<PAGE>
As filed with the Securities and Exchange Commission on January 26, 2000
File No. 33-89088
811-8972
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 6
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 LLC
C. Complete address of Depositor's principal executive office:
PDR SERVICES LLC
c/o AMERICAN STOCK EXCHANGE LLC
86 Trinity Place
New York, New York 10006
D. Name and complete address of agent for service:
Michael J. Ryan.Jr.
PDR SERVICES LLC
c/o AMERICAN STOCK EXCHANGE LLC
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
$233,593.83 was paid on December 16, 1999, 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 January 26, 2000 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>
Prospectus
STANDARD & POOR'S MIDCAP 400
DEPOSITARY RECEIPTS (TM)
("MIDCAP SPDRs") (TM)
MIDCAP SPDR Trust, Series 1
(A Unit Investment Trust)
----------------------
.MidCap SPDR Trust is a Pooled Investment Designed to Closely Track the
Price and Yield Performance of the S&P MidCap 400 (TM) Index.
.MidCap SPDR Trust Portfolio Holds All of the S&P MidCap 400 Index Stocks.
.Each MidCap SPDR Represents an Undivided Ownership Interest in the MidCap
SPDR Trust Portfolio.
.The MidCap SPDR Trust Issues and Redeems MidCap SPDRs Only in Multiples of
25,000 MidCap SPDRs (called "Creation Units") in Exchange for S&P MidCap 400
Index Stocks and Cash.
.Individual MidCap SPDRs Trade on the American Stock Exchange Like Any Other
Equity Security.
.Minimum Trading Unit: 1 MidCap SPDR.
----------------------
SPONSOR: PDR SERVICES LLC
(Solely Owned by American Stock Exchange LLC)
[LOGO OF MIDCAP SPDR APPEARS HERE]
----------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
This Prospectus consists of two parts: Part A and Part B.
Prospectus Part A Dated January 26, 2000
----------------------
COPYRIGHT(R) 1999 by PDR Services LLC
<PAGE>
STANDARD & POOR'S MIDCAP 400 DEPOSITARY RECEIPTS
("MIDCAP SPDRs") (TM)
MIDCAP SPDR TRUST, SERIES 1
TABLE OF CONTENTS
FRONT COVER PAGE
MIDCAP SPDRs PROSPECTUS PART A-- HIGHLIGHTS
<TABLE>
<S> <C>
MidCap SPDRs Are Ownership Interests in the MidCap SPDR Trust........... A-2
MidCap SPDRs Trade on the American Stock Exchange....................... A-2
The MidCap SPDR Trust Issues and Redeems MidCap SPDRs in multiples of
25,000 MidCap SPDRs called "Creation Units"............................ A-2
Brokerage Commissions on MidCap SPDRs................................... A-3
MidCap SPDRs Are Based on a Broad Market Index.......................... A-3
MidCap SPDRs Should Closely Track the Value of the Underlying S&P MidCap
400 Index Stocks....................................................... A-3
Expenses of the Trust................................................... A-3
MidCap SPDRs Make Periodic Dividend Payments............................ A-4
The Trustee Votes the Underlying Shares................................. A-4
Termination of the MidCap SPDR Trust.................................... A-4
Risk Factors............................................................ A-5
MIDCAP SPDRs PROSPECTUS PART B
Essential Information................................................... B-2
Report of Independent Accountants....................................... B-4
Statement of Financial Condition........................................ B-5
Statements of Operations................................................ B-6
Statements of Changes in Net Assets..................................... B-7
Financial Highlights.................................................... B-8
Notes to Financial Statements........................................... B-9
Schedule of Investments................................................. B-13
Prospectus Summary...................................................... B-24
Risk Factors and Special Considerations................................. B-36
General................................................................. B-36
Net Asset Value and Market Prices....................................... B-38
Trading Considerations.................................................. B-38
Market Risks............................................................ B-39
Year 2000 Problem ...................................................... B-40
The Trust............................................................... B-41
Creation of Creation Units.............................................. B-41
Procedures for Creation of Creation Units............................... B-45
Placement of Creation Orders Using MidCap SPDR Clearing Process......... B-47
Placement of Creation Orders Outside MidCap SPDR Clearing Process....... B-47
</TABLE>
TABLE OF CONTENTS cont'd
<TABLE>
<S> <C>
Book-Entry-Only System.................................................. B-49
The Portfolio........................................................... B-52
Adjustments to the Portfolio............................................ B-52
Adjustments to the Portfolio Deposit.................................... B-57
Selection and Acquisition of Securities................................. B-59
The S&P MidCap 400 Index................................................ B-59
License Agreement....................................................... B-61
Exchange Listing........................................................ B-62
Tax Status of the Trust................................................. B-63
Tax Consequences to Beneficial Owners................................... B-63
Continuous Offering of MidCap SPDRs..................................... B-66
Expenses of the Trust................................................... B-67
Redemption of MidCap SPDRs.............................................. B-70
Procedure for Redemption of MidCap SPDRs................................ B-70
Placement of Redemption Orders Using MidCap SPDR Clearing Process....... B-74
Placement of Redemption Orders Outside MidCap SPDR Clearing Process..... B-75
Valuation............................................................... B-76
Administration of the Trust............................................. B-76
Records................................................................. B-76
Voting.................................................................. B-77
Distributions to Beneficial Owners...................................... B-77
Trust Supervision....................................................... B-80
Statements to Beneficial Owners......................................... B-80
Register of Ownership and Transfer...................................... B-80
Rights of Beneficial Owners............................................. B-81
Amendment............................................................... B-81
Termination............................................................. B-82
Resignation, Removal and Liability...................................... B-84
The Trustee............................................................. B-84
The Sponsor............................................................. B-85
Sponsor................................................................. B-86
Trustee................................................................. B-86
Depository.............................................................. B-87
Legal Opinion........................................................... B-87
Independent Accountants and Financial Statements........................ B-87
Information and Comparisons Relating to Trust, Secondary Market Trading,
Net Asset Size, Performance and Tax Treatment.......................... B-87
Dividend Reinvestment Service........................................... B-91
Glossary of Defined Terms............................................... B-92
</TABLE>
"S&P(R)", "S&P MidCap 400 Index" (TM), "Standard & Poor's MidCap 400
Index" (TM), "Standard & Poor's MidCap 400 Depositary Receipts" (TM) and
"MidCap SPDRs" (TM) are trademarks of The McGraw-Hill Companies, Inc. PDR
Services LLC and American Stock Exchange LLC 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.
A-1
<PAGE>
MIDCAP SPDRs PROSPECTUS PART A--HIGHLIGHTS
.MIDCAP SPDRs ARE OWNERSHIP INTERESTS IN THE MIDCAP SPDR TRUST
The MidCap SPDR Trust (the "Trust") is a unit investment trust that issues
securities called Standard & Poor's MidCap 400 Depositary Receipts or "MidCap
SPDRs". MidCap SPDRs represent an undivided ownership interest in the
portfolio of stocks held by the MidCap SPDR Trust. The MidCap SPDR Trust holds
all of the common stocks of the Standard & Poor's MidCap 400 Index(R) (the
"S&P MidCap 400 Index") and is intended to provide investment results that,
before expenses, generally correspond to the price and yield performance of
the S&P MidCap 400 Index.
.MIDCAP SPDRs TRADE ON THE AMERICAN STOCK EXCHANGE
MidCap SPDRs are listed for trading on the American Stock Exchange (the
"Exchange"). MidCap SPDRs are bought and sold in the secondary market like
ordinary shares of stock at any time during the trading day. MidCap SPDRs are
traded on the Exchange in 100 MidCap SPDR round lots, but can be traded in odd
lots of as little as 1 MidCap SPDR. Note that trading of MidCap SPDRs on the
Exchange will be halted under the circumstances described in the paragraphs
below relating to the risks of investing in MidCap SPDRs.
. THE MIDCAP SPDR TRUST ISSUES AND REDEEMS MIDCAP SPDRs IN MULTIPLES OF
25,000 MIDCAP SPDRs CALLED "CREATION UNITS"
The Trust only issues MidCap SPDRs in specified large-sized minimum numbers
(25,000 MidCap SPDRs or multiples thereof) referred to as "Creation Units."
Most MidCap SPDR holders however, purchase and sell MidCap SPDRs in the
secondary trading market on the Exchange, in lots of any size.
Creation Units are issued by the Trust to anyone who, after placing a
creation order with the Distributor, deposits with The Bank of New York, the
"Trustee" of the Trust, a specified portfolio of S&P MidCap 400 Index
securities, as well as a cash payment generally equal to accumulated dividends
of the securities (net of expenses) up to the time of deposit.
MidCap SPDRs are not individually redeemable, except upon termination of the
Trust. MidCap SPDRs can be redeemed only by tendering to the Trust 25,000
MidCap SPDRs (or multiples thereof)--the same Creation Unit-sized minimum
number. The Trust will then deliver a portfolio of S&P MidCap 400 Index
securities (based on net asset value of the Trust), together with a cash
payment (generally equal to accumulated dividends as of the date of
redemption) to the redeeming holder.
Procedures to be followed when engaging in these "creation" and redemption
transactions are set forth in Part B of this Prospectus.
A-2
<PAGE>
.BROKERAGE COMMISSIONS ON MIDCAP SPDRs
Secondary market purchases and sales of MidCap SPDRs are subject to ordinary
brokerage commissions.
.MIDCAP SPDRs ARE BASED ON A BROAD MARKET INDEX
The Sponsor selected the S&P MidCap 400 Index, composed of 400 publicly
traded stocks, as the basis for MidCap SPDRs because it has achieved wide
acceptance by both investors and market professionals and, in the opinion of
the Sponsor, constitutes a broadly diversified representative segment of the
market for middle capitalization companies whose stock is publicly traded in
the United States. Current information regarding the market value of the S&P
MidCap 400 Index is available from market information services. Standard &
Poor's obtains information for inclusion in or for use in the calculation of
the S&P MidCap 400 Index from sources which S&P considers reliable, but
neither S&P, the Sponsor, the Trust nor the Exchange accepts responsibility
for or guarantees the accuracy and/or completeness of the S&P MidCap 400 Index
or any data included in it.
. MIDCAP SPDRs SHOULD CLOSELY TRACK THE VALUE OF THE UNDERLYING S&P MIDCAP
400 INDEX STOCKS
To maintain the correspondence between the composition and weightings of
securities held by the Trust (the "Securities") and the stocks in the S&P
MidCap 400 Index, the Securities will be adjusted by the Trustee from time to
time to conform to periodic changes in the identity and/or relative weightings
of S&P MidCap 400 Index stocks. The MidCap SPDR Trust Agreement contains
directions to the Trustee specifying how changes to the S&P MidCap 400 Index
are to be replicated by the Trust.
