497
Filed Pursuant to Rule 497(b)
Registration File No. 333-31247
PROSPECTUS
DATED MARCH 2, 2009
DIAMONDS®
TRUST, SERIES 1
(A Unit
Investment Trust constituted outside Singapore and
organized in the United States)
PROSPECTUS
ISSUED PURSUANT TO
DIVISION 2 OF PART XIII OF THE SECURITIES
AND FUTURES ACT, CHAPTER 289 OF SINGAPORE
This Prospectus incorporates the prospectus dated
February 27, 2009
issued by the
DIAMONDS®
Trust, Series 1 attached hereto
The collective investment scheme offered in this Prospectus
is a recognised scheme under the Securities and Futures Act,
Chapter 289 of Singapore (the Act). A copy of
the Prospectus has been lodged with and registered by the
Monetary Authority of Singapore (the Authority). The
Authority assumes no responsibility for the contents of the
Prospectus. Registration of this Prospectus by the Authority
does not imply that the Act or any other legal or regulatory
requirements have been complied with. The Authority has not, in
any way, considered the investment merits of the collective
investment scheme. The date of registration of this Prospectus
with the Authority is March 2, 2009. This Prospectus will
expire on March 2, 2010 (12 months after the date of
registration).
The DIAMONDS Trust, Series 1 has been admitted to the
Official List of the Singapore Exchange Securities Trading
Limited (SGX-ST), and permission has been granted by
the SGX-ST to deal in and for quotation on the SGX-XTRANET of
all the DIAMONDS already issued as well as those DIAMONDS which
may be issued from time to time. The SGX-ST assumes no
responsibility for the correctness of any of the statements made
or opinions expressed in this Prospectus and admission to the
Official List of the SGX-ST is not to be taken as an indication
of the merits of the DIAMONDS Trust, Series 1 or the
DIAMONDS.
DIAMONDS
TRUST, SERIES 1
PROSPECTUS
TABLE OF
CONTENTS
Dow Jones Industrial
AverageSM,
DJIA®,
Dow
Jones®,
The
Dow®
and
DIAMONDS®
are trademarks and service marks of Dow Jones &
Company, Inc. (Dow Jones) and have been licensed for
use for certain purposes by State Street Global Markets, LLC
pursuant to a License Agreement with Dow Jones and
have been sublicensed for use for certain purposes to the Trust
and PDR Services LLC pursuant to separate
Sublicenses. DIAMONDS are not sponsored, endorsed,
sold or promoted by Dow Jones and Dow Jones makes no
representation regarding the advisability of investing in the
Trust.
S-2
DIAMONDS
TRUST, SERIES 1
This Prospectus, relating to the DIAMONDS Trust, Series 1
(Trust), which is issued pursuant to Division 2
of Part XIII of the Act, has been lodged with and
registered by the Authority who assumes no responsibility for
its contents.
This Prospectus incorporates the attached prospectus dated
February 27, 2009 issued by the Trust (US
Prospectus). Terms defined in the US Prospectus shall have
the same meaning when used in this Prospectus.
The Trust is a unit investment trust organized in the United
States (US), a single fund that issues securities
called DIAMONDS, which represent an undivided
ownership interest in the portfolio of stocks held by the Trust.
DIAMONDS intend to provide investment results that, before
expenses, generally correspond to the price and yield
performance of the Dow Jones Industrial
AverageSM
(DJIA). The Trusts portfolio consists of
substantially all of the component common stocks which comprise
the DJIA and are weighted in accordance with the terms of the
Trust Agreement (defined below). For additional details
regarding the Trusts portfolio, please consult pages 40 to
44 in the US Prospectus attached hereto. All DIAMONDS are
denominated in US dollars.
PDR Services LLC (Sponsor), the sponsor of the
Trust, accepts full responsibility for the accuracy of
information contained in this Prospectus, other than that given
in the US Prospectus under the heading Report of
Independent Registered Public Accounting Firm and
confirms, having made all reasonable enquiries, that to the best
of its knowledge and belief, the facts stated and the opinions
expressed in this Prospectus are fair and accurate in all
material respects as at the date of this Prospectus and there
are no other facts the omission of which would make any
statement in this Prospectus misleading.
The Trust is governed by a trust agreement
(Trust Agreement) between State Street
Bank and Trust Company (Trustee), the trustee
of the Trust, and the Sponsor dated and effective as of
January 13, 1998, as amended. Terms defined in the Trust
Agreement shall have the same meaning when used in this
Prospectus.
Copies of the Trust Agreement are available for inspection,
free of charge, at the offices of State Street Bank and
Trust Company at One Lincoln Street, Boston, Massachusetts,
US 02111, or State Street Global Advisors Singapore Limited, at
168 Robinson Road, #33-01, Capital Tower, Singapore
0689121,
during normal Singapore business hours.
Investors should seek professional advice to ascertain
(a) the possible tax consequences, (b) the legal
requirements and (c) any foreign exchange restrictions or
exchange control requirements which they may encounter under the
laws of the
1 State
Street Global Advisors Singapore Limited will hold copies of the
Trust Agreement for inspection by investors; however, it is
not in any way acting as an agent for or acting as the Trustee.
S-3
countries of their citizenship, residence or domicile and which
may be relevant to the subscription, holding or disposal of
DIAMONDS.
Investors in the Trust are advised to carefully consider the
risk factors set out under the heading RISK FACTORS
on pages 11 to 14 of the US Prospectus, and to refer to pages
S-16 to
S-19 of this
Prospectus for a discussion of the US and Singapore tax
consequences of an investment in DIAMONDS.
ENQUIRIES
All enquiries about the Trust or requests for additional copies
of this Prospectus should be directed to an investors
local broker.
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IMPORTANT:
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READ AND
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
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S-4
CORPORATE
INFORMATION
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Sponsor to the Trust:
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PDR Services LLC
c/o NYSE
Euronext
11 Wall Street
New York, New York
US 10005
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Legal advisers to the Sponsor
as to US law:
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Katten Muchin Rosenman LLP
575 Madison Avenue
New York, New York
US 10022
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Legal advisers to the Sponsor
as to Singapore law:
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Stamford Law Corporation
9 Raffles Place, #32-00
Republic Plaza, Singapore 048619
Singapore
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Trustee:
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State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts
US 02111
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Legal advisers to the Trustee as
to Singapore law:
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Allen & Gledhill LLP
One Marina Boulevard, #28-00
Singapore 018989
Singapore
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Independent Registered Public Accounting Firm:
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PricewaterhouseCoopers LLP
125 High Street
Boston, Massachusetts
US 02110
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US Distributor of Creation Units:
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ALPS Distributors, Inc. (formerly
ALPS Mutual Funds Services, Inc.)
1290 Broadway, Suite 1100
Denver, Colorado
US 80203
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S-5
TRADING
AND SETTLEMENT
DIAMONDS are listed for trading under the market symbol DIA on
the SGX-ST where they may be bought and sold in the secondary
market at any time during the trading day. Market prices for
DIAMONDS traded on the SGX-ST are available on the SGX-ST
website
(http://www.sgx.com/psv/securities/etf/ETF_Equities_US_Prices.asp).
DIAMONDS may also be purchased by Authorized Participants
directly from the Trust in the US by placing orders through the
US Distributor in a minimum unit, called a Creation
Unit, of 50,000 DIAMONDS or multiples thereof. Creation
Units may also be redeemed through a tender to the Trustee in
the US. All Creation Unit purchases and redemptions are made
in kind only in the US, that is, through the
delivery or receipt of a specified portfolio of securities. Such
purchases and redemptions can be made only in the US at the
then-current valuation as described herein on page
S-11 under
the heading Redemption. For additional details on
trading and settlement, please consult pages 4 to 6 and 30 to 39
in the US Prospectus attached hereto.
The primary trading market for DIAMONDS is in the US, where
DIAMONDS are listed on NYSE Arca, Inc. (NYSE Arca).
Investors should note that trading in DIAMONDS may be halted
under certain circumstances. Please refer to page 50 of the
US Prospectus.
As with other securities, investors will pay negotiated
brokerage commissions and typical Singapore clearing fees and
applicable taxes. In addition, cash dividends to be distributed
to investors in Singapore will be net of expenses incurred by
CDP (defined below), and where such expenses exceed the amount
of the dividends, the investors will not receive any
distributions. Brokerage commissions may be subject to Goods and
Services Tax (GST) at the prevailing standard rate
of seven percent (7%). There will be a Singapore clearing fee,
which is currently at the rate of 0.04% of the transacted value
(up to a maximum of SGD600 per transaction or its equivalent in
foreign currencies). Clearing fees may be subject to GST in
Singapore at the prevailing standard rate of seven percent (7%).
DIAMONDS are traded in US dollars on the SGX-ST in 10 unit
round lots.
The term market day as used in this Prospectus means
a business day in which transactions in DIAMONDS can be executed
and settled. Trading of DIAMONDS on the SGX-ST may be halted if
the Trust fails to comply with continuing listing requirements
and advertising guidelines of the SGX-ST.
With respect to holders of DIAMONDS in Singapore, the trading
and settlement process, the system through which they receive
distributions or the manner in which information may be made
available, among other aspects, may differ from the information
set forth in the US Prospectus. Holders of DIAMONDS in Singapore
should read this Prospectus carefully and all enquiries in
relation hereto should be directed to their local brokers.
