As filed with the Securities and Exchange Commission on January 25, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 7
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:
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:
James F. Duffy
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
It is proposed that this filing will become effective:
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
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 fee in the amount of $1,070,584.00 was paid on December 22, 1998 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.
[_] Check box if it is proposed that this filing will become effective on [date], at [time] pursuant to paragraph (b) of Rule 485.
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
----------- ---------------------
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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............. *
----------
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*Not applicable, answer negative or not required.
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
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
----------
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*Not applicable, answer negative or not required.
(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 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 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... *
----------
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*Not applicable, answer negative or not required.
(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 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.... *
----------
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*Not applicable, answer negative or not required.
19. Records, accounts and reports.. The S&P Index; Distribution
of 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................ *
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III. Organization, Personnel and
Affiliated Persons of Depositor
-------------------------------
25. Organization of depositor...... Sponsor
26. Fees received by depositor..... *
----------
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*Not applicable, answer negative or not required.
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....................... *
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35. Distribution of Trust's
securities in states........... Distribution of 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
SPDRs
(b) Underwriting agreements.... Prospectus Summary -
Underwriting;
Distribution of SPDRs
(c) Selling agreements......... Same as set forth in
38(b)
----------
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*Not applicable, answer negative or not required.
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
SPDRs
(b) Schedule as to components
of redemption price........ *
----------
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*Not applicable, answer negative or not required.
47. Maintenance of position in
underlying securities.......... The Trust; The Portfolio;
Distribution of SPDRs;
Valuation; Administration
of the Trust -
Distribution to
Beneficial Owners
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48. Organization and regulation of
trustee........................ Trustee
49. Fees and expenses of trustee... Expenses of the Trust;
Redemptions of SPDRs
50. Trustee's lien................. Expenses of the Trust;
Redemption of SPDRs
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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................ *
----------
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*Not applicable, answer negative or not required.
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)
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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........................... *
----------
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*Not applicable, answer negative or not required.
58. Certain information regarding
periodic payment plan certifi-
cates........................... *
59. Financial statements
(Instruction 1(c) to Form S-6).. *
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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.
Prospectus
STANDARD & POOR'S DEPOSITARY RECEIPTS(R)
("SPDRs")(R)
SPDR Trust, Series 1
(A Unit Investment Trust)
.SPDR Trust is a Pooled Investment Designed to Closely Track the Price and Yield Performance of the S&P 500(R) Index.
.SPDR Trust Portfolio Holds All of the S&P 500 Index Stocks.
.Each SPDR Represents an Undivided Ownership Interest in the SPDR Trust Portfolio.
.The SPDR Trust Issues and Redeems SPDRs Only in Multiples of 50,000 SPDRs (called "Creation Units") in Exchange for S&P 500 Index Stocks and Cash.
.Individual SPDRs Trade on the American Stock Exchange Like Any Other Equity Security.
.Minimum Trading Unit: 1 SPDR.
SPONSOR: PDR SERVICES LLC
(Solely Owned by American Stock Exchange 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 A Dated January 25, 1999
COPYRIGHT(R) 1999 by PDR Services LLC
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRs")(R)
SPDR TRUST, SERIES 1
TABLE OF CONTENTS
FRONT COVER PAGE
SPDRs PROSPECTUS PART A--HIGHLIGHTS
SPDRs Are Ownership Interests in the SPDR Trust......................... A-2 SPDRs Trade on the American Stock Exchange.............................. A-2 The SPDR Trust Issues and Redeems SPDRs in Multiples of 50,000 SPDRs called "Creation Units"................................................ A-2 Brokerage Commissions on SPDRs.......................................... A-3 SPDRs Are Based on a Broad Market Index................................. A-3 SPDRs Should Closely Track the Value of the Underlying S&P 500 Index Stocks................................................................. A-3 Expenses of the Trust................................................... A-3 SPDRs Make Periodic Dividend Payments................................... A-4 The Trustee Votes the Underlying Shares................................. A-4 Termination of the SPDR Trust........................................... A-4 Risk Factors............................................................ A-5 SPDRs PROSPECTUS PART B Essential Information................................................... B-2 Report of Independent Accountants....................................... B-4 Statement of Assets and Liabilities..................................... B-5 Statement of Operations................................................. B-6 Statement 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-28 Risk Factors and Special Considerations................................. B-39 General................................................................. B-39 Net Asset Value and Market Prices....................................... B-41 Trading Considerations.................................................. B-41 Market Risks............................................................ B-41 Year 2000 Problem....................................................... B-43 The Trust............................................................... B-44 Creation of Creation Units.............................................. B-44 Procedures for Creation of Creation Units............................... B-47 Placement of Creation Orders Using SPDR Clearing Process................ B-49 Placement of Creation Orders Outside SPDR Clearing Process.............. B-49 Book-Entry-Only System.................................................. B-51 The Portfolio........................................................... B-54 Adjustments to the Portfolio............................................ B-54 |
TABLE OF CONTENTS cont'd
Adjustments to the Portfolio Deposit.................................... B-58 Selection and Acquisition of Securities................................. B-61 The S&P 500 Index....................................................... B-61 License Agreement....................................................... B-64 Exchange Listing........................................................ B-65 Tax Status of the Trust................................................. B-66 Tax Consequences to Beneficial Owners................................... B-66 Continuous Offering of SPDRs............................................ B-69 Expenses of the Trust................................................... B-70 Redemption of SPDRs..................................................... B-73 Procedure for Redemption of SPDRs....................................... B-73 Placement of Redemption Orders Using SPDR Clearing Process.............. B-77 Placement of Redemption Orders Outside SPDR Clearing Process............ B-78 Valuation............................................................... B-79 Administration of the Trust............................................. B-79 Records................................................................. B-79 Voting.................................................................. B-80 Distributions to Beneficial Owners...................................... B-80 Trust Supervision....................................................... B-83 Statements to Beneficial Owners......................................... B-83 Register of Ownership and Transfer...................................... B-83 Rights of Beneficial Owners............................................. B-83 Amendment............................................................... B-84 Termination............................................................. B-85 Resignation, Removal and Liability...................................... B-86 The Trustee............................................................. B-86 The Sponsor............................................................. B-88 Sponsor................................................................. B-89 Trustee................................................................. B-89 Depository.............................................................. B-89 Legal Opinion........................................................... B-89 Independent Accountants................................................. B-89 Information and Comparisons Relating to Trust, Secondary Market Trading, Net Asset Size, Performance and Tax Treatment.......................... B-90 Dividend Reinvestment Service........................................... B-97 Glossary of Defined Terms............................................... B-99 |
"S&P(R)", "S&P 500"(R), "Standard & Poor's 500"(R), "Standard & Poor's Depositary Receipts"(R) and "SPDRs"(R) 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.
SPDRs PROSPECTUS PART A--HIGHLIGHTS
.SPDRs ARE OWNERSHIP INTERESTS IN THE SPDR TRUST
The SPDR Trust (the "Trust") is a unit investment trust that issues securities called Standard & Poor's Depositary Receipts or "SPDRs". SPDRs represent an undivided ownership interest in the portfolio of stocks held by the SPDR Trust. The SPDR Trust holds all of the common stocks of the Standard & Poor's 500 Composite Stock Price Index(R) (the "S&P 500 Index") and is intended to provide investment results that, before expenses, generally correspond to the price and yield performance of the S&P 500 Index.
.SPDRs TRADE ON THE AMERICAN STOCK EXCHANGE
SPDRs are listed for trading on the American Stock Exchange (the "Exchange"). SPDRs are bought and sold in the secondary market like ordinary shares of stock at any time during the trading day. SPDRs are traded on the Exchange in 100 SPDR round lots, but can be traded in odd lots of as little as 1 SPDR. Note that trading of SPDRs on the Exchange will be halted under the circumstances described in the paragraphs below relating to the risks of investing in SPDRs.
. THE SPDR TRUST ISSUES AND REDEEMS SPDRs IN MULTIPLES OF 50,000 SPDRs CALLED "CREATION UNITS"
The Trust only issues SPDRs in specified large-sized minimum numbers (50,000 SPDRs or multiples thereof) referred to as "Creation Units." Most SPDR holders however, purchase and sell 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 State Street Bank and Trust Company, the "Trustee" of the Trust, a specified portfolio of S&P 500 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.
SPDRs are not individually redeemable, except upon termination of the Trust. SPDRs can be redeemed only by tendering to the Trust 50,000 SPDRs (or multiples thereof)--the same Creation Unit-sized minimum number. The Trust will then deliver a portfolio of S&P 500 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.
.BROKERAGE COMMISSIONS ON SPDRs
Secondary market purchases and sales of SPDRs are subject to ordinary brokerage commissions.
.SPDRs ARE BASED ON A BROAD MARKET INDEX
The Sponsor selected the S&P 500 Index, composed of 500 publicly traded stocks, as the basis for SPDRs because it is well-known to investors and, in the opinion of the Sponsor, constitutes a representative segment of the market of all publicly traded stocks. Current information regarding the market value of the S&P 500 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 500 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 500 Index or any data included in it.
. SPDRs SHOULD CLOSELY TRACK THE VALUE OF THE UNDERLYING S&P 500 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 500 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 500 Index stocks. The SPDR Trust Agreement contains directions to the Trustee specifying how changes to the S&P 500 Index are to be replicated by the Trust.
The value of 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 SPDR may not be identical to the net asset value of such SPDR. Historically, these two valuations have been very close. See Part B of this Prospectus for a description of the comparisons of market price and net asset value. Of course, these comparisons only reflect past performance and no guarantee can be made of future performance.
The current value of the S&P 500 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 500 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,
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 Trustee is currently accruing ordinary operating expenses at an annual rate of 0.18%:
Estimated Trust Annual Ordinary Operating Expenses
As a % of
Trust Net Assets
----------------
Trustee's Fee 0.1063%
S&P License Fee 0.0300%
Registration Fees 0.0092%
Marketing Expenses 0.0282%
Other Operating Expenses 0.0063%
------
Total: 0.1800%
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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 0.18% of the Trust's daily net asset value. Historically, the ordinary operating expenses of the Trust have not been permitted to exceed 0.1845% of the Trust's daily net asset value because the Sponsor has in the past reimbursed the Trust for all ordinary operating expenses in excess of such amount. The Sponsor reserves the right to discontinue this reimbursement policy in the future.
.SPDRs MAKE PERIODIC DIVIDEND PAYMENTS
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 SPDRs will ordinarily be less than that of the S&P 500 Index. The SPDR holder should be aware of the tax consequences associated with Trust dividends, as well as those associated with 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 SPDRs will not be able to vote the shares of the stocks underlying the SPDRs.
.TERMINATION OF THE SPDR TRUST
The SPDR Trust has a specified lifetime term. The Trust is scheduled to terminate no later than January 22, 2118, but it may terminate earlier under certain circumstances described in Part B of this Prospectus.
Trading of SPDRs cannot occur after termination of the underlying Trust. Upon termination, the Trust may be liquidated, and 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 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 SPDRs.
. 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 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 500 Index because of the operational fees and expenses incurred by the Trust or because of the temporary unavailability of certain S&P 500 Index 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 SPDR on the Exchange may differ from the net asset value of the SPDR. This difference in price may be due to the fact that the supply and demand in the market for 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 500 Index securities.
. Investors will not be able to sell SPDRs during any period that the Exchange halts trading in SPDRs. The Exchange may halt the trading of 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.
. The Exchange maintains certain requirements to list securities, including SPDRs, on the Exchange. Investors cannot be assured that the Trust will continue to meet the requirements necessary to maintain the listing of SPDRs on the Exchange or that the Exchange will not change the listing requirements. The Trust may be terminated if SPDRs are delisted from the Exchange.
. The Sponsor of the Trust has been granted a license to use the S&P 500 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 $350,000,000.
. 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 companies, the Year 2000 Problem may have an adverse impact upon the Trust. The Sponsor and the Trustee are taking steps to address the Year 2000 Problem with respect to the computer systems they use and to obtain reasonable assurances that similar steps are being taken by the Trust's other service providers. At this time, however, there can be no assurance that these steps will be sufficient to avoid any adverse impact to the Trust. The Year 2000 Problem is expected to have an impact on all corporations, including those whose stocks are contained in the Trust's Portfolio. The Sponsor cannot predict what impact, if any, the Year 2000 Problem will have on the stocks in the Trust.
STANDARD & POOR'S DEPOSITARY RECEIPTS(R)
("SPDRs"(R))
SPDR Trust, Series 1
(A Unit Investment Trust)
[LOGO OF 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 25, 1999
SPDR PROSPECTUS PART B--ESSENTIAL INFORMATION AS OF SEPTEMBER 30, 1998+
Number of SPDRs
79,266,004
Fractional Undivided Interest in
Trust Represented by each SPDR
1/79,266,004th
Record Date: Quarterly, on the second 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 11/100 of one percent to 15/100 of
one percent, based on net asset value of
the Trust, as the same may be reduced by
certain amounts, plus (or minus) the
Adjustment Amount.+++
Estimated Ordinary Operating
Expenses of the Trust:
18/100 of one percent (0.18%) (inclusive
of Trustee's annual fee).+++
Net Asset Value per SPDR (based on
the value of the Securities, other
net assets of the Trust and number
of SPDRs outstanding)
$101.80
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) January 22,
2118 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
|
Discretionary Termination: Trust may be terminated if at any time
the value of the securities held by the
Trust is less than $350,000,000, as such
amount shall be adjusted for
inflation.++++
-----------
|
+ The Trust Agreement became effective and the initial deposit was made on
January 22, 1993 (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 0.1845% of the daily net asset
value of the Trust. Thereafter, such amount may be changed and may exceed
0.1845%. See "Expenses of the Trust". Ordinary operating expenses are
currently being accrued at an annual rate of 0.18%; 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 0.18% 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".
SPDR Trust Series 1
Report of Independent Accountants
To the Trustee and Unitholders of
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 SPDR Trust Series
1 (the "Trust") at September 30, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, 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 investments owned at September 30, 1998 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 23, 1998
SPDR Trust Series 1
Statement of Assets and Liabilities
September 30, 1998
Assets
Investments in securities, at value (cost $8,705,757,098)...... $8,052,798,893
Cash........................................................... 29,508,087
Receivable for investments sold................................ 40,492,999
Dividends receivable........................................... 10,157,070
--------------
Total Assets..................................................... 8,132,957,049
==============
Liabilities
Payable for investments purchased.............................. 27,938,301
Payable for income delivered for SPDR's redeemed in-kind....... 140,581
Distributions payable.......................................... 27,343,651
Due to Sponsor................................................. 3,706,835
Accrued Trustee fees........................................... 2,206,713
Accrued expenses and other liabilities......................... 2,276,843
--------------
Total Liabilities................................................ 63,612,924
--------------
Net Assets....................................................... $8,069,344,125
==============
Net assets represented by:
Paid in surplus relating to 79,266,004 units of fractional
undivided interest ("SPDRs") outstanding; unlimited units
authorized................................................... $8,747,556,906
Distribution in excess of net investment income................ (3,802,740)
Accumulated net realized loss on investments................... (21,451,836)
Net unrealized depreciation on investments..................... (652,958,205)
--------------
Net Assets....................................................... $8,069,344,125
==============
Net asset value per SPDR ($8,069,344,125/79,266,004 SPDRs)....... $ 101.80
==============
|
See accompanying notes to financial statements
SPDR Trust Series 1
For the
For the year nine month For the year For the year
ended period ended ended ended
September 30, September 30, December 31, December 31,
1998 1997 1996 1995
--------------- ------------- ------------ ------------
Investment Income
Dividend income(a)..... $ 93,269,315 $ 38,356,337 $ 29,620,992 $ 16,060,887
--------------- ------------ ------------ ------------
Expenses
Trustee expense........ 6,990,046 2,578,842 1,806,689 909,805
S&P license fee........ 2,504,990 563,541 347,506 218,098
Marketing expense...... 2,213,340 431,452 436,049 --
SEC registration
expense............... 1,125,070 450,401 203,447 136,000
Legal and audit
services.............. 229,520 143,826 135,000 80,000
Other expenses......... 130,705 90,978 41,002 21,000
Amortization of
organization costs.... 35,416 81,912 110,000 110,000
--------------- ------------ ------------ ------------
Total expenses.......... 13,229,087 4,340,952 3,079,693 1,474,903
Rebate from Sponsor.... (410,301) (249,830) (434,407) (180,244)
Rebate from Trustee.... (1,149,645) -- -- --
--------------- ------------ ------------ ------------
Net expenses............ 11,669,141 4,091,122 2,645,286 1,294,659
Trustee earnings credit. (488,977) (194,498) (176,370) (107,356)
--------------- ------------ ------------ ------------
Net expenses after
Trustee earnings
credit................. 11,180,164 3,896,624 2,468,916 1,187,303
--------------- ------------ ------------ ------------
Net investment income... 82,089,151 34,459,713 27,152,076 14,873,584
--------------- ------------ ------------ ------------
Realized and unrealized
gain on investments
Net realized gain on
investment
transactions.......... 1,878,084,944 4,973,050 12,398,283 6,289,657
Net increase in
unrealized
appreciation
(depreciation)........ (1,707,909,730) 644,808,026 236,120,771 170,848,065
--------------- ------------ ------------ ------------
Net realized and
unrealized gain on
investments............ 170,175,214 649,781,076 248,519,054 177,137,722
--------------- ------------ ------------ ------------
Net increase in net
assets from operations. $ 252,264,365 $684,240,789 $275,671,130 $192,011,306
=============== ============ ============ ============
|
(a) Net of withholding tax expense of $586,136, $289,809, $182,561, and $109,162 for 1998, 1997, 1996, and 1995, respectively.