The value of MidCap SPDRs will fluctuate in relation to changes in the value
of the Trust's portfolio of securities. However, at any point in time, the
market price of each individual MidCap SPDR may not be identical to the net
asset value of such Midcap SPDR.
The current value of the S&P MidCap 400 Index will ordinarily continue to be
reported even when trading is interrupted in some or all of its component
stocks. In that event, the reported index level will be based on the current
market price of those stocks still being traded (if any) and the last reported
prices for those stocks that are not currently trading. As a result, reported
index levels may at times be based on non-current price information with
respect to some or even all of the stocks in the S&P MidCap 400 Index.
.EXPENSES OF THE TRUST
Fees and expenses to be charged to the Trust are described in Part B of this
Prospectus and include, among other costs, the Trustee's fees, S&P licensing
fees,
A-3
<PAGE>
federal registration fees and expenses of the Sponsor relating to the printing
and distribution of marketing materials. The expenses of the Trust will be
accrued daily and reflected in the net asset value of the Trust. The Trust is
currently accruing ordinary operating expenses at an annual rate of 0.25%:
Estimated Trust Annual Ordinary Operating Expenses
<TABLE>
<CAPTION>
As a % of
Trust Net Assets
----------------
<S> <C>
Trustee's Fee 0.112%
S&P License Fee 0.034%
Registration Fees 0.014%
Marketing Expenses 0.077%
Other Operating Expenses 0.013%
-----
Total: 0.250%
</TABLE>
Future accruals will depend primarily on the level of the Trust's net assets
and the level of expenses. There is no guarantee that the Trust's ordinary
operating expenses will not exceed 0.25% of the Trust's daily net asset value.
The Trustee has voluntarily agreed to reduce its Trustee's fee. The amount
of the reduction will be equal to the Federal Funds Rate, as published in the
Wall Street Journal, multiplied by each day's daily cash balance in the
Trust's cash account, reduced by the amount of reserves for that account
required by the Federal Reserve Board of Governors. The Trustee reserves the
right to discontinue this voluntary fee reduction in the future.
.MIDCAP SPDRs MAKE PERIODIC DIVIDEND PAYMENTS
MidCap SPDR holders will be paid on the last Business Day of April, July,
October and January an amount corresponding to the amount of any cash
dividends on the Trust's portfolio of securities during the applicable period,
net of fees and expenses associated with operation of the Trust. Because of
such fees and expenses, the dividend yield for MidCap SPDRs will ordinarily be
less than that of the S&P MidCap 400 Index. The MidCap SPDR holder should be
aware of the tax consequences associated with Trust dividends, as well as
those associated with MidCap SPDR sales or redemptions. Investors should
consult their tax advisors in this regard.
.THE TRUSTEE VOTES THE UNDERLYING SHARES
The Trustee will vote any voting stocks held by the Trust in the same
proportion as all other voting shares of such stocks are voted. Consequently,
holders of MidCap SPDRs will not be able to vote the shares of the stocks
underlying the MidCap SPDRs.
A-4
<PAGE>
.TERMINATION OF THE MIDCAP SPDR TRUST
The MidCap SPDR Trust has a specified lifetime term. The Trust is scheduled
to terminate no later than April 27, 2120, but it may terminate earlier under
certain circumstances described in Part B of this Prospectus.
Trading of MidCap SPDRs cannot occur after termination of the underlying
Trust. Upon termination, the Trust may be liquidated, and MidCap SPDR holders
at that time will receive a distribution of their pro rata share of the assets
of the Trust, net of certain fees and expenses.
.RISK FACTORS
Investors can lose money by investing in MidCap SPDRs. Investors should
carefully consider the risk factors described below together with all of the
other information included in Part B of this Prospectus before deciding to
invest in MidCap SPDRs.
. MidCap SPDRs are subject to the risks of any investment in a broadly based
portfolio of common stocks, including the risk that the general level of
stock prices may decline. A significant decline in the value of the
Trust's portfolio can be expected to result in a similar decline in value
of the corresponding MidCap SPDRs. Therefore, the value an investor
receives from the sale of a SPDR may be less than the investor's original
purchase price.
. Investors should understand that the Trust may never be able to replicate
exactly the performance of the S&P MidCap 400 Index because of the
operational fees and expenses incurred by the Trust or because of the
temporary unavailability of certain S&P MidCap 400 securities.
. Investors cannot be assured that the issuers of securities held by the
Trust will pay dividends, and distributions on such securities will
generally depend upon the declaration of dividends by the securities'
issuers.
. The market price that an investor pays per MidCap SPDR on the Exchange may
differ from the net asset value of the MidCap SPDR. This difference in
price may be due to the fact that the supply and demand in the market for
MidCap SPDRs at any point in time is not always identical to the supply
and demand in the market for the underlying basket of S&P MidCap 400 Index
securities.
. Investors will not be able to sell MidCap SPDRs during any period that the
Exchange halts trading in MidCap SPDRs. The Exchange may halt the trading
of MidCap SPDRs under certain circumstances described in Part B of this
Prospectus, for example, as a result of the activation of market-wide
"circuit breakers," or whenever Exchange officials determine that it is
appropriate in the interest of a fair and orderly market or to protect
investors.
A-5
<PAGE>
. The Exchange maintains certain requirements to list securities,
including MidCap SPDRs, on the Exchange. Investors cannot be assured
that the Trust will continue to meet the requirements necessary to
maintain the listing of MidCap SPDRs on the Exchange or that the
Exchange will not change the listing requirements. The Trust may be
terminated if MidCap SPDRs are delisted from the Exchange.
. The Sponsor of the Trust 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. The Trust may be terminated if the license agreement is
terminated.
. The Trust may also be terminated if the net asset value of the entire
Trust falls below $100,000,000.
. MidCap SPDRs are subject to the risk that extraordinary events may
cause any of the providers of services to the Trust, such as the
Trustee or the Sponsor, to close or otherwise fail to perform its
obligations to the Trust. In the event of such a failure, if no
suitable successor is available or willing to assume the obligations of
its predecessor, the Trust then will be terminated.
. Many computer systems were designed in such a way that they may be
unable to distinguish between the year 2000 and the year 1900 and
therefore may not properly process and calculate date-related
information and data (commonly known as the "Year 2000 Problem"). As
with all investment and financial entities, the Year 2000 Problem may
have an adverse impact upon the handling of securities trades, pricing
and account services and other activities conducted by or for the
Trust. The Sponsor and the Trustee have taken steps to address the Year
2000 Problem with respect to the computer systems they use and to
obtain reasonable assurances that similar steps have been taken by the
Trust's other service providers. Operations ran smoothly from the last
week in December through the first few weeks of January, but the Year
2000 Problem may yet have an adverse impact on financial market
participants and other entities, including the companies whose stocks
are contained in the Trust's Portfolio.
A-6
<PAGE>
STANDARD & POOR'S MIDCAP 400
DEPOSITARY RECEIPTS (TM)
("MidCap SPDRs" (TM))
MidCap SPDR Trust, Series 1
(A Unit Investment Trust)
----------------------
[LOGO OF MIDCAP SPDR APPEARS HERE]
COPYRIGHT(R) 1999 by PDR Services LLC
----------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
This Prospectus consists of two parts: Part A and Part B.
Prospectus Part B Dated January 26, 2000
----------------------
<PAGE>
MIDCAP SPDR PROSPECTUS PART B--ESSENTIAL INFORMATION
AS OF SEPTEMBER 30, 1999*
Number of MidCap SPDRs: 24,268,110
Fractional Undivided Interest in
Trust Represented by each MidCap
SPDR:
1/24,268,110th
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 14/100 of one percent to 10/100
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 25/100 of one percent (inclusive of
of the Trust: 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): $71.70
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.
B-2
<PAGE>
Discretionary Termination: Trust may be terminated if the value
of the securities held by the Trust
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".
*** Until further notice, the Sponsor has undertaken that the ordinary
operating expenses of the Trust as calculated by the Trustee will not be
permitted to exceed an amount which is 0.30% of the daily net asset
value of the Trust. Thereafter, such amount may be changed and may
exceed 0.30%. There is no guarantee that the Trust's ordinary operating
expenses will not exceed such 0.30% rate. See "Expenses of the Trust".
Ordinary operating expenses are currently being accrued at an annual
rate of 0.25%; future accruals will depend primarily on the level of the
Trust's net assets and the level of Trust expenses. There is no
guarantee that the Trust's ordinary operating expenses will not exceed
0.25% of the Trust's daily net asset value and such rate may be changed
without notice.
**** The Trust may also be terminated under other circumstances. See
"Administration of the Trust--Termination".