DIAMONDS are issued by the Trust in the form of scripless
securities which are eligible book-entry-only
securities of The Depository Trust Company
(DTC). As
S-6
book-entry-only securities, DIAMONDS are represented
as global securities on the DTC system and are registered in the
name of Cede & Co. as nominee for DTC and deposited
with, or on behalf of, DTC.
The Central Depository (Pte) Limited (CDP) has
entered into linking agreements with the National Securities
Clearing Corporation (NSCC), by which CDP has access
to DTCs depository and custodial services for
subdepositing US securities. CDP, through such linking
agreements, has an account sponsored by NSCC which is known as
Sponsored Account No. 5700 (Sponsored Account),
and is recognized by NSCC as a record owner for DIAMONDS
credited to the Sponsored Account. CDP through the linking
agreements may receive DIAMONDS from or deliver DIAMONDS to
accounts maintained by member participants in DTC (DTC
Participants).
Settlement of dealings through the CDP system may be effected
only by Depository Agents of CDP or holders of DIAMONDS who have
their own direct securities accounts with CDP. Investors may
open a direct securities account with CDP or a securities
sub-account with any Depository Agent to hold their DIAMONDS in
CDP. The term Depository Agent shall have the same
meaning as that ascribed to it in section 130A of the
Companies Act, Chapter 50 of Singapore.
Through the delivery mechanisms discussed below, it is possible
for investors to purchase DIAMONDS in Singapore and sell them in
the US and vice versa. Although both CDP and DTC, within their
own respective market settlements, provide for Delivery Versus
Payment and Free-of-Payment transfers of securities, all of the
linked transfers between the two depositories are effected only
on a Free-of-Payment basis (i.e., there is no related
cash movement to parallel the securities movement. Any related
cash transfers may only be effected outside DTC and CDP directly
between the buyer and seller through their own arrangements).
Investors should be aware that Singapore time is generally
12 hours ahead of Eastern Day Light Savings time
(13 hours Eastern Standard time) in New York, and that NYSE
Arca and the SGX-ST are not open at the same time. Because of
this time difference between the Singapore and US markets,
trading in DIAMONDS between the two markets cannot
simultaneously occur.
All dealings in, and transactions of, DIAMONDS in Singapore must
be effected for settlement through the computerised book-entry
(scripless) settlement system in CDP. Investors should ensure
that DIAMONDS sold on the SGX-ST are available for settlement in
their CDP account no later than the third market day following
the transaction date.
Investors holdings of DIAMONDS in their CDP account will
be credited or debited for settlement on the third market day
following the transaction date. A transaction will fail if
DIAMONDS are not in an investors CDP account for
settlement on such day, and will be subject to the buy-in cycle
on the fourth market day following the transaction date.
In the absence of unforeseen circumstances, the delivery of
DIAMONDS into and out of CDP will take a minimum of one market
day after the duly completed documentation has been submitted to
CDP for processing, assuming that the investor has
S-7
given proper instructions to his or her DTC Participant.
Instructions and forms received by CDP after
10 a.m. Singapore time on a given market day will be
treated as being received on the next market day and, as such,
will be processed on the next market day.
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2.
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Delivery
of DIAMONDS to CDP for Trading on the SGX-ST
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Investors who hold DIAMONDS in DTCs system in the US and
wish to trade them on the SGX-ST can direct delivery of the
DIAMONDS to CDP; this book-entry transfer to CDPs
Sponsored Account at DTC may be effected only on a
Free-of-Payment basis, and is subject to special procedures that
will help to identify the relevant CDP Depository Agent.
Investors may deliver their DIAMONDS by informing their
Singapore broker or Depository Agent to submit delivery
instructions to CDP, together with the applicable CDP delivery
fee and GST, no later than 10 a.m. Singapore time on
the specified delivery date. Investors must concurrently
instruct their DTC Participant to deliver such DIAMONDS into the
Sponsored Account on the delivery date. Upon notification that
its Sponsored Account has been credited, CDP will accordingly
credit DIAMONDS to the investors account.
Investors should ensure that their DIAMONDS are delivered into
their securities account with CDP in time for settlement. In the
event an investor cannot deliver DIAMONDS for settlement
pursuant to the trade, the SGX-ST may buy-in against him or her.
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3.
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Delivery
of DIAMONDS out of CDP for Trading on NYSE Arca
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(a) Investors who hold DIAMONDS with CDP and wish to trade
on NYSE Arca must arrange to deliver the DIAMONDS into their
accounts with their DTC Participant for settlement of any such
trade, which will occur on the third market day following the
transaction date. For such delivery, investors must submit a
duly completed CDP delivery form together with the applicable
CDP delivery fee and GST through their Singapore broker or
Depository Agent, no later than 10 a.m. Singapore time
on the third market day following the specified delivery date in
the US. Investors must concurrently instruct their DTC
Participant to expect receipt of the relevant number of DIAMONDS
from the Sponsored Account. Upon receipt of the duly completed
CDP delivery form, CDP will debit the investors securities
account for the relevant number of DIAMONDS and then instruct
DTC to deliver the DIAMONDS to the DTC Participant account as
specified by the investor.
(b) An investor who buys DIAMONDS on the SGX-ST and sells
on NYSE Arca on the same day must instruct CDP to deliver the
DIAMONDS to his or her DTC Participant account no later than 10
a.m. Singapore time on the US settlement date PROVIDED that the
investor is a sub-account holder of CDPs Depository Agent
and the purchase on the SGX-ST is tagged as a Delivery Versus
Payment (DVP) settlement. The Depository Agent of
the investor must send an instruction to deliver the relevant
number of DIAMONDS from its sub-account to CDP via CDPs
SGX Prime-PSMS no later than 10 a.m. Singapore time on the US
settlement date. Upon affirming the delivery instruction, CDP
will instruct DTC to deliver DIAMONDS from the Sponsored Account
to the DTC Participant account as specified by the investor.
S-8
EXCHANGE
RATES AND RISKS
DIAMONDS traded on the SGX-ST are denominated and traded in US
dollars. DIAMONDS may only be created or redeemed in US dollars
at the then-current value calculated in US dollars in the manner
set out in the US Prospectus. Similarly, the Trust holds only
Portfolio Securities that are denominated in US dollars and the
distributions which may be made by the Trustee are in US dollars.
The Trust has no ability to manage its investments to hedge
against fluctuations in exchange rates between the US dollar and
the Singapore dollar. To the extent a Singapore investor wishes
to convert such US dollar holdings or distributions to Singapore
dollars, fluctuations in the exchange rate between the Singapore
dollar and the US dollar may affect the value of the proceeds
following a currency conversion.
S-9
GENERAL
AND STATUTORY INFORMATION
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1.
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Appointment
of Auditors
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The Trust Agreement provides that the accounts of the Trust
shall be audited, as required by US law, by independent
certified public accountants designated from time to time by the
Trustee.
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2.
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Duties
and Obligations of the Trustee
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The key duties and obligations imposed on the Trustee under the
Trust Agreement are summarized as follows:
(i) the Trustee will accept on behalf of the Trust deposits
of Portfolio Deposits and be authorized to effect registration
or transfer of the Portfolio Securities in its name or the name
of its nominee or the nominee of its agent;
(ii) the Trustee must hold money received pursuant to the
Trust Agreement as a deposit for the account of the Trust;
(iii) the Trustee shall not be liable for the disposition
of money or securities or evaluation performed under the
Trust Agreement except by reason of its own gross
negligence, bad faith, wilful misconduct, wilful malfeasance or
reckless disregard of its duties and obligations under the
Trust Agreement;
(iv) the Trustee is not obligated to appear in, prosecute
or defend any action if it is of the opinion that it may involve
it in expense or liability unless it is furnished with
reasonable security and indemnity against such expense or
liability; if reasonable indemnity is provided, the Trustee
shall, in its discretion, undertake such action as it may deem
necessary to protect the Trust and the rights and interest of
all beneficial owners;
(v) the Trustee must provide to brokers/underwriters
accounts of the Trust audited by the auditors of the Trust, and
the brokers/ underwriters will deliver such accounts to
beneficial owners;
(vi) in performing its functions under the
Trust Agreement the Trustee will not be held liable except
by reason of its own gross negligence, bad faith, wilful
misconduct or wilful malfeasance for any action taken or
suffered to be taken by it in good faith and believed by it to
be authorized or within the discretion, rights or powers
conferred on it or reckless disregard of its duties and
obligations;
(vii) the Trustee must ensure that no payment made to the
Sponsor is for expenses of the Trust, except for payments not in
excess of amounts and for purposes prescribed by the US
Securities and Exchange Commission and authorized by the
Trust Agreement;
(viii) the Trustee must keep proper books of record and
account of all transactions under the Trust Agreement,
including the creation and redemption of Creation Units, at its
offices, and keep such books open for inspection by any
beneficial owner at all reasonable times during usual business
hours;
S-10
(ix) the Trustee must make, or cause to be made, such
reports and file such documents as are required by the
Securities Act of 1933, the Securities Exchange Act of 1934, the
Investment Company Act of 1940 and US state or federal tax laws
and regulations;
(x) the Trustee must keep a certified copy of the
Trust Agreement, together with the Indenture for each
Trust Series then in effect and a current list of Portfolio
Securities therein, on file at its office and make the same
available for inspection; and
(xi) the Trustee must charge and direct from the assets of
the Trust all expenses and disbursements incurred under the
Trust Agreement, or shall reimburse itself from the assets
of the Trust or the sale of securities in the Trust for any
advances made out of its own funds for such expenses and
disbursements.