See accompanying notes to financial statements
SPDR Trust Series 1
For the nine
For the year month For the year For the year
ended period ended ended ended
September 30, September 30, December 31, December 31,
1998 1997 1996 1995
--------------- -------------- -------------- --------------
Increase in net assets from
operations:
Net investment income............. $ 82,089,151 $ 34,459,713 $ 27,152,076 $ 14,873,584
Net realized gain on investment
transactions..................... 1,878,084,944 4,973,050 12,398,283 6,289,657
Net increase (decrease) in
unrealized appreciation.......... (1,707,909,730) 644,808,026 236,120,771 170,848,065
--------------- -------------- -------------- --------------
Net increase in net assets from
operations........................ 252,264,365 684,240,789 275,671,130 192,011,306
--------------- -------------- -------------- --------------
Undistributed net investment income
income included in price of units
issued and redeemed, net.......... 6,830,907 420,891 1,962,474 325,692
--------------- -------------- -------------- --------------
Distributions to unitholders from:
Net investment income............. (82,089,151) (33,466,398) (27,037,456) (14,873,584)
In excess of net investment
income........................... (4,796,055) -- -- (310,588)
Net realized gains................ -- -- (3,078,255) (128,321)
--------------- -------------- -------------- --------------
Total distributions to unitholders. (86,885,206) (33,466,398) (30,115,711) (15,312,493)
--------------- -------------- -------------- --------------
Net increase in net assets from
issuance and redemption of SPDRs.. 3,844,189,382 1,393,422,226 759,578,491 401,629,719
--------------- -------------- -------------- --------------
Net increase in net assets during
period............................ 4,016,399,448 2,044,617,508 1,007,096,384 578,654,224
Net assets at beginning of period.. 4,052,944,677 2,008,327,169 1,001,230,785 422,576,561
--------------- -------------- -------------- --------------
Net assets end of period*.......... $ 8,069,344,125 $4,052,944,677 $2,008,327,169 $1,001,230,785
=============== ============== ============== ==============
*Includes undistributed
(distributions in excess of) net
investment income................. $ (3,802,740) $ 993,315 $ -- $ (1,122,255)
--------------- -------------- -------------- --------------
|
SPDR Trust Series 1
For the For the For the For the For the For the
year period year year year period
ended ended ended ended ended ended
9/30/98 9/30/97 12/31/96 12/31/95 12/31/94 12/31/93(1)
---------- ---------- ---------- ---------- -------- -----------
Net asset value,
beginning of period... $ 94.78 $ 74.08 $ 61.61 $ 45.93 $ 46.62 $ 43.54
---------- ---------- ---------- ---------- -------- --------
Investment Operations:
Net investment income.. 1.41 1.03 1.35 1.26 1.22 1.15
Net realized and
unrealized gain
(loss) on
investments.......... 7.01 20.67 12.52 15.70 (0.68) 3.06
---------- ---------- ---------- ---------- -------- --------
Total from investment
operations............ 8.42 21.70 13.87 16.96 0.54 4.21
---------- ---------- ---------- ---------- -------- --------
Less distributions from:
Net investment income.. (1.32) (1.00) (1.28) (1.24) (1.23) (1.10)
In excess of net
investment income.... (0.08) -- -- (0.03) -- --
Net realized gains..... -- -- (0.12) (0.01) -- (0.03)
---------- ---------- ---------- ---------- -------- --------
Total distributions..... (1.40) (1.00) (1.40) (1.28) (1.23) (1.13)
---------- ---------- ---------- ---------- -------- --------
Net asset value, end of
period................ $ 101.80 $ 94.78 $ 74.08 $ 61.61 $ 45.93 $ 46.62
========== ========== ========== ========== ======== ========
Total investment return. 8.82% 29.38% 22.67% 37.23% 1.15% 9.78%
Ratios and supplemental
data ratio to average
net assets:
Total expenses (2)..... 0.19% 0.19%(3) 0.20% 0.20% 0.20% 0.20%(3)
Net expenses after
rebates and Trustee
earnings credit (2).. 0.18% 0.18%(3) 0.18% 0.19% -- --
Net investment income.. 1.35% 1.63%(3) 2.03% 2.35% 2.63% 2.62%(3)
Portfolio turnover rate
(4).................. 4.71% 3.22% 4.37% 4.02% 4.07% 2.40%
Net assets, end of
period (000's)........ $8,069,344 $4,052,945 $2,008,327 $1,001,231 $422,577 $461,557
|
(1) The Trust commenced operations on January 22, 1993.
(2) Net of expenses reimbursed by the Sponsor and Trustee in 1998 and Sponsor in 1994 through 9/30/97. If the Trust had borne all expenses reimbursed by the Sponsor and Trustee as noted, the ratio of expenses to average net assets would have increased by 0.03%, 0.02%, 0.03%, 0.03%, and 0.01% in 1998, 1997, 1996, 1995, and 1994, respectively.
(3) Annualized.
(4) Portfolio turnover ratio excludes securities received or delivered from processing creations or redemptions of SPDRs. See accompanying notes to financial statements
SPDR Trust Series 1
NOTES TO FINANCIAL STATEMENTS
Note 1--Organization
SPDR Trust Series 1 (the "Trust") is a unit investment trust created under the laws of the State of New York and registered under the Investment Company Act of 1940. The Trust was created to provide investors with the opportunity to purchase a security representing a proportionate undivided interest in a portfolio of securities consisting of substantially all of the common stocks, in substantially the same weighting, which comprise the Standard & Poor's 500 Composite Price Index (the "S&P Index"). Each unit of fractional undivided interest in the Trust is referred to as a Standard & Poor's Depositary Receipt ("SPDR"). The Trust commenced operations on January 22, 1993 upon the initial issuance of 150,000 SPDRs (equivalent to three "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--Significant Accounting Policies
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that effect 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 closing bid price on the exchange which is deemed to be the principal market for the security. If there is no closing bid price 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 the identified cost basis. Dividend income is recorded on the ex-dividend date.
SPDR Trust Series 1
Notes to Financial Statements (continued)
Distributions to Unitholders
The Trust declares and distributes dividends from net investment income to its unitholders quarterly. The Trust will distribute net realized capital gains, if any, at least annually.
Organization Costs
The Trust incurred organization costs of $549,500, which were capitalized and charged to operations ratably over a period of 60 months from the commencement of operations.
Federal Income Tax
The Trust has qualified and intends to qualify for and elect treatment as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. By so qualifying and electing, the Trust will not be 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 will not be subject to federal excise tax. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for income equalization, in-kind transactions and losses deferred due to wash sales. Net investment income per share calculations in the financial highlights for all years presented exclude these differences. During 1998, the Trust reclassified $1,896,359,332 of non-taxable security gains realized in the in-kind redemption of Creation Units (Note 4) as an increase to paid in surplus in the Statement of Assets and Liabilities. At September 30, 1998, the Trust had a capital loss carryforward of $33,523. This loss may be utilized to offset any net realized capital gains through September 30, 2005.
Note 3--Transactions with the Trustee and Sponsor
In accordance with the Trust Agreement, State Street Bank and Trust Company (the "Trustee") maintains the Trust's accounting records, acts as custodian and transfer agent to the Trust, and provides administrative services, including filing of all required regulatory reports. The Trustee is also responsible for determining the composition of the portfolio of securities which must be delivered in exchange for the issuance of Creation Units of the Trust, and for adjusting the composition of the Trust's portfolio from time to time to conform to changes in the composition and/or
SPDR Trust Series 1
Notes to Financial Statements (continued)
weighting structure of the S&P Index. For these services, the Trustee receives a fee at the following annual rates:
Net asset value of the Fee as a percentage of net asset
Trust value of the Trust
---------------------- --------------------------------
$0--$499,999,999 15/100 of 1% per annum plus or minus
the Adjustment Amount
$500,000,000--$999,999,999 13/100 of 1% per annum plus or minus
the Adjustment Amount
$1,000,000,000--and above 11/100 of 1% per annum plus or minus
the Adjustment Amount
|
The Adjustment Amount is the sum of (a) the excess or deficiency of transaction fees received by the Trustee, less the expenses incurred in processing orders for creation and redemption of SPDRs and (b) the amounts earned by the Trustee with respect to the cash held by the Trustee for the benefit of the Trust. During the year ended September 30, 1998, the Adjustment Amount reduced the Trustee's fee by $464,611. The Adjustment Amount included a deficiency of net transaction fees from processing orders of ($24,366) and a Trustee earnings credit of $488,977.
For the year ended September 30, 1998, PDR Services LLC (the "Sponsor", a wholly-owned subsidiary of the American Stock Exchange LLC) and State Street Bank and Trust Company (the "Trustee") agreed to reimburse the Trust for, or assume, the ordinary operating expenses of the Trust which exceeded 18.45/100 of 1% per annum of the daily net asset value of the Trust. The amount of such reimbursement by the Sponsor and Trustee for the year ended September 30, 1998 was $410,301 and $1,149,645, respectively.
Note 4--Trust Transactions in SPDRs
Transactions in SPDRs were as follows:
Year Ended Nine Month Period Ended
September 30, 1998 September 30, 1997 (Note 1)
---------------------------- ---------------------------
SPDRs Amount SPDRs Amount
----------- --------------- ----------------------------
SPDRs sold.............. 123,400,000 $12,952,751,200 23,800,000 $ 2,120,759,371
Dividend reinvestment
SPDRs issued........... 3,020 309,869 4,003 328,997
SPDRs redeemed.......... (86,900,000) (9,102,040,780) (8,150,000) (727,245,251)
Net income equalization. -- (6,830,907) -- (420,891)
----------- --------------- ----------- ---------------
Net increase............ 36,503,020 $ 3,844,189,382 15,654,003 $ 1,393,422,226
=========== =============== =========== ===============
|
SPDR Trust Series 1
Notes to Financial Statements (continued)
Year Ended Year Ended December 31,
December 31, 1996 1995
-------------------------- -------------------------
SPDRs Amount SPDRs Amount
---------- -------------- ---------- -------------
SPDRs sold.............. 15,750,000 $1,100,700,575 11,700,000 $ 640,975,632
Dividend reinvestment
SPDRs issued........... 7,625 506,869 1,291 69,292
SPDRs redeemed.......... (4,900,000) (339,666,479) (4,650,000) (239,089,513)
Net income equalization. -- (1,962,474) -- (325,692)
---------- -------------- ---------- -------------
Net increase............ 10,857,625 $ 759,578,491 7,051,291 $ 401,629,719
========== ============== ========== =============
|
Except for under the Trust's dividend reinvestment plan, SPDRs are issued and redeemed by the Trust only in Creation Unit size aggregations of 50,000 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 SPDR (income equalization) and a balancing cash component to equate the transaction to the net asset value per unit of the Trust on the transaction date. A transaction fee of $3,000 is charged in connection with each creation or redemption of Creation Units through the SPDR Clearing Process per Participating party per day, regardless of the number of Creation Units created or redeemed. Transaction fees are received by the Trustee and used to offset the expense of processing orders.
Note 5--Investment Transactions
For the year ended September 30, 1998, the Trust had in-kind contributions, in-kind redemptions, purchases and sales of investment securities of $10,913,082,425, $7,072,750,005, $283,177,518, and $288,937,344, respectively. At September 30, 1998, the cost of investments for federal income tax purposes was $8,705,674,300, accordingly, gross unrealized appreciation was $272,638,288 and gross unrealized depreciation was $925,513,695, resulting in net unrealized depreciation of $652,875,407.
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- 3Com Corp.*............................................ 346,282 $ 10,410,103 Abbott Lab. ........................................... 1,529,590 66,441,566 Adobe Systems, Inc. ................................... 70,555 2,447,377 Advanced Micro Devices, Inc.*.......................... 142,143 2,638,529 Aeroquip-Vickers, Inc. ................................ 29,251 840,966 Aetna, Inc. ........................................... 145,118 10,085,701 Ahmanson (H.F.) & Co. ................................. 120,874 6,708,507 Air Products & Chemicals, Inc. ........................ 227,516 6,768,601 Airtouch Communications, Inc.*......................... 562,294 32,050,758 Alberto-Culver Co., Class B............................ 57,744 1,349,766 Albertson's, Inc. ..................................... 238,026 12,883,157 Alcan Aluminum Ltd. ................................... 232,080 5,439,375 Allegheny Teledyne, Inc. .............................. 184,690 3,289,791 Allergan Pharmaceuticals, Inc. ........................ 66,318 3,871,313 Allied Signal, Inc. ................................... 559,998 19,809,929 Allstate Corp. ........................................ 814,420 33,951,134 Alltel Corp. .......................................... 265,992 12,601,371 Aluminum Co. of America................................ 182,834 12,981,214 Alza Corp. ............................................ 86,852 3,767,206 Amerada Hess Corp. .................................... 84,431 4,870,613 Ameren Corp. .......................................... 132,636 5,562,422 American Electric Power Co., Inc. ..................... 192,636 9,403,045 American Express Co. .................................. 448,798 34,837,945 American General Corp. ................................ 250,929 16,028,090 American Greetings Corp., Class A...................... 66,905 2,646,929 American Home Products Corp. .......................... 1,303,620 68,277,097 American International Group, Inc. .................... 1,041,166 80,169,782 American Stores Co. ................................... 273,898 8,816,092 Ameritech Corp. ....................................... 1,095,893 51,917,931 Amgen, Inc.*........................................... 248,162 18,751,741 Amoco Corp. ........................................... 950,530 51,209,804 AMP, Inc. ............................................. 221,171 7,906,863 AMR Corp.*............................................. 184,112 10,206,709 Anadarko Petroleum Corp. .............................. 118,570 4,661,283 Andrew Corp.*.......................................... 91,919 1,217,927 |
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- Anheuser-Busch Cos., Inc. ............................. 475,345 $ 25,668,630 Aon Corp. ............................................. 167,478 10,802,331 Apache Corp. .......................................... 91,946 2,465,302 Apple Computer, Inc.*.................................. 130,275 4,966,734 Applied Materials, Inc.*............................... 370,517 9,355,554 Archer-Daniels-Midland Co. ............................ 602,054 10,084,404 Armco, Inc.*........................................... 110,791 553,955 Armstrong World Industries, Inc. ...................... 41,612 2,226,242 ASARCO, Inc. .......................................... 42,605 814,821 Ascend Communications, Inc.*........................... 184,302 8,385,741 Ashland, Inc. ......................................... 76,306 3,529,153 Associates First Capital Corp. ........................ 341,920 22,310,280 AT & T Corp. .......................................... 1,794,103 104,842,894 Atlantic Richfield Co. ................................ 314,114 22,282,462 Autodesk, Inc. ........................................ 47,724 1,252,755 Automatic Data Processing, Inc. ....................... 298,133 22,285,442 Autozone, Inc.*........................................ 151,731 3,736,376 Avery Dennison Corp. .................................. 109,216 4,771,374 Avon Products, Inc. ................................... 265,592 7,453,176 Baker Hughes, Inc. .................................... 320,220 6,704,606 Ball Corp. ............................................ 31,015 1,093,279 Baltimore Gas & Electric Co. .......................... 150,706 5,029,813 Banc One Corp. ........................................ 688,883 29,363,638 Bank of New York, Inc. ................................ 741,088 20,287,284 BankAmerica Corp. ..................................... 677,995 40,764,449 BankBoston Corp. ...................................... 295,604 9,754,932 Bankers Trust Co. (N.Y.)............................... 89,825 5,299,675 Bard (C.R.), Inc. ..................................... 58,392 2,153,205 Barrick Gold Corp. .................................... 374,090 7,481,800 Battle Mountain Gold Co. .............................. 231,897 1,405,876 Bausch & Lomb, Inc. ................................... 56,774 2,235,476 Baxter International, Inc. ............................ 272,909 16,238,085 BB & T Corp. .......................................... 274,700 8,223,831 Bear Stearns Cos., Inc. ............................... 107,056 3,312,045 Becton, Dickinson & Co. ............................... 245,802 10,108,607 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- Bell Atlantic Corp. ................................... 1,539,144 $ 74,552,287 BellSouth Corp. ....................................... 971,985 73,141,871 Bemis Co., Inc. ....................................... 54,032 1,894,497 Bestfoods.............................................. 278,398 13,484,903 Bethlehem Steel Corp.*................................. 116,877 964,235 Biomet, Inc. .......................................... 108,662 3,769,213 Black & Decker Corp. .................................. 94,273 3,924,114 Block (H&R), Inc. ..................................... 107,034 4,428,532 BMC Software, Inc.*.................................... 212,600 12,753,874 Boeing Co. ............................................ 999,207 34,285,290 Boise Cascade Corp. ................................... 52,820 1,337,006 Boston Scientific Corp.*............................... 195,877 10,063,181 Briggs & Stratton Corp. ............................... 23,745 976,513 Bristol-Myers Squibb Co. .............................. 987,568 102,583,626 Brown-Forman Corp., Class B............................ 70,992 4,259,520 Browning-Ferris Industries, Inc. ...................... 172,460 5,216,915 Brunswick Corp. ....................................... 101,203 1,309,314 Burlington Northern Santa Fe........................... 474,728 15,191,296 Burlington Resources, Inc. ............................ 180,493 6,745,926 Cabletron Systems, Inc.*............................... 160,336 1,803,780 Campbell Soup Co. ..................................... 445,438 22,355,420 Capital One Financial Corp. ........................... 64,582 6,684,237 Cardinal Health, Inc. ................................. 130,741 13,499,008 Carolina Power & Light Co. ............................ 142,830 6,596,961 Case Corp. ............................................ 75,414 1,640,255 Caterpillar, Inc. ..................................... 356,434 15,883,590 CBS Corp. ............................................. 710,428 17,227,879 Cendant Corp.* ........................................ 827,176 9,615,921 Centex Corp. .......................................... 60,060 2,072,070 Central & South West Corp.............................. 216,820 6,192,921 Ceridian Corp. *....................................... 72,792 4,176,441 Champion International Corp............................ 98,157 3,073,541 Chase Manhattan Corp................................... 849,520 36,741,740 Chevron Corp. ......................................... 647,223 54,407,183 Chrysler Corp. ........................................ 643,749 30,819,483 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- Chubb Corp. ........................................... 161,564 $ 10,178,532 CIGNA Corp. ........................................... 208,000 13,754,000 Cincinnati Financial Corp. ............................ 160,129 4,923,967 Cincinnati Milacron, Inc. ............................. 39,644 612,004 CINergy Corp. ......................................... 161,167 6,164,638 Circuit City Stores, Inc. ............................. 101,042 3,365,962 Cisco Systems, Inc. *.................................. 1,542,521 95,347,079 Citicorp............................................... 448,417 41,674,755 Clear Channel Communications *......................... 248,564 11,806,790 Clorox Co. ............................................ 