownership interests in MidCap SPDRs, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between the
Depository and the DTC Participants or the relationship between such DTC
Participants and the indirect Participants and Beneficial Owners owning through
such DTC Participants.
Beneficial Owners may elect to have their distributions reinvested in
additional MidCap SPDRs (see "Dividend Reinvestment Service").
The Depository may determine to discontinue providing its service with
respect to MidCap SPDRs 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
36
<PAGE>
to find a replacement for the Depository to perform its functions at a
comparable cost or, if such a replacement is unavailable, to terminate the
Trust (see "Termination of the Trust").
THE PORTFOLIO
Because the objective of the Trust is to provide investment results that
correspond substantially to the price and yield performance of the S&P MidCap
400 Index, the Portfolio will at any time consist of as many of the Index
Securities as is practicable. It is anticipated that cash or cash items (other
than dividends held for distribution) normally would not be a substantial part
of the Trust's net assets. Although the Trust may at any time fail to own
certain of the Index Securities, the Trust will be substantially invested in
Index Securities and the Sponsor believes that such investment should result in
a close correlation between the investment performance of the S&P MidCap 400
Index and that derived from ownership of MidCap SPDRs.
ADJUSTMENTS TO THE PORTFOLIO
The S&P MidCap 400 Index is a capitalization-weighted index of 400 securities
calculated under the auspices of the S&P Committee of Standard and Poor's. At
any moment in time, the value of the Index equals the aggregate market value of
the total shares outstanding in each of the component 400 Index Securities,
evaluated at their respective last sale prices on the NYSE, AMEX, or NASDAQ,
divided by a scaling factor (the "divisor") which yields a resulting index
value in the reported magnitude.
Periodically (typically, several times per quarter), Standard & Poor's may
determine that total shares outstanding have changed in one or more component
Index Securities due to secondary offerings, repurchases, conversions or other
corporate actions. Additionally, the S&P Committee may periodically
(ordinarily, several times per quarter) replace one or more component
securities in the S&P MidCap 400 Index due to mergers, acquisitions,
bankruptcies or other market conditions, or if the issuers of such component
securities fail to meet the criteria for inclusion in the S&P MidCap 400 Index.
In 1996, there were 37 company changes to the MidCap Index. Ordinarily,
whenever there is a change in shares outstanding or a change in a component
security included in the S&P MidCap 400 Index, Standard & Poor's adjusts the
divisor to assure that there is no discontinuity in the value of the S&P MidCap
400 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 S&P
MidCap 400 Index, such share, name, and divisor changes to the S&P MidCap 400
Index create the need for the Trust to make corresponding portfolio adjustments
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 structure 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 S&P MidCap
400 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 S&P MidCap 400 Index, it is not always
efficient to replicate identically the share composition of the S&P MidCap 400
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
37
<PAGE>
(150%) of a specified percentage, which percentage varies from 25/100 of 1% to
2/100 of 1%, depending on the net asset value of the Trust (in each case, the
"Misweighting Amount"), from the weighting of such Security in the S&P MidCap
400 Index (a "Misweighting").
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 S&P MidCap 400 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 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, (2) cannot be delivered to the
Trustee due to restrictions prohibiting a creator from engaging in a
transaction involving such Index Security or (3) is not eligible to be
processed through the MidCap SPDR Clearing Process. (From time to time, an
Index Security may not be eligible for transfer through the MidCap SPDR
Clearing Process because such Security is not eligible for transfer through the
systems of the Depository.) 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 herein, 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 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 weightings in
the S&P MidCap 400 Index, although the Misweighting of such Index Securities
may not be in excess of the applicable Misweighting Amount.
All adjustments to the Portfolio held by the Trustee shall be made by the
Trustee pursuant to the foregoing specifications and as set forth in the Trust
Agreement and shall be non-discretionary. All portfolio adjustments will be
made as described herein unless such adjustments would cause the Trust to lose
its status as a "regulated investment company" under Subchapter M of the
Internal Revenue Code. Additionally, the Trustee is required to adjust the
composition of the Portfolio at any time if it is necessary to insure the
38
<PAGE>
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 weightings of the Portfolio, to the extent
practicable, to the composition and weightings of the Index Securities. Such
adjustments are based upon the S&P MidCap 400 Index as it is currently
determined by Standard & Poor's. To the extent that the method of determining
the S&P MidCap 400 Index is changed by Standard & Poor's 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
S&P MidCap 400 Index is maintained.
In making the adjustments described herein, the Trustee shall rely on
industry sources for information as to the composition and weightings of the
Index Securities. If the Trustee becomes incapable of obtaining or processing
such information or NSCC is unable to receive such information from the Trustee
on any Business Day, then the Trustee shall use the composition and weightings
of the Index Securities for the most recently effective Portfolio Deposit for
the purposes of all adjustments and determinations described herein (including,
without limitation, determination of the securities portion of the Portfolio
Deposit) until the earlier of (a) such time as current information with respect
to the Index Securities is available or (b) three (3) consecutive Business Days
have elapsed. If such current information is not available and three (3)
consecutive Business Days have elapsed, the composition and weightings of the
Securities (as opposed to the Index Securities) shall be used for the purposes
of all adjustments and determinations herein (including, without limitation,
determination of the securities portion of the Portfolio Deposit) until current
information with respect to the Index Securities is available.
At such time as the Trustee gives written notice of the termination of the
Trust (see "Administration of the Trust--Termination"), from and after the date
of such notice the Trustee shall use the composition and weightings of the
Securities as of such notice date for the purpose and determination of all
redemptions or other required uses of the basket.
From time to time Standard & Poor's may make adjustments to the composition
of the S&P MidCap 400 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 S&P
MidCap 400 Index. Since securities of an issuer are often removed from the S&P
MidCap 400 Index only after the consummation of a merger or acquisition of such
issuer, in selling the securities of such issuer the Trust may receive, to the
extent that market prices do not provide a more attractive alternative,
whatever consideration is being offered to the shareholders of such issuer that
have not tendered their shares prior to such time. Any cash received in such
transactions will be reinvested in Index Securities in 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.
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 possible but nevertheless will continue to be the objective in
connection with all acquisitions and dispositions of Securities.
The Trust is a unit investment trust registered under the 1940 Act and is not
a managed fund. Traditional methods of investment management for a managed fund
typically involve frequent changes to a portfolio of securities on the basis of
economic, financial and market analyses. The Portfolio held by the Trust,
however, is not managed. Instead, the only purchases and sales that are made
with respect to the Portfolio will be
39
<PAGE>
those necessary to create, to the extent feasible, a portfolio that is designed
to replicate the S&P MidCap 400 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 S&P MidCap 400 Index.
The Trust will be liquidated on a fixed date (see "Administration of the
Trust--Termination"). In addition, Beneficial Owners of MidCap SPDRs in
Creation Unit size aggregations will have the right to redeem in kind (see
"Redemption of MidCap SPDRs").
ADJUSTMENTS TO THE PORTFOLIO DEPOSIT
On each Business Day (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 Day, the Trustee calculates the net asset value of
the Trust (see "Valuation"). The net asset value is divided by the number of
outstanding MidCap SPDRs in Creation Unit size aggregations, 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 stocks of the
S&P MidCap 400 Index in a Portfolio Deposit for the following Business Day (the
"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 Dividend Equivalent Payment effective for
requests to create or redeem on Adjustment Day, equals the NAV Amount and (2)
the identity and weighting of each of the securities in a Portfolio Deposit
mirrors proportionately the identity and weightings of the securities in the
S&P MidCap 400 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 weightings 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 to be delivered by the Trustee in the
event of request for redemption of MidCap SPDRs in Creation Unit size
aggregations on Request Day and thereafter until the following Adjustment Day
(see "Redemption of MidCap SPDRs"). In addition to the foregoing adjustments,
in the event that there shall occur a stock split, stock dividend or reverse
split with respect to any Index Security that does not result in an adjustment
to the S&P MidCap 400 Index divisor, 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.
On Request Day and on each day that a request for the creation or redemption
of MidCap SPDRs in Creation Unit size aggregations is deemed received, the
Trustee calculates the market value of the securities portion of the Portfolio
Deposit as in effect on Request Day as of the close of the market and adds to
that amount the Dividend Equivalent Payment effective for requests to create or
redeem on Request Day (such market value and Dividend Equivalent Payment are
collectively referred to herein as the "Portfolio Deposit Amount"). The Trustee
then calculates the NAV Amount, based on the close of the market on Request
Day. The difference between the NAV Amount so calculated and the Portfolio
Deposit Amount is the "Balancing Amount". The Balancing Amount serves the
function of compensating for any differences between the value of the Portfolio
Deposit Amount and the NAV Amount at the close of trading on Request Day due
to, for example, (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 S&P MidCap 400 Index
40
<PAGE>
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
weightings 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 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 Dividend Equivalent Payment and the Balancing
Amount in effect at the close of business on Request Date are collectively
referred to as the Cash Component or the Cash Redemption Payment (see
"Prospectus Summary--Portfolio Deposits" and "Prospectus Summary--Redemption").
If the Balancing Amount is a positive number (i.e., if the NAV Amount exceeds
the Portfolio Deposit Amount) then, with respect to the creation of MidCap
SPDRs, the Balancing Amount shall increase the Cash Component of the then
effective Portfolio Deposit transferred to the Trustee by a creator, and with
respect to redemptions of MidCap SPDRs in Creation Unit size aggregations, the
Balancing Amount shall be added to the cash transferred to a redeemer by the
Trustee. If the Balancing Amount is a negative number (i.e., if the NAV Amount
is less than the Portfolio Deposit Amount) then, with respect to the creation
of MidCap SPDRs such amount shall decrease the Cash Component of the then
effective Portfolio Deposit to be transferred to the Trustee by the creator or,
if such cash portion is less than the Balancing Amount, the difference shall be
paid by the Trustee to the creator, and with respect to redemptions of MidCap
SPDRs in Creation Unit size aggregations, the Balancing Amount shall be
deducted from the cash transferred to the redeemer or, if such cash is less
than the Balancing Amount, the difference shall be paid by the redeemer to the
Trustee.
In the event that the Trustee has included the cash equivalent value of one
or more Index Securities in the Portfolio Deposit because the Trustee has
determined that such Index Securities are likely to be unavailable or available
in insufficient quantity for delivery, the Portfolio Deposit so constituted
shall dictate the Index Securities to be delivered in connection with the
creation of MidCap SPDRs in Creation Unit size aggregations and upon the
redemption of MidCap SPDRs 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 MidCap SPDRs.
SELECTION AND ACQUISITION OF SECURITIES
In prescribing the method described above for selecting the Index Securities
that constitute the prescribed Portfolio Deposit from time to time, the Sponsor
intends to duplicate, to the extent practicable, the composition and weighting
of the Index Securities as of the relevant date.
The yield and price of common stocks deposited in the Trust are dependent on
a variety of factors, including money market conditions and general conditions
of the corporate equity markets. The Schedule of Investments set forth above
contains information as of the date set forth therein with respect to the
number of shares of each of the Index Securities in the Portfolio Deposit as of
such date. The proportionate relationship among such Securities approximated
(although it did not exactly duplicate) the proportionate relationships of the
Index Securities.
- ---------------------
* Standard & Poor's publicly announces changes in the identity and/or the
weighting of the S&P MidCap 400 Index up to five business days in advance of
the actual change. The announcements are made after the close of trading on
such day.