A holder of DIAMONDS is not required, obliged or entitled in
connection with the Trust to enter into any contract with any
person or corporation whether by way of lease or otherwise.
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4.
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Vesting
of Assets in the Trust
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The Trustee has legal title to all securities and other property
in which funds of the Trust are invested, all funds held for
such investment, all equalisation, redemption, and other special
funds of the Trust, and all income upon accretions to, and
proceeds of such property and funds, and the Trustee is required
to segregate and hold the same in trust until distribution
thereof to the holders of DIAMONDS.
The Trust is not administered by a management company, and there
is no obligation on the Sponsor or the Trustee to redeem any
DIAMONDS. As described on pages 36 to 39 in the US Prospectus,
it is the Trust itself that is obligated to effect the
redemption (although it is the Trustee acting as agent for the
Trust that will actually effect the redemption).
Only DIAMONDS in Creation Units may be redeemed at their
then-current valuation which is calculated on the Business Day
on which the redemption order is properly received, as of the
Evaluation Time which is the closing time of the regular trading
session on the New York Stock Exchange, LLC. Please refer to
pages 1, 36 to 39 and 60 of the US Prospectus for a further
description of this process.
Investors owning DIAMONDS in an amount less than a whole
Creation Unit (i.e. less than 50,000 DIAMONDS) or multiples
thereof, are not permitted to tender their DIAMONDS to the
Trustee for redemption. Such investors can only dispose of their
DIAMONDS by selling them on the secondary market at any time
during the trading day at market prices.
S-11
As described on
pages S-6
to S-7
of this Prospectus, Cede & Co., as nominee for DTC,
will be the registered owner of all outstanding DIAMONDS on the
DTC system. Beneficial ownership of DIAMONDS will be shown on
the records of DTC or its participants. Beneficial ownership
records for holders of DIAMONDS in Singapore will be maintained
at CDP.
No certificates will be issued in respect of DIAMONDS. Transfers
of DIAMONDS between investors will normally occur through the
trading mechanism of the SGX-ST or NYSE Arca as described on
pages S-6
to S-8 in
this Prospectus and on pages 34 to 36 of the US Prospectus.
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7.
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Meetings
of Holders of DIAMONDS; Voting; Distribution of Annual
Reports
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The Trust is not required by law to convene meetings of
beneficial owners of DIAMONDS.
The Sponsor, the Trustee and CDP have entered into a Depository
Agreement dated May 18, 2001 (CDP Depository
Agreement), pursuant to which CDP has agreed to act as the
depository for DIAMONDS in Singapore. CDPs duties under
the CDP Depository Agreement include, among other things:
(i) acting as a bare trustee on behalf of individuals who
hold securities accounts with CDP and Depository Agents
authorized to maintain sub-accounts with CDP in respect of
DIAMONDS, (ii) distributing to CDP account holders and
Depository Agents any applicable payments or cash distributions
in respect of DIAMONDS, and (iii) providing the list of its
Depository Agents and holders of DIAMONDS who have their own
direct securities accounts with CDP, if so requested by the
Sponsor or the Trustee.
The Trustee arranges for the annual report of the Trust to be
mailed to all holders of DIAMONDS, including the holders of
DIAMONDS in Singapore, no later than the 60th day after the
end of the Trusts fiscal year.
The Sponsor or the Trustee will ensure that in the event that it
is necessary to collect and collate any consents or votes of, or
distribute notices, statements, reports, prospectuses, consent
instructions, consent forms or other written communications to
the holders of DIAMONDS in Singapore, the relevant materials
will be mailed to the holders of DIAMONDS in Singapore.
It is hereby declared that no DIAMONDS shall be created or
issued pursuant to this Prospectus later than 12 months, or
such other period as may be prescribed by the law for the time
being in force, after the date of this Prospectus.
A Distribution Agreement, as amended, was entered into as of
September 29, 1997 between (1) the Sponsor,
(2) the Trust and (3) ALPS Mutual Funds Services,
Inc., now
S-12
ALPS Distributors, Inc. (ALPS), the US Distributor,
pursuant to which the Trust and the Sponsor retained ALPS to:
(i) act as the exclusive distributor for the creation and
distribution of DIAMONDS in aggregations of 50,000 DIAMONDS;
(ii) hold itself available to receive and process orders
for Creation Units of DIAMONDS; and
(iii) to enter into arrangements with dealers.
It is the duty of the Trust and the Sponsor to create the
aggregations of 50,000 DIAMONDS and to request DTC to record on
its books the ownership of such DIAMONDS in such amounts as ALPS
has requested, as promptly as practicable after receipt by the
Trustee of the requisite portfolio of securities and any
applicable cash component from the creator of the Creation Units
or other entities having a Participant Agreement with the
Trustee. Participant Agreements must be entered into between the
Trustee and all other persons who are creating Creation Units.
There are no borrowing powers conveyed in the
Trust Agreement.
Sponsor
PDR Services LLC (PDR) was originally organized as a
corporation under Delaware US law, and was subsequently
converted into a limited liability company in Delaware on
April 6, 1998. On October 1, 2008, NYSE Euronext
acquired the American Stock Exchange LLC (Amex) and
all of its subsidiaries, including PDR, which is the Sponsor of
the Trust. PDR was formed in Delaware to act as sponsor for
Amexs exchange traded funds and other unit investment
trusts. PDR will remain the Sponsor of the Trust until it is
removed, it is replaced by a successor, it resigns or the
Trust Agreement is terminated. Although the Sponsor is
entitled to, it receives no remuneration for the services it
renders as Sponsor.
Trustee
State Street Bank and Trust Company is a bank and trust
company organized under the laws of the Commonwealth of
Massachusetts, US in 1961, the culmination of a series of
mergers among 13 predecessors, the oldest of which, Union Bank,
was founded in 1792. The Trustee is a wholly owned subsidiary of
State Street Corporation, a financial holding company. The
Trustee will remain the Trustee of the Trust until it is
removed, it resigns or the Trust Agreement is terminated.
The remuneration received by the Trustee in its capacity as
Trustee of the Trust is described in the US Prospectus and
reflected in the financial statements contained therein. Absent
gross negligence, bad faith, wilful misconduct or wilful
malfeasance on its part or reckless disregard of its duties and
obligations under the Trust Agreement, the Trustee shall be
indemnified from the Trust and held harmless against any loss,
liability or expense incurred arising out of
S-13
or in connection with the acceptance or administration of the
Trust and any action taken in accordance with the provisions of
the Trust Agreement.
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12.
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Exercise
of Voting Rights on Underlying Securities
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The Trustee (rather than the beneficial owners of DIAMONDS) has
the right to vote all of the voting stocks in the Trust, as
Trustee. It must vote the voting stocks of each issuer in the
same proportionate relationship as all other shares of each such
issuer to the extent permissible and, if not permitted, abstain
from voting. The Trustee shall not be liable to any person for
any action or failure to take any action with respect to such
voting matters. There are no restrictions on the Trustees
right to vote securities or DIAMONDS when such securities or
DIAMONDS are owned by the Trustee in its individual capacity.
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13.
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Adjustments
to Securities Held by the Trust
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The Trusts portfolio securities are not managed and the
Trustee adjusts such securities from time to time to maintain
the correspondence between the composition and weightings of the
securities held by the Trust and the DJIA.
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14.
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Distributions
to Beneficial Owners
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The Trustee receives all dividends and other cash distributed
with respect to the underlying securities in the Trust
(including monies realized by the Trustee from the sale of
securities options, warrants or other similar rights received on
such securities), and distributes them (less fees, expenses and
any applicable taxes) through DTC and the DTC Participants to
the beneficial owners of DIAMONDS. A description of the
distribution process is contained on pages 60 to 62 of the US
Prospectus. These distribution arrangements will be the same for
holders of DIAMONDS in Singapore, who will receive their
entitlements through CDP. Cash dividends distributed to
investors in Singapore will be net of expenses incurred by CDP.
Where such expenses exceed the amount of the dividend, investors
will not receive any dividend.
PricewaterhouseCoopers LLP, as the independent registered public
accounting firm for the Trust, has given and has not withdrawn
its written consent to the issue of this Prospectus with the
inclusion herein of, and reference to, as the case may be,
(i) its name and (ii) its report, in the form and
context in which it is referred to in this Prospectus. The
report referred to in this Prospectus was not prepared by
PricewaterhouseCoopers LLP for the purpose of inclusion in this
Prospectus.
Katten Muchin Rosenman LLP (as legal advisers to the Sponsor as
to US law) has given and has not withdrawn its written consent
to the inclusion in this Prospectus or references to its name in
the form and context which it appears in this Prospectus.
S-14
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16.
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Important
Tax Information
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A.