B-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustee and the Unitholders of MIDCAP SPDR TRUST, SERIES 1:
In our opinion, the accompanying statement of assets and liabilities,
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 September 30, 1999, and the results of its
operations and the changes in its net assets for the two years then ended and
for the period from January 1, 1997 to September 30, 1997, and the financial
highlights for the two years then ended, for the period from January 1, 1997
to September 30, 1997, for the year ended December 31, 1996 and for the period
from April 27, 1995 (commencement of operations) to December 31, 1995, 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 September 30, 1999 by correspondence with the
custodian and broker, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
December 29, 1999
B-4
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
STATEMENT OF FINANCIAL CONDITION
September 30, 1999
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments in securities, at value (cost $1,969,855,020)..... $1,739,822,447
Cash.......................................................... 3,414,678
Dividends receivable.......................................... 1,252,021
Receivable for securities sold................................ 12,302,639
Receivable from Sponsor....................................... 85,610
Deferred organization costs................................... 22,251
--------------
Total Assets.................................................. 1,756,899,646
--------------
Liabilities:
Payable for securities purchased.............................. 10,124,698
Distribution payable.......................................... 4,072,351
Redemption payable............................................ 26,925
Accrued Trustee fees.......................................... 179,119
Payable to Sponsor............................................ 2,029,213
Other accrued expenses........................................ 343,101
--------------
Total Liabilities............................................. 16 ,775,407
--------------
Net Assets...................................................... $1,740,124,239
==============
Net Assets Represented By:
Interest of Unitholders (24,268,110 units of fractional
undivided interest (MidCap SPDRs) outstanding; unlimited units
authorized)
Cost to investors of outstanding units........................ $1,559,254,041
Undistributed net investment income........................... 734,593
Undistributed net realized gains on investments............... 410,168,178
Unrealized depreciation on investments........................ (230,032,573)
--------------
Net assets...................................................... $1,740,124,239
==============
Net asset value per MidCap SPDR ($1,740,124,239/24,268,110
MidCap SPDRs)................................................. $ 71.70
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-5
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 1, 1997
For the Year Ended For the Year Ended through
September 31, 1999 September 31, 1998 September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Investment income
Dividend income...... $ 19,628,017 $ 8,107,126 $ 2,432,529
Expenses
Trustee fees and
expenses........... 2,156,995 1,027,568 352,066
Printing and
distribution
expenses........... 1,300,879 577,666 240,061
Audit fees........... 51,275 48,500 25,000
Amortization of
organization costs. 39,000 39,000 29,250
Legal fees........... 83,579 46,398 16,559
License fees......... 578,506 221,900 25,191
------------ ------------ -----------
Total expenses....... 4,210,234 1,961,032 688,127
Less: expenses
assumed by the
Sponsor
(see Note 3)....... (85,610) -- (170,457)
------------ ------------ -----------
Net expenses......... 4,124,624 1,961,032 517,670
------------ ------------ -----------
Net investment
income............. 15,503,393 6,146,094 1,914,859
------------ ------------ -----------
Realized and unrealized
gains (losses) on
investments
Net realized gains... 66,816,656 26,868,843 6,283,281
Net realized gains
from in-kind
redemptions........ 317,689,845 29,953,068 --
Net change in
unrealized
appreciation
(depreciation) of
investments........ (175,430,055) (122,088,589) 62,097,630
------------ ------------ -----------
Net realized and
unrealized gains
(losses) on
investments........ 209,076,446 (65,266,678) 68,380,911
------------ ------------ -----------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS.. $224,579,839 $(59,120,584) $70,295,770
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-6
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Year January 1, 1997
Ended Ended through
September 30, September 30, September 30,
1999 1998 1997 (Note 1)
--------------- ------------- ---------------
<S> <C> <C> <C>
Increase (Decrease) in Net
Assets
Operations:
Net investment income.......... $ 15,503,393 $ 6,146,094 $ 1,914,859
Net realized gains on
investments and
in-kind redemptions.......... 384,506,501 56,821,911 6,283,281
Net change in unrealized
appreciation (depreciation) on
investments................... (175,430,055) (122,088,589) 62,097,630
--------------- ------------ ------------
Net increase (decrease) in net
assets resulting from
operations.................... 224,579,839 (59,120,584) 70,295,770
--------------- ------------ ------------
Dividends and Distributions to
Unitholders from:
Net investment income.......... (14,594,142) (6,370,104) (2,239,301)
Net realized gains............. (30,209,544) (6,899,931) --
--------------- ------------ ------------
Total dividends and
distributions.................. (44,803,686) (13,270,035) (2,239,301)
--------------- ------------ ------------
Unitholder Transactions
Proceeds from subscriptions of
MidCap SPDR units............. 2,817,298,916 337,780,777 277,641,581
Reinvestment of dividends and
distributions................. 300,649 352,280 300,685
Less: Redemptions of MidCap
SPDR units.................... (1,925,544,656) (94,185,695) --
--------------- ------------ ------------
Increase in net assets due to
unitholder transactions....... 892,054,909 243,947,362 277,942,266
--------------- ------------ ------------
Total increase.................. 1,071,831,062 171,556,743 345,998,735
Net Assets:
Beginning of period............ 668,293,177 496,736,434 150,737,699
--------------- ------------ ------------
End of period (including
undistributed (distributions
in excess of) net investment
income of $734,593, $(174,657)
and $49,353, respectively).... $ 1,740,124,239 $668,293,177 $496,736,434
=============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-7
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A MIDCAP SPDR
<TABLE>
<CAPTION>
For the Year For the Year January 1, 1997 For the Year April 27, 1995
Ended Ended through Ended (commencement of
September 30, September 30, September 30, December 31, operations) through
1999 1998 1997(Note 1) 1996 December 31, 1995
------------- ------------- --------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 59.20 $ 64.65 $ 49.79 $ 43.29 $ 36.91
Investment Operations:
Net investment income...... 0.73 0.57 0.35 0.72 0.40
Net realized and unrealized
gains (losses) on
investments............... 13.95 (4.79) 14.97 7.30 6.51
Total from Investment
Operations................. 14.68 (4.22) 15.32 8.02 6.91
Less Distributions from:
Net investment income...... (0.68) (0.59) (0.46) (0.64) (0.35)
Net realized gains......... (1.50) (0.64) 0.00 (0.88) (0.18)
Total Distributions......... (2.18) (1.23) (0.46) (1.52) (0.53)
Net Asset Value, End of
Period..................... $ 71.70 $ 59.20 $ 64.65 $ 49.79 $ 43.29
Total Investment Return..... 24.72% (6.69)% 30.87%* 18.59% 18.77%*
Ratios and Supplemental Data
Net assets, end of period
(000's).................... $1,740,124 $668,293 $496,736 $150,738 $54,120
Ratio of expenses to average
net assets................. 0.26%(1) 0.30% 0.39%**(1) 0.63%(1) 0.80%**(1)
Ratio of net investment
income to average net
assets..................... 0.97%(1) 0.92% 0.98%**(1) 1.42%(1) 1.11%**(1)
Portfolio turnover rate (2). 43.42% 30.80% 20.18% 20.00% 10.45%
</TABLE>
* Not annualized
** Annualized
(1) Grossed up for expenses reimbursed by the Sponsor. Net of expenses
reimbursed by the Sponsor, the net investment income and expenses to
average net assets ratios would have been 0.97% and 0.26% for the year
ended September 30, 1999, 1.07% and 0.29% for the period from January 1,
1997 through September 30, 1997, 1.76% and 0.29% for the year ended
December 31, 1996 and 1.65% and 0.26% for the period from April 27, 1995
(commencement of operations) through December 31, 1995, respectively.
(2) Portfolio turnover rate excludes securities received or delivered from
processing creations or redemptions of MidCap SPDRs.
B-8
<PAGE>
MIDCAP SPDR TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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 & Poors 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 & Poors Depository 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. Effective September 30, 1997 the fiscal year end of the Trust changed
from December 31 to September 30.
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 amounts and disclosures in the financial
statements. Actual results could differ from these estimates. The following is
a summary of significant accounting policies followed by the Trust.
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.
B-9
<PAGE>
Federal Income Tax--The Trust has qualified and intends to continue 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 and electing, 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 Trusts 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 Trusts portfolio from time to time to conform to
changes in the composition and/or weighting structure of the S&P MidCap Index.
For these services, the Trustee receives a fee at the following annual rates:
<TABLE>
<CAPTION>
FEE AS A PERCENTAGE OF NET ASSET VALUE
NET ASSET VALUE OF THE TRUST 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 fee was
reduced to 12/100 of 1% per annum.
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%
(during the period October 1, 1998 to January 3, 1999) and 25/100 of 1 % after
January 4, 1999 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 September 30, 1999 were $85,610.
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 expense
limitation described above on any given day during the year.
B-10
<PAGE>
NOTE 4--TRUST TRANSACTIONS IN MIDCAP SPDRs
Transactions in MidCap SPDRs were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
1999
----------------------------
MidCap SPDRs AMOUNT
------------ --------------
<S> <C> <C> <C> <C>
MidCap SPDRs sold....... 39,175,000 $2,817,298,916
Dividend reinvestment
MIDCAP SPDRs issued.... 4,158 300,649
MidCap SPDRs redeemed. . (26,200,000) (1,925,544,656)
----------- --------------
Net increase............ 12,979,158 $ 892,054,909
=========== ==============
<CAPTION>
January 1, 1997 through
Year Ended September 30, September 30, 1997 (Note
1998 1)
---------------------------- -------------------------
MidCap SPDRs AMOUNT MidCap SPDRs AMOUNT
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
MidCap SPDRs sold....... 5,100,000 $ 337,780,777 4,650,000 $277,641,581
Dividend reinvestment
MIDCAP SPDRs issued.... 5,463 352,280 5,724 300,685
MidCap SPDRs redeemed... (1,500,000) (94,185,695) -- --
----------- -------------- --------- ------------
Net increase............ 3,605,463 $ 243,947,362 4,655,724 $277,942,266
=========== ============== ========= ============
</TABLE>
Except under the Trusts 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, in the amount of the lesser of 20/100 of 1% of current
market value of 1 Creation Unit or $3,000, 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 September 30, 1999, the Trustee earned $216,000 in transaction fees. The
Trustee, in its sole discretion, may voluntarily reduce or waive its fee, or
modify its transaction fee schedule, subject to certain limitations. There
were no reductions or waivers for the year ended September 30, 1999.
At September 30, 1999, the Trustee and its affiliates held 3,537,185 MidCap
SPDRs, or 14.58% of fractional undivided interest in the Trust.
NOTE 5--INVESTMENT TRANSACTIONS
For the year ended September 30, 1999, the Trust had purchases and sales of
investment securities of $717,597,611 and $748,486,474, respectively. At
September 30, 1999, 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 $87,079,089 and gross
unrealized depreciation was $317,111,662, resulting in net unrealized
depreciation of $230,032,573.
B-11
<PAGE>
NOTE 6--OTHER INFORMATION
On December 20, 1999, the Trustee declared a capital gain dividend of
$63,138,458, payable to Unitholders of record on December 22, 1999.
Effective January, 28 1999, The Bank of New York ("Trustee") hired BNY ESI,
an affiliate of the Trustee, as primary broker for the Trust. Commissions paid
to BNY ESI for the year ended September 30, 1999 amounted to $1,456,089.