41
<PAGE>
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
present size and composition (see "The Portfolio--Adjustments to the
Portfolio"). Also, the deposit of additional Portfolio Deposits and the
redemption of MidCap SPDRs 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 S&P MIDCAP 400 INDEX
The Sponsor selected the S&P MidCap 400 Index as the basis for the selection
of the securities held by the Trust because, in the opinion of the Sponsor, the
S&P MidCap 400 Index constitutes a broadly diversified representative segment
of the market for middle capitalization companies whose stock is publicly
traded in the United States and is an index which has achieved wide acceptance
by both investors and market professionals. The S&P MidCap 400 Index is
composed of 400 selected common stocks, all of which are listed on the AMEX,
the NYSE or NASDAQ, and spans a broad range of major industry groups. The 400
common stocks comprising the S&P MidCap 400 Index represented, as of December
31, 1996, approximately 10% of the market value of all domestic common stocks.
As of December 31, 1996, the five largest industry segments comprising the S&P
MidCap 400 Index were: Electric utilities (9.13%), banks (7.80%), electric
components and equipment (3.27%), oil and gas (3.13%) and computer software
(4.60%). Current information regarding the market value of the S&P MidCap 400
Index is available from market information services. The S&P MidCap 400 Index
is determined, comprised and calculated without regard to the Trust.
The Sponsor has been granted a license to use the S&P MidCap 400 Index as a
basis for determining the composition of the Trust and to use certain
trademarks of S&P in connection with the Trust (see "License Agreement"). S&P
is not responsible for and shall not participate in the creation or sale of
MidCap SPDRs or in the determination of the timing of, prices at, or quantities
and proportions in which purchases or sales of Index Securities or Securities
shall be made. The information in this Prospectus concerning S&P and the S&P
MidCap Index has been obtained from sources that the Sponsor believes to be
reliable, but the Sponsor takes no responsibility for the accuracy of such
information.
The following table shows the actual performance of the S&P MidCap 400 Index
for the years 1991 through 1996. 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 S&P MidCap 400 Index in the future,
nor should the results be considered as a representation of the performance of
the Trust.
<TABLE>
<CAPTION>
YEAR-END CHANGE IN
INDEX VALUE* INDEX YEAR-END
YEAR DECEMBER 31, 1990 = 100 FOR YEAR YIELD **
- ---- ----------------------- --------- --------
<S> <C> <C> <C>
1990................................. 100.00 -- 3.16%
1991................................. 146.59 +46.59% 2.03
1992................................. 160.56 +9.53 1.96
1993................................. 179.33 +11.72 1.85
1994................................. 169.44 -5.54 2.10
1995................................. 217.84 +28.56 1.65
1996................................. 255.58 +17.32 1.52
</TABLE>
- --------
* Source: Standard & Poor's. Year-end index values shown do not reflect
reinvestment of dividends nor costs, such as brokerage charges and
transaction costs.
** Source: Standard & Poor's. Yields are obtained by dividing the aggregate
cash dividends for the year by the aggregate market value of the stocks in
the S&P MidCap 400 Index at year-end.
42
<PAGE>
It is the understanding of the Sponsor that Standard & Poor's weights the
Index Securities primarily based on each stock's relative total market value;
that is, its market price per share times the number of shares outstanding.
Accordingly, each Index Security's influence on the value of the S&P MidCap 400
Index is directly proportionate to its market value. The percentage of the
Trust's assets invested in each of the Securities is calculated to approximate
the percentage each Index Security represents in the S&P MidCap 400 Index.
LICENSE AGREEMENT
Under the terms of a license agreement with Standard & Poor's (the "License
Agreement"), the Sponsor has been granted a license to use the S&P MidCap 400
Index as a basis for determining the composition of the Trust and to use
certain trade names and trademarks of Standard & Poor's 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 MidCap SPDRs. Currently, the License
Agreement is scheduled to expire on April 27, 2020, in accordance with its
terms. The parties thereto may extend the term of the License Agreement beyond
such date without the consent of any of the Beneficial Owners of MidCap SPDRs.
None of the Trust, the Trustee, the Distributor, the Depository or any
Beneficial Owner of MidCap SPDRs is entitled to any rights whatsoever under the
foregoing licensing arrangements or to use the trademarks "S&P MidCap 400",
"S&P", "Standard & Poor's" or "Standard & Poor's MidCap 400" or to use the S&P
MidCap 400 Index except as specifically described herein or as may be specified
in the Trust Agreement.
The Trust is not sponsored, endorsed, sold or promoted by Standard & Poor's
and Standard & Poor's makes no representation or warranty, express or implied,
to the Trust, the Trustee, the Distributor, the Depository or Beneficial Owners
of MidCap SPDRs regarding the advisability of investing in Index Securities or
unit investment trusts generally or in the Trust particularly or the ability of
the S&P MidCap 400 Index to track general stock market performance. Standard &
Poor's only relationship to the Trust is the licensing of certain trademarks
and trade names of Standard & Poor's and of the S&P MidCap 400 Index which is
determined, comprised and calculated by Standard & Poor's without regard to the
Trust or the Beneficial Owners of MidCap SPDRs. Standard & Poor's has no
obligation to take the needs of the Trust or the Beneficial Owners of MidCap
SPDRs into consideration in determining, comprising or calculating the S&P
MidCap 400 Index. Standard & Poor's is not responsible for and has not
participated in any determination or calculation made with respect to issuance
or redemption of MidCap SPDRs. Standard & Poor's has no obligation or liability
in connection with the administration, marketing or trading of MidCap SPDRs.
STANDARD & POOR'S DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. STANDARD & POOR'S MAKES
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE SPONSOR,
THE TRUST, BENEFICIAL OWNERS OF MIDCAP SPDRS OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION
WITH THE USE LICENSED UNDER THE LICENSE AGREEMENT, OR FOR ANY OTHER USE.
STANDARD & POOR'S MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL SUCH WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE S&P MIDCAP 400 INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL STANDARD & POOR'S HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT
OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
43
<PAGE>
EXCHANGE LISTING
As described above, MidCap SPDRs are listed on the Exchange. Transactions
involving MidCap SPDRs in the public trading market are subject to customary
brokerage charges and commissions.
The Sponsor's aim in designing MidCap SPDRs was to provide investors with a
security whose market value would approximate one-fifth ( 1/5th) the value of
the S&P MidCap 400 Index. Thus, for example, if the S&P MidCap 400 Index were
at 175, investors might expect a MidCap SPDR to trade at approximately $35.
Note, however, that the market price of a MidCap SPDR should also reflect its
share of the dividends accumulated on the Securities (see "Administration of
the Trust--Distributions to Beneficial Owners") and may also be affected by
supply and demand, market volatility, sentiment and other factors.
There can be no assurance that MidCap SPDRs will always be listed on the
Exchange. The Exchange will consider the suspension of trading in or removal
from listing of MidCap SPDRs:
(a) if the Trust has more than 60 days remaining until termination and
there are fewer than 50 record and/or beneficial holders of MidCap SPDRs
for 30 or more consecutive trading days;
(b) if the S&P MidCap 400 Index is no longer calculated or available; or
(c) if such other event shall occur or condition exists which, in the
opinion of the Exchange, makes further dealings on the Exchange
inadvisable.
The Trust is not required to pay a listing fee to the Exchange.
The Trust will be terminated in the event that MidCap SPDRs are delisted (see
"Administration of the Trust--Termination").
TAX STATUS OF THE TRUST
For the period ended December 31, 1996, the Trust believes that it qualified
for tax treatment as a "regulated investment company" under Subchapter M of the
Code. The Trust intends to continue to so qualify. 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) derive in each taxable year less than 30% of its
gross income from the sale or other disposition of stock, securities, certain
foreign positions, and certain other assets held for less than three months,
(c) meet certain diversification tests, and (d) distribute in each year at
least 90% of its investment company taxable income. If the Trust qualifies as a
regulated investment company, subject to certain conditions and requirements,
the Trust will not be subject to federal income tax to the extent its income is
distributed in a timely manner. Any undistributed income may be subject to tax,
including a four percent (4%) excise tax imposed by section 4982 of the Code on
certain undistributed income of a regulated investment company that does not
distribute to shareholders in a timely manner at least ninety-eight percent
(98%) of its taxable income (including capital gains).
TAX CONSEQUENCES TO BENEFICIAL OWNERS
Dividends paid by the Trust from its investment company taxable income (which
includes dividends, interest and the excess of net short-term capital gains
over net long-term capital losses) will be taxable to Beneficial Owners as
ordinary income. A dividend paid in January will be considered for federal
income tax purposes to have been paid by the Trust and received by Beneficial
Owners on the preceding December 31 if the dividend was declared in the
preceding October, November or December to Beneficial Owners of record as 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
44
<PAGE>
has owned MidCap SPDRs. Any loss on the sale or exchange of a share held for
six months or less may be treated as a long-term capital loss to the extent of
any capital gain dividends received by the Beneficial Owner. For corporate
investors, dividends from net investment income (but not return of capital
distributions or capital gain dividends) generally will qualify for the
corporate dividends-received deduction to the extent of qualifying dividend
income received by the Trust, subject to the limitations contained in the Code.
Investors should note that the regular quarterly dividends paid by the Trust
will not be based on the Trust's investment company taxable income and net
capital gain, but rather will be based on the dividends paid with respect to
the Securities. As a result, a portion of the distributions of the Trust may be
treated as a return of capital or a capital gain dividend for federal income
tax purposes or the Trust may make additional distributions in excess of the
yield performance of the Securities in order to distribute all of its
investment company taxable income and net capital gain.
Distributions in excess of the Trust's current or accumulated earnings and
profits (as specially computed) generally will be treated as a return of
capital for federal income tax purposes and will reduce a Beneficial Owner's
tax basis in MidCap SPDRs. Return of capital distributions may result, for
example, if a portion of the dividends declared represents cash amounts
deposited in connection with Portfolio Deposits rather than dividends actually
received by the Trust. Under certain circumstances, a significant portion of
the Trust's regular quarterly dividends could be treated as return of capital
distributions. Such circumstances may be more likely to occur in periods during
which the number of outstanding MidCap SPDRs fluctuates significantly, as may
occur during the initial years of the Trust. Beneficial Owners will receive
annually notification from the Trustee through the DTC Participants as to the
tax status of the Trust's distributions (see "The Trust--Book-Entry-Only
System"). A distribution paid shortly after a purchase or creation of MidCap
SPDRs may be taxable even though in effect it may represent a return of
capital.
Distributions reinvested in additional MidCap SPDRs through the means of the
Service (see "Dividend Reinvestment Service") will nevertheless be taxable
dividends to Beneficial Owners acquiring such additional MidCap SPDRs to the
same extent as if such dividends had been received in cash.
The sale of MidCap SPDRs 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 MidCap SPDRs 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 MidCap SPDRs redeemed. Securities received
upon redemption (which will be comprised of the securities portion of the
Portfolio Deposit in effect on the date of redemption) generally will have an
initial tax basis equal to their respective market values on the date of
redemption. The Internal Revenue Service ("IRS") may assert that any resulting
loss may not be deducted by a Beneficial Owner on the basis that there has been
no material change in such Beneficial Owner's economic position or that the
transaction has no significant economic or business utility apart from the
anticipated tax consequences. Beneficial Owners of MidCap SPDRs in Creation
Unit size aggregations should consult their own tax advisors as to the
consequences to them of the redemption of MidCap SPDRs.