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CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
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The following is a summary of the material US federal income tax
considerations applicable to an investment in DIAMONDS by a
Beneficial Owner (as defined in the Prospectus) who has never
been nor will ever be a US citizen or resident for US federal
income tax purposes or that is a corporation formed outside the
US or that is an estate or trust not taxable in the US on its
worldwide income without regard to source (each, a Foreign
Beneficial Owner). The summary is based on the laws in
effect on the date of this Prospectus and existing judicial and
administrative interpretations thereof, all of which are subject
to change, possibly with retroactive effect. In addition, this
summary assumes that Foreign Beneficial Owners hold DIAMONDS as
capital assets within the meaning of the US Internal Revenue
Code of 1986, as amended (the Code), do not conduct
any trade or business in the US, and do not hold DIAMONDS in
connection with any trade or business. This summary does not
address all potential US federal income tax considerations
possibly applicable to an investment in DIAMONDS or to any
Foreign Beneficial Owner who or that is (i) treated as a
partnership (or other pass-through entity) for US federal income
tax purposes, (ii) holding DIAMONDS through a partnership
(or other pass-through entity), (iii) present in the US for
183 or more days during any tax year (as determined under
special counting rules set forth in the Code) or
(iv) otherwise subject to special tax rules. Prospective
Foreign Beneficial Owners are urged to consult their own tax
advisors with respect to the specific tax consequences of
investing in DIAMONDS.
Ordinary Income Dividends.
In general, ordinary income dividends from the Trust (including
distributions of net short-term capital gains and other amounts
that would not be subject to US withholding tax if paid directly
to the Foreign Beneficial Owner) will be subject to US
withholding tax at a rate of thirty percent (30%) or at a lower
rate established under an applicable tax treaty. However, for
Trust tax years beginning on or before December 31, 2009,
interest-related dividends and short-term capital gain dividends
(i.e., dividends that are derived from the Trusts
short-term capital gains over net long-term capital losses)
generally will not be subject to withholding tax; provided that
the Foreign Beneficial Owner furnishes the Trust with a
completed US Internal Revenue Service (IRS)
Form W-8BEN
(or acceptable substitute documentation) establishing the
Foreign Beneficial Owners status as foreign and that the
Trust does not have actual knowledge or reason to know that the
Foreign Beneficial Owner would be subject to withholding tax if
the Foreign Beneficial Owner were to receive the related amounts
directly rather than as dividends from the Trust. There is no
income tax treaty between the US and Singapore.
In general, gain on a sale of a DIAMONDS unit will be exempt
from federal income tax (including individual Foreign
withholding at the source) unless, in the case of an individual
Foreign Beneficial Owner, such individual Foreign Beneficial
Owner is
S-15
physically present for 183 days or more during the taxable year
and meets certain other requirements.
To claim a credit or refund for any Trust-level taxes on any
undistributed long-term capital gains or any taxes collected
through back-up withholding, a Foreign Beneficial Owner must
obtain a US taxpayer identification number and file a federal
income tax return even if the Foreign Beneficial Owner would not
otherwise be required to obtain a US taxpayer identification
number or file a US income tax return.
Treatment of Capital Gain Distributions and Sales Proceeds
In general, capital gain distributions (i.e.,
distributions from the excess of net long-term capital gains
over net short-term capital losses) and gain on a sale of a
DIAMONDS unit will be exempt from US federal income tax
(including withholding at the source).
Backup Withholding
The Trust may be required to report certain information on a
Foreign Beneficial Owner and withhold federal income tax (known
as backup withholding) at a 28% rate from all
taxable distributions and redemption proceeds payable to the
Foreign Beneficial Owner if the Foreign Beneficial Owner fails
to provide the Trust with a correct taxpayer identification or a
completed exemption certificate (e.g., in the case of a
Foreign Beneficial Owner, an IRS Form W-8BEN) or if the IRS
notifies the Trust that the Foreign Beneficial Owner is subject
to backup withholding.
Backup withholding is not an additional tax and any amount
withheld may be credited against a Foreign Beneficial
Owners US federal income tax liability. The amount of any
backup withholding from a payment to a Foreign Beneficial Owner
is allowed as a credit against the Foreign Beneficial
Owners US federal income tax liability and may entitle the
Foreign Beneficial Owner to a refund of tax upon prompt filing
of a valid refund claim.
Information Reporting
In the case of a Foreign Beneficial Owner, the Trust must report
to the US Internal Revenue Service and the Foreign Beneficial
Owner the amount of dividends, capital gain dividends,
interest-related dividends, short-term capital gain dividends or
redemption proceeds paid that are subject to withholding
(including backup withholding, if any) and the amount of tax
withheld, if any, with respect to such amounts. This information
may also be made available to the tax authorities in the Foreign
Beneficial Owners country of residence.
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B.
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CERTAIN
SINGAPORE TAX CONSIDERATIONS
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The following is a general description of material Singapore
income tax, stamp duty and estate duty consequences of the
ownership and disposal of DIAMONDS. The discussion below is not
intended to constitute a complete analysis of all tax
consequences relating to ownership and disposal of DIAMONDS by a
person who, for purposes of taxation in Singapore, is regarded
as a Singapore resident taxpayer or otherwise. Prospective
investors of DIAMONDS should consult their own tax advisors
S-16
concerning the tax consequences of their particular situations.
This description is based on laws, regulations and
interpretations now in effect and available as of the date of
this Prospectus. The laws, regulations and interpretations,
however, may change at any time, and any change could be
retroactive to the date of ownership of the DIAMONDS. These laws
and regulations are also subject to various interpretations and
the relevant tax authorities or the courts could later disagree
with the explanations or conclusions set out below.
General
Subject to certain exceptions, Singapore tax resident and
non-resident companies are subject to Singapore income tax on
income accruing in or derived from Singapore and on foreign
income received or deemed received in Singapore.
Foreign-sourced income in the form of branch profits, dividends
and service income received or deemed received in Singapore by a
resident corporate taxpayer is, however, tax-exempt if:
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such income is subject to tax of a similar character to income
tax under the law of the jurisdiction from which such income is
received;
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at the time the income is received in Singapore, the highest
rate of corporate income tax on income from a trade or business
in the jurisdiction from which the income is received is at
least 15%; and
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the Comptroller of Income Tax is satisfied that the tax
exemption would be beneficial to the recipient of the foreign
income.
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The above exemption has been extended to include branch profits,
dividends and service income which is exempted from tax of a
similar character to income tax as a result of tax incentive
granted by a foreign jurisdiction for carrying out substantive
activities in that foreign jurisdiction.
Resident and non-resident individuals are generally taxed on
income arising in or derived from Singapore.
All foreign-sourced personal income received or deemed received
in Singapore on or after 1 January 2004 by a Singapore tax
resident individual (except where such income is received
through a partnership) will be exempt from tax in Singapore.
Certain investment income derived from Singapore sources by
individuals on or after 1 January 2004 will also be exempt
from tax.
As announced on January 22, 2009 in the Singapore Budget
Statement for the Financial Year ending March 31, 2010,
temporary relief measures would be made in respect of the
taxation of foreign-sourced income:
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With effect from January 22, 2009, resident non-individuals
and resident partners of partnerships in Singapore would be
exempted from tax on their remittance of all foreign-sourced
income earned/accrued outside Singapore on or before
January 21, 2009, if they remit their foreign-sourced
income to Singapore during January 22, 2009 to
January 21, 2010 (both dates inclusive).
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The conditions that are currently required for foreign-sourced
income to be exempted from tax when remitted into Singapore
would be temporarily lifted.
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A company is regarded as a tax resident in Singapore if the
control and management of its business is exercised in Singapore
(for example, if the board of directors meets and makes
policy-level decisions in Singapore). An individual is regarded
as a tax resident in Singapore for income tax purposes if, in
the calendar year preceding the year of assessment, he is
physically present in Singapore or exercised an employment in
Singapore (other than as a director of a company) for
183 days or more, or if he resides in Singapore.
Tax rates
The corporate tax rate is 18% (reduced from 20% for the Year of
Assessment 2007) for the Year of Assessment 2008
(i.e. financial year ending in 2007). The corporate tax
rate will be reduced by 1 percentage-point to 17% from the
Year of Assessment 2010. In addition, three-quarters of the
first SGD10,000 of a companys chargeable income, and
one-half of the next SGD290,000 (increased from SGD90,000 in the
Year of Assessment 2007) of a companys chargeable
income is exempt from corporate tax. The remaining chargeable
income (after the partial tax exemption) will be taxed at the
applicable corporate tax rate. The above tax exemption does not
apply to normal Singapore franked dividends received by
companies.
Notwithstanding the above, a qualifying newly incorporated
Singapore company that is a tax resident in Singapore will be
eligible for full tax exemption on the first SGD100,000 of its
normal chargeable income (other than Singapore taxable
dividends) for each of the companys first three Years of
Assessment effective from the Year of Assessment 2005. With
effect from the Year of Assessment 2008, a further 50% tax
exemption is given on the next SGD200,000 of a qualifying
companys normal chargeable income (excluding Singapore
taxable dividends) for each of the first three consecutive Years
of Assessment. The remaining chargeable income (after the tax
exemption as described) will be taxed at the applicable
corporate tax rate. The qualifying conditions (relating to
shareholders) for the tax exemption for new
start-up
companies will be revised with effect from the Year of
Assessment 2009.
Singapore tax resident individuals are subject to tax based on a
progressive scale. Since the Year of Assessment 2007
(i.e. calendar year 2006), the top marginal rate is 20%.
Income received by non-Singapore resident individuals will
generally be taxed at 20% (subject to certain exemptions).
All tax residents in Singapore will be affected by tax rebates
and exemptions granted by the Singapore government from time to
time in line with its current financial and fiscal policies.
S-18
Ordinary Income Dividends
Dividends paid by the Trust on DIAMONDS received by a Singapore
resident individual in Singapore will generally be exempt from
tax in Singapore (except where such income is received through a
partnership).