98,059 8,089,867 Coastal Corp. ......................................... 215,800 7,283,250 Coca Cola Co. ......................................... 2,441,511 140,692,071 Colgate-Palmolive Co. ................................. 291,061 19,937,678 Columbia / HCA Healthcare Corp. ....................... 628,326 12,605,790 Columbia Gas Systems, Inc. ............................ 84,187 4,935,463 Comcast Corp., Class A................................. 360,243 16,908,906 Comerica, Inc. ........................................ 148,200 8,123,212 Compaq Computer Corp. ................................. 1,648,790 52,142,984 Computer Associates International, Inc. ............... 537,405 19,883,985 Computer Sciences Corp. ............................... 157,532 8,585,494 ConAgra, Inc. ......................................... 474,582 12,784,053 Conseco, Inc. ......................................... 307,882 9,409,644 Consolidated Edison, Inc. ............................. 225,423 11,750,174 Consolidated Natural Gas Co. .......................... 97,265 5,300,943 Consolidated Stores Corp.*............................. 108,363 2,126,624 Cooper Industries, Inc. ............................... 107,717 4,389,468 Cooper Tire & Rubber Co. .............................. 76,098 1,369,764 Coors (Adolph) Co., Class B............................ 38,681 1,776,908 Corning, Inc. ......................................... 232,886 6,855,582 Costco Cos., Inc. *.................................... 216,613 10,262,041 Countrywide Credit Industries, Inc. ................... 106,748 4,443,386 Crane Co. ............................................. 70,794 1,663,659 Crown Cork & Seal Co., Inc. ........................... 130,221 3,483,412 CSX Corp. ............................................. 220,894 9,291,354 Cummins Engine Co., Inc. .............................. 39,326 1,169,949 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- CVS Corp. ............................................. 385,032 $ 16,869,214 Cyprus Amax Minerals Co. .............................. 95,992 1,271,894 Dana Corp. ............................................ 162,629 6,068,095 Darden Restaurants, Inc. .............................. 147,735 2,363,760 Data General Corp. *................................... 44,487 483,796 Dayton-Hudson Corp. ................................... 426,198 15,236,578 Deere & Co. ........................................... 231,933 7,015,973 Dell Computer Corp.*................................... 1,257,816 82,701,402 Delta Air Lines, Inc. ................................. 74,291 7,224,800 Deluxe Corp. .......................................... 83,936 2,386,930 Dillards, Inc., Class A................................ 113,618 3,216,810 Disney (Walt) Co. (The)................................ 2,027,002 51,308,488 Dollar General Corp. .................................. 179,365 4,775,593 Dominion Resources, Inc. .............................. 189,569 8,459,517 Donnelley (R.R.) & Sons Co. ........................... 132,706 4,669,592 Dover Corp. ........................................... 225,150 6,951,506 Dow Chemical Co. ...................................... 220,364 18,827,349 Dow Jones & Co., Inc. ................................. 85,903 3,994,490 DTE Energy Co. ........................................ 136,273 6,157,836 pDu Pont (E.I.) de Nemours & Co., Inc. ................ 1,118,807 62,793,043 Duke Power Co. ........................................ 355,021 23,497,952 Dun & Bradstreet Corp. ................................ 156,375 4,222,125 Eastern Enterprises.................................... 15,024 632,886 Eastman Chemical Co. .................................. 79,979 4,033,941 Eastman Kodak Co. ..................................... 316,152 24,442,501 Eaton Corp. ........................................... 69,809 4,376,152 Ecolab, Inc. .......................................... 133,237 3,788,927 Edison International................................... 349,588 8,980,042 EG & G, Inc. .......................................... 47,885 1,083,398 Electronic Data Systems Corp. ......................... 484,084 16,065,538 EMC Corp. *............................................ 487,317 27,868,441 Emerson Electric Co. .................................. 435,206 27,091,573 Engelhard Corp. ....................................... 147,793 2,614,089 Enron Corp. ........................................... 321,456 16,976,895 Entergy Corp. ......................................... 243,218 7,478,954 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- Equifax, Inc. ......................................... 150,779 $ 5,380,926 Exxon Corp. ........................................... 2,415,705 169,552,295 Fannie Mae............................................. 1,027,960 66,046,430 Federal Express Corp. *................................ 149,225 6,733,778 Freddie Mac............................................ 670,438 33,144,779 Federated Department Stores, Inc. *.................... 212,304 7,722,558 Fifth Third Bancorp.................................... 256,180 14,730,350 First Chicago NBD Corp. ............................... 282,817 19,372,964 First Data Corp. ...................................... 437,850 10,289,475 First Union Corp. ..................................... 965,534 49,423,272 First Energy Corp. .................................... 233,559 7,254,926 Fleet Financial Group, Inc. ........................... 277,906 20,408,722 Fleetwood Enterprises, Inc. ........................... 36,645 1,106,221 Fluor Corp. ........................................... 69,895 2,870,063 FMC Corp. *............................................ 37,057 1,910,752 Ford Motor Co. ........................................ 1,204,437 56,533,262 Fort James Corp. ...................................... 214,387 7,034,573 Fortune Brands, Inc. .................................. 173,390 5,136,679 Foster Wheeler Corp. .................................. 41,267 567,421 FPL Group, Inc. ....................................... 174,933 12,190,643 Franklin Resources, In. c.............................. 249,752 7,492,560 Freeport McMoran Copper & Gold......................... 149,868 1,779,683 Frontier Corp. ........................................ 166,554 4,559,416 Fruit of the Loom, Inc.*............................... 74,763 1,126,118 Gannett Co., Inc. ..................................... 276,667 14,818,976 Gap, Inc. (The)........................................ 386,028 20,362,977 Gateway 2000, Inc.*.................................... 155,854 8,123,890 General Dynamics Corp.. .............................. 128,240 6,436,045 General Electric Co. .................................. 3,225,733 256,647,382 General Instrument Corp.. *............................ 143,376 3,100,506 General Mills, Inc. ................................... 148,852 10,419,640 General Motors Corp. .................................. 643,435 35,187,852 General Reinsurance Corp. ............................. 75,031 15,231,293 General Signal Corp. .................................. 48,977 1,662,157 Genuine Parts Co. ..................................... 166,097 4,993,291 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- --------------- Georgia-Pacific Corp. ................................ 93,404 $ 4,261,558 Gillette Co. ......................................... 1,105,542 42,286,981 Golden West Financial Corp. .......................... 58,342 4,773,105 Goodrich (B.F.) Co. .................................. 66,576 2,176,203 Goodyear Tire & Rubber Co. (The)...................... 159,364 8,187,325 GPU, Inc. ............................................ 124,810 5,304,425 Grace (W. R.) & Co.*.................................. 73,306 911,743 Grainger (W.W.), Inc. ................................ 100,250 4,223,031 Great Atlantic & Pacific Tea Co., Inc. ............... 38,494 933,480 Great Lakes Chemical Corp. ........................... 58,635 2,279,436 GTE Corp. ............................................ 954,211 52,481,605 Guidant Corp. ........................................ 151,854 11,275,159 Halliburton Co. ...................................... 440,287 12,575,697 Harcourt General, Inc. ............................... 72,838 3,523,538 Harnischfeger Industries, Inc. ....................... 49,727 559,429 Harrahs Entertainment, Inc.*.......................... 105,063 1,398,651 Harris Corp. ......................................... 80,608 2,579,456 Hartford Financial Services Group..................... 224,698 10,659,111 Hasbro, Inc. ......................................... 133,182 3,928,869 HBO & Co. ............................................ 415,092 11,985,781 HCR Manor Care, Inc.*................................. 104,452 3,061,749 Healthsouth Corp.*.................................... 392,394 4,144,662 Heinz (H.J.) Co. ..................................... 362,802 18,548,252 Helmerich & Payne, Inc. .............................. 51,520 1,081,920 Hercules, Inc. ....................................... 98,430 2,959,052 Hershey Foods Corp. .................................. 142,185 9,730,786 Hewlett Packard Co. .................................. 1,029,067 54,476,234 Hilton Hotels Corp. .................................. 252,348 4,305,688 Home Depot, Inc. (The)................................ 1,450,414 57,291,353 Homestake Mining Co. ................................. 167,623 2,032,429 Honeywell, Inc. ...................................... 121,562 7,787,566 Household International, Inc. ........................ 488,378 18,314,175 Houston Industries, Inc. ............................. 284,863 8,866,361 Humana, Inc.*......................................... 167,404 2,741,241 Huntington Bancshares, Inc. .......................... 206,406 5,185,951 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- Ikon Office Solutions, Inc. ........................... 134,964 $ 970,054 Illinois Tool Works, Inc. ............................. 241,784 13,177,228 IMS Health, Inc. ...................................... 154,522 9,570,706 Inco, Ltd. ............................................ 171,449 1,757,352 Ingersoll Rand Co. .................................... 164,738 6,249,748 Intel Corp. ........................................... 1,668,685 143,089,739 International Business Machines Corp. ................. 926,777 118,627,456 International Flavors &Fragrances, Inc. ............... 108,959 3,595,647 International Paper Co. ............................... 306,911 14,309,725 Interpublic Group of Cos., Inc. ....................... 128,541 6,933,180 ITT Industries, Inc. .................................. 121,156 4,104,160 Jefferson-Pilot Corp. ................................. 99,787 6,037,114 Johnson & Johnson...................................... 1,334,116 104,394,577 Johnson Controls, Inc. ................................ 85,670 3,983,655 Jostens, Inc. ......................................... 39,323 815,952 K Mart Corp.*.......................................... 497,325 5,936,817 Kaufman & Broad Home Corp. ............................ 39,266 920,297 Kellogg Co. ........................................... 393,963 12,976,156 Kerr-McGee Corp. ...................................... 49,139 2,235,825 Keycorp................................................ 435,676 12,580,144 Kimberly-Clark Corp. .................................. 535,399 21,683,659 King World Productions, Inc. .......................... 75,928 1,983,619 Kla-Tencor Corp.*...................................... 85,862 2,135,817 Knight Ridder, Inc. ................................... 79,768 3,549,676 Kohls Corp.*........................................... 157,132 6,128,148 Kroger Co.*............................................ 258,194 12,909,700 Laidlaw, Inc........................................... 328,042 3,095,896 Lehman Brothers Holdings, Inc. ........................ 118,767 3,355,168 Lilly (Eli) & Co. ..................................... 1,088,872 85,272,288 Limited, Inc. (The).................................... 220,813 4,844,085 Lincoln National Corp. ................................ 95,864 7,884,814 Liz Claiborne, Inc. ................................... 67,051 1,755,898 Lockheed Martin Corp. ................................. 195,338 19,692,512 Loews Corp. ........................................... 116,001 9,787,584 Longs Drug Stores Corp. ............................... 40,059 1,609,871 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- Louisiana Pacific Corp. ............................... 112,498 $ 2,292,147 Lowes Cos., Inc. ...................................... 349,998 11,134,311 LSI Logic Corp.*....................................... 140,195 1,769,962 Lucent Technologies, Inc. ............................. 1,298,870 89,703,209 Mallinckrodt, Inc. .................................... 75,520 1,534,000 Marriott International, Inc. .......................... 234,125 5,589,734 Marsh & McLennan Cos., Inc. ........................... 253,814 12,627,246 Masco Corp. ........................................... 337,000 8,298,625 Mattel, Inc. .......................................... 296,542 8,303,176 May Department Stores Co. ............................. 232,660 11,981,990 Maytag Corp. .......................................... 83,544 3,989,226 MBIA, Inc. ............................................ 92,492 4,965,664 MBNA Corp. ............................................ 486,221 13,918,076 McDermott International, Inc. ......................... 58,327 1,571,184 McDonald's Corp. ...................................... 673,924 40,224,839 McGraw-Hill, Inc. ..................................... 99,194 7,861,125 MCI Worldcom, Inc.*.................................... 1,749,496 85,506,594 Mead Corp. ............................................ 107,270 3,157,761 Mediaone Group, Inc. .................................. 598,620 26,601,176 Medtronic, Inc. ....................................... 460,181 26,632,975 Mellon Bank Corp. ..................................... 256,991 14,150,567 Mercantile Bancorp, Inc. .............................. 136,162 6,586,837 Merck & Co., Inc. ..................................... 1,179,521 152,821,690 Meredith Corp. ........................................ 55,449 1,774,368 Merrill Lynch & Co., Inc. ............................. 339,257 16,072,300 Meyer (Fred), Inc. .................................... 150,586 5,854,031 MGIC Investment Corp. ................................. 115,488 4,258,620 Micron Technology, Inc.*............................... 214,630 6,532,801 Microsoft Corp.*....................................... 2,447,412 269,368,283 Millipore Corp. ....................................... 44,391 846,203 Minnesota Mining & Manufacturing Co. .................. 399,667 29,450,462 Mirage Resorts, Inc.*.................................. 179,512 3,006,826 Mobil Corp. ........................................... 776,155 58,939,270 Monsanto Co. .......................................... 587,401 33,114,731 Moore Corp. Ltd. ...................................... 86,292 911,459 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- ------- -------------- Morgan (J.P.) & Co., Inc. ............................... 175,900 $ 14,885,537 Morgan Stanley, Dean Witter, Discover and Co. ........... 573,727 24,706,119 Morton International,Inc. ............................... 127,742 2,794,356 Motorola, Inc. .......................................... 590,506 25,207,225 Nacco Industries, Inc., Class A.......................... 8,435 843,500 Nalco Chemical Co. ...................................... 67,819 2,000,661 National City Corp. ..................................... 323,087 21,303,549 National Semiconductor Corp.*............................ 164,726 1,595,783 National Service Industries, Inc. ....................... 43,724 1,393,703 NationsBank Corp. ....................................... 951,427 50,901,344 Navistar International Corp.*............................ 52,218 1,181,432 New York Times Co. (The), Class A........................ 176,060 4,841,650 Newell Co. .............................................. 162,484 7,484,419 Newmont Mining Corp. .................................... 159,749 3,873,913 Nextel Communications, Inc.*............................. 267,420 5,398,541 Niagara Mohawk Power Corp.*.............................. 156,324 2,403,482 NICOR, Inc. ............................................. 50,203 2,080,287 Nike, Inc., Class B...................................... 276,691 10,185,687 Nordstrom, Inc. ......................................... 155,540 3,849,615 Norfolk Southern Corp. .................................. 381,911 11,099,288 Northern States Power Co. ............................... 147,664 4,143,821 Northern Telecom Ltd. ................................... 640,664 20,501,248 Northern Trust Corp. .................................... 112,673 7,689,932 Northrop Corp. .......................................... 67,186 4,904,578 Norwest Corp. ........................................... 744,039 26,645,897 Novell, Inc.*............................................ 355,476 4,354,581 Nucor Corp. ............................................. 90,365 3,671,078 Occidental Petroleum Corp. .............................. 345,566 7,429,669 Omnicom Group Inc. ...................................... 166,194 7,478,730 ONEOK, Inc. ............................................. 30,038 1,021,292 Oracle Systems Corp.*.................................... 955,247 27,821,569 Oryx Energy Co.*......................................... 107,919 1,396,202 Owens Corning............................................ 54,077 1,760,882 Owens-Illinois, Inc.*.................................... 153,886 3,847,150 P P & L Resources, Inc. ................................. 136,691 3,536,880 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- PACCAR, Inc. .......................................... 80,003 $ 3,295,124 PacifiCorp............................................. 301,388 5,782,882 Pall Corp. ............................................ 125,092 2,775,479 Parametric Technology Corp.*........................... 263,660 2,653,079 Parker-Hannifin Corp. ................................. 114,356 3,394,944 Paychex, Inc. ......................................... 168,100 8,601,677 Peco Energy Co. ....................................... 211,241 7,723,499 Penney (J.C.) Co., Inc. ............................... 252,188 11,332,698 Pennzoil Co. .......................................... 47,940 1,680,896 Peoples Energy Corp. .................................. 36,377 1,309,572 Pep Boys-Manny Moe & Jack.............................. 64,381 861,096 PepsiCo, Inc. ......................................... 1,450,791 42,707,660 Perkin-Elmer Corp. .................................... 46,298 3,180,094 Pfizer, Inc. .......................................... 1,295,811 137,274,978 PG&E Corp. ............................................ 376,602 12,027,726 Pharmacia & Upjohn, Inc. .............................. 498,115 24,999,147 Phelps Dodge Corp. .................................... 59,077 3,083,081 Philip Morris Cos., Inc. .............................. 2,413,438 111,168,988 Phillips Petroleum Co. ................................ 250,710 11,313,289 Pioneer Hi Bred International, Inc. ................... 236,998 6,221,198 Pitney Bowes, Inc. .................................... 270,379 14,211,796 Placer Dome, Inc. ..................................... 247,219 3,414,712 PNC Financial Corp. ................................... 293,020 13,185,900 Polaroid Corp. ........................................ 46,206 1,134,935 Potlatch Corp. ........................................ 29,959 1,020,478 PPG Industries, Inc. .................................. 169,602 9,253,909 Praxair, Inc. ......................................... 161,003 5,262,786 Procter & Gamble Co. .................................. 1,327,068 94,138,886 Progressive Corp. ..................................... 72,320 8,154,080 Provident Cos., Inc. .................................. 134,640 4,544,100 Providian Financial Corp. ............................. 96,461 8,181,099 Public Service Enterprise, Inc. ....................... 221,502 8,707,797 Pulte Corp. ........................................... 45,010 1,105,558 Quaker Oats Co. ....................................... 129,579 7,645,161 Ralston Purina Co. .................................... 304,846 8,916,745 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- --------------- Raychem Corp. ........................................ 77,249 $ 1,882,944 Raytheon Co. ......................................... 338,795 18,273,755 Reebok International Ltd.*............................ 57,420 778,759 Regions Financial Corp. .............................. 210,032 7,613,660 Republic New York Corp................................ 110,526 4,365,777 Reynolds Metals Co.................................... 74,358 3,778,316 Rite Aid Corp. ....................................... 254,732 9,042,986 RJR Nabisco, Inc...................................... 315,320 7,942,123 Rockwell International Corp........................... 180,700 6,527,788 Rohm & Haas Co. ...................................... 