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 MidCap SPDRs
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 MidCap SPDRs
received (less any cash
45
<PAGE>
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.
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 MidCap SPDRs ordered, would own eighty percent (80%) or more
of the outstanding MidCap SPDRs, and if pursuant to section 351 of the Code
such a circumstance would result in the Trust having a basis in the securities
deposited different from the market value of such securities on the date of
deposit. The Trustee has the right to require information regarding MidCap SPDR
ownership pursuant to the Participant Agreement and from the Depository and to
rely thereon to the extent necessary to make the foregoing determination as a
condition to the acceptance of a Portfolio Deposit.
Ordinary income dividends received via the Depository by Beneficial Owners
who are non-resident aliens will be subject to a thirty percent (30%) United
States withholding tax unless a reduced rate of withholding or a withholding
exemption is provided under applicable tax treaties. Non-resident shareholders
are urged to consult their own tax advisors concerning the applicability of
United States withholding tax.
Backup withholding at a rate of 31% will apply to dividends, capital gain
distributions, redemptions and sales of MidCap SPDRs 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 U.S.
Internal Revenue Service, provided that the required information is furnished
to the U.S. Internal Revenue Service.
The Clinton Administration has proposed legislation that, among other
changes, would reduce the general dividends-received deduction available to
corporations from 70 percent to 50 percent and would require taxpayers to
determine their basis in securities on an average basis. It is uncertain
whether or in what form these or any tax legislative proposals will be enacted,
or what effect such legislation may have on the market values of MidCap SPDRs
or the Securities.
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 charges.
CONTINUOUS OFFERING OF MIDCAP SPDRS
MidCap SPDRs in Creation Unit size aggregations are offered continuously to
the public by the Trust through the Distributor and are delivered upon the
deposit of a Portfolio Deposit (see "The Trust -- Procedure for Creation of
Creation Units"). A list of the identity and number of shares of each of the
Index Securities in the current Portfolio Deposit and the amount of the
Dividend Equivalent Payment effective through and including the previous
Business Day is made available by the Trustee to NSCC on each Business Day.
Under certain extraordinary circumstances which may make it impossible for the
Trustee to provide such information to NSCC on a given Business Day, NSCC shall
use the composition and weighting of the Index Securities for the most recently
effective Portfolio Deposit. The minimum number of MidCap SPDRs that may be
created as described herein is 25,000 or one Creation Unit. Persons making
Portfolio Deposits and creating Creation Unit aggregations of MidCap SPDRs 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 MidCap SPDRs.
46
<PAGE>
Because new MidCap SPDRs can be created and issued on an ongoing basis, at
any point during the life of the Trust a "distribution", as such term is used
in the Securities Act of 1933, may be occurring. Broker-dealers and other
persons are cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus-delivery and liability provisions of the Securities Act. For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing a creation order with the
Distributor, breaks them down into the constituent MidCap SPDRs and sells the
MidCap SPDRs directly to its customers; or if it chooses to couple the creation
of a supply of new MidCap SPDRs with an active selling effort involving
solicitation of secondary market demand for MidCap SPDRs. 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 MidCap SPDRs 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 MidCap
SPDRs are reminded that under Securities Act rule 153, a prospectus-delivery
obligation under Section 5(b)(2) of the Act owed to an Exchange member in
connection with a sale on the Exchange is satisfied by the fact that MidCap
SPDR prospectuses will be available at the Exchange upon request. Of course,
the prospectus-delivery mechanism provided in rule 153 is only available with
respect to transactions on an exchange.
The Sponsor intends to qualify MidCap SPDRs in states selected by the Sponsor
and through broker-dealers who are members of the National Association of
Securities Dealers, Inc. Investors intending to create or redeem Creation Unit
size aggregations of MidCap SPDRs in transactions not involving a broker-dealer
registered in such investor's state of domicile or residence should consult
counsel regarding applicable broker-dealer or securities regulatory
requirements under such state securities laws prior to such creation or
redemption.
EXPENSES OF THE TRUST
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 MidCap SPDRs (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 MidCap SPDRs (whether in Creation Unit size aggregations or otherwise); (g)
indemnification of the Trustee or the Sponsor for any losses, liabilities or
expenses incurred by it in the administration of the Trust without gross
negligence, bad faith, wilful misconduct or wilful malfeasance on its part or
reckless disregard of its obligations and duties; (h) expenses incurred in
contacting Beneficial Owners of MidCap SPDRs 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 those discussed above, the following expenses are or may be
charged to the Trust: (a) reimbursement to the Sponsor of amounts paid by it to
S&P in respect of annual licensing fees pursuant to the License Agreement (see
"License Agreement"), (b) federal and state annual registration fees for the
issuance of MidCap SPDRs, and (c) expenses of the Sponsor relating to the
printing and distribution of marketing materials describing MidCap SPDRs and
the Trust (including, but not limited to, associated legal,
47
<PAGE>
consulting, advertising and marketing costs and other out-of-pocket expenses
such as printing). In addition, initial fees and expenses totaling
approximately $195,000, in connection with the organization of the Trust, were
capitalized and are being amortized over five years from the start of the
Trust's operations on a straight-line basis and charged to the Trust.
The Sponsor reserves the right to charge the Trust a special sponsor fee from
time to time in reimbursement for certain services it may provide to the Trust
which would otherwise be provided by the Trustee in an amount not to exceed the
actual cost of providing such services. The Sponsor or the Trustee from time to
time may voluntarily assume some expenses or reimburse the Trust so that total
expenses of the Trust are reduced, although neither the Sponsor nor the Trustee
is obligated to do so and either one or both parties may discontinue such
voluntary assumption of expenses or reimbursement at any time without notice.
Until further notice, the Sponsor has undertaken that on each day during the
fiscal year ending December 31, 1997, the ordinary operating expenses of the
Trust as calculated by the Trustee will not be permitted to exceed an amount
which is 30/100 of 1% 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 30/100 of 1% amount, the Sponsor will reimburse the Trust for or
assume such excess ordinary operating expenses. The Sponsor retains the ability
to be repaid by the Trust for expenses so reimbursed or assumed to the extent
that subsequently during the year expenses fall below the 30/100 of 1% per
annum level on any given day. For purposes of this undertaking by the Sponsor,
ordinary operating expenses of the Trust shall not include taxes, brokerage
commissions and, of course, such extraordinary non-recurring expenses as may
arise, including, without limitation, the cost of any litigation to which the
Trust or Trustee may be a party. The Sponsor may choose to reimburse or assume
certain Trust expenses in later periods in order to keep Trust expenses at a
level it believes to be attractive to investors, but is not obligated to do so.
In any event, it is possible that, on any day and during any period over the
life of the Trust, total fees and expenses of the Trust may exceed 30/100 of 1%
per annum.
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to cover Trust expenses, the
Trustee may make advances to the Trust to cover such expenses; otherwise the
Trustee may sell Securities in an amount sufficient to pay such expenses. The
Trustee may reimburse itself in the amount of any such advance, plus any
amounts required by the Federal Reserve Board which 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
may sell Securities to reimburse itself for the amount of such advance and any
accrued interest thereon. Such advances will be secured by a lien on the assets
of the Trust in favor of the Trustee. The expenses of the Trust are reflected
in the net asset value of the Trust (see "Valuation").
For services performed under the Trust Agreement, the Trustee will be paid by
the Trust a fee at an annual rate of 10/100 of 1% to 14/100 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 will be
computed on each Business Day on the basis of the net asset value of the Trust
on such day, and the amount thereof shall be accrued daily and paid monthly.
During the first two years of the operation of the Trust, the Trustee's fee
will be 12/100 of 1% per annum, regardless of the net asset value of the Trust.
The Trustee, in its discretion, may also waive all or a portion of such fee.
48
<PAGE>
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-$500,000,000*...................................... 14/100 of 1% per annum
$500,000,001-$1,000,000,000*......................... 12/100 of 1% per annum
$1,000,000,001-and above*............................ 10/100 of 1% per annum
</TABLE>
As of December 31, 1996, the net asset value of the Trust was $150,737,699.
No representation is made as to the actual net asset value of the Trust on any
future date, as it is subject to change at any time due to fluctuations in the
market value of Securities, or to creations or redemptions made in the future.
- --------
* The fee indicated applies to that portion of the net asset value of the
Trust which falls in the size category indicated.
REDEMPTION OF MIDCAP SPDRS
MidCap SPDRs in Creation Unit size aggregations are redeemable in kind only
and are not redeemable for cash. MidCap SPDRs in Creation Unit size
aggregations may be redeemed by submitting a request for redemption, the
requisite number of MidCap SPDRs and the Excess Cash Amount (as defined below),
if applicable, to the Trustee in the manner specified below. Beneficial Owners
of MidCap SPDRs may sell MidCap SPDRs in the secondary market, but must
accumulate enough MidCap SPDRs to constitute a Creation Unit (i.e., 25,000
MidCap SPDRs) in order to redeem through the Trust. MidCap SPDRs 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 MidCap SPDR Clearing Process) or a single DTC
Participant (with respect to redemptions outside the MidCap SPDR Clearing
Process). MidCap SPDRs will remain outstanding until redeemed or until the
termination of the Trust.
PROCEDURE FOR REDEMPTION OF MIDCAP SPDRS
Requests for redemptions of Creation Units may be made on any Business Day
through the MidCap SPDR 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 MidCap SPDR Clearing Process.
Requests for redemption shall not be made to the Distributor. In the case of
redemptions made through the MidCap SPDR Clearing Process, the Transaction Fee
will be deducted from the amount delivered to the redeemer. In case of
redemptions tendered directly to the Trustee outside the MidCap SPDR Clearing
Process, a total fee will be charged on a per Creation Unit basis per day. Such
fee will be equal to the Transaction Fee plus an additional amount not to
exceed three (3) times the Transaction Fee applicable for one Creation Unit per
Creation Unit redeemed (due in part to the increased expense associated with
delivery outside the MidCap SPDR Clearing Process) and such amount will be
deducted from the amount delivered to the redeemer (see "Prospectus Summary--
Transaction Fee"). In all cases, both the tender of MidCap SPDRs for redemption
and distributions to the redeemer in respect of MidCap SPDRs 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 MidCap SPDRs delivered, identical in
weighting and composition to the securities portion of a Portfolio Deposit as
in effect (1) on the date a request for redemption is deemed received by the
Trustee as described below, in the case of redemptions made either through the
MidCap SPDR Clearing Process or outside the MidCap SPDR Clearing Process or (2)
on the date that notice of the termination of the Trust is given, in the case
of the termination of the Trust (see "Administration of the Trust--Termination"
and "The Portfolio--Adjustments to the Portfolio"). The
49
<PAGE>
Trustee will also transfer via the relevant DTC Participant(s) to the redeeming
Beneficial Owner in cash the "Cash Redemption Payment", which on any given
Business Day is an amount identical to the amount of the Cash Component and is
equal to a proportional amount of the following: dividends on all the
Securities for the period through the date of redemption, net of expenses and
liabilities for such period, including, without limitation, (x) taxes or other
governmental charges against the Trust not previously deducted, if any, and (y)
accrued fees of the Trustee and other expenses of the Trust (including legal
and auditing expenses) and other expenses not previously deducted (see
"Expenses of the Trust"), as if all the Securities had been held for the entire
accumulation period for such distribution, plus or minus the Balancing Amount.