B-12
<PAGE>
MIDCAP SPDR Trust, Series 1
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- ------------------------------------------------------
<S> <C> <C>
ABERCROMBIE & FITCH CO. 216,178 $7,363,563.13*
ACNIELSEN 121,504 2,756,622.00*
ACUSON CORP. 56,094 715,198.50*
ADTRAN INC. 82,534 3,162,083.88*
AFFILIATED COMPUTER SVCS. 103,020 4,185,187.50*
AGCO CORP. 124,655 1,620,515.00
AGL RESOURCES LTD. 119,134 1,935,927.50
AIRBORNE FREIGHT 101,810 2,144,373.13
AIRGAS INC. 148,175 1,722,534.38*
AK STEEL HLDG. CORP. 213,654 3,899,185.50
ALASKA AIR GROUP 55,217 2,246,641.69*
ALBANY INTERNATIONAL 62,300 942,287.50
ALBEMARLE CORP. 98,475 1,981,809.38
ALEXANDER & BALDWIN 90,694 2,165,319.25
ALLEGHENY ENERGY INC. 240,455 7,649,474.69
ALLIANT ENERGY 164,247 4,547,588.81
ALLMERICA FINANCIAL 113,466 5,403,818.25
ALTERA CORP. 416,346 18,059,007.75*
AMBAC FINANCIAL GROUP 146,329 6,932,336.38
AMERICAN FINANCIAL GROUP HLDG. 124,886 3,504,613.38
AMERICAN POWER CONVERSION 402,318 7,644,042.00*
AMERICAN STANDARD COS. 148,044 5,681,188.50*
AMERICAN WATER WORKS 202,220 5,851,741.25
AMETEK, INC. 67,885 1,344,971.56
ANALOG DEVICES 361,754 18,539,892.50*
APOLLO GROUP 161,750 3,416,968.75*
APRIA HEALTHCARE GROUP 108,925 1,824,493.75*
ARNOLD IND. 52,049 657,118.63
ARROW ELECTRONICS 200,847 3,539,928.38*
ARVIN INDUSTRIES 54,062 1,672,543.13
ASSOCIATED BANC-CORP 132,409 4,791,550.69
ASTORIA FINANCIAL 114,713 3,527,424.75
ATMEL CORP. 209,832 7,094,944.50
AVNET, INC 73,593 3,090,906.00
BANDAG INC. 45,877 1,468,064.00
BANTA CORP. 56,875 1,269,023.44
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-13
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- ------------------------------------------------------
<S> <C> <C>
BARNES & NOBLE 145,179 $ 3,774,654.00*
BECKMAN COULTER INC. 60,101 2,712,057.63
BELO (A.H.) CORP. 247,706 4,737,377.25
BERGEN BRUNSWIG 280,957 2,914,928.88
BEVERLY ENTERPRISES (NEW) 214,565 911,901.25*
BIOGEN, INC. 314,674 24,800,244.63*
BJ SERVICES 148,306 4,717,984.63*
BJ'S WHOLESALE CLUB 154,224 4,559,247.00*
BLACK HILLS 45,488 1,060,439.00
BLYTH INDUSTRIES 101,486 2,847,950.88*
BOB EVANS FARMS 83,002 1,691,165.75
BORDERS GROUP 162,371 2,384,824.06*
BORG-WARNER AUTOMOTIVE 55,889 2,403,227.00
BOWATER INC. 107,224 5,629,260.00
BRINKER INTERNATIONAL 139,296 3,778,404.00*
BUFFETS INC. 88,170 1,024,976.25*
BURLINGTON INDUSTRIES 110,770 491,541.88*
CABOT CORP. 138,410 3,287,237.50
CADENCE DESIGN SYSTEMS 510,315 6,761,673.75*
CALLAWAY GOLF CO. 158,761 1,934,899.69
CALPINE CORP. 56,878 4,838,184.88
CAMBRIDGE TECHNOLOGY PARTNERS 126,029 1,827,420.50*
CARLISLE COMPANIES 63,174 2,495,373.00
CARPENTER TECHNOLOGY 45,897 1,124,476.50
CARTER-WALLACE 94,167 1,683,235.13
CBRL GROUP, INC. 125,816 1,950,148.00
CCB FINANCIAL 83,098 3,458,954.25
CENTOCOR INC. 148,599 8,702,328.94*
CHARTER ONE FIN'L 363,111 8,396,941.88
CHESAPEAKE CORP. 44,509 1,346,397.25
CHIRON CORP. 378,864 10,489,797.00*
CHRIS-CRAFT INDUSTRIES 70,234 3,941,883.25*
CHURCH & DWIGHT 81,396 2,034,900.00
CINCINNATI BELL INC. 288,475 5,607,232.81
CINTAS CORPORATION 232,227 13,425,623.44
CIRRUS LOGIC 126,568 1,392,248.00*
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-14
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- -------------------------------------------------
<S> <C> <C>
CITRIX SYSTEMS 183,875 $11,388,757.81*
CITY NATIONAL CORP. 95,414 3,202,332.38
CK WITCO CORPORATION 248,569 3,619,786.06
CLAIRE'S STORES 106,854 1,769,769.38
CLAYTON HOMES 302,559 2,628,481.31
CLECO CORP. HLDG. CO. 47,160 1,529,752.50
CLEVELAND-CLIFFS 23,487 731,032.88
CMP GROUP INC. HLDG. CO. 67,915 1,791,258.13
CNF TRANSPORTATION INC. 101,206 3,769,923.50
COMAIR HOLDINGS 200,198 3,340,804.13
COMDISCO, INC. 320,588 6,191,355.75
COMPASS BANCSHARES 237,873 5,946,825.00
COMPUSA INC. 192,038 1,176,232.75*
COMSAT CORP. 110,413 3,270,985.13
COMVERSE TECHNOLOGY 146,304 13,798,296.00*
CONCORD EFS INC. 428,128 8,830,140.00*
CONECTIV 195,866 3,843,870.25
CONSOLIDATED PAPERS 189,911 5,103,858.13
CONVERGYS CORP. 319,450 6,329,103.13
CORDANT TECHNOLOGIES 76,772 2,336,747.75
COVANCE INC. 123,075 1,192,289.06*
CYPRESS SEMICONDUCTOR 219,836 4,726,474.00*
CYTEC INDUSTRIES 89,603 2,150,472.00*
DEAN FOODS 82,515 3,594,559.69
DENTSPLY INT'L 110,710 2,518,652.50
DEVON ENERGY CORP. (NEW) 167,223 6,929,303.06
DEXTER CORP. 48,221 1,799,246.06
DIAL CORP. 214,064 5,458,632.00
DIEBOLD, INC. 144,340 3,337,862.50
DIME BANCORP INC. 237,560 4,157,300.00
DOLE FOODS 119,429 2,269,151.00
DOLLAR TREE STORES 129,676 5,178,935.25*
DONALDSON CO. 96,652 2,241,118.25
DPL INCORPORATED 332,188 5,854,813.50
DQE, INC. 160,887 6,294,703.88
DREYER'S GRAND ICE CREAM 57,764 1,003,649.50
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-15
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- ----------------------------------------------------
<S> <C> <C>
DST SYSTEMS INC. 132,665 $ 7,545,321.88*
E*TRADE GROUP 491,020 11,538,970.00*
EDWARDS (A.G.), INC. 196,402 5,180,102.75
EL PASO ENERGY 246,652 9,819,832.75
ELECTRONIC ARTS 130,459 9,441,970.13*
ENERGY EAST 239,513 5,688,433.75
ENSCO INT'L 287,402 5,191,198.63
ETHYL CORP. 174,725 677,059.38
EVEREST REINSURANCE HLDGS. 101,852 2,425,350.75
FAMILY DOLLAR STORES 361,600 7,638,800.00
FASTENAL COMPANY 79,417 3,742,526.13
FEDERAL SIGNAL 96,674 1,921,395.75
FEDERAL-MOGUL 147,602 4,068,280.13
FERRO CORP. 74,087 1,578,979.19
FINOVA GROUP INC. 128,028 4,673,022.00
FIRST HEALTH GROUP INC. 104,453 2,343,664.19*
FIRST SECURITY CORP. (UTAH) 408,726 9,720,015.19
FIRST TENNESSEE NATIONAL 273,498 7,692,131.25
FIRST VIRGINIA BANKS 104,986 4,573,452.63
FISERV INC. 258,656 8,406,320.00*
FLOWERS INDUSTRIES 209,849 2,846,077.06
FLOWSERVE CORP. 78,326 1,302,169.75
FOREST LABORATORIES 174,657 7,357,426.13*
FOUNDATION HEALTH SYS INC. 255,879 2,414,858.06*
FULLER (H.B.) CO. 29,354 1,786,924.75
FURNITURE BRANDS INT'L. 108,082 2,127,864.38*
GARTNER GROUP 184,319 3,075,823.31*
GATX CORP. 103,710 3,221,491.88
GENCORP 87,545 1,603,167.81
GENZYME CORP. 174,505 7,863,631.56*
GEORGIA GULF 64,751 1,141,236.38
GILEAD SCIENCES 87,959 5,645,868.31*
GLOBAL MARINE 364,651 5,993,950.81*
GRANITE CONSTRUCTION 56,886 1,482,591.38
GREENPOINT FINANCIAL CORP. 228,990 6,082,546.88
GTECH HOLDINGS CORP. 78,850 1,690,346.88*
HANNA (M.A.) 102,374 1,164,504.25
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-16
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- ----------------------------------------------------------
<S> <C> <C>
HANNAFORD BROS. 88,279 $ 6,218,152.06
HARLEY-DAVIDSON 319,047 15,972,290.44
HARSCO CORP. 86,006 2,375,915.75
HARTE-HANKS, INC. 146,063 3,678,961.81
HAWAIIAN ELECTRIC INDUSTRIES 67,441 2,373,080.19
HEALTH MANAGEMENT ASSOC. 530,384 3,911,582.00*
HEILIG-MEYERS CO. 125,342 595,374.50
HIBERNIA CORP. 335,378 3,898,769.25
HILLENBRAND INDUSTRIES 138,937 3,664,463.38
HISPANIC BROADCASTING "A' 107,488 8,182,524.00*
HON INDUSTRIES 128,068 2,465,309.00
HORACE MANN EDUCATORS 85,888 2,216,984.00
HORMEL FOODS CORP. 152,546 6,302,056.63
HOUGHTON MIFFLIN 64,947 2,638,471.88
HSB GROUP INC. 60,490 2,128,491.88
HUBBELL INC. (CLASS B) 136,038 4,336,211.25
HUNT(J.B.) TRANSPORT SERV INC. 74,576 1,034,742.00
IBP, INC. 193,146 4,768,291.88
ICN PHARMACEUTICALS 163,771 2,814,814.06
IDACORP INC. HLDG. CO. 78,739 2,372,012.38
ILLINOVA CORP. 146,364 4,107,339.75
IMATION CORP. 76,450 2,369,950.00*
IMC GLOBAL INC. 239,641 3,489,772.06
INDIANA ENERGY 62,362 1,251,137.63
INFORMIX CORP. 400,016 3,175,127.00*
INTEGRATED DEVICES TECH 186,345 3,447,382.50*
INTERNATIONAL GAME TECHNOLOGY 188,636 3,395,448.00
INTERNATIONAL MULTIFOODS 39,232 902,336.00
INTERSTATE BAKERIES 146,906 3,378,838.00
INTUIT, INC. 130,299 11,421,521.72*
INVESTMENT TECHNOLOGY GROUP (NEW) 66,882 1,538,286.00*
IPALCO ENTERPRISES 179,441 3,487,884.44
IVAX CORP. 222,990 3,679,335.00*
JABIL CIRCUIT 183,538 9,085,131.00*
JACOBS ENGINEERING GROUP 54,267 1,763,677.50*
JONES APPAREL GROUP 256,282 7,368,107.50*
KANSAS CITY POWER & LIGHT 129,586 3,134,361.38
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-17
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- --------------------------------------------------
<S> <C> <C>
KAYDON CORP. 66,687 $ 1,658,839.13
KEANE INC. 149,933 3,420,346.56*
KELLY SERVICES 75,084 2,261,905.50
KENNAMETAL INC. 62,684 1,621,948.50
KEYSPAN CORP. 291,603 8,347,135.88
KEYSTONE FINANCIAL 101,575 2,412,406.25
KN ENERGY INC. 148,259 3,326,561.31*
LANCASTER COLONY 86,027 2,752,864.00
LANCE, INC. 62,706 819,097.13
LANDS' END 62,921 4,152,786.00*
LEAR CORPORATION 139,891 4,922,414.56*
LEE ENTERPRISES 92,937 2,544,150.38
LEGATO SYSTEMS INC. 170,726 7,442,586.56*
LEGGETT & PLATT 411,790 8,107,115.63
LG&E ENERGY 271,478 5,768,907.50
LINCARE HOLDINGS 121,916 3,249,823.38*
LINEAR TECHNOLOGY CORP. 320,389 18,832,865.91
LITTON INDUSTRIES 95,091 5,206,232.25*
LONE STAR STEAKHOUSE 74,778 574,855.88*
LONGVIEW FIBRE 108,189 1,345,600.69
LUBRIZOL CORP. 114,305 2,936,209.69
LYONDELL CHEMICAL CO. 245,962 3,289,741.75
MAGNETEK, INC. 66,139 591,117.31
MANDALAY RESORT GROUP 190,200 3,756,450.00*
MANPOWER INC. 160,612 4,677,824.50
MARK IV INDUSTRIES 102,768 2,029,668.00
MARSHALL & ILSLEY CORP. 215,915 12,320,649.69
MARTIN MARIETTA MATERIALS 97,753 3,904,010.44
MAXIM INTEGRATED PROD 282,397 17,817,485.72*
MAXXAM INC. 14,657 753,003.38*
MCCORMICK & CO. 149,263 4,935,007.94
MCN ENERGY GROUP INC. 179,324 3,082,131.25
MEDIA GENERAL 55,670 2,853,087.50
MEDIMMUNE INC. 118,543 11,813,550.84*
MENTOR GRAPHICS 140,088 1,199,503.50*
MERCANTILE BANKSHARES 144,931 4,483,802.81
MERITOR AUTOMOTIVE INC. 144,692 3,020,445.50
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-18
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- --------------------------------------------------------
<S> <C> <C>
MICRO WAREHOUSE, INC. 74,945 $ 904,024.06*
MICROCHIP TECHNOLOGY 106,438 5,468,252.25*
MIDAMERICAN ENERGY HLDGS. (NEW) 128,034 3,777,003.00*
MILLENNIUM PHARMACEUTICALS 75,786 4,926,090.00*
MILLER (HERMAN) 166,579 3,982,279.22
MINERALS TECHNOLOGIES 44,865 2,178,756.56
MINIMED INC. 64,715 6,358,248.75*