Dividends on DIAMONDS received by a Singapore resident company
in Singapore will be liable to tax in Singapore at the corporate
income tax rate, unless an exemption or concessionary rates are
applicable to them.
Gains on Disposal of the DIAMONDS
Singapore does not impose tax on capital
gains. However, gains or profits from any trade,
business, profession or vocation will be subject to Singapore
income tax. Any profits from the disposal of DIAMONDS are not
taxable in Singapore unless the seller is regarded as having
derived gains of an income nature, in which case, such profits
would be taxable. In addition, holders of the DIAMONDS who are
adopting Financial Reporting Standards 39 (FRS 39)
for Singapore income tax purposes may be required to recognise
gains or losses, irrespective of disposal, in accordance with
FRS 39. Please see the section below on Adoption of FRS 39
treatment for Singapore income tax purposes.
Adoption of FRS 39 treatment for Singapore income tax
purposes
On 30 December 2005, the Inland Revenue Authority of
Singapore issued a circular entitled Income Tax
Implications arising from the adoption of FRS 39-Financial
Instruments: Recognition and Measurement (the FRS 39
Circular).
The Income Tax (Amendment) Act 2007 that contains legislative
amendments to give effect to the FRS 39 Circular was gazetted on
13 February 2007. The relevant provisions shall be deemed
to have come into operation on January 1, 2005 and
generally apply, subject to certain opt-out
provisions, to taxpayers who are required to comply with FRS 39
for financial reporting purposes.
Holders of the DIAMONDS who may be subject to the tax treatment
under the FRS 39 Circular should consult their own accounting
and tax advisers regarding Singapore income tax consequences.
Stamp Duty
Stamp duty is not applicable to electronic transfers of the
DIAMONDS through the CDP system.
Estate Duty
The Singapore government announced on February 15, 2008
that the estate duty would be abolished for deaths occurring on
and after February 15, 2008.
S-19
Prospectus
DIAMONDS®
TRUST, SERIES 1
(A Unit Investment
Trust)
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DIAMONDS Trust is an exchange traded fund designed to generally
correspond to the price and yield performance of the Dow Jones
Industrial Average.
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DIAMONDS Trust holds all of the Dow Jones Industrial Average
stocks.
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Each DIAMONDS unit represents an undivided ownership interest in
the DIAMONDS Trust.
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The DIAMONDS Trust issues and redeems DIAMONDS units only in
multiples of 50,000 DIAMONDS in exchange for Dow Jones
Industrial Average stocks and cash.
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Individual DIAMONDS units trade on NYSE Arca, Inc. like any
other equity security.
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Minimum trading unit: 1 DIAMONDS unit.
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SPONSOR: PDR SERVICES LLC
(Wholly Owned by NYSE Euronext)
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.
Prospectus Dated February 27, 2009
COPYRIGHT 2009 PDR Services
LLC
DIAMONDS
TRUST, SERIES 1
TABLE OF
CONTENTS
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1
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1
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3
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11
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15
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17
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20
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29
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32
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36
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36
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39
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39
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40
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40
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42
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44
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48
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49
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50
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51
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51
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54
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55
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56
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57
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59
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60
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60
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60
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62
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62
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63
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64
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65
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66
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68
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68
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68
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68
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68
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69
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76
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Dow Jones Industrial
Averagesm,
DJIA®,
Dow
Jones®,
The
Dow®
and
DIAMONDS®
are trademarks and service marks of Dow Jones &
Company, Inc. (Dow Jones) and have been licensed for
use for certain purposes by State Street Global Markets, LLC
pursuant to a License Agreement with Dow Jones and
have been sublicensed for use for certain purposes to the Trust,
PDR Services LLC and NYSE Arca, Inc. pursuant to separate
Sublicenses. DIAMONDS are not sponsored, endorsed,
sold or promoted by Dow Jones and Dow Jones makes no
representation regarding the advisability of investing in the
Trust.
i
SUMMARY
Essential
Information as of October 31, 2008*
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Glossary:
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All defined terms used in this Prospectus and page numbers on
which their definitions appear are listed in the Glossary.
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Total Trust Assets:
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$9,140,913,992
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Net Trust Assets:
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$9,114,230,276
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Number of DIAMONDS:
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97,770,848
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Fractional Undivided Interest in the Trust Represented by
each DIAMONDS unit:
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1/97,770,848th
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Dividend Record Dates:
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Monthly
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Dividend Payment Dates:
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Monthly
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Trustees Annual Fee:
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From
6/100
of one percent to
10/100
of one percent, based on the NAV of the Trust, as the same may
be adjusted by certain amounts.
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Estimated Ordinary Operating Expenses of the Trust:
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18/100
of one percent (0.1800%) (inclusive of Trustees annual
fee).**
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NAV per DIAMONDS unit (based on the value of the Portfolio
Securities, other net assets of the Trust and number of DIAMONDS
outstanding):
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$93.22
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Evaluation Time:
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Closing time of the regular trading session on the New York
Stock Exchange, LLC. (ordinarily 4:00 p.m. New York time).
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Licensor:
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Dow Jones & Company, Inc.
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1
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Mandatory Termination Date:
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The Trust is scheduled to terminate no later than January 13,
2123, but may terminate earlier under certain circumstances.
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Discretionary Termination:
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The Trust may be terminated if at any time the value of the
securities held by the Trust is less than $350,000,000, as
adjusted for inflation. The Trust may also be terminated under
other circumstances.
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Market Symbol:
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DIAMONDS trade on NYSE Arca, Inc. under the symbol
DIA.
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Fiscal Year End:
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October 31
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CUSIP:
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252787106
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* |
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The Trust Agreement became effective, the initial deposit
was made and the Trust commenced operation on January 13,
1998 (Initial Date of Deposit). |
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Ordinary operating expenses of the Trust are estimated to be
0.1800%, although ordinary operating expenses of the Trust are
accruing at approximately 0.1670% as of the date of this
Prospectus. As of the fiscal year ended October 31, 2008,
ordinary operating expenses of the Trust were 0.1692%. Future
expense accruals will depend primarily on the level of the
Trusts net assets and the level of Trust expenses. The
amount of the earnings credit will be equal to the then current
Federal Funds Rate, as reported in nationally distributed
publications, multiplied by each days daily cash balance
in the Trusts cash account, if any, reduced by the amount
of reserves, if any, for that account required by the Federal
Reserve Board of Governors. The Sponsor has undertaken that the
ordinary operating expenses of the Trust will not exceed an
amount that is 0.1800% of the daily NAV of the Trust, but this
amount may be changed. Therefore, there is no guarantee that the
Trusts ordinary operating expenses will not exceed 0.1800%
of the Trusts daily NAV. |
2
Highlights
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DIAMONDS
are Ownership Interests in the DIAMONDS Trust
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DIAMONDS Trust, Series 1 (Trust) is a unit
investment trust that issues securities called
DIAMONDS. The Trust is organized under New York law
and is governed by a trust agreement between State Street Bank
and Trust Company (Trustee) and PDR Services
LLC (Sponsor), dated and executed as of
January 13, 1998, as amended
(Trust Agreement). The Trust is an investment
company registered under the Investment Company Act of 1940.
DIAMONDS represent an undivided ownership interest in a
portfolio of all of the common stocks of the Dow Jones
Industrial Average (DJIA).
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DIAMONDS
Should Closely Track the Value of the Stocks Included in the
DJIA
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DIAMONDS intend to provide investment results that, before
expenses, generally correspond to the price and yield
performance of the DJIA. Current information regarding the value
of the DJIA is available from market information services. Dow
Jones obtains information for inclusion in, or for use in the
calculation of, the DJIA from sources Dow Jones considers
reliable. None of Dow Jones, the Sponsor, the Trust, the
Trustee, NYSE Arca, Inc. or its affiliates accepts
responsibility for or guarantees the accuracy
and/or
completeness of the DJIA or any data included in the DJIA.
The Trust holds the Portfolio and cash and is not actively
managed by traditional methods, which typically
involve effecting changes in the Portfolio on the basis of
judgments made relating to economic, financial and market
considerations. To maintain the correspondence between the
composition and weightings of stocks held by the Trust
(Portfolio Securities or, collectively,
Portfolio) and component stocks of the DJIA
(Index Securities), the Trustee adjusts the
Portfolio from time to time to conform to periodic changes in
the identity
and/or
relative weightings of Index Securities. The Trustee generally
makes these adjustments to the Portfolio within three
(3) Business Days (defined below) before or after the day
on which changes in the DJIA are scheduled to take effect. Any
change in the identity or weighting of an Index Security will
result in a corresponding adjustment to the prescribed Portfolio
Deposit effective on any day that the New York Stock Exchange,
LLC (NYSE) is open for business (Business
Day) either prior to, on, or following the day on which
the change to the DJIA takes effect after the close of the
market.
The value of DIAMONDS fluctuates in relation to changes in the
value of the Portfolio. The market price of each individual
DIAMONDS may not be identical to the net asset value
(NAV) of such DIAMONDS but, historically, these two
valuations have generally been close.
3
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DIAMONDS
are Listed and Trade on NYSE Arca, Inc.
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DIAMONDS are listed for trading on NYSE Arca, Inc.