To the extent that any amounts payable to the Trust by the redeeming Beneficial
Owner exceed the amount of the Cash Redemption Payment ("Excess Cash Amounts"),
such Beneficial Owner shall be required to deliver payment thereof to the
Trustee. In the case of redemptions made through the MidCap SPDR Clearing
Process, the Trustee will effect a transfer of the Cash Redemption Payment and
the Securities to the redeeming Beneficial Owner by the third (3rd) NSCC
Business Day following the date on which the request for redemption is deemed
received. In the case of redemptions made outside the MidCap SPDR Clearing
Process, the Trustee will transfer the Cash Redemption Payment and the
Securities to the redeeming Beneficial Owner by the third (3rd) Business Day,
as applicable, following the date on which the request for redemption is deemed
received. The Trustee will cancel all MidCap SPDRs 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 MidCap SPDRs in Creation Unit size
aggregations, then the Trustee shall have the right in its discretion to
deliver the cash equivalent value of such Index Security or Index Securities,
based on the market value of such Index Security or Index Securities as of the
Evaluation Time on the date such redemption order is deemed received by the
Trustee (see "Placement of Redemption Orders Using MidCap SPDR Clearing
Process") as a part of the Cash Redemption Payment in lieu of delivering such
Index Security or Index Securities to the redeemer. If an Index Security is not
eligible for transfer through the MidCap SPDR Clearing Process, the Trustee
shall deliver the cash equivalent value of such Index Security as a part of the
Cash Redemption Payment to the redeemer in the manner discussed in the
preceding sentence.
In connection with the redemption of MidCap SPDRs, if a redeemer is
restricted by regulation or otherwise from investing or engaging in a
transaction in one or more Index Securities, the Trustee shall have the right
in its discretion to deliver the cash equivalent value of such Index Security
or Index Securities based on the market value of such Index Security or Index
Securities as of the Evaluation Time on the date such redemption order is
deemed received by the Trustee (see "Placement of Redemption Orders Outside
MidCap SPDR Clearing Process") as a part of the Cash Redemption Payment in lieu
of delivering such Index Security or Index Securities to the redeemer. In such
case, such investor will pay the Trustee the standard Transaction Fee, plus an
additional amount per Creation Unit not to exceed three (3) times the
Transaction Fee applicable for one Creation Unit (see "Prospectus Summary--
Transaction Fee").
If the Trustee sells Securities to obtain sufficient cash proceeds to deliver
to the redeeming Beneficial Owner, brokerage commissions incurred in connection
with such a sale of Securities will be an expense of the Trust and will affect
the value of all MidCap SPDRs. 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 Payment, the Trustee may advance out of its own funds any
amounts necessary in respect of redemptions of MidCap SPDRs; otherwise, the
Trustee may sell Securities in an amount sufficient to effect such redemptions.
The Trustee may reimburse itself in the amount of any such advance, plus any
amounts required by the Federal Reserve Board which 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
50
<PAGE>
payments or other income is received, (2) the amounts earned or benefits
derived by the Trustee on cash held by the Trustee for the benefit of the
Trust, and (3) the sale of Securities. Notwithstanding the foregoing, in the
event that any advance remains outstanding for more than forty-five (45)
Business Days, the Trustee shall sell Securities to reimburse itself for such
advance and any accrued interest thereon. Such advances will be secured by a
lien on the assets of the Trust in favor of the Trustee.
The Trustee may, in its discretion, and will when so directed by the Sponsor,
suspend the right of redemption, or postpone the date of payment of the net
asset value for more than five (5) Business Days following the date on which
the request for redemption is deemed received by the Trustee, for any period
during which the New York Stock Exchange is closed; for any period during which
an emergency exists as a result of which disposal or evaluation of the
Securities is not reasonably practicable; or 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 MidCap SPDRs in
Creation Unit size aggregations, an entity or person must be (1) a
Participating Party, with respect to redemptions through the MidCap SPDR
Clearing Process, or (2) a DTC Participant, with respect to redemptions outside
the MidCap SPDR Clearing Process.
All orders to redeem MidCap SPDRs must be placed in multiples of 25,000
MidCap SPDRs (Creation Unit size). Orders must be transmitted to the Trustee by
telephone or other transmission method acceptable to the Trustee so as to be
received by the Trustee not later than the Closing Time on the Transmittal Date
pursuant to procedures set forth in the Participant Agreement. Severe economic
or market disruption or changes, or telephone or other communication failure,
may impede the ability to reach the Distributor, the Trustee, a Participating
Party or a DTC Participant.
Orders to redeem Creation Unit size aggregations of MidCap SPDRs shall be
placed with a Participating Party or DTC Participant, as applicable, in the
form required by such Participating Party or DTC Participant. Investors should
be aware that their particular broker may not have executed a Participant
Agreement, and that, therefore, orders to redeem Creation Unit size
aggregations of MidCap SPDRs may have to be placed by the investor's broker
through a Participating Party or a DTC Participant who has executed a
Participant Agreement. At any given time there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those placing orders
to redeem MidCap SPDRs 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 MidCap SPDRs to be redeemed and the Excess
Cash Amounts, if any, by the Trustee in a timely manner, as described below.
Orders for redemption that are effected outside the MidCap SPDR Clearing
Process are likely to require transmittal by the DTC Participant earlier on the
Transmittal Date than orders effected using the MidCap SPDR Clearing Process.
Those persons placing orders outside the MidCap SPDR Clearing Process should
ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire
transfer system by contacting the operations department of the broker or
depository institution effectuating such transfer of MidCap SPDRs and Cash
Redemption Payment. These deadlines will vary by institution. The Participant
notified of an order to redeem outside the MidCap SPDR Clearing Process will be
required to transfer MidCap SPDRs through DTC and the Excess Cash Amounts, if
any, through the Federal Reserve Bank wire transfer system in a timely manner
(see "Placement of Redemption Orders Outside the MidCap SPDR Clearing
Process").
PLACEMENT OF REDEMPTION ORDERS USING MIDCAP SPDR CLEARING PROCESS
Orders to redeem MidCap SPDRs in Creation Unit size aggregations through the
MidCap SPDR Clearing Process must be delivered through a Participating Party
(see "Portfolio Deposit") that has executed the Participant Agreement with the
Distributor and with the Trustee (as the same may be from time to time amended
in accordance with its terms). An order to redeem MidCap SPDRs using the MidCap
SPDR Clearing Process is deemed received by the Trustee on the Transmittal Date
if (i) such order is received by
51
<PAGE>
the Trustee not later than the Closing Time on such Transmittal Date and (ii)
all other procedures set forth in the Participant Agreement are properly
followed; such order will be effected based on the net asset value of the Trust
as determined as of the Evaluation Time on the Transmittal Date. An order to
redeem MidCap SPDRs using the MidCap SPDR Clearing Process made in proper form
but received by the Trustee after the Closing Time will be deemed received on
the next Business Day immediately following the Transmittal Date. The
Participant Agreement authorizes the Trustee to transmit to NSCC on behalf of
the Participating Party such trade instructions as are necessary to effect the
Participating Party's redemption order. Pursuant to such trade instructions
from the Trustee to NSCC, the Trustee will transfer the requisite Securities
(or contracts to purchase such Securities which are expected to be delivered in
a "regular way" manner) by the third (3rd) NSCC Business Day following the date
on which such request for redemption is deemed received, and the Cash
Redemption Payment. The calculation of the value of the Securities and the Cash
Redemption Payment to be delivered by the Trustee to the redeeming Beneficial
Owner will be made according to the procedures set forth under "Valuation",
computed as of the Evaluation Time on the Business Day on which a redemption
order is deemed received by the Trustee.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE MIDCAP SPDR CLEARING PROCESS
Orders to redeem MidCap SPDRs outside the MidCap SPDR Clearing Process must
be delivered through a DTC Participant that has executed the Participant
Agreement with the Distributor and with the Trustee. A DTC Participant who
wishes to place an order for redemption of MidCap SPDRs to be effected outside
the MidCap SPDR Clearing Process need not be a Participating Party, but such
orders must state that the DTC Participant is not using the MidCap SPDR
Clearing Process and that redemption of MidCap SPDRs will instead be effected
through transfer of MidCap SPDRs directly through DTC. An order to redeem
MidCap SPDRs outside the MidCap SPDRs 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 MidCap SPDRs
specified in such order, which delivery must be made through DTC to the Trustee
no later than 11:00 a.m. on such Transmittal Date (the "DTC Cut-Off Time") and
(iii) all other procedures set forth in the Participant Agreement are properly
followed. The Excess Cash Amounts owed by the Beneficial Owner, if any, must be
delivered no later than 1:00 p.m. on the Business Day immediately following the
Transmittal Date.
After the Trustee has deemed an order for redemption outside the MidCap SPDR
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 (3) Business Days) and the Cash
Redemption Payment to the redeeming Beneficial Owner by the third (3) Business
Day following the Transmittal Date on which such redemption order is deemed
received by the Trustee.
The calculation of the value of the Securities and the Cash Redemption
Payment to be delivered to the redeeming Beneficial Owner will be made by the
Trustee according to the procedures set forth under "Valuation", computed as of
the Evaluation Time on the Business Day on which a redemption order is deemed
received by the Trustee. Therefore, if a redemption order in proper form is
submitted to the Trustee by a DTC Participant not later than the Closing Time
on the Transmittal Date, and the requisite MidCap SPDRs are delivered to the
Trustee prior to the DTC Cut-Off Time on such Transmittal Date, then the value
of the Securities and the Cash Redemption Payment to be delivered to the
Beneficial Owner will be determined by the Trustee as of the Evaluation Time on
such Transmittal Date. If, however, a redemption order is submitted to the
Trustee by a DTC Participant not later than Closing Time on a Transmittal Date
but either (1) the requisite MidCap SPDRs are NOT delivered by the DTC Cut-Off
Time on such Transmittal Date or (2) the redemption order is not submitted in
proper form, then the redemption order will NOT be deemed received as of such
Transmittal Date. In such case, the value of the Securities and the Cash
Redemption Payment to be delivered to the Beneficial Owner will be computed as
of the Evaluation Time on the Business Day that such order is deemed received
by the Trustee, i.e., the Business Day on which the MidCap SPDRs are delivered
through DTC to the Trustee by the DTC Cut-Off Time on such Business Day
pursuant to a properly submitted redemption order.
52
<PAGE>
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 MidCap SPDR basis is determined by subtracting all liabilities
(including accrued expenses and dividends payable) from the total value of the
Trust's investments and other assets and dividing the result by the total
number of outstanding MidCap SPDRs.
The aggregate value of the Securities shall be determined by the Trustee in
good faith in the following manner: If the Securities are listed on one or more
national securities exchanges, such evaluation shall generally be based on the
closing sale price on that day (unless the Trustee deems such price
inappropriate as a basis for evaluation) on the exchange which is deemed to be
the principal market therefor (the New York or American Stock Exchange if the
securities are listed thereon) or, if there is no such appropriate closing sale
price on such exchange, at the closing bid price (unless the Trustee deems such
price inappropriate as a basis for evaluation). If the Securities are not so
listed or, if so listed and the principal market therefor is other than on such
exchange or there is no such closing bid price available, such evaluation shall
generally be made by the Trustee in good faith based on the closing price on
the over-the-counter market (unless the Trustee deems such price inappropriate
as a basis for evaluation) or if there is no such appropriate closing price,
(a) on current bid prices, (b) if bid prices are not available, on the basis of
current bid prices for comparable securities, (c) by the Trustee's appraising
the value of the securities in good faith on the bid side of the market, or (d)
by any combination thereof.