174,045 4,840,627 Rowan Cos., Inc. *.................................... 88,484 989,915 Royal Dutch Petroleum Co.............................. 2,121,600 101,041,200 Rubbermaid, Inc. ..................................... 154,294 3,693,413 Russell Corp. ........................................ 38,351 1,006,714 Ryder Systems, Inc. .................................. 77,603 1,930,375 SAFECO Corp. ......................................... 135,348 5,642,320 Sara Lee Corp......................................... 457,692 24,715,368 SBC Communications, Inc............................... 1,822,934 81,006,630 Schering-Plough Corp. ................................ 724,581 75,039,420 Schlumberger Ltd...................................... 538,984 27,117,632 Schwab (Charles) Corp................................. 269,649 10,617,429 Scientific-Atlanta, Inc. ............................. 79,945 1,688,838 Seagate Technology, Inc.*............................. 248,825 6,236,177 Seagram Co. Ltd. (The)................................ 337,038 9,668,778 Sealed Air Corp. *.................................... 81,383 2,594,077 Sears, Roebuck & Co................................... 383,224 16,933,710 Sempra Energy......................................... 225,525 5,877,745 Service Corp. International........................... 250,540 7,985,962 Shared Medical System................................. 25,328 1,347,133 Sherwin-Williams Co................................... 176,005 3,806,108 Sigma Aldrich Corp. .................................. 103,204 2,980,016 Silicon Graphics, Inc. *.............................. 180,490 1,692,094 SLM Holding Corp. .................................... 167,486 5,432,827 Snap On, Inc.......................................... 62,308 1,919,865 Sonat, Inc. .......................................... 110,950 3,314,631 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- ------- -------------- Southern Co.............................................. 697,685 $ 20,538,102 Southwest Airlines Co. .................................. 337,369 6,747,380 Springs Industries, Inc. ................................ 20,124 699,309 Sprint Corp. ............................................ 425,190 30,613,680 St. Jude Medical Center, Inc. *.......................... 87,126 2,014,789 St. Paul Cos., Inc. ..................................... 233,008 7,572,760 Stanley Works (The)...................................... 90,341 2,687,645 State Street Corp. ...................................... 163,594 8,926,098 Stone Container Corp. *.................................. 101,365 874,273 Summit Bancorp........................................... 163,746 6,140,475 Sun Co., Inc............................................. 79,872 2,555,904 Sun Microsystems, Inc. *................................. 375,734 18,716,250 SunAmerica, Inc.......................................... 190,841 11,641,301 Suntrust Banks, Inc...................................... 201,866 12,515,692 Supervalu, Inc. ......................................... 114,384 2,666,577 Synovus Financial Corp. ................................. 264,950 5,232,763 Sysco Corp. ............................................. 333,444 7,856,774 Tandy Corp. ............................................. 93,310 4,992,085 Tektronix, Inc. ......................................... 51,326 795,553 Tele-Communications, Inc.*............................... 518,701 20,294,177 Tellabs, Inc. *.......................................... 185,575 7,388,205 Temple-Inland, Inc. ..................................... 57,288 2,742,663 Tenet Healthcare Corp. *................................. 307,918 8,852,642 Tenneco, Inc. ........................................... 158,457 5,209,274 Texaco, Inc. ............................................ 534,760 33,522,767 Texas Instruments, Inc. ................................. 390,219 20,584,052 Texas Utilities Co. ..................................... 270,243 12,583,190 Textron, Inc. ........................................... 164,962 10,000,821 Thermo Electron Corp. *.................................. 155,479 2,341,902 Thomas & Betts Corp. .................................... 55,426 2,109,652 Time Warner, Inc. ....................................... 586,085 51,319,068 Times Mirror Co., Class . A.............................. 85,212 4,526,888 Timken Co. .............................................. 65,018 983,397 TJX Cos., Inc. (The)..................................... 318,986 5,681,938 Torchmark Corp. ......................................... 142,919 5,136,152 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value ------------- --------- -------------- Toys R Us Co. *........................................ 253,215 $ 4,098,918 Transamerica Corp. .................................... 62,020 6,574,120 Travelers, Inc. ....................................... 1,139,950 42,748,125 Tribune Co. ........................................... 123,332 6,205,141 Tricon Global Restaurants, Inc. *...................... 155,072 6,047,808 TRW, Inc. ............................................. 124,587 5,528,548 Tupperware Corp. ...................................... 63,426 745,256 Tyco Laboratories, Inc. ............................... 579,601 32,022,955 U. S. West, Inc. ...................................... 491,589 25,777,698 U.S. Bancorp........................................... 733,982 26,102,235 U.S. Surgical Corp. ................................... 70,785 2,950,850 Unicom Corp. .......................................... 206,185 7,706,1. 64 Unilever N. V. (N.Y. shares)........................... 630,486 38,617,267 Union Camp Corp. ...................................... 70,755 2,785,978 Union Carbide Corp. ................................... 126,856 5,470,665 Union Pacific Corp. ................................... 238,178 10,152,337 Union Pacific Resources Group, Inc. ................... 257,062 3,165,076 Union Planters Corp. .................................. 131,000 6,582,750 Unisys Corp. *......................................... 251,834 5,729,224 United Healthcare Corp. ............................... 191,721 6,710,235 United Technologies Corp. ............................. 223,909 17,115,044 Unocal Corp. .......................................... 223,369 8,097,126 Unum Corp. ............................................ 130,632 6,490,778 USAir Group, Inc. *.................................... 86,999 4,404,324 UST, Inc. ............................................. 189,298 5,596,122 USX-Marathon Group. ................................... 291,415 10,327,019 USX-U.S. Steel Group................................... 87,474 2,088,442 V.F. Corp. ............................................ 123,319 4,578,218 Venator Group, Inc. *.................................. 137,995 1,198,832 Viacom, Inc. *......................................... 356,627 20,684,366 Wachovia Corp. ........................................ 204,280 17,414,870 Wal-Mart Stores, Inc. ................................. 2,213,354 120,904,462 Walgreen Co. .......................................... 477,929 21,058,747 Warner-Lambert Co. .................................... 809,004 61,079,802 Washington Mutual, Inc. ............................... 384,498 12,976,807 |
(*) Denotes non-income producing security.
See accompanying notes to financial statements
SPDR Trust Series 1
Schedule of Investments (continued)
Common Stocks Shares Value
------------- ------- --------------
Waste Management, Inc. ................................. 555,597 $ 26,703,381
Wells Fargo & Co. ...................................... 84,187 29,886,385
Wendy's International, Inc. ............................ 133,234 2,956,129
Westvaco Corp. ......................................... 104,196 2,500,704
Weyerhaeuser Co. ....................................... 189,763 8,005,627
Whirlpool Corp. ........................................ 76,698 3,604,806
Willamette Industries, Inc. ............................ 113,151 3,246,019
Williams Cos., Inc. (The)............................... 418,524 12,032,565
Winn-Dixie Stores, Inc. ................................ 148,856 5,535,583
Worthington Industries, Inc. ........................... 96,922 1,211,525
Wrigley (Wm) Jr. Co. ................................... 116,815 8,870,639
Xerox Corp. ............................................ 322,959 27,370,775
--------------
Total Investments--(Cost $8,705,757,098)................ $8,052,798,893
==============
|
See accompanying notes to financial statements
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed information appearing elsewhere in Part B of 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 Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index") in the form of a security that closely tracks the S&P 500 Index and that may be traded as a share of common stock. The investment objective of the Trust is to provide investment results that, before expenses, generally correspond to the price and yield performance of the component common stocks of the S&P 500 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 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 State Street Bank and Trust Company, a bank and trust company organized under the laws of the Commonwealth of Massachusetts (the "Trustee"), and the Sponsor dated and executed as of January 22, 1993.
Distributor
The Distributor for SPDRs is ALPS Mutual Funds Services, Inc., a registered broker-dealer and a member of the National Association of Securities Dealers, Inc. (see "Underwriting").
Portfolio Deposits
All orders to create 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 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 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 SPDR Clearing Process"). As used herein, the term
"Participating Party" means a broker-dealer or other participant in the 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 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 SPDRs to the
account of the entity placing the order. Payment for orders to create 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 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 SPDRs (see "Tax Status of the Trust").
The Dividend Equivalent Payment and the Balancing Amount are collectively referred to herein as the "Cash Component" and the deposit of such
a portfolio of securities and the Cash Component are collectively referred to herein as a "Portfolio Deposit". In connection with the creation of 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 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 Portfolio-- Adjustments to the Portfolio Deposit").
In connection with the creation of 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 SPDR Clearing Process") as part of the Cash Component in lieu of the inclusion of such Index Security or Index Securities in the securities portion of the Portfolio Deposit. In such case such creator will pay the Trustee the standard Transaction Fee, plus an additional amount per Creation Unit not to exceed three (3) times the Transaction Fee applicable for one Creation Unit as described below.
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 SPDRs, such processes being referred to herein as the "SPDR Clearing Process", or (ii) with the Trustee outside the 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 SPDR Clearing Process of Creation Unit size aggregations of 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 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 SPDRs"). This $3,000 charge is subject to a limit not to exceed 10/100 of one percent (10 basis points) of the value of one Creation Unit at the time of creation (the "10 Basis Point Limit")*. No modifications to, or reductions, discounts or waivers of, the Transaction Fee charged in 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 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 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.
Size of Creation Unit Aggregations of SPDRs
SPDRs may be created or redeemed only in Creation Unit size aggregations of 50,000 SPDRs, or in multiples thereof (e.g., 100,000, 150,000, 200,000 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 SPDRs outstanding and a corresponding change in the number of SPDRs constituting a Creation Unit in the event that the per 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 SPDRs in a Creation Unit size aggregation of SPDRs would double (e.g., from 50,000 to 100,000 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 500 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 500 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 day on which the change to the S&P 500 Index takes effect after the close of the market (see "The Portfolio--Adjustments to the Portfolio Deposit").
Book Entry Ownership of SPDRs
outstanding SPDRs. Beneficial ownership of SPDRs will be shown on the records of the Depository or its participants. Certificates will not be issued for 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 have been amortized on a straight line basis over five years following the Initial Date of Deposit. 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 fiscal year ended September 30, 1998, 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 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
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 Section 4975 of the Code will not apply to transactions involving the Trust's assets while 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 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 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 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 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 Dividend Reinvestment Service available through certain brokers. (See "Dividend Reinvestment Service" for a brief description thereof.)
Redemption
SPDRs in Creation Unit size aggregations are redeemable in kind only and are not redeemable for cash (see "Redemption of SPDRs"). SPDRs can be redeemed only in Creation Unit size aggregations effected by a Participating Party (with respect to redemptions through the SPDR Clearing Process) or a DTC Participant (with respect to redemptions outside the SPDR Clearing Process), in either case which has executed a Participant Agreement (see "Redemption of SPDRs--Procedure for Redemption of SPDRs"). Individual 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, SPDR owners may aggregate individual SPDRs to Creation Unit size or multiples thereof (e.g., 50,000, 100,000 SPDRs, etc.) and request that the Trustee redeem the 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 SPDRs in less than Creation Unit size aggregations may have to pay brokerage fees and commissions to acquire sufficient SPDRs (i.e., 50,000 SPDRs) to constitute a Creation Unit. Each redemption will also be accompanied by a Cash Redemption Payment (as hereinafter defined, see "Redemption of SPDRs--Procedure for Redemption of 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 SPDRs in Creation Unit size aggregations, then the Trustee shall have the right in its discretion to deliver the cash equivalent value of such Index Security or Index Securities, based on the market value of such Index Security or Index Securities as of the Evaluation Time on the date such redemption order is deemed received by the Trustee (see "Procedure for Redemption of SPDRs"), as part of the Cash Redemption Payment in lieu of delivering the Index Security or Index Securities to the redeemer.
In connection with the redemption of 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 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.
SPDR owners may also be required to pay Excess Cash Amounts, (as hereinafter defined) when applicable, in connection with a redemption of SPDRs (see "Redemption of SPDRs--Procedure for Redemption of SPDRs"). The Transaction Fee will be charged in connection with the redemption of each Creation Unit size aggregation of SPDRs. If a request for redemption is made directly to the Trustee outside the 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 SPDR Clearing Process (see "Prospectus Summary--Transaction Fee").
Termination
The Trust will terminate by its terms on the first to occur of: (i) the date one hundred twenty-five (125) years from the Initial Date of Deposit (i.e., January 22, 2118) 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 SPDRs or in the event that SPDRs are delisted 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 $350,000,000, as such dollar amount shall be adjusted for inflation in accordance with the National Consumer Price Index for All Urban Consumers (the "CPI-U")* as published by the United States Department of Labor, such adjustment to take effect at the end of the fourth year following the Initial Date of Deposit and at the end of each year thereafter and to be made so as to reflect the percentage increase in consumer prices as set forth in the CPI-U for the twelve month period ending in the month preceding the month in which such adjustment is made. The Trustee shall also have the right to terminate the Trust in the event that (a) the Sponsor resigns or becomes incapable of discharging its duties and a successor is not appointed; (b) the Depository is unable or unwilling to continue to perform its functions as set forth under the Trust Agreement and a comparable replacement is unavailable; (c) NSCC no longer provides clearance services with respect to SPDRs, or if the Trustee is no longer a member of NSCC; (d) Standard & Poor's ceases publishing the S&P 500 Index; or (e) the License Agreement (as hereinafter defined) is terminated. The License Agreement currently is scheduled to expire on January 22, 2018. 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
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.
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 500 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, is not actively "managed" by traditional methods, and therefore the adverse financial condition of an issuer will not result in the elimination of its securities from the Securities held by the Trust unless the Securities of such issuer are removed from the S&P 500 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 SPDRs). Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic and banking crises. As discussed above, the Trust is not actively "managed" and therefore common stocks held by the Trust will not be disposed of as a result of normal fluctuations in the market.
Holders of common stocks of any given issuer incur more risk than holders of preferred stocks and debt obligations of such issuer because common stockholders, as owners of such issuer, have generally inferior rights to receive payments from such issuer in comparison with the rights of creditors of, or holders of debt obligations or preferred stocks issued by, such issuer. Further, unlike debt securities which typically have a stated principal amount payable at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks which typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity.
Common stock values are subject to market fluctuations as long as the common stock remains outstanding. The value of the Securities thus may be expected to fluctuate over the entire life of the Trust to values higher or lower than those prevailing on the Initial Date of Deposit (see "Market Risks").
Although most of the Securities are listed on a national securities exchange, the principal trading market for some Securities may be in the over- the-counter market. The existence of a liquid trading market for certain Securities may depend on whether dealers will make a market in such Securities. There can be no assurance that a market will be made for any of the Securities, that any market for the Securities will be maintained or that any such market will be or remain liquid. The price at which the Securities may be sold and the value of the Trust will be adversely affected if trading markets for the Securities are limited or absent.
An investment in the Trust should also be made with an understanding that the Trust will not be able to replicate exactly the performance of the S&P 500 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 500 Index. It is also possible that for a short period of time, the Trust may not fully replicate the performance of the S&P 500 Index due to the temporary unavailability of certain Index Securities in the secondary market or due to other extraordinary circumstances. Such events are unlikely to continue for an extended period of time, because the Trustee is required to correct such imbalances by means of adjusting the composition or weighting of Portfolio Securities (see "The Portfolio--Adjustments to the Portfolio").
Neither the Depository nor Beneficial Owners of SPDRs are entitled either to dispose of any of the Securities in the Trust, as such, or to vote the Securities. As the beneficial owner of the Securities, the Trustee has the right to vote all of the voting Securities (see "Administration of the Trust-- Voting").