(Exchange or NYSE Arca), and are bought
and sold in the secondary market like ordinary shares of stock
at any time during the trading day. DIAMONDS are traded on the
Exchange in 100 DIAMOND round lots, but can be traded in odd
lots of as little as one DIAMOND. The Exchange may halt trading
of DIAMONDS under certain circumstances as summarized herein
(see Exchange Listing).
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Brokerage
Commissions on DIAMONDS
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Secondary market purchases and sales of DIAMONDS are subject to
ordinary brokerage commissions and charges.
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The
Trust Issues and Redeems DIAMONDS in Multiples of 50,000
DIAMONDS
Called Creation Units
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The Trust issues and redeems DIAMONDS only in specified large
lots of 50,000 DIAMONDS or multiples thereof referred to as
Creation Units. Fractional Creation Units may be
created or redeemed only in limited circumstances.*
Creation Units are issued by the Trust to anyone who, after
placing a creation order with ALPS Distributors, Inc.
(Distributor), deposits with the Trustee a specified
portfolio of Index Securities and a cash payment generally equal
to dividends (net of expenses) accumulated up to the time of
deposit. If the Trustee determines that one or more Index
Securities are likely to be unavailable, or available in
insufficient quantity, for delivery upon creation of Creation
Units, the Trustee may permit the cash equivalent value of one
or more of these Index Securities to be included in the
Portfolio Deposit as a part of the Cash Component in lieu
thereof. If a creator is restricted by regulation or otherwise
from investing or engaging in a transaction in one or more Index
Securities, the Trustee may permit the cash equivalent value of
such Index Securities to be included in the Portfolio Deposit
based on the market value of such Index Securities as of the
Evaluation Time on the date such creation order is deemed
received by the Distributor as part of the Cash Component in
lieu of the inclusion of such Index Securities in the stock
portion of the Portfolio Deposit.
Creation Units are redeemable in kind only and are not
redeemable for cash. Upon receipt of one or more Creation Units,
the Trust delivers to the redeeming holder a portfolio of Index
Securities (based on NAV of the Trust), together with a cash
payment. Each redemption has to be accompanied by a Cash
Redemption Payment that on any given Business Day is an
amount identical to the Cash Component of a Portfolio Deposit.
If the Trustee determines that one or more Index Securities are
* See the discussion of
termination of the Trust in this Summary and Dividend
Reinvestment Service for a description of the
circumstances in which DIAMONDS may be redeemed or created by
the Trustee in less than a Creation Unit size aggregation of
50,000 DIAMONDS.
4
likely to be unavailable or available in insufficient quantity
for delivery by the Trust upon the redemption of Creation Units,
the Trustee may deliver the cash equivalent value of one or more
of these Index Securities, based on their market value as of the
Evaluation Time on the date the redemption order is deemed
received by the Trustee, as part of the Cash
Redemption Payment in lieu thereof.
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Creation
Orders Must be Placed with the Distributor
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All orders to create Creation Units must be placed with the
Distributor. To be eligible to place these orders, an entity or
person must be (a) a Participating Party, or
(b) a DTC Participant, and in each case must have executed
an agreement with the Distributor and the Trustee, as may be
amended from time to time (Participant Agreement).
The term Participating Party means a broker-dealer
or other participant in the DIAMONDS Clearing Process, through
the Continuous Net Settlement (CNS) System of the
National Securities Clearing Corporation (NSCC), a
clearing agency registered with the Securities and Exchange
Commission (SEC). Payment for orders is made by
deposits with the Trustee of a portfolio of securities,
substantially similar in composition and weighting to Index
Securities, and a cash payment in an amount equal to the
Dividend Equivalent Payment, plus or minus the Balancing Amount.
Dividend Equivalent Payment is an amount equal, on a
per Creation Unit basis, to the dividends on the Portfolio (with
ex-dividend dates within the accumulation period), net of
expenses and accrued liabilities for such period (including,
without limitation, (i) taxes or other governmental charges
against the Trust not previously deducted, if any, and
(ii) accrued fees of the Trustee and other expenses of the
Trust (including legal and auditing expenses) and other expenses
not previously deducted), calculated as if all of the Portfolio
Securities had been held for the entire accumulation period for
such distribution. The Dividend Equivalent Payment and the
Balancing Amount collectively are referred to as Cash
Component and the deposit of a portfolio of securities and
the Cash Component collectively are referred to as a
Portfolio Deposit. Persons placing creation orders
with the Distributor must deposit Portfolio Deposits either
(i) through the CNS clearing process of NSCC, as such
processes have been enhanced to effect creations and redemptions
of Creation Units, such processes referred to herein as the
DIAMONDS Clearing Process, or (ii) with the
Trustee outside the DIAMONDS Clearing Process (i.e.,
through the facilities of DTC).
The Distributor acts as underwriter of DIAMONDS on an agency
basis. The Distributor maintains records of the orders placed
with it and the confirmations of acceptance and furnishes to
those placing such orders confirmations of acceptance of the
orders. The Distributor also is responsible for delivering a
prospectus to persons creating DIAMONDS. The Distributor also
maintains a record of the delivery instructions in response to
orders and may 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 1290 Broadway,
Suite 1100, Denver, CO 80203, toll free number:
1-800-843-2639.
The
5
Distributor is a registered broker-dealer and a member of FINRA
(the successor organization to the National Association of
Securities Dealers, Inc.) The Sponsor of the Trust 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 SEC.
The expenses of the Trust are accrued daily and reflected in the
NAV of the Trust. The Trust currently is accruing ordinary
operating expenses at an annual rate of 0.1670% (excluding
earnings credits).
|
|
|
|
|
Shareholder Fees:*
|
|
|
None*
|
|
(fees paid directly from your investment)
|
|
|
|
|
|
|
|
|
|
Estimated Trust Annual Ordinary Operating Expenses:
|
|
|
|
|
|
|
|
|
|
Current Trust Annual Ordinary
|
|
As a % of Trust
|
|
Operating Expenses
|
|
Net Assets
|
|
|
Trustees Fee
|
|
|
0.0594
|
%
|
Dow Jones License Fee
|
|
|
0.0411
|
%
|
Registration Fees
|
|
|
0.0000
|
%
|
Marketing
|
|
|
0.0600
|
%
|
Other Operating Expenses
|
|
|
0.0065
|
%
|
Net Expenses**
|
|
|
0.1670
|
%
|
Future expense accruals will depend primarily on the level of
the Trusts net assets and the level of expenses.
|
|
|
*
|
|
Investors do not pay shareholder
fees directly from their investment, but purchases and
redemptions of Creation Units are subject to Transaction Fees
(described below in A Transaction Fee is Payable For Each
Creation and For Each Redemption of Creation Units), and
purchases and sales of DIAMONDS in the secondary market are
subject to ordinary brokerage commissions and charges (described
above in Brokerage Commissions on DIAMONDS).
|
|
**
|
|
Until the Sponsor otherwise
determines, the Sponsor has undertaken that the ordinary
operating expenses of the Trust will not be permitted to exceed
0.1800% of the Trusts daily NAV. Gross expenses of the
Trust for the year ending October 31, 2008, without regard
to this undertaking, were 0.1692% of the daily NAV of the Trust
and therefore no expenses of the Trust were assumed by the
Sponsor. The Sponsor reserves the right to discontinue this
undertaking in the future. Therefore, there is no guarantee that
the Trusts ordinary operating expenses will not exceed
0.1800% of the Trusts daily NAV. Trust expenses were
reduced during the same period by a Trustees earnings
credit of 0.0044% of the Trusts daily NAV as a result of
uninvested cash balances in the Trust. The amount of earnings
credit will be equal to the then current Federal Funds Rate, as
reported in nationally distributed publications, multiplied by
each days daily cash balance, if any, in the Trusts
cash account, reduced by the amount of reserves, if any, for
that account required by the Federal Reserve Board of Governors.
|
6
The bar chart below and the table on the next page entitled
Average Annual Total Returns (For Periods Ending
December 31, 2008) (Table) provide some
indication of the risks of investing in the Trust by showing the
variability of the Trusts returns based on net assets and
comparing the Trusts performance to the performance of the
DJIA. Past performance (both before and after tax) is not
necessarily an indication of how the Trust will perform in the
future.
The after-tax returns presented in the Table are calculated
using the highest historical individual federal marginal income
tax rates and do not reflect the impact of state and local
taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below.
After-tax returns are not relevant to investors who hold
DIAMONDS through tax-deferred arrangements, such as 401(k) plans
or individual retirement accounts. The total returns in the bar
chart below, as well as the total and after-tax returns
presented in the Table, do not reflect Transaction Fees payable
by those persons purchasing and redeeming Creation Units, nor
brokerage commissions incurred by those persons purchasing and
selling DIAMONDS in the secondary market (see footnotes
(2) and (3) to the Table).
This bar chart shows the performance of the Trust for each full
calendar year for the past 10 years ended December 31,
2008. During the period shown above (January 1, 1999
through December 31, 2008), the highest quarterly return
for the Trust was 13.75% for the quarter ended December 31,
2001, and the lowest was −18.39% for the quarter ended
December 31, 2008.