ADMINISTRATION OF THE TRUST
RECORDS
The Trustee maintains records of the transactions of the Trust, including a
current list of the identity and number of shares of each of the Securities in
the Portfolio. Records of the creation of MidCap SPDRs in Creation Unit size
aggregations are also maintained by the Distributor. Record of ownership of
MidCap SPDRs is maintained by the Depository and by DTC Participants as
described above (see "The Trust--Book-Entry-Only System").
A complete copy of the Trust Agreement is maintained by the Trustee. A copy
of the Trust Agreement is available to Beneficial Owners at the corporate trust
office of the Trustee at 101 Barclay Street, New York, New York 10286 during
normal business hours.
VOTING
The Trustee has the right to vote all of the voting stocks in the Trust. The
Trustee votes the voting stocks of each issuer in the same proportionate
relationship as all other shares of each such issuer are voted to the extent
permissible and, if not permitted, abstains from voting.
DISTRIBUTIONS TO BENEFICIAL OWNERS
The regular quarterly ex-dividend date for MidCap SPDRs is 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 is the immediately preceding
Business Day (the "Ex-Dividend Date"). Beneficial Owners as reflected on the
records of the Depository and the DTC Participants on the second Business Day
following the Ex-Dividend Date (the "Record Date") are entitled to receive an
amount representing dividends accumulated on the Securities through the
quarterly dividend 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 fees and expenses, accrued daily for such
period. For the purposes of all dividend distributions, dividends per MidCap
SPDR are calculated at least to the nearest 1/100th of $0.01. The payment of
dividends is made on the last
53
<PAGE>
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. MidCap SPDRs are registered in book entry-only,
which records are kept by the Depository (see "The Trust--Book-Entry-Only
System").
Dividends payable to the Trust in respect of the Securities are credited by
the Trustee to a non-interest bearing account as of the date on which the Trust
receives such dividends. Other moneys received by the Trustee in respect of the
Securities, including but not limited to the Cash Component, the Cash
Redemption Payment, all moneys realized by the Trustee from the sale of
options, warrants or other similar rights received or distributed in respect of
the Securities as dividends or distributions and capital gains resulting from
the sale of Securities are also credited by the Trustee to a non-interest
bearing account. All funds collected or received are held by the Trustee
without interest until distributed 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 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 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) an increase in the distribution
scheduled for January to include any amount by which estimated Trust investment
company taxable income and net capital gains for a 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 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 in direct proportion to 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 such additional
distributions. In that case, the Trustee will have to sell shares of the
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 weightings in the S&P MidCap 400
Index first and then from among all other Securities in a manner so as to
maintain the weightings 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 are made (e.g., from quarterly to monthly) 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 MidCap SPDRs to another date within the
54
<PAGE>
month or quarter if it is determined by the Sponsor and the Trustee, in their
discretion, that such a change would be advantageous to the Trust. Notice of
any such variance or change (which notice shall include changes to the Record
Date, the Ex-Dividend Date, the Dividend Payment Date, and the accumulation
period resulting from such variance) shall be provided to Beneficial Owners via
the Depository and the DTC Participants (see "The Trust--Book-Entry-Only
System").
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, plus Federal
Reserve Board requirements, together with interest thereon at a percentage rate
equal to then current overnight federal funds rate, by deducting such amounts
from (1) dividend payments or other income of the Trust when such payments or
other income is received, (2) the amounts earned or benefits derived by the
Trustee on cash held by the Trustee for the benefit of the Trust, and (3) the
sale of Securities. Notwithstanding the foregoing, in the event that any
advance remains outstanding for more than forty-five (45) Business Days, the
Trustee shall sell Securities to reimburse itself for such advance and any
accrued interest thereon. Such advances will be secured by a lien on the assets
of the Trust in favor of the Trustee.
In addition, as soon as practicable after notice of termination of the Trust,
the Trustee will distribute via the Depository and the DTC Participants to each
Beneficial Owner redeeming MidCap SPDRs 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 MidCap SPDRs" 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 MidCap SPDRs in Creation Unit size
aggregations or the purchase of MidCap SPDRs in the secondary market must occur
on or prior to the Record Date in order for such creator or purchaser to
receive a distribution on the next Dividend Payment Date. If the settlement
date for such creation or secondary market purchase occurs after the Record
Date, the distribution will be made to the prior securityholder or Beneficial
Owner as of such Record Date.
Any Beneficial Owner interested in acquiring additional MidCap SPDRs with
proceeds received from distributions described above may elect dividend
reinvestment through DTC Participants by means of the DTC Dividend Reinvestment
Service, described herein (see "Dividend Reinvestment Service"), if such
service is available through such Beneficial Owner's broker.
TRUST SUPERVISION
The Trust's Portfolio Securities are not managed and therefore the adverse
financial condition of an issuer of securities in the Trust does not, in
itself, require the sale of Securities from the Portfolio. The Trustee shall,
on a non-discretionary basis, make changes to the Portfolio as described above
(see "The Portfolio--Adjustments to the Portfolio").
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 MidCap
SPDR.
55
<PAGE>
Promptly after the end of each calendar year, the Trustee will furnish to the
DTC Participants for distribution to each person who was a Beneficial Owner of
MidCap SPDRs at the end of such calendar year an annual report of the Trust
containing financial statements audited by independent accountants of
nationally recognized standing and such other information as may be required by
applicable laws, rules and regulations.
REGISTER OF OWNERSHIP AND TRANSFER
The Trustee maintains a record of the creation and redemption of MidCap SPDRs
in Creation Unit size aggregations. The Depository maintains a record on its
book-entry system of the DTC Participant ownership of MidCap SPDRs and the
number of MidCap SPDRs owned (see "The Trust--Book-Entry-Only System").
Certificates are not issued for MidCap SPDRs, 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 MidCap SPDRs through the Depository by instructing the DTC Participant
holding the MidCap SPDRs for such Beneficial Owner in accordance with standard
securities industry procedures.
RIGHTS OF BENEFICIAL OWNERS
MidCap SPDRs in Creation Unit size aggregations (i.e., 25,000 MidCap SPDRs)
may be tendered to the Trustee for redemption (see "Redemption of MidCap
SPDRs"). Beneficial Owners may sell MidCap SPDRs in the secondary market, but
must accumulate enough MidCap SPDRs (i.e., 25,000 MidCap SPDRs) to constitute a
full Creation Unit in order to redeem through the Trust. The death or
incapacity of any Beneficial Owner will not operate to terminate the Trust nor
entitle such Beneficial Owner's legal representatives or heirs to claim an
accounting or to take any action or proceeding in any court for a partition or
winding up of the Trust.
Beneficial Owners shall not have the right to vote concerning the Trust,
except as described below with respect to termination and as otherwise
expressly set forth in the Trust Agreement, or in any manner control the
operation and management of the Trust, nor shall any Beneficial Owner be liable
to any other person by reason of any action taken by the Sponsor or the
Trustee.
AMENDMENT
The Trust Agreement may be amended from time to time by the Trustee and the
Sponsor without the consent of any Beneficial Owners (a) to cure any ambiguity
or to correct or supplement any provision thereof which may be defective or
inconsistent or to make such other provisions in regard to matters or questions
arising thereunder as will not adversely affect the interests of Beneficial
Owners; (b) to change any provision thereof as may be required by the
Commission; (c) to add or change any provision as may be necessary or advisable
for the continuing qualification of the Trust as a "regulated investment
company" under the Code; (d) to add or change any provision thereof as may be
necessary to implement a dividend reinvestment plan or service; (e) 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; (f) to add or change any provision thereof to
conform the adjustments to the Portfolio and the Portfolio Deposit to changes,
if any, made by Standard & Poor's in its method of determining the S&P MidCap
400 Index; and (g) to make changes to the Transaction Fee and to other amounts
charged in connection with creations and redemptions of MidCap SPDRs within the
original parameters set forth in the Trust Agreement. 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 MidCap SPDRs 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 MidCap SPDRs 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
56
<PAGE>
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 MidCap SPDRs. The Trustee shall inquire of each
such DTC Participant as to the number of Beneficial Owners for whom such DTC
Participant holds MidCap SPDRs, and provide each such DTC Participant with
sufficient copies of a written notice of the substance of such amendment for
transmittal by each such DTC Participant to such Beneficial Owners (see "The
Trust--Book-Entry-Only System").
TERMINATION
The Trust Agreement provides that the Sponsor has the discretionary right to
direct the Trustee to terminate the Trust if at any time after six months
following and prior to three years following the Initial Date of Deposit the
net asset value of the Trust shall fall below $25,000,000 or if at any time
after three years following the Initial Date of Deposit such value is less than
$100,000,000, 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 of the Trust is
less than $100,000.
The Trust will terminate in the event that MidCap SPDRs are delisted from the
Exchange. The Exchange will consider the suspension of trading in or the
delisting of MidCap SPDRs as discussed above (see "Exchange Listing").
The Trust may also be terminated (a) by the agreement of the Beneficial
Owners of 66-2/3% of outstanding MidCap SPDRs; (b) if the Depository is unable
or unwilling to continue to perform its functions as set forth under the Trust
Agreement and a comparable replacement is unavailable; (c) if NSCC no longer
provides clearance services with respect to MidCap SPDRs, or if the Trustee is
no longer a participant in NSCC; (d) if Standard & Poor's ceases publishing the
S&P MidCap 400 Index; or (e) if the License Agreement is terminated. Currently,
the License Agreement is scheduled to expire on April 27, 2020 in accordance
with its terms. The parties thereto may extend the term of the License
Agreement beyond such date without the consent of any of the Beneficial Owners
of MidCap SPDRs. The Trust will also terminate by its terms on the 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 MidCap SPDRs (whether in
Creation Unit size aggregations or otherwise) will receive in cash the net
asset value of the MidCap SPDRs held and the date determined by the Trustee
upon which the books of the Trust shall be closed. Such notice shall further
state that, as of the date thereof and thereafter, neither requests to create
additional Creation Units nor Portfolio Deposits will be accepted, that no
additional MidCap SPDRs will be created for the purpose of reinvesting dividend
distributions and that, as of the date thereof and thereafter, the portfolio of
Securities delivered upon redemption shall be identical in composition
57
<PAGE>
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 the
request for redemption is deemed received. Beneficial Owners of MidCap SPDRs in
Creation Unit size aggregations may, in advance of the Termination Date, redeem
in kind directly from the Trust (see "Redemption of MidCap SPDRs").
Within a reasonable period of time after the Termination Date, the Trustee
shall, subject to any applicable provisions of law, use its best efforts to
sell all of the Securities not already distributed to redeeming Beneficial
Owners of Creation Units. The Trustee shall not be liable for or responsible in
any way for depreciation or loss incurred by reason of any such sale or sales.