Except as otherwise specifically noted, the time frames for delivery of securities, cash, or SPDRs in connection with creation and redemption activity within the 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 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 SPDRs in Creation Unit size aggregations and, proportionately, the net asset value per SPDR, changes as fluctuations occur in the market value of Securities. Investors should also be aware that the aggregate public trading market price of 50,000 SPDRs may be different from the net asset value of a Creation Unit aggregation of SPDRs (i.e., 50,000 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 SPDR may be different from the net asset value of a Creation Unit on a per 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 SPDRs will be closely related to, but not identical to, the same forces influencing the prices of the S&P 500 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 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 SPDRs. SPDRs are listed for trading on the Exchange. The market symbol for SPDRs is SPY. Trading in 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 SPDRs inadvisable. In addition, trading in 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 SPDRs will continue to be met or will remain unchanged. The Trust will be terminated in the event SPDRs are delisted from the Exchange. (For a description of the conditions to listing of SPDRs and the circumstances under which the Exchange would consider the suspension of trading in or the delisting of 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
SPDRs are subject to the risks of an investment in a broadly 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. 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 SPDRs as compared with trading in a broadly based portfolio of common stocks. 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 SPDRs delivered for redemption, substantially 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 SPDRs"). If a redemption is processed through the 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-market until delivery is completed. The Trust, to the extent it has not already done so, remains obligated to deliver such Securities to NSCC, and the market risk of any increase in the value of such Securities until delivery is made by the Trust to NSCC could adversely affect the net asset value of the Trust. Investors should note that the Securities to be delivered to a redeemer submitting a redemption request outside of the 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 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 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 SPDRs resulting from the distribution of Trust dividends and sales of 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 companies, 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 are taking steps to address the Year 2000 Problem with respect to the computer systems they use and to obtain reasonable assurances that similar steps are being taken by the Trust's other service providers. At this time, however, there can be no assurance that these steps will be sufficient to avoid any adverse impact to the Trust. The Year 2000 Problem is expected to have an impact on all corporations, including those whose stocks are contained in the Trust's Portfolio. The Sponsor cannot predict what impact, if any, the Year 2000 Problem will have on the companies with stocks in the Trust.
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 SPDRs. The Distributor shall reject any order that is not submitted in proper form. Investors may deposit Portfolio Deposits through the SPDR Clearing Process or directly with the Trustee outside the SPDR Clearing Process. The Transaction Fee will be charged at the time of creation of a Creation Unit Size aggregation of SPDRs, and an additional amount not to exceed three (3) times the Transaction Fee applicable for one Creation Unit will be charged to a creator creating outside the SPDR Clearing Process depositing directly with the Trustee through DTC, in part due to the increased expense associated with settlement outside the 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.
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 SPDRs or of the additional amounts charged in connection with the creation or redemption of SPDRs outside the SPDR Clearing Process beyond that which is discussed herein under the caption "Prospectus Summary-- Transaction Fee".
*** As of December 31, 1998, the American Stock Exchange Clearing LLC, a wholly-owned subsidiary of the American Stock Exchange LLC, owned 33 1/3% 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 33 1/3% of the issued and outstanding shares of common stock of NSCC.
Upon receipt of a Portfolio Deposit or Deposits, following placement with the Distributor of an order to create SPDRs, the Trustee will deliver SPDRs in Creation Unit size aggregations to the Depository. In turn, the 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 SPDR represents a fractional undivided interest in the Trust in an amount equal to one (1) divided by the total number of 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 SPDRs, would own eighty percent (80%) or more of the outstanding 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 SPDRs in Creation Unit size aggregations will be created upon receipt of the appropriate Portfolio Deposits from creators. As additional 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 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, 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 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 500 Index and, together with the Cash Component, have a value equal to the net asset value of the Trust on a per Creation
Unit basis at the close of business on the day of request for creation. The composition of the Portfolio is also adjusted from time to time to conform to the changes to the S&P 500 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 SPDRs in Creation Unit size aggregations, an entity or person must be (1) a Participating Party, with respect to creations through the SPDR Clearing Process or (2) a DTC Participant with respect to creations/redemptions outside the SPDR Clearing Process. All 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 SPDRs must be placed in multiples of 50,000 SPDRs (Creation Unit size). All orders to create SPDRs, whether through the SPDR Clearing Process or outside the 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 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 SPDR Clearing Process" and "Placement of Creation Orders Outside 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.
Orders to create Creation Unit sized aggregations of 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 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 SPDRs through the 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 SPDR Clearing Process are
likely to require transmittal by the DTC Participant earlier on the
Transmittal Date than orders effected using the SPDR Clearing Process. Those
persons placing orders outside the 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 securities and Cash Component. The
DTC Participant notified of an order to create SPDRs outside the 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 2:00
p.m. on the next Business Day immediately following the Transmittal Date. If
the Trustee does not receive both the Index Securities by 11:00 a.m. and the
Cash Component by 2:00 p.m. on the 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 SPDRs ordered, would own 80% or more of the
current outstanding SPDRs, (b) the Portfolio Deposit is not in proper form;
(c) acceptance of the Portfolio Deposit would have certain adverse tax
consequences (see "Tax Status of the Trust"); (d) the acceptance of the
Portfolio Deposit would, in the opinion of counsel, be unlawful; (e) the
acceptance of the Portfolio Deposit would otherwise, in the discretion of the
Trustee, have an adverse effect on the Trust or the rights of Beneficial
Owners; or (f) in the event that circumstances outside the control of the
Trustee make it for all practical purposes
impossible to process creations of 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 1776 Heritage Drive, North Quincy, Massachusetts 02171 and the office of the Distributor at 370 17th Street, Suite 3100, Denver, CO 80202 during normal business hours.
Placement of Creation Orders Using SPDR Clearing Process
Portfolio Deposits created through the 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 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 SPDRs through the 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 SPDR Clearing Process
Portfolio Deposits created outside the 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 SPDRs to be effected outside the SPDR Clearing Process
need not be a Participating Party, but such orders must state that the DTC
Participant is not using the SPDR Clearing Process and that the creation of
SPDRs will instead be effected through a transfer of securities and cash. The
Portfolio Deposit transfer must be ordered by the DTC Participant in a timely
fashion so as to ensure the delivery of the requisite number of Index
Securities through DTC to the account of the Trustee by no later than 11:00
a.m. of the next Business Day immediately following the Transmittal Date. All
questions as to the number of Index Securities to be delivered, and the
validity, form and eligibility (including time of receipt) for the deposit of
any tendered securities, will be determined by the Trustee, whose
determination shall be final and
binding. The cash equal to the Cash Component must be transferred directly to the Trustee through the Federal Reserve Bank wire transfer system in a timely manner so as to be received by the Trustee no later than 2:00 p.m. on the next Business Day immediately following the Transmittal Date. An order to create SPDRs outside the 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 SPDRs so created will occur no later than the third (3rd) Business Day following the day on which the creation order is deemed received by the Distributor. Under the current schedule, the total fee charged in connection with the creation of one Creation Unit outside the SPDR Clearing Process would not exceed $12,000 (see "Prospectus Summary--Transaction Fee").
SPDRs may be created in advance of the receipt by the Trustee of all or a portion of the Portfolio Deposit relating to such SPDRs as described below. In these circumstances, the initial deposit will have a value greater than the net asset value of the 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 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 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 SPDRs. 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 SPDRs.
The Depository has advised the Sponsor and the Trustee as follows: The Depository is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. The Depository was created to hold securities of its participants (the "DTC Participants") and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of whom (and/or their representatives) own the Depository.* Access to the Depository system is also
* As of December 31, 1998, the National Association of Securities Dealers, Inc., the parent company of the Exchange, owned 4.65211% of the issued and outstanding shares of the common stock of the Depository, the Exchange owned 4.65211% 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 0.00188% of the issued and outstanding shares of common stock of the Depository. Also as of such date, the Trustee owned 4.8482% of the issued and outstanding shares of the common stock of the Depository.
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 SPDRs, the Depository will credit or debit, on its book-entry registration and transfer system, the amount of 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 SPDR Clearing Process, or by the Trustee and the DTC Participant, in the case of a creation or redemption transacted outside of the SPDR Clearing Process (see "The Trust--Procedures for Creation of Creation Units" and "Redemption of SPDRs"). Beneficial ownership of SPDRs is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in 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 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 SPDRs.
So long as Cede & Co., as nominee of the Depository, is the registered owner of SPDRs, references herein to the registered or record owners of SPDRs shall mean Cede & Co. and shall not mean the Beneficial Owners of SPDRs. Beneficial Owners of SPDRs will not be entitled to have SPDRs registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered the record or registered holder thereof under the Trust Agreement. Accordingly, each Beneficial Owner must rely on the procedures of the Depository, the DTC Participant and any indirect Participant through which such Beneficial Owner holds its interests, to exercise any rights of a holder of 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 SPDR holders, or a Beneficial Owner desires to take any action that the Depository, as the record owner of all outstanding 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 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 SPDR holdings of each DTC Participant. The Trustee shall inquire of each such DTC Participant as to the number of Beneficial Owners holding 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.
SPDR distributions shall be made to the Depository or its nominee, Cede & Co., as the registered owner of all SPDRs. The Trustee and the Sponsor expect that the Depository or its nominee, upon receipt of any payment of distributions in respect of SPDRs, shall credit immediately DTC Participants' accounts with payments in amounts proportionate to their respective beneficial interests in 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 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 SPDRs, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between the Depository and the DTC Participants or the relationship between such DTC Participants and the indirect Participants and Beneficial Owners owning through such DTC Participants.
Beneficial Owners may elect to have their distributions reinvested in additional SPDRs (see "Dividend Reinvestment Service").
The Depository may determine to discontinue providing its service with respect to 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 500 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 500 Index and that derived from ownership of SPDRs.
Adjustments to the Portfolio
The S&P 500 Index is a capitalization-weighted index of 500 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 500 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 Index due to mergers, acquisitions, bankruptcies, or other market conditions, or if the issuers of such component securities fail to meet the criteria for inclusion in the Index. In 1998, there were 48 company changes to the S&P 500 Index. Ordinarily, whenever there is a change in shares outstanding or a change in a component security included in the S&P 500 Index, Standard & Poor's adjusts the divisor to assure that there is no discontinuity in the value of the S&P 500 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 500 Index, such share, name, and divisor changes to the S&P 500 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 500 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 500 Index, it is not always efficient to replicate identically the share composition of the S&P 500 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 S&P 500 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 8/100 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 500 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 500 Index, based on prices at the close of the market on the preceding Business Day (a "Weighting Analysis"). In the event that there is a Misweighting in any Security in excess of one hundred and fifty percent (150%) of the applicable Misweighting Amount, the Trustee shall calculate an adjustment to the Portfolio in order to bring the Misweighting of such Security within the Misweighting Amount, based on prices at the close of the market on the day on which such Misweighting occurs. Also, on a monthly basis, the Trustee shall perform a Weighting Analysis for each Security in the Portfolio, and in any case where there exists a Misweighting exceeding one hundred percent (100%) of the applicable Misweighting Amount, the Trustee shall calculate an adjustment to the Portfolio in order to bring the Misweighting of such Security within the applicable Misweighting Amount, based on prices at the close of the market on the day on which such Misweighting occurs. In the case of any adjustment to the Portfolio due to a Misweighting as described herein, the purchase or sale of securities necessitated by such adjustment shall be made within three (3) Business Days of the day on which such Misweighting is determined. In addition to the foregoing adjustments, the Trustee reserves the right to make additional adjustments periodically to Securities that may be misweighted by an amount within the applicable Misweighting Amount in order to reduce the overall Misweighting of the Portfolio.
The foregoing guidelines with respect to Misweightings shall also apply to any Index Security that (1) is likely to be unavailable for delivery or available in
insufficient quantity for delivery or (2) cannot be delivered to the Trustee due to restrictions prohibiting a creator from engaging in a transaction involving such Index Security. Upon receipt of an order for a Creation Unit that will involve such an Index Security, the Trustee shall determine whether the substitution of cash for such Index Security will cause a Misweighting in the Trust's Portfolio with respect to such Index Security. If a Misweighting results, the Trustee shall purchase the required number of shares of such Index Security on the opening of the market on the following Business Day. If a Misweighting does not result and the Trustee would not hold cash in excess of the permitted amounts described 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 two (2) consecutive Business Days 5/10th of 1 percent of the aggregate value of the Securities. In the event that the Trustee has made all required adjustments and is left with cash in excess of 5/10th of 1 percent of the aggregate value of the Securities, the Trustee shall use such cash to purchase additional Index Securities that are under-weighted in the Portfolio as compared to their relative weightings in the S&P 500 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 500 Index as it is currently determined by Standard & Poor's. To the extent that the method of determining the S&P 500 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 500 Index is maintained.
In making the adjustments described herein, the Trustee shall rely on industry sources for information as to the composition and weightings of the Index Securities. If the Trustee becomes incapable of obtaining or processing such information or NSCC is unable to receive such information from the Trustee on any Business Day, then the Trustee shall use the composition and weightings of the Index Securities for the most recently effective Portfolio Deposit for the purposes of all adjustments and determinations described herein (including, without limitation, determination of the securities portion of the Portfolio Deposit) until the earlier of (a) such time as current information with respect to the Index Securities is available or (b) three (3) consecutive Business Days have elapsed. If such current information is not available and three (3) consecutive Business Days have elapsed, the composition and weightings of the Securities (as opposed to the Index Securities) shall be used for the purposes of all adjustments and determinations herein (including, without limitation, determination of the securities portion of the Portfolio Deposit) until current information with respect to the Index Securities is available.
At such time as the Trustee gives written notice of the termination of the Trust (see "Administration of the Trust--Termination"), from and after the date of such notice the Trustee shall use the composition and weightings of the Securities as of such notice date for the purpose and determination of all redemptions or other required uses of the basket.
From time to time Standard & Poor's may make adjustments to the composition of the S&P 500 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 500 Index. Since securities of an issuer are often removed from the S&P 500 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 500 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 500 Index.
The Trust will be liquidated on the fixed Mandatory Termination Date unless terminated earlier under certain circumstances (see "Administration of the Trust--Termination"). In addition, Beneficial Owners of SPDRs in Creation Unit size aggregations have the right to redeem in kind (see "Redemption of 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 SPDRs multiplied by 50,000 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 500 Index in a Portfolio Deposit for the following Business Day ("Request Day"), such that (1) the market value at the close of the market on Adjustment Day of the securities to be included in the Portfolio Deposit on Request Day, together with the 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 500 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 SPDRs in Creation Unit size aggregations on Request Day and thereafter until the following Adjustment Day (see "Redemption of 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 500 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 SPDRs in Creation Unit size aggregations is deemed received, the Trustee calculates the market value of the securities portion of the Portfolio Deposit as in effect on Request Day as of the close of the market and adds to that amount the Dividend Equivalent Payment effective for requests to create or redeem on Request Day (such market value and Dividend Equivalent Payment are collectively referred to herein as the "Portfolio Deposit Amount"). The Trustee then calculates the NAV Amount, based on the close of the market on Request Day. The difference between the NAV Amount so calculated and the Portfolio Deposit Amount is the "Balancing Amount". The Balancing Amount serves the function of compensating for any differences between the value of the Portfolio Deposit Amount and the NAV Amount at the close of trading on Request Day due to, for example, (1) differences in the market value of the securities in the Portfolio Deposit and the market value of the Securities on Request Day and (2) any variances from the proper composition of the Portfolio Deposit.
* Standard & Poor's publicly announces changes in the identity and/or weighting of the S&P 500 Index component securities up to five business days in advance of the actual change. The announcements are made after the close of trading on such 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 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 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 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 SPDRs in Creation Unit size aggregations, the Balancing Amount shall be deducted from the cash transferred to the redeemer or, if such cash is less than the Balancing Amount, the difference shall be paid by the redeemer to the Trustee.
In the event that the Trustee has included the cash equivalent value of one
or more Index Securities in the Portfolio Deposit because the Trustee has
determined that
such Index Securities are likely to be unavailable or available in
insufficient quantity for delivery, the Portfolio Deposit so constituted shall
dictate the Index Securities to be delivered in connection with the creation
of SPDRs in Creation Unit size aggregations and upon the redemption of SPDRs
in Creation Unit size aggregations for all purposes hereunder until such time
as the securities portion of the Portfolio Deposit is subsequently adjusted.
In connection with the creation of 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, in its discretion, shall have the right to include the cash equivalent value of such Index Securities in the Portfolio Deposit as part of the Cash Component in lieu of the inclusion of such Index Securities in the securities portion of the Portfolio Deposit for the particular affected investor. The amount of such cash equivalent payment shall be used by the Trustee in accordance with the guidelines regarding allowable Misweightings and permitted amounts of cash (see "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 shall pay the Trustee the standard Transaction Fee, plus an additional amount per Creation Unit aggregation not to exceed (3) times the Transaction Fee applicable for one Creation Unit.
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 as of such date.
Because certain of the Securities from time to time may be sold or their relative percentages changed under certain circumstances as described herein, no assurance can be given that the Trust will retain for any length of time its present size and composition (see "The Portfolio--Adjustments to the Portfolio"). Also, the deposit of additional Portfolio Deposits and the redemption of 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 500 INDEX
The Sponsor selected the S&P 500 Index as the basis for the selection of the securities held by the Trust because it is well known to investors and, in the opinion of the Sponsor, constitutes a broadly diversified, representative segment of the market of all publicly traded common stocks in the United States. The S&P 500 Index is composed of 500 selected common stocks, all of which are listed on the AMEX, the NYSE or NASDAQ and spans over 105 separate industry groups. Since 1968, the S&P 500 Index has been a component of the U.S. Commerce Department's list of Leading Indicators which track key sectors of the U.S. economy. Current information regarding the market value of the S&P 500 Index is available from market information services. The S&P 500 Index is determined, comprised and calculated without regard to the Trust.
The Sponsor has been granted a license to use the S&P 500 Index as a basis for determining the composition of the Trust and to use certain trademarks of Standard & Poor's in connection with the Trust (see "License Agreement"). Standard & Poor's is not responsible for and shall not participate in the creation or sale of 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 500 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 500 Index for the years 1960 through 1998. Stock prices fluctuated widely during this period and were higher at the end than at the beginning. The results shown should not be considered as a representation of the income yield or capital gain or loss that may be generated by the S&P 500 Index in the future, nor should the results be considered as a representation of the performance of the Trust.