MINNESOTA POWER INC. 153,073 2,688,344.56
MODINE MFG. 61,803 1,440,782.44
MODIS PROFESSIONAL SVC. 200,791 2,660,480.75*
MOHAWK INDUSTRIES 126,883 2,529,729.81*
MOLEX INC. 324,392 11,799,759.00
MONTANA POWER 230,703 7,022,022.56
MURPHY OIL 94,131 5,088,957.19
MYLAN LABORATORIES 270,449 4,969,500.38
NABORS INDUSTRIES 244,088 6,102,200.00*
NATIONAL FUEL GAS 81,213 3,832,238.44
NAVIGANT CONSULTING 89,188 4,136,093.50*
NCH CORP. 11,314 511,251.38
NCR CORP. 205,601 6,797,683.06*
NETWORK ASSOCIATES INC. 290,971 5,564,820.38*
NEW ENGLAND ELECTRIC SYSTEM 123,771 6,420,620.63
NEWPORT NEWS SHIPBUILDING 72,413 2,339,845.06
NISOURCE INC. 261,765 5,791,550.63
NOBLE AFFILIATES 119,300 3,459,700.00
NOBLE DRILLING CORP. 275,893 6,035,159.38*
NORDSON CORPORATION 34,626 1,696,674.00
NORTH FORK BANCORP. 285,484 5,566,938.00
NORTHEAST UTILITIES 275,180 5,056,432.50
NOVA CORP. 153,419 3,835,475.00*
OCEAN ENERGY INC.(NEW) 348,761 3,553,002.69*
OFFICEMAX INC. 237,267 1,379,114.44*
OGDEN CORP. 103,037 1,030,370.00
OGE ENERGY CORP. 162,864 3,623,724.00
OHIO CASUALTY 127,867 2,157,755.63
OLD KENT FINANCIAL 248,477 9,224,708.63
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-19
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- ---------------------------------------------------------
<S> <C> <C>
OLD REPUBLIC INT'L 270,694 $3,908,144.63
OLIN CORP. 94,733 1,290,737.13
OLSTEN CORP. 170,206 1,776,525.13
OMNICARE, INC. 190,987 1,838,249.88
OREGON STEEL MILLS 53,953 603,599.19
OUTBACK STEAKHOUSE 157,544 4,012,448.75*
OVERSEAS SHIPHOLDING GROUP 77,435 1,195,402.81
OXFORD HEALTH PLANS 170,234 2,127,925.00*
P.H. GLATFELTER CO. 88,328 1,451,891.50
PACIFIC CENTURY FINANCIAL CORP. 168,011 3,433,724.81
PACIFICARE HEALTH SYS 96,108 4,156,671.00*
PAPA JOHN'S INT'L. 63,479 2,618,508.75
PAYLESS SHOESOURCE INC. HLDG. CO. 67,127 3,389,913.50*
PENNZOIL-QUAKER STATE (NEW) 162,983 2,057,660.38
PENTAIR CORP. 89,340 3,584,767.50
PERRIGO CO. 153,424 1,208,214.00*
PINNACLE WEST CAPITAL 177,440 6,454,380.00
PIONEER NATURAL RESOURCES 209,973 2,230,963.13*
PITTSTON BRINK'S GROUP 85,540 1,983,458.75
PMI GROUP 93,702 3,830,069.25
POLICY MANAGEMENT SYSTEMS 74,449 2,354,449.63*
POTOMAC ELECTRIC POWER 248,144 6,312,163.00
PRECISION CASTPARTS 51,267 1,563,643.50
PREMARK INTERNATIONAL 128,256 6,476,928.00
PREMIER PARKS 163,590 4,744,110.00*
PROMUS HOTEL HLDG. 164,692 5,362,783.25*
PROTECTIVE LIFE CORP. 135,030 3,915,870.00
PROVIDENT FINANCIAL GROUP INC. 90,900 3,323,531.25
PSS WORLD MEDICAL INC. 148,607 1,328,175.06*
PUBLIC SERVICE OF NEW MEXICO 85,354 1,557,710.50
PUGET SOUND ENERGY, INC. 177,027 3,972,043.31
QLOGIC CORP. 75,857 5,295,766.81*
QUANTUM CORP.-DSSG STOCK 346,319 4,870,110.94*
QUESTAR CORP. 173,130 3,137,981.25
QUINTILES TRANSNATIONAL 240,245 4,572,162.66*
QUOROM HEALTH GROUP 152,937 1,075,338.28*
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-20
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- -------------------------------------------------------
<S> <C> <C>
RATIONAL SOFTWARE 182,425 $ 5,341,632.03*
RAYONIER INC. 58,120 2,441,040.00
READERS DIGEST ASSOC. 224,913 6,578,705.25
RELIASTAR FIN'L CORP. 180,022 5,985,731.50
REYNOLDS & REYNOLDS 161,703 3,294,698.63
RJ REYNOLDS TOBACCO HLDGS. 227,285 6,136,695.00
ROBERT HALF INT'L 191,411 4,593,864.00*
ROLLINS, INC. 63,552 981,084.00
ROSS STORES 191,172 3,847,336.50
RPM INC. 229,687 2,799,310.31
RUDDICK CORP. 97,216 1,543,304.00
RYERSON TULL, INC. (NEW) 52,230 1,207,818.75
SAKS INCORPORATED 302,894 4,600,202.63*
SANMINA CORP. 122,110 9,448,261.25*
SANTA FE SNYDER CORP. 378,495 3,406,455.00*
SCANA CORP. 216,826 5,244,478.88
SCHOLASTIC CORP. 34,460 1,723,000.00*
SCHULMAN (A.), INC. 65,174 1,128,324.88
SCI SYSTEMS INC. 150,984 6,709,351.50*
SENSORMATIC ELECTRONICS 158,285 2,008,240.94*
SEPRACOR INC. 68,912 5,202,856.00*
SEQUA CORP. 21,702 1,367,226.00
SHAW INDUSTRIES 287,944 4,571,111.00
SIEBEL SYSTEMS, INC. 193,886 12,917,654.75*
SIERRA PACIFIC RESOURCES (NEW) 163,505 3,637,986.25
SMITH INTERNATIONAL 103,522 4,192,641.00*
SMUCKER (J.M.) 61,041 1,289,491.13
SNYDER COMMUNICATIONS 153,847 2,336,551.31*
SOLUTIA INC. 232,325 4,152,809.38
SONOCO PRODUCTS 213,387 4,867,890.94
SOTHEBY'S HOLDINGS 123,032 3,175,763.50
SOUTHDOWN 79,140 4,233,990.00
SOVEREIGN BANCORP 378,597 3,442,866.47
SPX CORP. 65,255 5,921,891.25*
STANDARD REGISTER CO. 59,013 1,386,805.50
STARBUCKS CORP. 381,412 9,451,866.13*
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-21
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- -------------------------------------------------------
<S> <C> <C>
STERIS CORP. 140,958 $ 1,938,172.50*
STERLING COMMERCE INC. 184,896 3,432,132.00*
STERLING SOFTWARE INC. 176,376 3,527,520.00*
STEWART & STEVENSON SERVICES 58,605 769,190.63
STEWART ENTERPRISES, INC. 233,885 1,417,927.81
STORAGE TECHNOLOGY 209,715 4,037,013.75*
STRUCTURAL DYNAMICS RESEARCH 75,144 1,129,508.25*
STRYKER CORP. 202,903 10,373,415.88
SUIZA FOODS CORP. 70,635 2,648,812.50*
SUNGARD DATA SYSTEMS 250,892 6,601,595.75*
SUPERIOR INDUSTRIES 56,160 1,572,480.00
SWIFT TRANSPORTATION 134,556 2,649,071.25*
SYBRON INT'L. 217,234 5,838,163.75*
SYLVAN LEARNING SYSTEMS 108,769 2,107,399.38*
SYMANTEC CORP. 118,917 4,277,295.84*
SYMBOL TECHNOLOGIES 184,716 6,211,075.50
SYNOPSYS INC. 148,302 8,328,084.19*
T. ROWE PRICE ASSOCIATES 254,133 6,972,774.19
TCF FINANCIAL 174,663 4,988,811.94
TECH DATA CORP. 107,260 2,497,146.88*
TECO ENERGY 276,514 5,841,358.25
TECUMSEH PRODUCTS CO. 42,220 2,116,277.50
TELEFLEX 79,313 3,127,906.44
TELEPHONE & DATA SYSTEMS 128,656 11,426,261.00
TERADYNE, INC. 358,359 12,632,154.75*
THE TIMBER CO. 173,468 3,968,080.50
TIDEWATER INC. 116,401 2,968,225.50
TIFFANY & CO. 147,367 8,832,809.56
TOTAL RENAL CARE HLDGS. 169,947 1,263,980.81*
TRANSACTION SYSTEMS ARCHITECTS 68,146 1,835,682.88*
TRANSOCEAN OFFSHORE INC. 210,515 6,447,021.88
TRIGON HEALTHCARE INC. 87,043 2,513,366.63*
TRINITY INDUSTRIES 83,946 2,591,832.75
TYSON FOODS 480,635 7,900,437.81
U.S. FOODSERVICE 207,612 3,737,016.00*
UCAR INTERNATIONAL 94,381 2,153,066.56
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-22
<PAGE>
MIDCAP SPDR Trust, Series 1 Schedule of Investments September 30, 1999
<TABLE>
<CAPTION>
Common Stock Shares Value
- --------------------------------------------------------
<S> <C> <C>
ULTRAMAR DIAMOND SHAMROCK 181,324 $ 4,623,762.00
UNIFI, INC. 125,092 1,376,012.00*
UNITRIN, INC. 151,496 5,264,486.00
UNIVERSAL CORP. 68,494 1,789,405.75
UNIVERSAL FOODS 105,260 2,414,401.25
UNIVISION COMMUNICATIONS 212,447 17,287,874.63*
USG CORP. 104,231 4,950,972.50
UTILICORP UNITED 194,907 4,105,228.69
VALERO ENERGY 117,740 2,266,495.00
VARCO INT'L 136,221 1,660,193.44*
VERITAS SOFTWARE 356,579 27,077,717.81*
VIAD CORP. 203,656 6,007,852.00
VISHAY INTERTECHNOLOGY 177,153 4,207,383.75*
VISX INC. 133,476 10,557,117.38*
VITESSE SEMICONDUCTOR 160,646 13,715,152.25*
VLASIC FOODS INT'L 95,256 660,838.50*
WALLACE COMPUTER SERVICES 87,754 1,777,018.50
WARNACO GROUP 116,326 2,122,949.50
WASHINGTON GAS LIGHT 97,290 2,638,991.25
WASHINGTON POST 21,057 10,739,070.00
WATERS CORPORATION 128,453 7,779,434.81*
WATTS INDUSTRIES 55,358 1,204,036.50
WAUSAU-MOSINEE PAPER 109,563 1,328,451.38
WEATHERFORD INT'L. INC. 221,822 7,098,304.00*
WEBSTER FINANCIAL CORP. 79,686 2,031,993.00
WELLMAN, INC. 65,769 1,187,952.56
WESTAMERICA BANCORP 80,350 2,430,587.50
WESTPOINT STEVENS 116,553 2,753,564.63*
WESTWOOD ONE INC. 112,002 5,054,090.25
WHITMAN CORP. 296,780 4,229,115.00
WILLIAMS-SONOMA INC. 116,893 5,676,616.31
WILMINGTON TRUST CORP. 69,393 3,369,897.56
WISCONSIN CENTRAL TRANS. 107,284 1,468,449.75
WISCONSIN ENERGY 245,307 5,749,382.81
XILINX, INC. 330,895 21,683,962.97
YORK INTERNATIONAL 83,674 3,007,034.38
ZIONS BANCORP 165,387 9,116,958.38
---------- -----------------
TOTALS 62,188,814 $1,739,822,447.08
========== =================
</TABLE>
- -----------
(*) Denotes non-income producing security.
B-23
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in Part B 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,
before expenses, 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 and Risk Factors").
The Trust
The Trust is a unit investment trust organized under the laws of the State of
New York. The Trust is governed by a trust agreement (the "Trust Agreement")
between 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 ALPS Mutual Funds Services, Inc., a
registered broker-dealer, and a member of the National Association of
Securities Dealers, Inc. (see "Underwriting").
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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 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 accrued
liabilities for such period (including, without limitation, (x) taxes or other
governmental charges against the Trust not previously deducted, if any, and (y)
accrued fees of the Trustee and other expenses of the Trust (including legal
and auditing expenses) and other expenses not previously deducted (see
"Expenses of the Trust")), as if all of the Securities had been held for the
entire accumulation period for such distribution. For federal income tax
purposes, a portion of dividend distributions may result in a return of capital
to Beneficial Owners (as hereinafter defined) of 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
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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
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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--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 or redemption of Creation Units through the
MidCap SPDR Clearing Process is $3,000 per Participating Party per day,
regardless of the number of Creation Units created or redeemed on such day (see
"Procedures for Creation of Creation Units" and "Procedure for Redemption of
MidCap SPDRs"). 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
- ------------
* The amount of the Transaction Fee currently in effect will be available from
the Trustee.