The Trustee may suspend such sales upon the occurrence of unusual or unforeseen
circumstances, including but not limited to a suspension in trading of a
Security, the closing or restriction of trading on a stock exchange, the
outbreak of hostilities or the collapse of the economy. Upon receipt of
proceeds from the sale of the last Security, the Trustee shall deduct therefrom
its fees and all other expenses (see "Expenses of the Trust"). The remaining
amount shall be transmitted to the Depository for distribution via the DTC
Participants, together with a final statement setting forth the computation of
the gross amount distributed. MidCap SPDRs 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 MidCap
SPDRs required (see "Administration of the Trust--Distributions to MidCap SPDR
Beneficial Owners").
RESIGNATION, REMOVAL AND LIABILITY
THE TRUSTEE
Under the Trust Agreement, the Trustee may resign and be discharged of the
Trust created by the Trust Agreement by executing a notice of resignation in
writing and filing such notice with the Sponsor and mailing a copy of the
notice of resignation to all DTC Participants that are reflected on the records
of the Depository as owning MidCap SPDRs for distribution to Beneficial Owners
as provided above (see "The Trust -- Book-Entry-Only System") not less than
sixty (60) days before the date such resignation is to take effect. Such
resignation will become effective upon the appointment of and the acceptance of
the Trust by a successor Trustee or, if no successor is appointed within sixty
(60) days after the date such notice of resignation is given, the Trust shall
terminate (see "Administration of the Trust--Termination"). The Sponsor, upon
receiving notice of such resignation, is obligated to use its best efforts to
appoint a successor Trustee promptly.
In case the Trustee becomes incapable of acting as such or is adjudged a
bankrupt or is taken over by any public authority, the Sponsor may discharge
the Trustee and appoint a successor Trustee as provided in the Trust Agreement.
Notice of such discharge and appointment shall be mailed via the DTC
Participants to Beneficial Owners by the Sponsor.
Upon a successor Trustee's execution of a written acceptance of an
appointment as Trustee for the Trust, such successor Trustee will become vested
with all the rights, powers, duties and obligations of the original Trustee.
A successor Trustee is required to be a trust company, corporation or
national banking association organized and doing business under the laws of the
United States or any state thereof; to be authorized under such laws to
exercise corporate trust powers; and to have at all times an aggregate capital,
surplus and undivided profit of not less than $50,000,000.
Beneficial Owners of 51% of the then outstanding MidCap SPDRs 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.
58
<PAGE>
The Trust Agreement provides that the Trustee is not liable for any action
taken in reasonable reliance on properly executed documents or for the
disposition of monies or Securities or for the evaluations required to be made
thereunder, except by reason of its own gross negligence, bad faith, wilful
malfeasance, wilful misconduct, or reckless disregard of its duties and
obligations, nor is the Trustee liable or responsible in any way for
depreciation or loss incurred by reason of the sale by the Trustee of any
Securities in the Trust. In the event of the failure of the Sponsor to act, the
Trustee may act and is not liable for any such action taken by it in good
faith. The Trustee is not personally liable for any taxes or other governmental
charges imposed upon or in respect of the Securities or upon the interest
thereon or upon it as Trustee or upon or in respect of the Trust which the
Trustee may be required to pay under any present or future law of the United
States of America or of any other taxing authority having jurisdiction. In
addition, the Trust Agreement contains other customary provisions limiting the
liability of the Trustee. The Trustee and its directors, subsidiaries,
shareholders, officers, employees and affiliates under common control with the
Trustee (each a "Trustee Indemnified Party") will be indemnified from the
assets of the Trust and held harmless against any loss, liability or expense
incurred without gross negligence, bad faith, wilful misconduct, wilful
malfeasance on the part of such Trustee Indemnified Party or reckless disregard
of its duties and obligations, arising out of, or in connection with, its
acceptance or administration of the Trust, including the costs and expenses
(including counsel fees) of defending against any claim or liability.
THE SPONSOR
If at any time the Sponsor shall fail to undertake or perform or become
incapable of undertaking or performing any of the duties which by the terms of
the Trust Agreement are required of it to be undertaken or performed, or shall
resign, or shall become bankrupt or its affairs shall be taken over by public
authorities, the Trustee may appoint a successor Sponsor as shall be
satisfactory to the Trustee, agree to act as Sponsor itself, or may terminate
the Trust Agreement and liquidate the Trust (see "Termination"). Notice of the
resignation or removal of the Sponsor and the appointment of a successor shall
be mailed by the Trustee to the Depository and the DTC Participants for
distribution to Beneficial Owners (see "The Trust--Book-Entry-Only System").
Upon a successor Sponsor's execution of a written acceptance of such
appointment as Sponsor of the Trust, such successor Sponsor shall become vested
with all of the rights, powers, duties and obligations of the original Sponsor.
Any successor Sponsor may be compensated at rates deemed by the Trustee to be
reasonable.
The Sponsor may resign by executing and delivering to the Trustee an
instrument of resignation. Such resignation shall become effective upon the
appointment of a successor Sponsor and the acceptance of such appointment by
the successor Sponsor, unless the Trustee either agrees to act as Sponsor or
terminates the Trust Agreement and liquidates the Trust, which the Trustee
shall do if no successor Sponsor is appointed (see "Termination").
The dissolution of the Sponsor or its ceasing to exist as a legal entity for
any cause whatsoever will not cause the termination of the Trust Agreement or
the Trust unless the Trustee deems termination to be in the best interests of
the Beneficial Owners of MidCap SPDRs.
The Trust Agreement provides that the Sponsor is not liable to the Trustee,
the Trust or to the Beneficial Owners of MidCap SPDRs for taking any action or
for refraining from taking any action made in good faith or for errors in
judgment, but is liable only for its own gross negligence, bad faith, wilful
misconduct or wilful malfeasance in the performance of its duties or its
reckless disregard of its obligations and duties under the Trust Agreement. The
Sponsor is not liable or responsible in any way for depreciation or loss
incurred by the Trust by reason of the sale of any Securities of the Trust. The
Trust Agreement further provides that the Sponsor and its directors,
subsidiaries, shareholders, officers, employees, and affiliates under common
control with the Sponsor (each a "Sponsor Indemnified Party") shall be
indemnified from the assets of the Trust and held harmless against any loss,
liability or expense incurred without gross negligence, bad faith, wilful
misconduct or wilful malfeasance on the part of any Sponsor Indemnified Party
in the performance of its duties or reckless disregard of its obligations and
duties under the Trust Agreement, including the payment of the costs and
expenses of defending against any claim or liability.
59
<PAGE>
SPONSOR
The Sponsor of the Trust is PDR Services Corporation, a Delaware corporation
incorporated on June 15, 1990 with offices c/o the Exchange, 86 Trinity Place,
New York, New York 10006. The Sponsor's Internal Revenue Service Employer
Identification Number is 13-3574560. The Exchange owns all of the Sponsor's
outstanding shares of common stock. The Exchange is a "control person" of the
Sponsor as such term is defined in the Securities Act of 1933.
The Sponsor, at its own expense, may from time to time provide additional
promotional incentives to brokers who sell MidCap SPDRs 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 MidCap SPDRs within a
specified time period.
TRUSTEE
The Trustee is the Bank of New York, a corporation organized under the laws
of New York with the powers of a trust company under the New York Banking law
with a trust office at 101 Barclay Street, New York, New York 10286. The
Trustee's 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 MidCap
SPDRs. The Depository receives customary fees for its services.
LEGAL OPINION
The legality of the MidCap SPDRs offered hereby has been passed upon by
Carter, Ledyard & Milburn, New York, New York, as counsel for the Sponsor.
Tanner Propp & Farber acts as counsel for the Trustee.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The financial statements as of December 31, 1996 and for the year ended
December 31, 1996 and for the period from April 27, 1995 (inception) to
December 31, 1995 included in this Prospectus have been so included in reliance
upon the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
INFORMATION AND COMPARISONS RELATING TO TRUST, SECONDARY
MARKET TRADING, NET ASSET SIZE, PERFORMANCE AND TAX TREATMENT
Information regarding various aspects of the Trust, including the net asset
size thereof, as well as the secondary market trading, the performance and the
tax treatment of MidCap SPDRs, 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
60
<PAGE>
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 MidCap SPDRs in the secondary
market, such as margin requirements, types of orders that may be entered, and
information concerning short sales. Similarly, market data symbols, trading
fractions, other trading information and the CUSIP number relating to MidCap
SPDRs may be included in such information. Comparisons with other investment
vehicles, such as mutual funds, may be made with respect to the application of
such requirements; costs of fund management and administration; cost and
advantages of intraday trading; and rules applicable to short sales.
Information regarding the Trust's net asset size may be stated in
communications to prospective or current Beneficial Owners for one or more time
periods, including annual, year-to-date or daily periods. Such information may
also be expressed in terms of the total number of MidCap SPDRs 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 MidCap SPDRs, including reference to the exemption from the
"tick test" provision of the SEC short sale rule (Rule 10a-1 under the
Securities Exchange Act of 1934), to permit short sales on "minus" or "zero-
minus" ticks. Selling short refers to the sale of securities which the seller
does not own, but which the seller arranges to borrow prior to effecting the
sale. Institutional investors may be advised that lending their MidCap SPDR
shares to short sellers may generate stock loan credits which may supplement
the return they can earn from an investment in MidCap SPDRs. These stock loan
credits may provide a useful source of additional income for certain
institutional investors who can arrange to lend MidCap SPDRs. Potential short
sellers may be advised that a short rebate (functionally equivalent to partial
use of proceeds of the short sale) may reduce their cost of selling short.
Information may be provided to investors regarding capital gains
distributions by the Trust, including historical information relating to such
distributions. Comparisons between the Trust and other investment vehicles such
as mutual funds may be made regarding such capital gains distributions, as well
as relative tax efficiencies between the Trust and such other investment
vehicles (e.g. realization of capital gains or losses to the Trust and to such
other investment vehicles in connection with redemption of their respective
securities). (See "Tax Status of the Trust" for discussion of tax consequences
to Beneficial Owners of MidCap SPDRs in connection with the sale or redemption
of MidCap SPDRs.) Based on projected differences between MidCap SPDRs 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 MidCap SPDRs 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.
Information regarding the secondary market trading activity of MidCap SPDRs
also may be presented over one or more stated time periods, such as for daily,
monthly, quarterly or annual periods. MidCap SPDR secondary market trading
volume information may be compared with similar information relating to other
issues trading on the Exchange during the same reporting period. Average daily
secondary market trading volume of MidCap SPDRs 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 or current
Beneficial Owners comparing and contrasting the relative advantages of
investing in MidCap SPDRs 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
61
<PAGE>
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 MidCap SPDRs to other investment
vehicles, current economic, financial and political conditions, investment
philosophy or techniques, or the desirability of owning MidCap SPDRs.
In addition, information on the performance of MidCap SPDRs on the basis of
changes in price per MidCap SPDR with or without reinvesting all dividends
and/or any distributions of capital in additional MidCap SPDRs may be included
from time to time in such information. Total return measures the percentage
growth in the total dollar value of an investment in MidCap SPDRs (reflecting
dividends and capital appreciation but without provision for any income taxes
payable). Average annualized performance will be stated for various periods.