7
Average
Annual Total Returns* (For Periods Ending December 31,
2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past
|
|
|
Past
|
|
|
Past
|
|
|
|
One Year
|
|
|
Five Years
|
|
|
Ten Years
|
|
|
DIAMONDS Trust, Series 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Before
Taxes(1)(2)(3)
|
|
|
−31.92
|
%
|
|
|
−1.27
|
%
|
|
|
1.52
|
%
|
Return After Taxes on
Distributions(1)(2)(3)
|
|
|
−32.21
|
%
|
|
|
−1.68
|
%
|
|
|
1.03
|
%
|
Return After Taxes on Distributions and Redemption of Creation
Units(1)(2)(3)
|
|
|
−20.27
|
%
|
|
|
−1.08
|
%
|
|
|
1.14
|
%
|
DJIA(4)
|
|
|
−31.93
|
%
|
|
|
−1.12
|
%
|
|
|
1.66
|
%
|
|
|
|
*
|
|
Total returns assume that dividends
and capital gain distributions have been reinvested in the Trust
at the net asset value per unit.
|
|
(1)
|
|
Includes all applicable ordinary
operating expenses set forth above in the section of
Highlights entitled Expenses of the
Trust.
|
|
(2)
|
|
Does not include the Transaction
Fee which is payable to the Trustee only by persons purchasing
and redeeming Creation Units as discussed below in the section
of Highlights entitled A Transaction Fee is
Payable For Each Creation and For Each Redemption of Creation
Units. If these amounts were reflected, returns would be
less than those shown.
|
|
(3)
|
|
Does not include brokerage
commissions and charges incurred only by persons who make
purchases and sales of DIAMONDS in the secondary market as
discussed above in the section of Highlights
entitled Brokerage Commissions on DIAMONDS. If these
amounts were reflected, returns would be less than those shown.
|
|
(4)
|
|
Does not reflect deductions for
taxes, operating expenses, Transaction Fees, brokerage
commissions, or fees of any kind.
|
DIAMONDS
TRUST, SERIES 1
GROWTH OF
$10,000 INVESTMENT
SINCE
INCEPTION(1)
|
|
|
(1)
|
|
Past performance is not necessarily
an indication of how the Trust will perform in the future.
|
8
|
|
|
A
Transaction Fee is Payable for Each Creation and for Each
Redemption of Creation Units
|
The transaction fee payable to the Trustee in connection with
each creation and redemption of Creation Units made through the
DIAMONDS Clearing Process (Transaction Fee) is
non-refundable, regardless of the NAV of the Trust. This
Transaction Fee is $1,000 per Participating Party per day,
regardless of the number of Creation Units created or redeemed
on such day. The $1,000 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 (10 Basis
Point Limit).
For creations and redemptions outside the DIAMONDS Clearing
Process, an additional amount not to exceed three (3) times
the Transaction Fee applicable for one Creation Unit is charged
per Creation Unit per day. Under the current schedule,
therefore, the total fee charged in connection with creation or
redemption outside the DIAMONDS Clearing Process would be $1,000
(the Transaction Fee for the creation or redemption of one
Creation Unit) plus an additional amount up to $3,000 (3 times
$1,000), for a total not to exceed $4,000. Creators and
redeemers restricted from engaging in transactions in one or
more Index Securities may pay the Trustee the Transaction Fee
and may pay an additional amount per Creation Unit not to exceed
three (3) times the Transaction Fee applicable for one
Creation Unit.
|
|
|
DIAMONDS
are Held in Book Entry Form Only
|
The Depository Trust Company (DTC) or its
nominee is the record or registered owner of all outstanding
DIAMONDS. Beneficial ownership of DIAMONDS is shown on the
records of DTC or its participants. Individual certificates are
not issued for DIAMONDS. See The TrustSecurities
Depository; Book-Entry-Only System.
|
|
|
DIAMONDS
Make Periodic Dividend Payments
|
DIAMONDS holders receive each calendar month an amount
corresponding to the amount of any cash dividends declared on
the Portfolio Securities during the applicable period, net of
fees and expenses associated with operation of the Trust, and
taxes, if applicable. Because of such fees and expenses, the
dividend yield for DIAMONDS is ordinarily less than that of the
DJIA. Investors should consult their tax advisors regarding tax
consequences associated with Trust dividends, as well as those
associated with DIAMONDS sales or redemptions.
Monthly distributions based on the amount of dividends payable
with respect to Portfolio Securities and other income received
by the Trust, net of fees and expenses, and taxes, if
applicable, are made via DTC and its participants to Beneficial
Owners on each Dividend Payment Date. 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
9
satisfy certain distribution requirements imposed by the
Internal Revenue Code of 1986, as amended (Code).
Although all income distributions are currently made monthly,
the Trustee may vary the periodicity with which distributions
are made. Those Beneficial Owners interested in reinvesting
their monthly distributions may participate through DTC
Participants in the DTC Dividend Reinvestment Service
(Service) available through certain brokers. See
The TrustSecurities Depository; Book-Entry-Only
System.
|
|
|
The
Trust Intends to Qualify as a Regulated Investment
Company
|
For the fiscal year ended October 31, 2008, 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 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
qualified dividend income eligible (a) for the maximum 15%
tax rate for non-corporate taxpayers through 2009 and
(b) for federal income tax purposes and to be eligible for
the dividends-received deduction available to many corporations
to the extent of qualified dividend income received by the
Trust. The Trusts regular monthly distributions are based
on the dividend performance of the Portfolio during such monthly
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.
Subchapter M of the Code imposes certain diversification
requirements. The Trustee may adjust the composition of the
Portfolio at any time if, in the Trustees view, such
adjustment is necessary to ensure continued qualification of the
Trust as a regulated investment company for tax
purposes.
|
|
|
Termination
of the Trust
|
The Trust has a specified lifetime term. The Trust is scheduled
to terminate on the first to occur of (a) January 13,
2123 or (b) the date 20 years after the death of the
last survivor of fifteen persons named in the
Trust Agreement, the oldest of whom was born in 1994 and
the youngest of whom was born in 1997. Upon termination, the
Trust may be liquidated and pro rata shares of the assets of the
Trust, net of certain fees and expenses, distributed to holders
of DIAMONDS.
|
|
|
Restrictions
on Purchases of DIAMONDS by Investment Companies
|
Purchases of DIAMONDS by investment companies are subject to
restrictions set forth in Section 12(d)(1) of the
Investment Company Act of 1940. The Trust has received an SEC
order that permits registered investment companies to invest in
10
DIAMONDS beyond these limits, subject to certain conditions and
terms. One such condition is that registered investment
companies relying on the order must enter into a written
agreement with the Trust. Registered investment companies
wishing to learn more about the order and the agreement should
telephone 1-800-843-2639.
The Trust itself is also subject to the restrictions of
Section 12(d)(1). This means that (a) the Trust cannot
invest in any registered investment company, to the extent that
the Trust would own more than 3% of that registered investment
companys outstanding share position, (b) the Trust
cannot invest more than 5% of its total assets in the securities
of any one registered investment company, and (c) the Trust
cannot invest more than 10% of its total assets in the
securities of registered investment companies in the aggregate.
Risk
Factors
Investors can lose money by investing in DIAMONDS. Investors
should carefully consider the risk factors described below
together with all of the other information included in this
Prospectus before deciding to invest in DIAMONDS.
Investment in the Trust involves the risks inherent in an
investment in any equity security. An investment
in the Trust is subject to the risks of any investment in a
portfolio of large-capitalization common stocks, including the
risk that the general level of stock prices may decline, thereby
adversely affecting the value of such investment. The value of
Portfolio Securities may fluctuate in accordance with changes in
the financial condition of the issuers of Portfolio Securities
(particularly those that are heavily weighted in the DJIA), the
value of common stocks generally and other factors. The identity
and weighting of Index Securities and the Portfolio Securities
also change from time to time.
The financial condition of the issuers may become impaired or
the general condition of the stock market may deteriorate
(either of which may cause a decrease in the value of the
Portfolio and thus in the value of DIAMONDS). 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.
Holders of common stocks of any given issuer incur more risk
than holders of preferred stocks and debt obligations of the
issuer because the rights of common stockholders, as owners of
the issuer, generally are inferior to the rights of creditors
of, or holders of debt obligations or preferred stocks issued
by, such issuer. Further, unlike debt securities that typically
have a stated principal amount payable at maturity, or preferred
stocks that typically have a liquidation preference and may have
stated optional or mandatory redemption provisions, common
stocks have
11
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 Portfolio may be
expected to fluctuate over the entire life of the Trust.
There can be no assurance that the issuers of Portfolio
Securities will pay dividends. Distributions generally depend
upon the declaration of dividends by the issuers of Portfolio
Securities and the declaration of such dividends generally
depends upon various factors, including the financial condition
of the issuers and general economic conditions.
The Trust is not actively managed. The Trust
is not actively managed by traditional methods, and
therefore the adverse financial condition of an issuer will not
result in the elimination of its stocks from the Portfolio
unless the stocks of such issuer are removed from the DJIA.
A liquid trading market for certain Portfolio Securities may
not exist. Although most of the Portfolio
Securities are listed on a national securities exchange, the
principal trading market for some may be in the over-the-counter
market. The existence of a liquid trading market for certain
Portfolio Securities may depend on whether dealers will make a
market in such stocks. There can be no assurance that a market
will be made for any Portfolio Securities, that any market will
be maintained or that any such market will be or remain liquid.
The price at which Portfolio Securities may be sold and the
value of the Portfolio will be adversely affected if trading
markets for Portfolio Securities are limited or absent.