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connection with the creation or redemption 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
up to $9,000 ((3) times $3,000) for a total not to exceed $12,000.
From time to time and for such periods as the Sponsor, in its sole
discretion, may determine, the Transaction Fee (as well as any additional
amounts charged in connection with creations and/or redemptions 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
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* 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.
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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 correspondence 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 Deposit (see
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<PAGE>
"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 September 30, 1999, 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
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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, 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
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<PAGE>
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
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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, 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").
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<PAGE>
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 the net asset value of the Trust 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").
Underwriting
ALPS Mutual Funds Services, 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
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* The CPI-U, as published by the United States Department of Labor, measures
the inflation rate of specified commodities deemed representative of the
purchases of all urban consumers.
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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 under the
laws of the State of Colorado and is located at 370 17th Street, Suite 3100,
Denver, CO 80202. The Distributor is a registered broker-dealer and a member of
the National Association of Securities Dealers, Inc. The Sponsor pays the
Distributor for its services a flat annual fee. The Sponsor will not seek
reimbursement for such payment from the Trust without obtaining prior exemptive
relief from the Commission.
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RISK FACTORS AND SPECIAL CONSIDERATIONS
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
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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").
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.
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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
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remain unchanged. The Trust will be terminated in the event MidCap SPDRs are
delisted from the 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
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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").
Year 2000 Problem
. Many computer systems were designed in such a way that they may be
unable to distinguish between the year 2000 and the year 1900 and
therefore may not properly process and calculate date-related
information and data (commonly known as the "Year 2000 Problem"). As
with all investment and financial entities, the Year 2000 Problem may
have an adverse impact upon the handling of securities trades, pricing
and account services and other activities conducted by or for the
Trust. The Sponsor and the Trustee have taken steps to address the Year
2000 Problem with respect to the computer systems they use and to
obtain reasonable assurances that similar steps have been taken by the
Trust's other service providers. Operations ran smoothly from the last
week in December through the first few weeks of January, but the Year
2000 Problem may yet have an adverse impact on financial market
participants and other entities, including the companies whose stocks
are contained in the Trust's Portfolio.
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<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
- -----------
* 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."
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<PAGE>
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
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
September 30, 1999, 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) every 15 seconds 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
- -----------
* As of December 31, 1999, Stock Clearing Corporation, a wholly-owned
subsidiary of the New York Stock Exchange, owned 50% of the issued and
outstanding shares of common stock of NSCC. Also as of such date, National
Clearing Corporation, a wholly-owned subsidiary of the National
Association of Securities Dealers, Inc., the parent company of the
Exchange, owned 50% of the issued and outstanding shares of common stock
of NSCC.
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<PAGE>
(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 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.
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<PAGE>
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
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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 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").
Severe economic or market disruptions 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.
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<PAGE>
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 Bank 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 next
Business Day immediately following the 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 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
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<PAGE>
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 370 17th Street, Suite 3100, Denver, CO 80202 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 through the MidCap SPDR Clearing Process 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
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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 Bank wire transfer 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 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 not exceed $12,000 (see "Prospectus Summary--
Transaction Fee").
MidCap SPDRs may be created in advance of the receipt by the Trustee of all
or a portion of the Portfolio Deposit relating to such MidCap SPDRs as
described below. In these circumstances, the initial deposit will have a value
greater than the net asset value of the MidCap SPDRs on the date the order is
placed in proper form since in addition to available Deposit Securities, cash
collateral must be deposited with the Trustee in an amount equal to the sum of
(i) the Cash Component, plus (ii) 115% of the market value of the undelivered
Deposit Securities (the "Additional Cash Deposit"). The Trustee will hold such
Additional Cash Deposit as collateral in an account separate and apart from
the Trust. The order shall be deemed to be received on the Business Day on
which the order is placed provided that the order is placed in proper form
prior to 4:00 p.m., New York time, on such date and federal funds in the
appropriate amount are deposited with the Trustee by 11:00 a.m., New York
time, the next following Business Day. If the order is not placed in proper
form by 4:00 p.m. or federal funds in the appropriate amount are not received
by 11:00 a.m. the next following Business Day, then the order may be deemed to
be rejected and the investor shall be liable to the Trust for losses, if any,
resulting therefrom. An additional amount of cash shall be required to be
deposited with the Trustee, pending delivery of the missing Deposit Securities
to the extent necessary to maintain the Additional Cash Deposit with the
Trustee in an amount at least equal to 115% of the daily marked to market
value of the missing Deposit Securities. To the extent that missing Deposit
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Securities are not received by 1:00 p.m., New York time, on the third Business
Day following the day on which the purchase order is deemed received or in the
event a mark to market payment is not made within one Business Day following
notification by the Distributor that such a payment is required, the Trustee
may use the Additional Cash Deposit to purchase the missing Deposit
Securities. Authorized Participants will be liable to the Trust for the costs
incurred by the Trust in connection with any such purchases. These costs will
be deemed to include the amount by which the actual purchase price of the
Deposit Securities exceeds the market value of such Deposit Securities on the
day the purchase order was deemed received by the Distributor plus the
brokerage and related transaction costs associated with such purchases. The
Trustee will return any unused portion of the Additional Cash Deposit once all
of the missing Deposit Securities have been properly received or purchased by
the Trustee and deposited into the Trust. In addition, a transaction fee of
$4,000 will be charged in all cases. The delivery of Creation Units of MidCap
SPDRs so created will occur no later than the third Business Day following the
day on which the purchase order is deemed received. The Participant Agreement
for any Participating Party intending to follow such procedures will contain
terms and conditions permitting the Trust to use such collateral to buy the
missing portion(s) of the Portfolio Deposit at any time and will subject such
Participating Party to liability for any shortfall between the cost to the
Trust of purchasing such securities and the value of such collateral. The
Trust will have no liability for any such shortfall.