Total return figures may also be stated for a period from the Initial Date of
Deposit, a date at least twelve months prior to the end of the reporting period
or for annual periods for the life of the Trust. Information on the S&P MidCap
400 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 S&P MidCap 400 Index (provided information is also given reflecting the
performance of the Trust in comparison to that 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 data base of tax-exempt funds) or
mutual funds such as those reported by Lipper Analytical Services Inc., Money
Magazine Fund Watch, Wiesenberger Investment Companies Service, Morningstar
Incorporated and Value Line Investment Survey, each of which measures
performance following their own specific and well-defined calculation measures,
or of the New York Stock Exchange Composite Index, the American Stock Exchange
Index (indices of stocks traded on the New York and American Stock Exchanges,
respectively), the Dow Jones Industrial Average (an index of 30 widely traded
common stocks) or the NASDAQ Composite Index (an unmanaged index of over-the-
counter stocks) or similar measurement standards during the same period of
time. In addition to all other sources of comparative information, comparative
performance figures published by other funds or money managers may be included
from time to time. Information may also be included regarding the aggregate
amount of assets committed to index investing generally by various types of
investors, such as pension funds and other institutional investors, which
currently exceeds $300 billion.
Information on the relative price performance of MidCap SPDRs in relation to
other securities and/or indices may be represented in the form of
"correlation." Correlation is a standard measure of the degree of linear
association between two price series, and ranges from minus one hundred percent
(-100%) (i.e. perfect negative linear association) to positive one hundred
percent (100%) (i.e., perfect linear association).
Information relating to the relative price performance of MidCap SPDRs may be
compared against a wide variety of investment categories and asset classes,
including common stocks, small capitalization stocks, long and intermediate
term corporate and government bonds, Treasury bills, the rate of inflation in
the United States (based on the Consumer Price Index ("CPI") and combinations
of various capital markets. Historical returns of these and other capital
markets in the United States may be provided by independent statistical studies
and sources, such as those provided by Ibbotson Associates of Chicago,
Illinois. The performance of these capital markets is based on the returns of
different indices. Information may be presented using the performance of these
and other capital markets to demonstrate general investment strategies. So, for
example, performance of MidCap SPDRs may be compared to the performance of
selected asset classes such as short-term U.S. Treasury bills, long-term U.S.
Treasury bonds, long-term corporate bonds, mid-capitalization stocks, foreign
stocks and small capitalization stocks and may also be measured against the
rate of inflation as set forth in well-known indices (such as the CPI).
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. Performance of MidCap SPDRs 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 MidCap SPDRs and the
investment categories, indices or compilations chosen and no guarantees can be
made of future results regarding the performance of either MidCap SPDRs or the
asset classes chosen for such comparisons.
62
<PAGE>
DIVIDEND REINVESTMENT SERVICE
The Trust has made the DTC book-entry Dividend Reinvestment Service (the
"Service") available for use by Beneficial Owners through DTC Participants for
reinvestment of their cash proceeds. Note that some DTC Participants may not
elect to utilize the Service; therefore, after the Service is made available
for MidCap SPDRs, an interested MidCap SPDR investor may wish to contact such
investor's broker to ascertain the availability of the Service through such
broker. Interested Beneficial Owners should also note that each broker may
require investors to adhere to specific procedures and timetables in order to
participate in the Service and such investors should ascertain from their
broker such necessary details. MidCap SPDRs acquired pursuant to the Service
will be held by the Beneficial Owners in the same manner, and subject to the
same terms and conditions, as for original ownership of MidCap SPDRs.
Distributions reinvested in additional MidCap SPDRs through the Service will
nevertheless be taxable dividends to Beneficial Owners to the same extent as if
received in cash.
The Trustee will utilize the cash proceeds of dividends received from all
Beneficial Owners participating in the Service to obtain Index Securities
necessary to create the requisite number of MidCap SPDRs at the close of
business on each MidCap SPDR distribution date. Any cash balance remaining
after the requisite number of MidCap SPDRs has been created will be
distributed, on a pro rata basis, to all Beneficial Owners who participated in
the Service. Note that brokerage commissions, if any, incurred in obtaining the
Index Securities necessary to create additional MidCap SPDRs with the cash from
the distributions will be an expense of the Trust.*
ADDITIONAL INFORMATION
This Prospectus does not include all of the information with respect to the
Trust set forth in its registration statement and the exhibits thereto filed
with the Commission, under the Securities Act of 1933, and the 1940 Act, to
which reference is hereby made. Copies of such documents may be inspected
without charge at the Commission's offices at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from such office after payment of the fees prescribed by the Commission. Such
information is also available at the offices of the Sponsor at 86 Trinity
Place, New York, New York 10006.
- ---------------------
* It is difficult to estimate the annual dollar amount of brokerage
commissions that might be incurred in connection with the Dividend
Reinvestment Service during any calendar year. The Trustee estimates that
during calendar year 1996, the approximate amount of annual brokerage
commissions incurred in implementing the Service was less than $.001 per
MidCap SPDR. There can be no guarantee that either the size of the Trust or
the number of outstanding MidCap SPDRs will remain constant, or that
dividend payments, the cost of brokerage commissions incurred to purchase
Index Securities or Beneficial Owner participation will remain the same as
it was during calendar year 1996.
63
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Adjustment Day"........................................................... 40
"Balancing Amount"......................................................... 40
"Beneficial Owners"........................................................ 35
"Business Day"............................................................. 6
"Cash Component"........................................................... 4
"Cash Redemption Payment".................................................. 50
"Closing Time"............................................................. 33
"Code"..................................................................... 7
"Commission"............................................................... 3
"Creation Unit"............................................................ 1
"Depository Agreement"..................................................... 36
"Depository"............................................................... 6
"Distributor".............................................................. 10
"Dividend Equivalent Payment".............................................. 4
"Dividend Payment Date".................................................... 54
"DTC Cut-Off Time"......................................................... 52
"DTC Participants"......................................................... 35
"Evaluation Time".......................................................... 2
"Ex-Dividend Date"......................................................... 53
"Excess Cash Amounts"...................................................... 50
"Exchange"................................................................. 1
"Global Security".......................................................... 35
"Index Securities"......................................................... 3
"Indirect Participants".................................................... 35
"Initial Date of Deposit".................................................. 2
"License Agreement"........................................................ 43
"MidCap SPDR Clearing Process"............................................. 5
"MidCap SPDR".............................................................. 1
"Misweighting Amount"...................................................... 38
"Misweighting"............................................................. 38
"NAV Amount"............................................................... 40
"NSCC Business Day"........................................................ 12
"NSCC"..................................................................... 3
"Participant Agreement".................................................... 34
"Participating Party"...................................................... 3
"Portfolio Deposit Amount"................................................. 40
"Portfolio Deposit"........................................................ 4
"Portfolio"................................................................ 30
"Record Date".............................................................. 53
"Request Day".............................................................. 40
"S&P MidCap 400 Index"..................................................... 1
"S&P"...................................................................... 6
"Securities"............................................................... 1
"Service".................................................................. 8
"Sponsor".................................................................. 1
"Standard & Poor's"........................................................ 6
"Termination Date"......................................................... 9
"Transaction Fee".......................................................... 5
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Transmittal Date"......................................................... 33
"Trust Agreement".......................................................... 3
"Trust".................................................................... 1
"Trustee".................................................................. 3
"Weighting Analysis"....................................................... 38
</TABLE>
65
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
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 MIDCAP
SPDRS HAVE BEEN GUARANTEED, SPONSORED, RECOMMENDED OR APPROVED BY THE UNITED
STATES OR ANY STATE OR ANY AGENCY OR OFFICER THEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ESSENTIAL INFORMATION..................................................... 2
PROSPECTUS SUMMARY........................................................ 3
SPECIAL CONSIDERATIONS AND RISK FACTORS................................... 11
REPORT OF INDEPENDENT ACCOUNTANTS......................................... 14
STATEMENT OF FINANCIAL CONDITION.......................................... 15
SCHEDULE OF INVESTMENTS................................................... 21
THE TRUST................................................................. 30
THE PORTFOLIO............................................................. 37
THE S&P MIDCAP 400 INDEX.................................................. 42
LICENSE AGREEMENT......................................................... 43
EXCHANGE LISTING.......................................................... 44
TAX STATUS OF THE TRUST................................................... 44
CONTINUOUS OFFERING OF MIDCAP SPDRs....................................... 46
EXPENSES OF THE TRUST..................................................... 47
REDEMPTION OF MIDCAP SPDRS................................................ 49
VALUATION................................................................. 53
ADMINISTRATION OF THE TRUST............................................... 53
RESIGNATION, REMOVAL AND LIABILITY........................................ 58
SPONSOR................................................................... 60
TRUSTEE................................................................... 60
DEPOSITORY................................................................ 60
LEGAL OPINION............................................................. 60
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS.......................... 60
INFORMATION AND COMPARISONS RELATING TO TRUST, SECONDARY MARKET TRADING,
NET ASSET SIZE, PERFORMANCE AND TAX TREATMENT............................ 60
DIVIDEND REINVESTMENT SERVICE............................................. 63
ADDITIONAL INFORMATION.................................................... 63
GLOSSARY OF DEFINED TERMS................................................. 64
</TABLE>
STANDARD & POOR'S
MIDCAP 400 DEPOSITARY
RECEIPTS (TM)
("MIDCAP SPDRS") (TM)
MIDCAP SPDR TRUST, SERIES 1
---------------
PROSPECTUS
---------------
SPONSOR
PDR SERVICES CORPORATION
---------------
APRIL 25, 1997
MIDCAP
SPDR (TM)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
MIDCAP SPDR Trust Series 1, has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of New York, and State of New York, on the 25th day of
April, 1997.
MIDCAP SPDR TRUST SERIES 1
(Registrant)
By: PDR Services Corporation
(Depositor)
-----------------------------
Joseph Stefanelli
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed on behalf of PDR Services
Corporation the Depositor by the following persons who constitute a majority of
its Board of Directors and by the named persons who are in the following
capacities, in the City of New York and State of New York, on the date
indicated.
PDR SERVICES CORPORATION
Name Title/Office
Joseph Stefanelli President* and Director**
Gary L. Gastineau Vice President and Director***
Paul R. Shackford By Treasurer and Director****
----------------------------------
James F. Duffy
Attorney-in-fact*
- --------
* Executed copies of the powers of attorney were previously
filed with the Securities and Exchange Commission (the "Commission")
in connection with the Registration Statement on January 22,
1993 as Exhibit No. 9 (File No. 33-46080).
** Executed copies of the power of attorney were previously filed with the
Commission in connection with Post-Effective Amendment Number 1 to the
Registration Statement dated May 20, 1994, as Exhibit No. 3.
*** Executed copy of the power of attorney was previously filed with the
Commission in connection with Post Effective Amendment No. 1 to the
Registration Statement for MidCap SPDR Trust, Series 1 dated January
19, 1996 (File No. 33-89088), as Exhibit No. 4.
**** Executed copy of the power of attorney was previously filed with the
Commission in connection with Post Effective Amendment No. 5 to the
Registration Statement for SPDR Trust Series 1 dated April 24, 1997
(File No. 33-46080), as Exhibit No. 5.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. TITLE OF DOCUMENT
Ex-27 Financial Data Schedule
Ex-99.C1 Copy of Opinion of Counsel as to legality of
securities being registered.
EX-99.C2 Copy of Opinion of Counsel as to certain
tax aspects of the Trust.