Calendar
Calendar Year-End Change in Average
Year-End Index Value Index For Yield For
Year Index Value* 1960=100 Calendar Year Calendar Year**
---- ------------ ----------- ------------- ---------------
1960..................... 58.11 100.00 -- % 3.47%
1961..................... 71.55 123.13 23.13 2.98
1962..................... 63.10 108.59 -11.81 3.37
1963..................... 75.02 129.10 18.89 3.17
1964..................... 84.75 145.84 12.97 3.01
1965..................... 92.43 159.06 9.06 3.00
1966..................... 80.33 138.24 -13.09 3.40
1967..................... 96.47 166.01 20.09 3.20
1968..................... 103.86 178.73 7.66 3.07
1969..................... 92.06 158.42 -11.36 3.24
1970..................... 92.15 158.58 0.10 3.83
1971..................... 102.09 175.68 10.79 3.14
1972..................... 118.05 203.15 15.63 2.84
1973..................... 97.55 167.87 -17.37 3.06
1974..................... 68.56 117.98 -29.72 4.47
1975..................... 90.19 155.21 31.55 4.31
1976..................... 107.46 184.93 19.15 3.77
1977..................... 95.10 163.66 -11.50 4.62
1978..................... 96.11 165.39 1.06 5.28
1979..................... 107.94 185.75 12.31 5.47
1980..................... 135.76 233.63 25.77 5.26
1981..................... 122.55 210.89 -9.73 5.20
1982..................... 140.64 242.02 14.76 5.81
1983..................... 164.93 283.82 17.27 4.40
1984..................... 167.24 287.80 1.40 4.64
1985..................... 211.28 363.59 26.33 4.25
1986..................... 242.17 416.75 14.62 3.49
1987..................... 247.08 425.19 2.03 3.08
1988..................... 277.72 477.92 12.40 3.64
1989..................... 353.40 608.15 27.25 3.45
1990..................... 330.22 568.26 -6.56 3.61
1991..................... 417.09 717.76 26.31 3.24
1992..................... 435.71 749.80 4.46 2.99
1993..................... 464.45 802.70 7.06 2.78
1994..................... 459.27 790.34 -1.54 2.82
1995..................... 615.93 1059.92 34.11 2.56
1996..................... 740.74 1274.70 20.26 2.19
1997..................... 970.43 1,669.99 31.01 1.77
1998..................... 1,229.23 2,115.35 26.67 1.49
|
** Source: Standard & Poor's. Yields are obtained by dividing the aggregate cash dividends by the aggregate market value of the stocks in the S&P 500 Index.
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 500 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 500 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 500 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 SPDRs. Currently, the License Agreement is scheduled to expire on January 22, 2018, 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 SPDRs.
None of the Trust, the Trustee, the Distributor, the Depository or any Beneficial Owner of SPDRs is entitled to any rights whatsoever under the foregoing licensing arrangements or to use the trademarks "S&P", "Standard & Poor's", "Standard & Poor's 500" or "S&P 500" or to use the S&P 500 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 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 500 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 500 Index which is determined, comprised and calculated by Standard & Poor's without regard to the Trust or the Beneficial Owners of SPDRs. Standard & Poor's has no obligation to take the needs of the Trust or the Beneficial Owners of SPDRs into consideration in determining, comprising or calculating the S&P 500 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 SPDRs. Standard & Poor's has no obligation or liability in connection with the administration, marketing or trading of SPDRs.
STANDARD & POOR'S DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 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 SPDRS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 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 500 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, SPDRs are listed on the Exchange. Transactions involving SPDRs in the public trading market are subject to customary brokerage charges and commissions.
The Sponsor's aim in designing SPDRs was to provide investors with a security whose market value would approximate one-tenth ( 1/10th) the value of the S&P 500 Index. Thus, for example, if the S&P 500 Index were at 900, investors might expect a SPDR to trade at approximately $90. Note, however, that the market price of a 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 SPDRs will always be listed on the Exchange. The Exchange will consider the suspension of trading in or removal from listing of 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 SPDRs for 30 or more consecutive trading days;
(b) if the S&P 500 Index is no longer calculated or available; or
(c) if such other event shall occur or condition exists which, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable.
The Trust is not required to pay a listing fee to the Exchange.
The Trust will be terminated in the event that 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 on each December 31 to a fiscal year ending each September 30. For the fiscal year ended September 30, 1998, 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 SPDRs. Any loss on the sale or exchange of a share held for six months or less may be treated as a long-term capital loss to the extent of any capital gain dividends received by the Beneficial Owner. For corporate investors, dividends from net investment income (but not return of capital distributions or capital gain dividends) generally will qualify for the corporate dividends-received deduction to the extent of qualifying dividend income received by the Trust, subject to the limitations contained in the Code. Investors should note that the regular quarterly dividends paid by the Trust will not be based on the Trust's investment company taxable income and net capital gain, but rather will be based on the dividends paid with respect to the Securities. As a result, a portion of the distributions
of the Trust may be treated as a return of capital or a capital gain dividend for federal income tax purposes or the Trust may make additional distributions in excess of the yield performance of the Securities in order to distribute all of its investment company taxable income and net capital gain.
Distributions in excess of the Trust's current or accumulated earnings and profits (as specially computed) generally will be treated as a return of capital for federal income tax purposes and will reduce a Beneficial Owner's tax basis in 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 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 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 SPDRs through the means of the Service (see "Dividend Reinvestment Service") will nevertheless be taxable dividends to Beneficial Owners acquiring such additional SPDRs to the same extent as if such dividends had been received in cash.
The sale of 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 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 SPDRs redeemed. Securities received upon redemption (which will be comprised of the securities portion of the Portfolio Deposit in effect on the date of redemption) generally will have an initial tax basis equal to their respective market values on the date of redemption. The Internal Revenue Service ("IRS") may assert that any resulting loss may not be deducted by a Beneficial Owner on the basis that there has been no material change in such Beneficial Owner's economic position or that the transaction has no significant economic or business utility apart from the anticipated
tax consequences. Beneficial Owners of SPDRs in Creation Unit size aggregations should consult their own tax advisors as to the consequences to them of the redemption of 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 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 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 SPDRs ordered, would own eighty percent (80%) or more of the outstanding 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 SPDR ownership pursuant to the Participant Agreement and from the Depository and to rely thereon to the extent necessary to make the foregoing determination as a condition to the acceptance of a Portfolio Deposit.
Ordinary income dividends received via the Depository by Beneficial Owners who are non-resident aliens will be subject to a thirty percent (30%) United States withholding tax unless a reduced rate of withholding or a withholding exemption is provided under applicable tax treaties. Non-resident shareholders are urged to consult their own tax advisors concerning the applicability of United States withholding tax.
Backup withholding at a rate of 31% will apply to dividends, capital gain distributions, redemptions and sales of 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 SPDRs
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 SPDRs that may be created as described herein is 50,000 or one Creation Unit. Persons making Portfolio Deposits and creating Creation Unit aggregations of 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 SPDRs.
Because new SPDRs can be created and issued on an ongoing basis, at any point during the life of the Trust a "distribution", as such term is used in the Securities Act of 1933, may be occurring. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus-delivery and liability provisions of the Securities Act. For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing a creation order with the Distributor, breaks them down into the constituent SPDRs and sells the SPDRs directly to its customers; or if it chooses to couple the creation of a supply of new SPDRs with an active selling effort involving solicitation of secondary market demand for 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 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
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 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 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 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 0.18%; 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 0.18% of the Trust's daily net asset value and such rate may be changed without notice.
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 18.45/100 of 1% (0.1845%) per annum of the daily net asset value of the Trust. To the extent during such period the ordinary operating expenses of the Trust do exceed such 0.1845% amount, the Sponsor will reimburse the Trust for or assume such excess ordinary operating expenses. The Sponsor retains the ability to be repaid by the Trust for expenses so reimbursed or assumed to the extent that subsequently during the fiscal year expenses fall below the 0.1845% per annum level on any given day. For purposes of this undertaking by the Sponsor, ordinary operating expenses of the Trust shall not include taxes, brokerage commissions and, of course, such extraordinary non-recurring expenses as may arise, including without limitation the cost of any litigation to which the Trust or Trustee may be a party. The Sponsor
may discontinue this undertaking or renew it for specified 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 0.1845% 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 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 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 SPDRs during the life of the Trust and upon termination of the Trust; and (i) other out-of-pocket expenses of the Trust incurred pursuant to actions permitted or required under the Trust Agreement.
In addition to the specific expenses discussed in the previous paragraph,
discussed above, the following expenses are or may be charged to the Trust:
(a) reimbursement to the Sponsor of amounts paid by it to S&P in respect of
annual licensing fees pursuant to the License Agreement (see "License
Agreement"), (b) federal and state annual registration fees for the issuance
of SPDRs, and (c) expenses of the Sponsor relating to the printing and
distribution of marketing materials describing 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 $549,500, in connection with the
organization of the Trust, were capitalized and have been 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 20/100 of 1% (0.20%) per annum of the daily net asset value of the Trust.
If the income received by the Trust in the form of dividends and other distributions on the Securities is insufficient to cover Trust expenses, the Trustee may make advances to the Trust to cover such expenses; otherwise the Trustee may sell Securities in an amount sufficient to pay such expenses. The Trustee may reimburse itself in the amount of any such advance, together with interest thereon at a percentage rate equal to the then current overnight federal funds rate, by deducting such amounts from (1) dividend payments or other income of the Trust when such payments or other income is received, (2) the amounts earned or benefits derived by the Trustee on cash held by the Trustee for the benefit of the Trust, and (3) the sale of Securities. Notwithstanding the foregoing, in the event that any advance remains outstanding for more than forty-five (45) Business Days, the Trustee may sell Securities to reimburse itself for the amount of such advance and any accrued interest thereon. Such advances will be secured by a lien on the assets of the Trust in favor of the Trustee. The expenses of the Trust are reflected in the net asset value of the Trust (see "Valuation").
For services performed under the Trust Agreement, the Trustee is paid by the Trust a fee at an annual rate of 11/100 of 1% to 15/100 of 1% of the net asset value of the Trust, as shown below, such percentage amount to vary depending on the net asset value of the Trust, plus or minus the Adjustment Amount (as hereinafter defined). Such compensation is computed on each Business Day on the basis of the net asset value of the Trust on such day, and the amount thereof is accrued daily and paid monthly. To the extent that the amount of the Trustee's compensation, prior to any adjustment in respect of the Adjustment Amount, is less than specified amounts, the Sponsor has agreed to pay the amount of any such shortfall. The Trustee, in its discretion, may also waive all or a portion of such fee.
TRUSTEE FEE SCALE
Fee as a Percentage of Net Asset Value
Net Asset Value of the Trust of the Trust
---------------------------- --------------------------------------
$0-$499,999,999........................ 15/100 of 1% per annum plus or minus
the Adjustment Amount
$500,000,000-$999,999,999.............. 13/100 of 1% per annum plus or minus
the Adjustment Amount*
$1,000,000,000 and above............... 11/100 of 1% per annum plus or minus
the Adjustment Amount*
|
As of September 30, 1998, and as of December 31, 1998 the net asset value of the Trust was $8,069,344,125 and $12,175,289,421, 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 market value of Securities or to creations or redemptions made in the future.
The Adjustment Amount shall be calculated at the end of each quarter and applied against the Trustee's fee for the following quarter. The "Adjustment Amount" is an amount which is intended, depending upon the circumstances, either to (1) reduce the Trustee's fee by the amount that the Transaction Fees paid on creation and redemption exceeds the costs of those activities, and by the amount of excess earnings on cash held for the benefit of the Trust or (2) increase the Trustee's fee by the amount that the Transaction Fee (plus additional amounts paid in connection with creations or redemptions outside the SPDR Clearing Process), if any, paid on creations or redemptions, falls short of the actual costs of these activities. If in any quarter the Adjustment Amount exceeds the fee payable to the Trustee as set forth above, the Trustee shall use such excess amount to reduce other Trust expenses, subject to certain federal tax limitations. To the extent that the amount of such excess exceeds the Trust's expenses for such quarter, any remaining excess shall be retained by the Trustee as part of its compensation. If in any quarter the costs of processing creations and redemptions exceed the amounts charged as a Transaction Fee (plus the additional amounts paid in connection with creations or redemptions outside the SPDR Clearing Process) net of the excess earnings, if any, on cash held for the benefit of the Trust, the Trustee will augment the Trustee's fee by the resulting Adjustment Amount.
REDEMPTION OF SPDRS
SPDRs in Creation Unit size aggregations are redeemable in kind only and are not redeemable for cash. SPDRs in Creation Unit size aggregations may be redeemed by submitting a request for redemption, the requisite number of SPDRs and the Excess Cash Amount (as defined below), if applicable, to the Trustee in the manner specified below. Beneficial Owners of SPDRs may sell SPDRs in the secondary market, but must accumulate enough SPDRs to constitute a Creation Unit (i.e., 50,000 SPDRs) in order to redeem through the Trust. 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 SPDR Clearing Process) or a single DTC Participant (with respect to redemptions outside the SPDR Clearing Process). SPDRs will remain outstanding until redeemed or until the termination of the Trust.
Procedure for Redemption of SPDRs
Requests for redemptions of Creation Units may be made on any Business Day through the SPDR Clearing Process to the Trustee at its Quincy office or at such other
office as may be designated by the Trustee. Requests for redemptions of Creation Units may also be made directly to the Trustee outside the SPDR Clearing Process. Requests for redemption shall not be made to the Distributor. In the case of redemptions made through the SPDR Clearing Process, the Transaction Fee will be deducted from the amount delivered to the redeemer. In case of redemptions tendered directly to the Trustee outside the 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 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 SPDRs for redemption and distributions to the redeemer in respect of 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 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 SPDR
Clearing Process or outside the 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 SPDR Clearing Process, the Trustee
will effect a transfer of the Cash Redemption Payment and Securities to the
redeeming Beneficial Owner by the third (3rd) NSCC Business Day following the
date on which request for redemption is deemed received. In the case of
redemptions made outside the 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 following the date on which the request for redemption is deemed received. The Trustee will cancel all 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 SPDRs in Creation Unit size aggregations, the Trustee shall have the right in its discretion to deliver the cash equivalent value of such Index Security or Index Securities, based on the market value of such Index Security or Index Securities as of the Evaluation Time on the date such redemption is deemed received by the Trustee (see "Placement of Redemption Orders Using 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 connection with the redemption of 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 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 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 500 Index, for instance, in connection with the replacement of one of the Index Securities.
The Trustee may sell Securities to obtain sufficient cash proceeds to deliver to the redeeming Beneficial Owner. To the extent cash proceeds are received by the Trustee in excess of the amount required to be provided to the redeeming Beneficial Owner, such cash amounts shall be held by the Trustee and shall be applied in accordance with the guidelines applicable to Misweightings (see "The Portfolio--Adjustments to the Portfolio").
If the income received by the Trust in the form of dividends and other distributions on the Securities is insufficient to allow distribution of the Cash Redemption Payment, the Trustee may advance out of its own funds any amounts necessary in respect of redemptions of SPDRs; otherwise, the Trustee may sell
Securities in an amount sufficient to effect such redemptions. The Trustee may
reimburse itself in the amount of such advance, together with interest thereon
at a percentage rate equal to the then current overnight federal funds rate,
by deducting such amounts from (1) dividend payments or other income of the
Trust when such payments or other income is received, (2) the amounts earned
or benefits derived by the Trustee on cash held by the Trustee for the benefit
of the Trust, and (3) the sale of Securities. Notwithstanding the foregoing,
in the event that any advance remains outstanding for more than forty-five
(45) Business Days, the Trustee shall sell Securities to reimburse itself for
such advance and any accrued interest thereon. Such advances will be secured
by a lien on the assets of the Trust in favor of the Trustee.
The Trustee may, in its discretion, and will when so directed by the Sponsor, suspend the right of redemption, or postpone the date of payment of the net asset value 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 SPDRs in Creation Unit size aggregations, an entity or person must be (1) a Participating Party with respect to redemptions through the SPDR Clearing Process, or (2) a DTC Participant with respect to redemptions outside the SPDR Clearing Process and, in either event, have executed a Participant Agreement.
All orders to redeem SPDRs must be placed in multiples of 50,000 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.
Orders to redeem Creation Unit size aggregations of 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 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 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 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 SPDR Clearing Process are likely to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the SPDR Clearing Process. Those persons placing orders outside the 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 SPDRs and Cash Redemption Payment. These deadlines will vary by institution. The Participant notified of an order to redeem outside the SPDR Clearing Process will be required to transfer 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 SPDR Clearing Process"). Information regarding Cash Redemption Payment amounts, number of outstanding SPDRs and Transaction Fees may be obtained from the Trustee at the toll-free number: 1-800-545-4189.
Placement of Redemption Orders Using SPDR Clearing Process
Orders to redeem SPDRs in Creation Unit size aggregations through the 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 SPDRs using the SPDR Clearing Process is deemed received on the Transmittal Date if (i) such order is received by the Trustee not later than the Closing Time on such Transmittal Date and (ii) all other procedures set forth in the Participant Agreement are properly followed; such order will be effected based on the net asset value of the Trust as determined as of the Evaluation Time on the Transmittal Date. An order to redeem SPDRs using the SPDR Clearing Process made in proper form but received by the Trustee after the Closing Time will be deemed received on the next Business Day immediately following the Transmittal Date. The Participant Agreement authorizes the Trustee to transmit to NSCC on behalf of the Participating Party such trade instructions as are necessary to effect the Participating Party's redemption order. Pursuant to such trade instructions from the Trustee to NSCC, the Trustee will transfer the requisite Securities (or contracts to purchase such Securities which are expected to be delivered in a "regular way" manner) by the third (3rd) NSCC Business Day following the date on which such request for redemption is deemed received, and the Cash Redemption Payment. The calculation of the value of the Securities and the Cash Redemption Payment to be delivered by the Trustee to the redeeming Beneficial Owner will be made according to the procedures set forth under "Valuation," computed as of the Evaluation Time on the Business Day on which a redemption order is deemed received by the Trustee.