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
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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.
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
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* As of December 31, 1999, the National Association of Securities Dealers,
Inc., the parent company of the Exchange, owned 4.6% of the issued and
outstanding shares of the common stock of the Depository, the Exchange
owned 4.6% of the issued and outstanding shares of common stock of the
Depository and a wholly-owned subsidiary of the Exchange, American Stock
Exchange Clearing LLC, owned .00189% of the issued and outstanding shares
of common stock of the Depository. Also as of such date, the Trustee and
its affiliates owned 5.376% of the issued and outstanding shares of common
stock of the Depository.
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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
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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 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 correspondence 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
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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 1999, there were 70 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, before expenses, 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 (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
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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
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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
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
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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 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 the fixed Mandatory Termination Date unless
terminated sooner under certain circumstances (see "Administration of the
Trust-- Termination"). In addition, Beneficial Owners of MidCap SPDRs in
Creation Unit
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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 multiplied by 25,000 MidCap SPDRs in one Creation
Unit aggregation, resulting in a net asset value per Creation Unit (the "NAV
Amount"). The Trustee then calculates the number of shares (without rounding)
of each of the component 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
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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 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.
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* 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.
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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.
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
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<PAGE>
the S&P MidCap 400 Index represented, as of December 31, 1999, approximately
5.00% of the market value of all domestic common stocks. As of December 31,
1999, the five largest industry segments comprising the S&P MidCap 400 Index
were: computer software (12.00%), semiconductors (6.97%), electric utilities
(6.37%), banks (5.43%), electronics and biotech (4.68%). 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 1999. 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>
Calendar
Year-End Change in Calendar
Index Value* Index For Year-End
Year December 31, 1990 = 100 Calendar 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 1.62
1997............................. 333.37 +30.44 1.38
1998............................. 392.31 +17.68 1.22
1999............................. 444.67 +13.35 1.07
</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.
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<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.
B-61
<PAGE>
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.
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 300, investors might expect a MidCap SPDR to trade at approximately $60.
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.
B-62
<PAGE>
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
Effective September 30, 1997, the Trust changed from a calendar year ending
each December 31 to a fiscal year ending each September 30. For the fiscal
year ended September 30, 1999, 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) meet certain diversification tests, and (c)
distribute in each year at least 90% of its investment company taxable income.
If the Trust qualifies as a regulated investment company, subject to certain
conditions and requirements, the Trust will not be subject to federal income
tax to the extent its income is distributed in a timely manner. Any
undistributed income may be subject to tax, including a four percent (4%)
excise tax imposed by section 4982 of the Code on certain undistributed income
of a regulated investment company that does not distribute to shareholders in
a timely manner at least ninety-eight percent (98%) of its taxable income
(including capital gains).
Tax Consequences to Beneficial Owners
Dividends paid by the Trust from its investment company taxable income
(which includes dividends, interest and the excess of net short-term capital
gains over net long-term capital losses) will be taxable to Beneficial Owners
as ordinary income. A dividend paid in January will be considered for federal
income tax purposes to have been paid by the Trust and received by Beneficial
Owners on the preceding December 31 if the dividend was declared in the
preceding October, November or December to Beneficial Owners of record 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 are considered "capital gains
dividends" regardless of the length of time an investor 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
B-63
<PAGE>
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. Capital gains realized by non-corporate taxpayers are generally
taxable at a maximum rate of 20% if the taxpayer has a holding period of more
than twelve months.
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
B-64
<PAGE>
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 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.
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<PAGE>
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 tax discussion set forth above is included for general information only.
Prospective investors should consult their own tax advisors concerning the
federal, state, local and foreign tax consequences to them of an investment in
the Trust, including the effect of possible legislative changes.
CONTINUOUS OFFERING OF 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.
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
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<PAGE>
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
Ordinary operating expenses of the Trust are currently being accrued at an
annual rate of 0.25%; future accruals will depend primarily on the level of
the Trust's net assets and the level of Trust expenses. There is no guarantee
that the Trust's ordinary operating expenses will not exceed 0.30% of the
Trust's daily net asset value and such rate may be changed without notice.
Until further notice, the Sponsor has undertaken that on each day during the
fiscal year ending September 30, 2000, the ordinary operating expenses of the
Trust as calculated by the Trustee will not be permitted to exceed an amount
which is 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
B-67
<PAGE>
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. After September 30, 2000 the Sponsor may discontinue this
undertaking or renew it for an additional period of time, or may choose to
reimburse or assume certain Trust expenses in later periods in order to keep
Trust expenses at a level it 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.
Subject to any applicable cap, the Sponsor reserves the right to charge the
Trust a special sponsor fee from time to time in reimbursement for certain
services it may provide to the Trust which would otherwise be provided by the
Trustee in an amount not to exceed the actual cost of providing such services.
The Sponsor or the Trustee from time to time may voluntarily assume some
expenses or reimburse the Trust so that total expenses of the Trust are
reduced, although neither the Sponsor nor the Trustee is obligated to do so
and either one or both parties may discontinue such voluntary assumption of
expenses or reimbursement at any time without notice.
The following charges are or may be accrued and paid by the Trust: (a) the
Trustee's fee as discussed more fully below; (b) fees payable to transfer
agents for the provision of transfer agency services; (c) fees of the Trustee
for extraordinary services performed under the Trust Agreement; (d) various
governmental charges; (e) any taxes, fees and charges payable by the Trustee
with respect to 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 the specific expenses discussed in the previous paragraph,
the following expenses are or may be charged to the Trust: (a) reimbursement
to the Sponsor of amounts paid by it to S&P in respect of annual licensing
fees pursuant to
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<PAGE>
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, 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.
Pursuant to the provisions of an exemptive order, the expenses set forth in
this paragraph may be charged to the Trust by the Trustee in an amount equal
to the actual costs incurred, but in no case shall such charges exceed 30/100
of 1% (0.30%) per annum of the daily net asset value of the Trust.
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to cover Trust expenses, the
Trustee may make advances to the Trust to cover such expenses; otherwise the
Trustee may sell Securities in an amount sufficient to pay such expenses. The
Trustee may reimburse itself in the amount of any such advance, 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 is 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 is computed on each
Business Day on the basis of the net asset value of the Trust on such day, and
the amount thereof is accrued daily and paid monthly. During the first two
years of the operation of the Trust, the Trustee's fee was 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.
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<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 September 30, 1999 and as of December 31, 1999, the net asset value of
the Trust was $1,740,124,239.00 and $2,338,011,836, respectively. 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
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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 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
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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 equal to the actual amounts
incurred in connection with such transaction(s) but in any case not to exceed
three (3) times the Transaction Fee applicable for one Creation Unit (see
"Prospectus Summary--Transaction Fee").
The Trustee, in its discretion, upon the request of a redeeming investor,
may redeem Creation Units in whole or in part by providing such redeemer with
a portfolio of Securities differing in exact composition from the Index
Securities but not differing in net asset value from the then-current
Portfolio Deposit. Such a redemption is likely to be made only if it were
determined that it would be appropriate in order to maintain the Trust's
correspondence to the composition and weighting of the S&P MidCap 400 Index,
for instance, in connection with the replacement of one of the Index
Securities.
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
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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
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, and, in either case, have executed a
Participant Agreement.
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 Trustee, a Participating Party or
a DTC Participant.
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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 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
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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 the next Business Day immediately
following 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 next 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
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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 the next Business
Day immediately following 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.
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.
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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 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
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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
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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 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").
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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.
Promptly after the end of each fiscal year, the Trustee will furnish to the
DTC Participants for distribution to each person who was a Beneficial Owner of
MidCap SPDRs at the end of such fiscal year an annual report of the Trust
containing financial statements audited by independent accountants of
nationally recognized standing and such other information as may be required
by applicable laws, rules and regulations.
Register of Ownership and Transfer
The Trustee maintains a record of the creation and redemption of 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
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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
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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 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 the net asset value
of the Trust 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 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
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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
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 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.
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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.
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<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,
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<PAGE>
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.
SPONSOR
The Sponsor of the Trust is PDR Services LLC, a Delaware limited liability
company incorporated on April 6, 1998 with offices c/o the Exchange, 86
Trinity Place, New York, New York 10006. The Sponsor's Internal Revenue
Service Employer Identification Number is 52-2127241. The Exchange is the sole
member of the Sponsor and 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
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<PAGE>
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.
Winston & Strawn acts as counsel for the Trustee.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The financial statements included on pages B-5 through B-23 in this
Prospectus have been so included in reliance upon the report of
PricewaterhouseCoopers 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 present current economic
and political
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<PAGE>
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
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<PAGE>
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 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
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<PAGE>
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
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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.
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.*
- -----------
* It is difficult to estimate the annual dollar amount of brokerage
commissions that might be incurred in connection with the Dividend
Reinvestment Service during any fiscal year. The Trustee estimates that
during fiscal period ended September 30, 1999, the approximate amount of
annual brokerage commissions incurred in implementing the Service was less
than $0.001 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 fiscal period ended September 30,
1999.