Ex-99.C3 Consent of Independent Accountants.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<INVESTMENTS-AT-COST> 147547620
<INVESTMENTS-AT-VALUE> 152933788
<RECEIVABLES> 2275032
<ASSETS-OTHER> 519034
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 155727854
<PAYABLE-FOR-SECURITIES> 2013058
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2977097
<TOTAL-LIABILITIES> 4990155
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132906343
<SHARES-COMMON-STOCK> 5058795
<SHARES-COMMON-PRIOR> 1881751
<ACCUMULATED-NII-CURRENT> 373795
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (334039)
<ACCUM-APPREC-OR-DEPREC> 5386168
<NET-ASSETS> 150737699
<DIVIDEND-INCOME> 1889445
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 270121
<NET-INVESTMENT-INCOME> 1619324
<REALIZED-GAINS-CURRENT> 9956652
<APPREC-INCREASE-CURRENT> 2962996
<NET-CHANGE-FROM-OPS> 14538972
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1308513)
<DISTRIBUTIONS-OF-GAINS> (2212679)
<DISTRIBUTIONS-OTHER> (47306950)
<NUMBER-OF-SHARES-SOLD> 2775000
<NUMBER-OF-SHARES-REDEEMED> (1000000)
<SHARES-REINVESTED> 2546
<NET-CHANGE-IN-ASSETS> 96617173
<ACCUMULATED-NII-PRIOR> 62984
<ACCUMULATED-GAINS-PRIOR> 56354
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 270121
<AVERAGE-NET-ASSETS> 91878283
<PER-SHARE-NAV-BEGIN> 43.29
<PER-SHARE-NII> 0.72
<PER-SHARE-GAIN-APPREC> 7.30
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.52)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 49.79
<EXPENSE-RATIO> 0.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit No.2
(Ex.99.C1)
April 25, 1997
PDR Services Corporation
c/o American Stock Exchange
86 Trinity Place
New York, New York 10006
The Bank of New York
101 Barclay Street
New York, New York 10286
Re: MidCap SPDR Trust Series 1
------------------------------
Ladies and Gentlemen:
We have served as counsel to the American Stock Exchange (the "Exchange")
and PDR Services Corporation as sponsor (the "Sponsor") of MidCap SPDR Trust
Series 1 (hereinafter referred to as the "Trust"). It is proposed that
Post-Effective Amendment No. 3 to the Trust's registration Statement
("Post-Effective Amendment No. 3") will be filed with the Securities and
Exchange Commission (the "Commission") and dated as of the date hereof in
connection with the continued issuance by the Trust of an indefinite number of
units of fractional undivided interest in the Trust (hereinafter referred to as
the "Units") pursuant to Rule 24f-2 promulgated under the provisions of the
Investment Company Act of 1940, as amended.
In this regard, we have examined executed originals or copies of the
following:
a) the Certificate of Incorporation, as amended, and the By-Laws of
the Sponsor, as amended, certified by the Secretary of the Sponsor as of
the date hereof;
(b) resolutions of the Board of Directors of the Sponsor adopted on June
15, 1990, January 6, 1993, May 5, 1993 and March 1, 1995 relating to the
Trust and the issuance of the Units, certified by the Secretary of the
Sponsor on the date hereof;
(c) powers of Attorney referred to in Post Effective Amendment No. 3;
<PAGE>
(d) the Registration Statement on Form S-6 (File No. 33- 89088) filed with
the Commission in accordance with the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder
(collectively, the "1933 Act") and amendments thereto including Amendment
No. 2 ("Amendment No. 2") filed on April 27, 1995 (the "Registration
Statement") and Post-Effective Amendment No. 3 thereto proposed to be filed
as of the date hereof;
(e) the Notification of Registration of the Trust filed with the Commission
under the Investment Company Act of 1940, as amended and the rules and
regulations of the Commission promulgated thereunder (collectively, the
"1940 Act") on Form N-8A, as amended, (the "1940 Act Notification");
(f) the registration of the Trust filed with the Commission under the 1940
Act on Form N-8B-2 (File No. 811-8972), as amended (the "1940 Act
Registration");
(g) the prospectus included in Post-Effective Amendment No. 3 (the
"Prospectus");
(h) the Application of MidCap SPDR Trust Series 1 and the Sponsor for
exemptions under Sections 4(2), 14(a), 17(a), 22(d), 22(e), 24(d) and
26(a)(2)(C) of the 1940 Act and Rule 22c-1 and pursuant to Section 17d-1,
as amended, the notice published and the order granted in connection
therewith (File No. 812-8422, collectively, the "Order");
(i) the Standard Terms and Conditions of the Trust dated as of April 1,
1995 between the Sponsor and The Bank of New York (the "Trustee") (the
"Standard Terms"), as amended;
(j) the Trust Indenture dated April 27, 1995 between the Sponsor and the
Trustee (the "Trust Indenture" and, collectively with the Standard Terms,
the "Indenture and Agreement");
(k) the Distribution Agreement dated as of April 1, 1995 among the Sponsor,
the Trust and PDR Distributors, Inc. (the "Distribution Agreement"),
(l) the License Agreement between Standard & Poor's Corporation and the
Sponsor dated September 19, 1994;
(m) the form of global certificate of ownership for units (the
"Certificate") to be issued under the Indenture and Agreement; and
<PAGE>
(n) such other pertinent records and documents as we have deemed necessary.
With your permission, in such examination, we have assumed the following:
(a) the authenticity of original documents and the genuineness of all
signatures; (b) the conformity to the originals of all documents submitted to us
as copies; (c) the truth, accuracy, and completeness of the information,
representations, and warranties contained in the records, documents, instruments
and certificates as we have reviewed; (d) except as specifically covered in the
opinions set forth below, with due authorization, execution, and delivery on
behalf of the respective parties thereto of documents referred to herein and the
legal, valid and binding effect thereof on such parties; and (e) the absence of
any evidence extrinsic to the provisions of the written agreement(s) between the
parties that the parties intended a meaning contrary to that expressed by those
provisions. However, we have not examined the securities deposited pursuant to
the Indenture and the Agreement (the "Securities") nor the contracts for the
Securities.
We express no opinion as to matters of law in jurisdictions other than the
State of New York and the federal laws of the United States, except to the
extent necessary to render the opinion as to the Sponsor and the Indenture and
Agreement in paragraphs (i) and (iii) below with respect to Delaware law. As you
know, we are not licensed to practice law in the State of Delaware, and our
opinion in paragraph (i) as to Delaware law is based solely on review of the
official statutes of the State of Delaware.
Based on such examination, and having regard for legal considerations which
we deem relevant, we are of the opinion that:
(i) the Sponsor is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware with full
corporate power to conduct its business as described in the Prospectus;
(ii) the Sponsor is duly qualified as a foreign corporation and is in
good standing as such within the State of New York;
(iii) the Indenture and Agreement has been duly authorized, executed
and delivered by the Sponsor and, assuming the due authorization, execution
and delivery by the other parties thereto, is a valid and binding agreement
of the Sponsor, enforceable against the Sponsor in accordance with its
terms;
(iv) the Trust has been duly formed and is validly existing as an
investment trust under the laws of the State of New York and has been duly
registered under the 1940 Act;
<PAGE>
(v) the terms and provisions of the Units conform in all material
respects to the description thereof contained in the Prospectus;
(vi) the consummation of the transactions contemplated under the
Indenture and the fulfillment of the terms thereof will not be in violation
of the Sponsor's Certificate of Incorporation, as amended, or By-Laws, as
amended and will not conflict with any applicable laws or regulations
applicable to the Sponsor in effect on the date hereof; and
(vii) the Certificate to be issued by the Trust, when duly executed by
the Sponsor and the Trustee in accordance with the Indenture and Agreement,
upon delivery against payment therefor as described in the Registration
Statement and Prospectus will constitute fractional undivided interests in
the Trust enforceable against the Trust in accordance with its terms, will
be entitled to the benefits of the Indenture and Agreement and will be
fully paid and non-assessable.
In addition, we have participated in conferences with representatives of
the Sponsor, the Exchange, the Trustee, the Trust's accountants and others
concerning the Registration Statement and the Prospectus and have considered the
matters required to be stated therein and the statements contained therein,
although we have not independently verified the accuracy, completeness or
fairness of such statements. Based upon and subject to the foregoing, nothing
has come to our attention to cause us to believe that the Registration
Statement, as of the date hereof, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or that the Prospectus, as of the date
hereof, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that we have not been requested to and do
not make any comment in this paragraph with respect to the financial statements,
schedules and other financial and statistical information contained in the
Registration Statement or the Prospectus).
Our opinion that any document is valid, binding, or enforceable in
accordance with its terms is qualified as to:
(a) limitations imposed by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium, or other laws relating to or
affecting the enforcement of creditors' rights generally;
<PAGE>
(b) rights to indemnification and contribution which may be limited by
applicable law or equitable principles; and
(c) general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law.
We hereby represent that the Amendment contains no disclosure which would
render it ineligible to become effective immediately upon filing pursuant to
paragraph (b) of Rule 485 of the Commission.
We hereby consent to the filing of this opinion as an exhibit to
Post-Effective Amendment No. 3 and to the use of our name where it appears in
the Post-Effective Amendment No. 3 and the Prospectus.
Very truly yours,
Carter, Ledyard & Milburn
<PAGE>
EXHIBIT 99.(C)2
(212)238-8665
April 25, 1997
PDR Services Corporation
c/o American Stock Exchange, Inc.
86 Trinity Place
New York, New York 10006
The Bank of New York
101 Barclay Street
New York, NY 10286
Ladies and Gentlemen:
As counsel for PDR Services Corporation, as sponsor (the "Sponsor") and
the American Stock Exchange, Inc. (the "Exchange"), we have examined an executed
copy of the Trust Indenture dated as of April 27, 1995 (the "Indenture") and
Standard Terms and Conditions of Trust, dated as of April 1, 1995 (the
"Agreement"), both between the Sponsor and The Bank of New York,
as trustee, (the "Trustee"). The Indenture established a trust called the MidCap
SPDR Trust, Series 1 (the "Trust") into which were deposited certain
stocks (the "Securities"), and moneys to be held by the Trustee upon the terms
and conditions set forth in the Indenture and Agreement. Under the Indenture,
units were issued representing fractional undivided interests in the Trust (the
"Units").
In rendering this opinion we have assumed that the Trust has elected, has
qualified for and will continue to qualify for tax treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). We have also assumed that the gross annual payroll of the Trust
will be $1,000,000 or less.
<PAGE>
PDR Services Corporation -2-
Bank of New York
Based upon the foregoing and upon an examination of such other documents
and an investigation of such matters of law as we have deemed necessary, we are
of the opinion that, under existing statutes and decisions:
1. The Trust will not be subject to federal income tax on such part of
its net income and capital gain, if any, as is timely distributed to
Unitholders.
2. The Trust will be subject to New York State and New York City
franchise and general corporation tax. However, in any fiscal year in which the
Trust qualifies as a RIC under Section 851 of the Code, and distributes all of
its net income and capital gains to Unitholders, the sum of such New York State
and New York City tax to which the Trust will be subject will not exceed
$675.00.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 33-89088) relating to the Units referred to
above.
Very truly yours,
Carter, Ledyard & Milburn
KHM:hcu
<PAGE>
Exhibit No. 4
(Ex 99.C3)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus, constituting part of this
Post-Effective Amendment No. 3 to the registration statement on Form S-6
of our report dated February 21, 1997, relating to the financial statements and
financial highlights of MidCap SPDR Trust, Series 1, which appears in such
Prospectus. We also consent to the reference to us under the heading
"Independent Accountants and Financial Statements" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
April 21, 1997