Placement of Redemption Orders Outside SPDR Clearing Process
Orders to redeem SPDRs outside the 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 SPDRs to be effected outside the SPDR Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the SPDR Clearing Process and that redemption of SPDRs will instead be effected through transfer of SPDRs directly through DTC. An order to redeem SPDRs outside the 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, (ii) such order is preceded or accompanied by the requisite number of 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 2:00 p.m. on the next Business Day immediately following the Transmittal Date.
After the Trustee has deemed an order for redemption outside the 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 Business Days and the Cash Redemption Payment to the redeeming Beneficial Owner by the third Business Day following the Transmittal Date on which such redemption order is deemed received by the Trustee.
The calculation of the value of the Securities and the Cash Redemption
Payment to be delivered to the redeeming Beneficial Owner will be made by the
Trustee according to the procedures set forth under "Valuation," computed as
of the Evaluation Time on the Business Day on which a redemption order is
deemed received by the Trustee. Therefore, if a redemption order in proper
form is submitted to the Trustee by a DTC Participant not later than the
Closing Time on the Transmittal Date, and the requisite SPDRs are delivered to
the Trustee prior to the DTC Cut-Off Time on such Transmittal Date, then the
value of the Securities and the Cash Redemption Payment to be delivered to the
Beneficial Owner will be determined by the Trustee as of the Evaluation Time
on such Transmittal Date. If, however, a redemption order is submitted to the
Trustee by a DTC Participant not later than the Closing Time on a Transmittal
Date but either (1) the requisite 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 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 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 SPDRs.
The aggregate value of the Securities shall be determined by the Trustee in
good faith in the following manner: If the Securities are listed on one or
more national securities exchanges, such evaluation shall generally be based
on the closing sale price on that day (unless the Trustee deems such price
inappropriate as a basis for evaluation) on the exchange which is deemed to be
the principal market therefor (the New York or American Stock Exchange if the
securities are listed thereon) or, if there is no such appropriate closing
sale price on such exchange, at the closing bid price (unless the Trustee
deems such price inappropriate as a basis for evaluation). If the Securities
are not so listed or, if so listed and the principal market therefor is other
than on such exchange or there is no such closing bid price available, such
evaluation shall generally be made by the Trustee in good faith based on the
closing price on the over-the-counter market (unless the Trustee deems such
price inappropriate as a basis for evaluation) or if there is no such
appropriate closing price, (a) on current bid prices, (b) if bid prices are
not available, on the basis of current bid prices for comparable securities,
(c) by the Trustee's appraising the value of the securities in good faith on
the bid side of the market, or (d) by any combination thereof.
ADMINISTRATION OF THE TRUST
Records
The Trustee maintains records of the transactions of the Trust, including a current list of the identity and number of shares of each of the Securities in the Portfolio. Records of the creation of SPDRs in Creation Unit size aggregations are also maintained by the Distributor. Record of ownership of 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 225 Franklin Street, Boston, Massachusetts 02110 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 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 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. SPDRs are registered in book entry only, which records are kept by the Depository (see "The Trust--Book-Entry-Only System").
Dividends payable to the Trust in respect of the Securities are credited by the Trustee to a non-interest bearing account as of the date on which the Trust receives such dividends. Other moneys received by the Trustee in respect of the Securities, including but not limited to the Cash Component, the Cash Redemption Payment, all moneys realized by the Trustee from the sale of options, warrants or other similar rights received or distributed in respect of the Securities as dividends or distributions and capital gains resulting from the sale of Securities are also credited by the Trustee to a non-interest bearing account. All funds collected or received are held by the Trustee without interest until distributed in accordance with the provisions of the Trust Agreement. To the extent the amounts credited to such accounts generate interest income or an equivalent benefit to the Trustee, such interest income or benefit is used to reduce the Trustee's annual fee (see "Expenses of the Trust").
The Trust intends to qualify as a regulated investment company for federal income tax purposes. A regulated investment company is not subject to federal income tax on its net investment income and capital gains that it distributes to shareholders, 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 500 Index first and then from among all other Securities in a manner so as to maintain the weightings of the Securities within the applicable Misweighting Amount (see "The Portfolio--Adjustments to the Portfolio").
The Trustee further reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve the status of the Trust as a regulated investment company or to avoid imposition of income or excise taxes on undistributed income.
The Trustee further reserves the right to vary the frequency with which periodic distributions are made (e.g., from quarterly to monthly) if it is determined by the Sponsor and the Trustee, in their discretion, that such a variance would be advisable to facilitate compliance with the rules and regulations applicable to regulated investment companies or would otherwise be advantageous to the Trust. In addition, the Trustee reserves the right to change the regular ex-dividend date for 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, 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 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 SPDRs" and "Administration of the Trust--Termination"). Otherwise, the Trustee will distribute to each Beneficial Owner (whether in Creation Unit size aggregations or otherwise), as soon as practical after termination of the Trust, such Beneficial Owner's pro rata share of the net asset value of the Trust (see "Administration of the Trust--Termination").
All distributions are made by the Trustee through the Depository and the DTC Participants to Beneficial Owners as recorded on the book entry system of the Depository and the DTC Participants (see "The Trust--Book-Entry-Only System").
The settlement date for the creation of SPDRs in Creation Unit size aggregations or the purchase of 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 a 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 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 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 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 SPDRs in Creation Unit size aggregations as well as creations of SPDRs in connection with the Dividend Reinvestment Service. The Depository maintains a record on its book entry system of the DTC Participant ownership of SPDRs and the number of SPDRs owned (see "The Trust--Book-Entry-Only System"). Certificates are not issued for SPDRs, whether in Creation Unit size denominations or otherwise. Beneficial Owners have the rights accorded to holders of "book-entry" securities under applicable law. Beneficial Owners may transfer SPDRs through the Depository by instructing the DTC Participant holding the SPDRs for such Beneficial Owner in accordance with standard securities industry procedures.
Rights of Beneficial Owners
SPDRs in Creation Unit size aggregations (i.e., 50,000 SPDRs) may be tendered to the Trustee for redemption (see "Redemption of SPDRs"). Beneficial Owners may sell SPDRs in the secondary market, but must accumulate enough SPDRs (i.e., 50,000 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 or advisable in the event that NSCC or the Depository is unable or unwilling to continue to perform its functions as set forth therein; and (e) to add or change any provision thereof to conform the adjustments to the Portfolio and the Portfolio Deposit to changes, if any, made by Standard & Poor's in its method of determining the S&P 500 Index. The Trust Agreement may also be amended from time to time by the Sponsor and the Trustee with the consent of the Beneficial Owners of 51% of the outstanding 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 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 SPDRs. The Trustee shall inquire of each such DTC Participant as to the number of Beneficial Owners for whom such DTC Participant holds 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 $350,000,000, as such dollar amount shall be adjusted for inflation in accordance with the CPI-U, such adjustment to take effect at the end of the fourth year following the Initial Date of Deposit and at the end of each year thereafter and to be made so as to reflect the percentage increase in consumer prices as set forth in the CPI-U for the twelve month period ending in the last month of the preceding fiscal year.
The Trust will also terminate in the event that SPDRs are delisted from the Exchange. The Exchange will consider the suspension of trading in or the delisting of 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 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 SPDRs, or if the Trustee is no longer a participant in NSCC; (d) if Standard & Poor's ceases publishing the S&P 500 Index; and (e) if the License Agreement is terminated. Currently, the License Agreement is scheduled to expire on January 22, 2018, 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 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 SPDRs (whether in Creation Unit size aggregations or otherwise) will receive in cash the net asset value of the 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 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 request for redemption is deemed received. Beneficial Owners of SPDRs in Creation Unit size aggregations may, in advance of the Termination Date, redeem in kind directly from the Trust (see "Redemption of 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. 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 SPDRs required (see "Administration of the Trust--Distributions to 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 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 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.
The Trust Agreement provides that the Trustee is not liable for any action taken in reasonable reliance on properly executed documents or for the disposition of monies or Securities or for the evaluations required to be made thereunder, except by reason of its own gross negligence, bad faith, wilful malfeasance, wilful misconduct, or reckless disregard of its duties and obligations nor is the Trustee liable or responsible in any way for depreciation or loss incurred by reason of the sale by the Trustee of any Securities in the Trust. In the event of the failure of the Sponsor to act, the Trustee may act and is not liable for any such action taken by it in good faith. The Trustee is not personally liable for any taxes or other governmental charges imposed upon or in respect of the Securities or upon the interest thereon or upon it as Trustee or upon or in respect of the Trust which the Trustee may be required to pay under any present or future law of the United States of America or of any other taxing authority having jurisdiction. In addition, the Trust Agreement contains other customary provisions limiting the liability of the Trustee. The Trustee and its directors, subsidiaries, shareholders, officers, employees, and affiliates under common control with the Trustee (each a "Trustee Indemnified Party") will be indemnified from the assets of the Trust and held harmless against any loss, liability or expense incurred without gross negligence, bad faith, wilful misconduct, wilful malfeasance on the part of such Trustee Indemnified Party or reckless disregard of its duties and obligations, arising out of, or in connection with its acceptance or administration of the Trust, including the costs and expenses (including counsel fees) of defending against any claim or liability.
The Sponsor
If at any time the Sponsor shall fail to undertake or perform or become incapable of undertaking or performing any of the duties which by the terms of the Trust Agreement are required of it to be undertaken or performed, or shall resign, or shall become bankrupt or its affairs shall be taken over by public authorities, the Trustee may appoint a successor Sponsor as shall be satisfactory to the Trustee, agree to act as Sponsor itself, or may terminate the Trust Agreement and liquidate the Trust (see "Termination"). Notice of the resignation or removal of the Sponsor and the appointment of a successor shall be mailed by the Trustee to the Depository and the DTC Participants for distribution to Beneficial Owners (see "The Trust--Book-Entry-Only System"). Upon a successor Sponsor's execution of a written acceptance of such appointment as Sponsor of the Trust, such successor Sponsor shall become vested with all of the rights, powers, duties and obligations of the original Sponsor. Any successor Sponsor may be compensated at rates deemed by the Trustee to be reasonable.
The Sponsor may resign by executing and delivering to the Trustee an instrument of resignation. Such resignation shall become effective upon the appointment of a successor Sponsor and the acceptance of such appointment by the successor Sponsor, unless the Trustee either agrees to act as Sponsor or terminates the Trust Agreement and liquidates the Trust, which the Trustee shall do if no successor Sponsor is appointed (see "Termination").
The dissolution of the Sponsor or its ceasing to exist as a legal entity for any cause whatsoever will not cause the termination of the Trust Agreement or the Trust unless the Trustee deems termination to be in the best interests of the Beneficial Owners of SPDRs.
The Trust Agreement provides that the Sponsor is not liable to the Trustee, the Trust or to the Beneficial Owners of 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 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 SPDRs within a specified time period.
TRUSTEE
The Trustee is State Street Bank and Trust Company, a bank and trust company organized under the laws of the Commonwealth of Massachusetts with its principal place of business at 225 Franklin Street, Boston, Massachusetts 02110. The Trustee's Internal Revenue Service Employer Identification Number is 04-1867445. The Trustee is subject to supervision and examination by the Massachusetts Division of Banks and the Federal Reserve Bank of Boston.
DEPOSITORY
The Depository Trust Company, New York, New York, a limited purpose trust company and member of the Federal Reserve System, acts as Depository for SPDRs. The Depository receives customary fees for its services.
LEGAL OPINION
The legality of the SPDRs offered hereby has been passed upon by Carter, Ledyard & Milburn, New York, New York, as counsel for the Sponsor.
INDEPENDENT ACCOUNTANTS
The financial statements as of September 30, 1998 included 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 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 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 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 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 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 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 SPDR shares to short sellers may generate stock loan credits which may supplement the return they can earn from an investment in SPDRs. These stock loan credits may provide a useful source of additional income for certain institutional investors who can arrange to lend 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 SPDRs in connection with the sale or redemption of SPDRs.) Based on projected differences between 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 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.
Specifically, information may be provided to prospective or current investors comparing and contrasting the tax efficiencies of conventional mutual funds with SPDRs. Both conventional mutual funds and the SPDR Trust may be required to recognize capital gains incurred as a result of adjustments to the composition of the S&P 500 Index and therefore to their respective portfolios. From a tax perspective, however, a significant difference between a conventional mutual fund and the SPDR Trust is the process by which their shares are redeemed. In cases where a conventional mutual fund experiences redemptions in excess of subscriptions ("net redemptions") and has insufficient cash available to fund such net redemptions, such fund may have to sell stocks held in its portfolio to raise and pay cash to redeeming shareholders. A mutual fund will generally experience a taxable gain or loss when it sells such portfolio stocks in order to pay cash to redeeming fund shareholders. In contrast, the redemption mechanism for SPDRs does not involve selling the portfolio stocks held by the SPDR Trust in the event of a redemption. Instead, the SPDR Trust delivers the actual portfolio of stocks in an "in-kind" exchange to any person redeeming SPDR shares in Creation Unit size aggregations (i.e., 50,000 SPDRs per Creation Unit). While this "in-kind" exchange is a taxable transaction to the redeeming entity (usually a broker/dealer) making the exchange, it generally does not constitute a taxable transaction at the SPDR Trust level and, consequently, there is no realization of taxable gain or loss by the SPDR Trust with respect to such "in-kind" exchanges. In a period of market appreciation of the S&P 500 Index and, consequently, appreciation of SPDR shares, this "in-kind" redemption mechanism has the effect of eliminating the recognition and distribution of those net unrealized gains at the SPDR Trust level. Investors should note that although the same result would obtain for
conventional mutual funds utilizing an "in-kind" redemption mechanism, the opportunities to redeem fund shares by delivering portfolio stocks "in-kind" are limited in most mutual funds.
Investors may be informed that, while no unequivocal statement can be made as to the net tax impact on a conventional mutual fund resulting from the purchases and sales of its portfolio stocks over a period of time, conventional funds that have accumulated substantial unrealized capital gains, if they experience net redemptions and do not have sufficient available cash, may be required to make taxable capital gains distributions that are generated by changes in such fund's portfolio. In contrast, the "in-kind" redemption mechanism of SPDRs may make them more tax efficient investments under most circumstances than comparable conventional mutual fund shares. As discussed above, the "in-kind" redemption feature of the SPDR Trust tends to lower the amount of annual net capital gains distributions to SPDR holders as compared to their conventional mutual fund counterparts. Since shareholders are generally required to pay income tax on capital gains distributions, the smaller the amount of such distributions, the less taxes that are payable currently. To the extent that the SPDR Trust is not required to recognize capital gains, the SPDR holder is able, in effect, to defer tax on such gains until he sells or otherwise disposes of his shares, or the SPDR Trust terminates. If such holder retains his shares until his death, under current law the tax basis of such shares would be adjusted to their then fair market value.
Information regarding the secondary market trading activity of SPDRs also may be presented over one or more stated time periods, such as for daily, monthly, quarterly or annual periods. 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 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 investors or current Beneficial Owners comparing and contrasting the relative advantages of investing in 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 SPDRs to other investment vehicles, current economic, financial and political conditions, investment philosophy or techniques, or the desirability of owning SPDRs.
In addition, information on the performance of SPDRs on the basis of changes in price per SPDR with or without reinvesting all dividends and/or any distributions of capital in additional 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 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 500 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 500 Index (provided information is also given reflecting the performance of the Trust in comparison to that S&P 500 Index) or both may also be compared to the performance of money managers as reported in market surveys such as SEI Fund Evaluation Survey (a leading data base of tax-exempt funds) or mutual funds such as those reported by Lipper Analytical Services Inc., Money Magazine Fund Watch, Wiesenberger Investment Companies Service, Morningstar Incorporated and Value Line Investment Survey each of which measures performance following their own specific and well-defined calculation measures, or of the New York Stock Exchange Composite Index, the American Stock Exchange Index (indices of stocks traded on the New York and American Stock Exchanges, respectively), the Dow Jones Industrial Average (an index of 30 widely traded common stocks) or the NASDAQ Composite Index (an unmanaged index of over-the-counter stocks) or similar measurement standards during the same period of time. In addition to all other sources of comparative information, comparative performance figures published by other funds or money managers may be included from time to time. Information may also be included regarding the aggregate amount of assets committed to index investing generally by various types of investors, such as pension funds and other institutional investors, which currently exceeds $300 billion.
Information on the relative price performance of 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).
One important difference between SPDRs and conventional mutual fund shares is that the SPDRs are available for purchase or sale on an intraday basis on the American Stock Exchange. An investor who buys shares in a conventional mutual fund will buy or sell shares at a price at or related to the closing net asset value per share, as determined by the fund. In contrast, SPDRs are not offered for purchase or redeemed for cash at a fixed relationship to closing NAV. The tables below illustrate the distribution relationship of SPDRs closing prices to NAV for the period 1/29/93
(the commencement date of the SPDR Trust) through 12/31/98, the distribution relationships of high, low and closing prices over the same period, and distribution of bid/asked spreads for 1998. This table should help investors evaluate some of the advantages and disadvantages of SPDRs relative to funds sold and redeemed at prices related to closing NAV. Specifically, the table illustrates in an approximate way the risks of buying or selling SPDRs at prices less favorable than closing NAV and, correspondingly, the opportunities to buy or sell at prices more favorable than closing NAV.