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GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
"Adjustment Day".................................................... B-57
"Balancing Amount".................................................. B-58
"Beneficial Owners"................................................. B-50
"Business Day"...................................................... B-29
"Cash Component".................................................... B-25
"Cash Redemption Payment"........................................... B-71
"Closing Time"...................................................... B-45
"Code".............................................................. B-30
"Commission"........................................................ B-25
"Creation Units".................................................... A-2
"Depository Agreement".............................................. B-51
"Depository"........................................................ B-29
"Distributor"....................................................... B-34
"Dividend Equivalent Payment"....................................... B-25
"Dividend Payment Date"............................................. B-77
"DTC Cut-Off Time".................................................. B-75
"DTC Participants".................................................. B-49
"Evaluation Time"................................................... B-2
"Ex-Dividend Date".................................................. B-77
"Excess Cash Amounts"............................................... B-71
"Exchange".......................................................... A-2
"Global Security"................................................... B-49
"Index Securities".................................................. B-24
"Indirect Participants"............................................. B-50
"Initial Date of Deposit"........................................... B-3
"License Agreement"................................................. B-61
"MidCap SPDR Clearing Process"...................................... B-27
"MidCap SPDR"....................................................... Front Cover
"Misweighting Amount"............................................... B-53
"Misweighting"...................................................... B-53
"NAV Amount"........................................................ B-57
"NSCC Business Day"................................................. B-38
"NSCC".............................................................. B-25
"Participant Agreement"............................................. B-47
"Participating Party"............................................... B-25
"Portfolio Deposit Amount".......................................... B-57
"Portfolio Deposit"................................................. B-26
"Portfolio"......................................................... B-41
"Record Date"....................................................... B-77
"Request Day"....................................................... B-57
"S&P MidCap 400 Index".............................................. A-2
"S&P"............................................................... A-1
"Securities"........................................................ A-3
"Service"........................................................... B-32
"Sponsor"........................................................... Front Cover
"Standard & Poor's"................................................. A-1
"Termination Date".................................................. B-34
"Transaction Fee"................................................... B-27
"Transmittal Date".................................................. B-45
"Trust Agreement"................................................... B-24
"Trust"............................................................. A-2
"Trustee"........................................................... A-2
"Weighting Analysis"................................................ B-53
</TABLE>
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<PAGE>
STANDARD & POOR'S MIDCAP 400 DEPOSITARY RECEIPTS (MIDCAP SPDRs)
MIDCAP SPDR TRUST, SERIES 1
SPONSOR:
PDR SERVICES LLC
- --------------------------------------------------------------------------------
This Prospectus does not include all of the information with respect to the
MidCap SPDR Trust set forth in its Registration Statement filed with the
Securities and Exchange Commission (the "Commission") in Washington, D.C. under
the:
. Securities Act of 1933 (File No. 33-89088) and
. Investment Company Act of 1940 (File No. 811-8972).
To obtain copies from the Commission at prescribed rates--
Write: Public Reference Section of the Commission
450 Fifth Street, N.W., Washington, D.C. 20549
Call: 1-800-SEC-0330
Visit: http://www.sec.gov
- --------------------------------------------------------------------------------
No person is authorized to give any information or make any representation
about the MidCap SPDR Trust not contained in this Prospectus, and you should
not rely on any other information. Read and keep both parts of this Prospectus
for future reference.
- --------------------------------------------------------------------------------
Prospectus dated January 26, 2000
<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:
PricewaterhouseCoopers LLP
(included in Exhibit Ex-99.C2)
Carter, Ledyard & Milburn
(included in Exhibit Ex-99.C1)
The following exhibits:
Ex-99.C1 Opinion of Counsel as to legality of
securities being registered.
Ex-99.C2 Consent of Independent Accountants.
Ex-99.C3 Powers of Attorney
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 LLC - Financial Statements, as part of American
Stock Exchange, LLC. current consolidated financial statements
incorporated by reference to the Amendment to Form 1-A, dated
June 28, 1999.
-------
<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 26th day of
January, 2000.
MIDCAP SPDR TRUST SERIES 1
(Registrant)
By: PDR Services LLC
(Depositor)
/s/ Joseph Stefanelli
-----------------------------
Joseph Stefanelli
Executive Vice President of
American Stock Exchange LLC, the
sole member of PDR Services LLC
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed on behalf of PDR Services LLC 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 LLC
Name Title/Office
Joseph Stefanelli Executive Vice President of American
Stock Exchange LLC, the sole member
of PDR Services LLC and Director*
Gary L. Gastineau Director*
Lawrence G. Larkin Director*
Clifford J. Weber Director*
By: /s/ Joseph Stefanelli
----------------------------------
Joseph Stefanelli
Attorney-in-fact*
- --------
* Executed copy of the power of attorney is being filed as Exhibit
Number 3 to this Post Effective Amendment No. 6 to the Registration
Statement dated January 26, 2000 (File No. 33-89088).
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. TITLE OF DOCUMENT
Ex-99.C1 Copy of Opinion of Counsel as to legality of
securities being registered.
Ex-99.C2 Consent of Independent Accountants.
Ex-99.C3 Powers of Attorney
<PAGE>
Exhibit 99.C1
January 26, 2000
PDR Services LLC
c/o American Stock Exchange LLC
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 LLC (the
"Exchange") and PDR Services LLC as sponsor (the "Sponsor") of MidCap SPDR Trust
Series 1 (hereinafter referred to as the "Trust"). It is proposed that Post-
Effective Amendment No. 6 to the Trust's registration Statement ("Post-Effective
Amendment No. 6") 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. 6;
<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. 6 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. 6 (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" as amended and, collectively with the
Standard Terms, the "Indenture and Agreement");
(k) the Distribution Agreement dated as of September 30, 1997 among the
Sponsor, the Trust and ALPS Mutual Funds Services, 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") 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 (except "Blue Sky" laws) and the federal laws of the United
States, except to the extent necessary to render the opinion as to the Sponsor
and the Indenture and Agreement in paragraphs (i) and (iii) below with respect
to Delaware law. As you know, we are not licensed to practice law in the State
of Delaware, and our opinion in paragraph (i) as to Delaware law is based solely
on review of the official 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 limited liability company 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 Units to be issued by the Trust, when issued by 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. 6 and to the use of our name where it appears in
Post-Effective Amendment No. 6 and the Prospectus.
Very truly yours,
Carter, Ledyard & Milburn
<PAGE>
Exhibit 99.C2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus, constituting part of this
Post-Effective Amendment No. 6 to the registration statement on Form S-6
of our report dated December 29, 1999, 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
January 26, 2000
<PAGE>
Exhibit 99.C3
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of PDR
Services, LLC (the "Company"), a Delaware limited liability company, does hereby
constitute and appoint Michael J. Ryan, Jr., Michael Cavalier, Joseph Stefanelli
and Ivonne Lugo, and any of them, as his true and lawful attorneys-in-fact for
him and in his name to sign, execute, deliver and file with the Securities and
Exchange Commission Registration Statements under the Securities Act of 1933 and
Investment Company Act of 1940 and any and all amendments thereto, and any and
all certificates, letters, applications or other documents connected therewith
which such attorneys-in-fact may deem necessary or advisable for the
registration under such Acts of Units of undivided fractional interest in all
series of SPDR Trust Series 1, MidCap SPDR Trust Series 1, DIAMONDS Trust Series
1 and any other similar unit investment trust for which the Company is a sponsor
and to take any and all action that the said attorneys-in-fact may deem
necessary or advisable in order to carry out fully the intent of the foregoing
appointment, hereby ratifying and approving the acts of said attorneys-in-fact.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th
day of January, 2000.
By: /s/ Clifford J. Weber
--------------------------------
Clifford J. Weber
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of PDR
Services, LLC (the "Company"), a Delaware limited liability company, does hereby
constitute and appoint Michael J. Ryan, Jr., Michael Cavalier, Joseph Stefanelli
and Ivonne Lugo, and any of them, as his true and lawful attorneys-in-fact for
him and in his name to sign, execute, deliver and file with the Securities and
Exchange Commission Registration Statements under the Securities Act of 1933 and
Investment Company Act of 1940 and any and all amendments thereto, and any and
all certificates, letters, applications or other documents connected therewith
which such attorneys-in-fact may deem necessary or advisable for the
registration under such Acts of Units of undivided fractional interest in all
series of SPDR Trust Series 1, MidCap SPDR Trust Series 1, DIAMONDS Trust Series
1 and any other similar unit investment trust for which the Company is a sponsor
and to take any and all action that the said attorneys-in-fact may deem
necessary or advisable in order to carry out fully the intent of the foregoing
appointment, hereby ratifying and approving the acts of said attorneys-in-fact.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th
day of January, 2000.
By: /s/ Lawrence G. Larkin
---------------------------
Lawrence G. Larkin
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of PDR
Services, LLC (the "Company"), a Delaware limited liability company, does hereby
constitute and appoint Michael J. Ryan, Jr., Michael Cavalier, Joseph Stefanelli
and Ivonne Lugo, and any of them, as his true and lawful attorneys-in-fact for
him and in his name to sign, execute, deliver and file with the Securities and
Exchange Commission Registration Statements under the Securities Act of 1933 and
Investment Company Act of 1940 and any and all amendments thereto, and any and
all certificates, letters, applications or other documents connected therewith
which such attorneys-in-fact may deem necessary or advisable for the
registration under such Acts of Units of undivided fractional interest in all
series of SPDR Trust Series 1, MidCap SPDR Trust Series 1, DIAMONDS Trust Series
1 and any other similar unit investment trust for which the Company is a sponsor
and to take any and all action that the said attorneys-in-fact may deem
necessary or advisable in order to carry out fully the intent of the foregoing
appointment, hereby ratifying and approving the acts of said attorneys-in-fact.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th
day of January, 2000.
By: /s/ Gary L. Gastineau
---------------------------
Gary L. Gastineau
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned Executive Vice
President of American Stock Exchange LLC, the sole member (the "Member") of PDR
Services, LLC (the "Company"), a Delaware limited liability company, and a
director of the Company does hereby constitute and appoint Michael J. Ryan, Jr.,
Michael Cavalier and Ivonne Lugo, and any of them, as his true and lawful
attorneys-in-fact for him and in his name to sign, execute, deliver and file
with the Securities and Exchange Commission Registration Statements under the
Securities Act of 1933 and Investment Company Act of 1940 and any and all
amendments thereto, and any and all certificates, letters, applications or other
documents connected therewith which such attorneys-in-fact may deem necessary or
advisable for the registration under such Acts of Units of undivided fractional
interest in all series of SPDR Trust Series 1, MidCap SPDR Trust Series 1,
DIAMONDS Trust Series 1 and any other similar unit investment trust for which
the Company is a sponsor and to take any and all action that the said attorneys-
in-fact may deem necessary or advisable in order to carry out fully the intent
of the foregoing appointment, hereby ratifying and approving the acts of said
attorneys-in-fact .
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th
day of January, 2000.
By: /s/ Joseph B. Stefanelli
----------------------------
Joseph B. Stefanelli