The investor who purchases or sells SPDRs may wish to evaluate the opportunity to buy or sell on an intraday basis versus the assurance of a transaction at or related to closing NAV. To assist investors in making this comparison, the table illustrates the distribution of percentage ranges between the high and the low price each day and between each extreme daily value and the closing NAV for all trading days from 1/29/93 through 12/31/98. The investor may wish to compare these ranges with the average bid/asked spread on SPDRs and add any commissions charged by a broker. The trading ranges for this period will not necessarily be typical of trading ranges in future years and the bid/asked spread on SPDRs may vary materially over time and may be significantly greater at times in the future. There is some evidence, for example, that the bid/asked spread will widen in more volatile markets and narrow when markets are less volatile. Consequently, the investor should expect wider bid/asked spreads to be associated with wider daily spread ranges.
Daily Percentage Price Ranges: Average and Frequency Distribution for SPDR Trust and S&P 500 Composite Stock Price Index; Highs and Lows vs. Close*
(From Inception of Trust through 12/31/98 Except as Noted)
S&P 500 COMPOSITE STOCK PRICE INDEX
Intraday High Value Intraday Low Value
Daily % Price Range Above Closing Value Below Closing Value
-------------------- -------------------- --------------------
Range Frequency % of Total Frequency % of Total Frequency % of Total
----- --------- ---------- --------- ---------- --------- ----------
0-- .25% 8 0.53% 704 47.03% 434 28.99%
.25-- .5% 232 15.50% 320 21.38% 405 27.05%
.5-- 1% 659 44.02% 296 19.77% 397 26.52%
1-- 1.5% 339 22.65% 95 6.35% 157 10.49%
1.5-- 2% 141 9.42% 45 3.01% 66 4.41%
2-- 2.5% 59 3.94% 23 1.54% 20 1.34%
2.5-- 3% 29 1.94% 6 0.40% 7 0.47%
3-- 3.5% 12 0.80% 4 0.27% 4 0.27%
> 3.5% 18 1.20% 4 0.27% 7 0.47%
--------- ----- ------- ----- ------- ----- -------
Total 1,497 100.00% 1,497 100.00% 1,497 100.00%
Average Daily Range: 1.0499%
SPDR TRUST
Intraday High Value Intraday Low Value
Daily % Price Range Above Closing Value Below Closing Value
-------------------- -------------------- --------------------
Range Frequency % of Total Frequency % of Total Frequency % of Total
----- --------- ---------- --------- ---------- --------- ----------
0-- .25% 21 1.40% 613 40.95% 436 29.12%
.25-- .5% 243 16.23% 365 24.38% 419 27.99%
.5-- 1% 554 37.01% 302 20.17% 383 25.58%
1-- 1.5% 372 24.85% 131 8.75% 158 10.55%
1.5-- 2% 168 11.22% 33 2.20% 60 4.01%
2-- 2.5% 65 4.34% 35 2.34% 20 1.34%
2.5-- 3% 41 2.74% 11 0.73% 9 0.60%
3-- 3.5% 11 0.73% 3 0.20% 5 0.33%
> 3.5% 22 1.47% 4 0.27% 7 0.47%
--------- ----- ------- ----- ------- ----- -------
Total 1,497 100.00% 1,497 100.00% 1,497 100.00%
|
----------- Average Daily Range: 1.1045%
* Source: FactSet Research Systems, Inc.
Frequency Distribution for SPDR Trust: Highs and Lows vs. Net Asset Value; Bid/Asked Spread Distribution*
(From Inception of Trust through 12/31/98 Except as Noted)
SPDR TRUST
Closing Price on AMEX Closing Price on AMEX
Above Trust NAV Below Trust NAV
--------------------------------- ---------------------------------
Range Frequency % of Total Frequency % of Total
----- ---------- ------------ ---------- ------------
0-- .25% 656 90.61% 652 85.34%
.25-- .5% 63 8.70% 89 11.65%
.5-- 1% 4 0.55% 23 3.01%
1-- 1.5% 1 0.14% 0 0.00%
1.5-- 2% 0 0.00% 0 0.00%
2-- 2.5% 0 0.00% 0 0.00%
2.5-- 3% 0 0.00% 0 0.00%
3-- 3.5% 0 0.00% 0 0.00%
> 3.5% 0 0.00% 0 0.00%
--------- -------- ------------ -------- ------------
Total 724 100.00% 764 100.00%
|
Note: The closing price on the AMEX equaled the NAV on nine days.
Close was within 0.25% of NAV better than 88% of the time.
SPDR BID/ASKED SPREAD DISTRIBUTION (1998 Only)
Range % of Total
-------------- ----------
1/64 -- 1/16 3.47%
5/64 -- 1/8 41.46%
9/64 -- 3/16 37.93%
13/64 -- 1/4 15.55%
17/64 -- 5/16 1.17%
21/64 -- 3/8 0.32%
> 25/64 0.10%
-------------- -------
Total 100.00%
|
The price range of shares for 1998 was from 90 29/32 to 124 3/4; consequently, 1/8 was from 0.14% to 0.10% of the share price.
* Source: American Stock Exchange LLC
Information relating to the relative price performance of 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 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 SPDRs may also be compared to that of other indices or compilations that may be developed and made available to the investing public in the future. Of course, such comparisons will only reflect past performance of SPDRs and the investment categories, indices or compilations chosen and no guarantees can be made of future results regarding the performance of either 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 SPDRs, an interested 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. 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 SPDRs.
Distributions reinvested in additional 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 reinvestment through the Service to obtain Index
Securities necessary to create the requisite number of SPDRs at the close of business on each SPDR distribution date. Any cash balance remaining after the requisite number of 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 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 year 1998, the approximate amount of annual brokerage commissions incurred in implementing the Service was less than $0.001 per SPDR. There can be no guarantee that either the size of the Trust or the number of outstanding 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 year 1998.
GLOSSARY OF DEFINED TERMS
Page
----
"Adjustment Amount"....................................................... B-73
"Adjustment Day".......................................................... B-58
"Balancing Amount"........................................................ B-59
"Beneficial Owners"....................................................... B-52
"Business Day"............................................................ B-32
"Cash Component".......................................................... B-29
"Cash Redemption Payment"................................................. B-74
"Closing Time"............................................................ B-47
"Code".................................................................... B-33
"Commission".............................................................. B-29
"Creation Units".......................................................... A-2
"Depository Agreement".................................................... B-53
"Depository".............................................................. B-32
"Distributor"............................................................. B-37
"Dividend Equivalent Payment"............................................. B-29
"Dividend Payment Date"................................................... B-80
"DTC Cut-Off Time"........................................................ B-78
"DTC Participants"........................................................ B-51
"Evaluation Time"......................................................... B-2
"Ex-Dividend Date"........................................................ B-80
"Excess Cash Amounts"..................................................... B-74
"Exchange"................................................................ A-2
"Global Security"......................................................... B-51
"Index Securities"........................................................ B-28
"Indirect Participants"................................................... B-52
"Initial Date of Deposit"................................................. A-3
"License Agreement"....................................................... B-64
"Misweighting Amount"..................................................... B-55
"Misweighting"............................................................ B-55
"NAV Amount".............................................................. B-58
"NSCC Business Day"....................................................... B-40
"NSCC".................................................................... B-29
"Participant Agreement"................................................... B-49
"Participating Party"..................................................... B-29
"Portfolio Deposit Amount"................................................ B-59
"Portfolio Deposit"....................................................... B-30
"Portfolio"............................................................... B-44
"Record Date"............................................................. B-80
"Request Day"............................................................. B-58
"S&P"..................................................................... A-1
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Page
-----------
"S&P 500 Index".................................................... B-28
"Securities"....................................................... A-3
"Service".......................................................... B-97
"SPDR Clearing Process"............................................ B-30
"SPDR"............................................................. A-2
"Sponsor".......................................................... Front Cover
"Standard & Poor's"................................................ A-1
"Termination Date"................................................. B-36
"Transaction Fee".................................................. B-30
"Transmittal Date"................................................. B-47
"Trust Agreement".................................................. B-28
"Trust"............................................................ A-2
"Trustee".......................................................... A-2
"Weighting Analysis"............................................... B-55
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STANDARD & POOR'S DEPOSITARY RECEIPTS (SPDRs)
SPDR TRUST, SERIES 1
SPONSOR:
PDR SERVICES LLC
This Prospectus does not include all of the information with respect to the 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. 33-46080) and
. Investment Company Act of 1940 (File No. 811-7330).
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 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 25, 1999
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 99.C2)
Carter, Ledyard & Milburn
(included in Exhibit 99.C1)
The following exhibits:
Ex-99.1 Amendment dated as of January 1, 1999 and effective
January 25, 1999 to the Standard Terms and Conditions
of Trust dated as of January 1, 1993 and to the Trust
Indenture & Agreement dated January 22, 1993 for
Standard & Poor's Depositary Receipts ("SPDR") Trust
between PDR Services LLC, as Sponsor and State Street
Bank & Trust Company, as Trustee.
Ex-99.C1 Opinion of Counsel as to legality of securities being
registered.
Ex-99.C2 Consent of Independent Accountants.
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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 Form 1-A, amendment No. 314 filed on November 18, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
SPDR Trust Series 1, has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of New York, and State of New York, on the 25th day of
January, 1999.
SPDR TRUST SERIES 1
(Registrant)
By: PDR Services LLC
(Depositor)
/s/ Joseph Stefanelli ----------------------------- Joseph Stefanelli President |
Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed on behalf of PDR Services 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 CORPORATION
Name Title/Office
---- ------------
Joseph Stefanelli President* and Director**
Gary L. Gastineau Vice President and Director***
Paul R. Shackford Treasurer and Director****
By
/s/ Joseph Stefanelli
----------------------------
Joseph Stefanelli
Attorney-in-fact*
--------
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* Executed copies of the power of attorney were previously filed with the Securities and Exchange Commission (the "Commission") in connection with Post-Effective Amendment No. 1 to the Registration Statement dated May 20, 1994, as Exhibit No. 3.
** Executed copies of the powers of attorney were previously filed with the Commission in connection with the Registration Statement on January 22, 1993 as Exhibit No. 9.
*** Executed copy of the power of attorney was previously filed with the Commission in connection with Post Effective Amendment No. 1 to the Registration Statement for MidCap SPDR Trust, Series 1 dated January 19, 1996 (File No. 33-89088), as Exhibit No. 4.
**** Executed copy of the power of attorney was previously filed with the Commission in connection with Post Effective Amendment No.5 to the Registration Statement for SPDR Trust, Series 1 dated January 26, 1998 as Exhibit No.5.
EXHIBIT INDEX
EXHIBIT NO. TITLE OF DOCUMENT
----------- -----------------
Ex-99.1 Amendment dated as of January 1, 1999 and effective
January 25, 1999 to the Standard Terms and
Conditions of Trust dated as of January 1, 1993 and
to the Trust Indenture & Agreement dated January
22, 1993 for Standard & Poor's Depositary Receipts
("SPDR") Trust between PDR Services LLC, as Sponsor
and State Street Bank & Trust Company, as Trustee.
Ex-99.C1 Copy of Opinion of Counsel as to legality of
securities being registered.
Ex-99.C2 Consent of Independent Accountants.
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EXHIBIT 99.1
AMENDMENT TO
THE STANDARD TERMS AND CONDITIONS OF TRUST
DATED AS OF JANUARY 1, 1993
AND TO
THE TRUST INDENTURE AND AGREEMENT
DATED JANUARY 22, 1993
FOR
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDR") TRUST
BETWEEN
PDR SERVICES LLC, AS SPONSOR,
AND
STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE
Effective January 25, 1999
This Amendment (the "Amendment Agreement") dated as of January 1, 1999 and effective January 25, 1999 between PDR Services LLC as sponsor (the "Sponsor") and State Street Bank and Trust Company as trustee (the "Trustee") amends the document entitled "Standard Terms and Conditions of Trust for Standard & Poor's Depositary Receipts ("SPDR") Trust dated as of January 1, 1993 between PDR Services Corporation, as Sponsor, and State
Street Bank and Trust Company, as Trustee" (hereinafter called the "Standard Terms") and the document entitled "Trust Indenture and Agreement dated January 22, 1993 incorporating by reference Standard Terms and Conditions of Trust for Standard & Poor's Depositary Receipts ("SPDR") Trust Series 1 dated as of January 1, 1993", (hereinafter called the "Trust Indenture"), (the Standard Terms and the Trust Indenture and any and all previous amendments thereto hereinafter called the "Trust Documents").
WITNESSETH THAT:
WHEREAS, the parties hereto have entered into the Trust Documents to facilitate the creation of the Standard & Poor's Depositary Receipts ("SPDR") Trust (the "Trust"); and
WHEREAS, the parties hereto desire to amend the Trust Documents as more fully set forth below;
NOW THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the Sponsor and the Trustee agree as follows:
1. The following text shall be added as a new paragraph to Section 5.02 as follows:
"Upon the specific request of a redeemer, the Trustee may, in its sole discretion, redeem SPDRs in Creation Unit size aggregations delivered to the Trustee by such redeemer, either in whole or in part, by providing such redeemer with a "Misweighted Portfolio" as is described in the next following sentence. Such Misweighted Portfolio shall be (1) a portfolio of Securities then held by the Trust, (2) which differs in exact composition and/or weighting from that of the securities
portion of a Portfolio Deposit in effect on the date that the request for a redemption is made by the redeemer (the "Then-Current Portfolio Deposit") (3) but does not differ in net asset value from that of the Then-Current Portfolio Deposit. The Trustee may evaluate all factors in considering a redeemer's request for a Misweighted Portfolio and may, but need not, agree to such a redemption request if the Trustee determines that delivery of the Misweighted Portfolio would be appropriate for the Trust."
2. The new paragraph set forth in Section 3 of this Amendment Agreement shall be added as the last and final paragraph of Section 5.02.
3. Pursuant to Section 10.01 of the Standard Terms, both parties to this Amendment Agreement hereby agree that paragraphs (1) and (2) of this Amendment Agreement are made in regard to matters as will not adversely affect the interests of Beneficial Owners in compliance with the provisions of Section 10.01(a) thereof.
4. Pursuant to Section 10.01, the Trustee agrees that it shall promptly furnish each DTC Participant with sufficient copies of a written notice of the substance of the terms of this Amendment Agreement for transmittal by each such DTC Participant to the Beneficial Owners of the Trust.
5. Except as amended hereby, the Trust Documents now in effect are in all respects ratified and confirmed hereby and this Amendment Agreement and all of its provisions shall be deemed to be a part of the Trust Documents.
6. This Amendment Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed as of the date hereof.
PDR SERVICES LLC, as Sponsor
By: _____________________________________________
Joseph Stefanelli
Title: President
ATTEST: ____________
TITLE: ____________
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ________________________________________
Title: Senior Vice President
ATTEST: ____________
TITLE: ____________
STATE OF NEW YORK )
:ss:
COUNTY OF NEW YORK )
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On the __ day of January in the year 1999 before me personally came Joseph Stefanelli to me known, who, being by me duly sworn, did depose and say that he is the President of PDR Services LLC, the company described in and which executed the above instrument; and that he signed his name thereto by like authority.
COMMONWEALTH OF MASSACHUSETTS)
:ss:
COUNTY OF NORFOLK )
On this ___ day of January, 1999, before me personally appeared _________, to me known, who, being by me duly sworn, did depose and say that she is ____________ of State Street Bank and Trust Company, the bank and trust company described in and which executed the above instrument; and that she signed her name thereto by authority of the board of directors of said bank and trust company.
Notary Public
Exhibit 99.C1
(212) 238-8665
January 25, 1999
PDR Services LLC
c/o American Stock Exchange LLC
86 Trinity Place
New York, New York 10006
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
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 SPDR Trust Series 1 (hereinafter referred to as the "Trust"). It is proposed that Post- Effective Amendment No. 7 to the Trust's registration Statement ("Post-Effective Amendment No. 7") 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. 7;
(d) the Registration Statement on Form S-6 (File No. 33- 46080) 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. 3 ("Amendment No. 3") filed on January 22, 1993 (the "Registration Statement") and Post-Effective Amendment No. 7 thereto proposed to be filed and dated 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. 811-7330), as amended (the "1940 Act Registration");
(g) the prospectus included in Post-Effective Amendment No. 7 (the "Prospectus");
(h) the Application of 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. 812-7545, collectively, the "Order");
(i) the Standard Terms and Conditions of the Trust dated as of January 1, 1993 between the Sponsor and State Street Bank and Trust Company (the "Trustee"), as amended (the "Standard Terms");
(j) the Trust Indenture dated January 22, 1993 between the Sponsor and the Trustee (the "Trust Indenture" and, collectively with the Standard Terms, the "Indenture and Agreement");
(l) the License Agreement between Standard & Poor's Corporation and the Sponsor dated October 30, 1992;
(m) the form of global certificate of ownership for units (the "Certificate") to be issued under the Indenture and Agreement; and
(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;
(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 duly 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;
(viii) while the Registration Statement has not yet become effective, we have no reason to believe that such Registration Statement after being appropriately amended, will not become effective within 30 days after the date hereof.
In addition, we have participated in conferences with representatives of the Sponsor, the Exchange, the Trustee, the 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;
(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 consent to the filing of this opinion as an exhibit to Post-Effective Amendment No. 7 and to the use of our name where it appears in the Post-Effective Amendment No. 7 and the Prospectus.
Very truly yours,
Carter, Ledyard & Milburn
EXHIBIT 99.C2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Post Effective Amendment No. 7 to the registration statement on Form S-6 (the "Registration Statement") of our report dated November 23, 1998, relating to the financial statements and financial highlights of SPDR Trust Series 1, which appears in such Prospectus. We also consent to the reference to us under the heading "Independent Accountants" in such Prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 21, 1999