The Trust may not always be able exactly to replicate the
performance of the DJIA. It is possible that the
Trust may not always fully replicate the performance of the DJIA
due to the unavailability of certain Index Securities in the
secondary market or due to other extraordinary circumstances. In
addition, the Trust is not able to replicate exactly the
performance of the DJIA because the total return generated by
the Portfolio is reduced by Trust expenses and transaction costs
incurred in adjusting the actual balance of the Portfolio. In
addition, the Trusts portfolio may deviate from the DJIA
to the extent required to ensure continued qualification as a
regulated investment company under Subchapter M
of the Code.
Investment in the Trust may have adverse tax
consequences. Investors in the Trust should also
be aware that there are tax consequences associated with the
ownership of DIAMONDS resulting from the distribution of Trust
dividends and sales of DIAMONDS as well as under certain
circumstances the sales of stocks held by the Trust in
connection with redemptions.
NAV may not always correspond to market
price. The NAV of DIAMONDS in Creation Unit size
aggregations and, proportionately, the NAV per DIAMONDS unit,
changes as fluctuations occur in the market value of Portfolio
Securities. Investors should be aware that the aggregate public
trading market price of 50,000 DIAMONDS may be different from
the NAV of a Creation Unit (i.e., 50,000 DIAMONDS may
trade at a premium over, or at a discount to, the NAV of a
Creation Unit) and
12
similarly the public trading market price per DIAMONDS unit may
be different from the NAV of a Creation Unit on a per DIAMONDS
unit basis. 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 DIAMONDS are closely related to, but not
identical to, the same forces influencing the prices of Index
Securities trading individually or in the aggregate at any point
in time. Investors also should note that the size of the Trust
in terms of total assets held may change substantially over time
and from time to time as Creation Units are created and redeemed.
The Exchange may halt trading in
DIAMONDS. DIAMONDS are listed for trading on the
Exchange under the market symbol DIA. Trading in DIAMONDS may be
halted under certain circumstances as summarized herein (see
Exchange Listing). Also, there can be no assurance
that the requirements of the Exchange necessary to maintain the
listing of DIAMONDS will continue to be met or will remain
unchanged. The Trust will be terminated if DIAMONDS are delisted
from the Exchange.
DIAMONDS are subject to market risks. DIAMONDS
are subject to the risks other than those inherent in an
investment in equity securities, discussed above, in that the
selection of the stocks included in the 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 stocks may affect trading in DIAMONDS.
Additionally, DIAMONDS may perform differently than other
investments in portfolios containing large capitalization stocks
based upon or derived from an index other than the DJIA. For
example, the great majority of component stocks of the DJIA are
drawn from among the largest of the large capitalization
universe, while other indexes may represent a broader sampling
of large capitalization stocks. Also, other indexes may use
different methods for assigning relative weights to the index
components than the price weighted method used by the DJIA. As a
result, DJIA accords relatively more weight to stocks with a
higher price to market capitalization ratio than a similar
market capitalization weighted index.
The regular settlement period for Creation Units may be
reduced. Except as otherwise specifically noted,
the time frames for delivery of stocks, cash, or DIAMONDS in
connection with creation and redemption activity within the
DIAMONDS Clearing Process are based on NSCCs 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
there may be a corresponding reduction in settlement periods
applicable to DIAMONDS creations and redemptions.
Clearing and settlement of Creation Units may be delayed or
fail. The Trustee delivers a portfolio of stocks
for each Creation Unit delivered for redemption substantially
identical in weighting and composition to the stock portion of a
Portfolio Deposit as in effect on the date the request for
redemption is deemed received by the Trustee. If redemption is
processed through the DIAMONDS
13
Clearing Process, the stocks that are not delivered are covered
by NSCCs guarantee of the completion of such delivery. Any
stocks not received on settlement date are marked-to-market
until delivery is completed. The Trust, to the extent it has not
already done so, remains obligated to deliver the stocks to
NSCC, and the market risk of any increase in the value of the
stocks until delivery is made by the Trust to NSCC could
adversely affect the NAV of the Trust. Investors should note
that the stocks to be delivered to a redeemer submitting a
redemption request outside of the DIAMONDS Clearing Process that
are not delivered to such redeemer are not covered by
NSCCs guarantee of completion of delivery.
14
DIAMONDS
TRUST, SERIES 1
To the
Trustee and Unitholders of DIAMONDS 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 DIAMONDS Trust,
Series 1 (the Trust) at October 31, 2008,
the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements and
financial highlights (hereafter referred to as financial
statements) are the responsibility of the Trustee; 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 the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of
securities at October 31, 2008 by correspondence with the
custodian and brokers, and the application of alternative
auditing procedures where securities purchased had not been
received, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 23, 2008
15
DIAMONDS Trust Series 1
October 31, 2008
|
|
|
|
|
Assets
|
Investments in securities, at value
|
|
$
|
9,105,099,863
|
|
Cash
|
|
|
20,368,437
|
|
Dividends receivable
|
|
|
15,445,692
|
|
|
|
|
|
|
Total Assets
|
|
|
9,140,913,992
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Income distribution payable
|
|
|
16,564,734
|
|
Payable for DIAMONDS redeemed in-kind
|
|
|
17,535
|
|
Accrued Trustee expense
|
|
|
799,304
|
|
Accrued expenses and other liabilities
|
|
|
9,302,143
|
|
|
|
|
|
|
Total Liabilities
|
|
|
26,683,716
|
|
|
|
|
|
|
Net Assets
|
|
$
|
9,114,230,276
|
|
|
|
|
|
|
Net Assets Consist of:
|
|
|
|
|
Paid in surplus
|
|
$
|
13,599,260,467
|
|
Undistributed net investment income
|
|
|
2,493,120
|
|
Accumulated net realized loss on investments
|
|
|
(800,674,454
|
)
|
Net unrealized depreciation on investments
|
|
|
(3,686,848,857
|
)
|
|
|
|
|
|
Net Assets
|
|
$
|
9,114,230,276
|
|
|
|
|
|
|
Net asset value per DIAMOND
|
|
$
|
93.22
|
|
|
|
|
|
|
Units of fractional undivided interest (DIAMONDS)
outstanding, unlimited units authorized, $0.00 par value
|
|
|
97,770,848
|
|
|
|
|
|
|
Cost of investments
|
|
$
|
12,791,948,720
|
|
|
|
|
|
|
See accompanying notes to financial statements.
16
DIAMONDS
Trust Series 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
For the Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
October 31, 2008
|
|
|
October 31, 2007
|
|
|
October 31, 2006
|
|
|
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
$
|
234,266,377
|
|
|
$
|
172,683,551
|
|
|
$
|
154,659,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Trustee expense
|
|
|
4,878,701
|
|
|
|
4,232,050
|
|
|
|
4,562,765
|
|
Marketing expense
|
|
|
5,319,946
|
|
|
|
4,437,144
|
|
|
|
3,903,738
|
|
DJIA license fee
|
|
|
4,152,507
|
|
|
|
2,555,000
|
|
|
|
2,555,000
|
|
Legal and audit services
|
|
|
181,128
|
|
|
|
174,890
|
|
|
|
100,378
|
|
Other expenses
|
|
|
389,842
|
|
|
|
218,083
|
|
|
|
384,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
14,922,124
|
|
|
|
11,617,167
|
|
|
|
11,506,800
|
|
Trustee earnings credits
|
|
|
|
|
|
|
(965,742
|
)
|
|
|
(418,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses after Trustee earnings credits
|
|
|
14,922,124
|
|
|
|
10,651,425
|
|
|
|
11,087,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment income
|
|
|
219,344,253
|
|
|
|
162,032,126
|
|
|
|
143,571,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized and Unrealized Gain (Loss) on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss) on investment transactions
|
|
|
(172,099,218
|
)
|
|
|
854,766,927
|
|
|
|
413,807,291
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
(3,238,666,792
|
)
|
|
|
139,514,977
|
|
|
|
517,345,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gain (Loss) on Investments
|
|
|
(3,410,766,010
|
)
|
|
|
994,281,904
|
|
|
|
931,152,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets Resulting from
Operations
|
|
$
|
(3,191,421,757
|
)
|
|
$
|
1,156,314,030
|
|
|
$
|
1,074,724,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
17
DIAMONDS
Trust Series 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
For the Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
October 31, 2008
|
|
|
October 31, 2007
|
|
|
October 31, 2006
|
|
|
Increase (Decrease) in Net Assets Resulting from
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
219,344,253
|
|
|
$
|
162,032,126
|
|
|
$
|
143,571,962
|
|
Net realized gain (loss) on investment transactions
|
|
|
(172,099,218
|
)
|
|
|
854,766,927
|
|
|
|
413,807,291
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
(3,238,666,792
|
)
|
|
|
139,514,977
|
|
|
|
517,345,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets Resulting from
Operations
|
|
|
(3,191,421,757
|
)
|
|
|
1,156,314,030
|
|
|
|
1,074,724,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Equalization Credits and Charges
|
|
|
1,639,517
|
|
|
|
(13,594,558
|
)
|
|
|
(1,800,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Unitholders from Net Investment Income
|
|
|
(218,527,182
|
)
|
|
|
(147,731,248
|
)
|
|
|
(141,435,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets from Issuance and
Redemption of DIAMONDS
|
|
|
3,182,648,908
|
|
|
|
1,785,284,683
|
|
|
|
(1,781,857,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets
|
|
|
(225,660,514
|
)
|
|
|
2,780,272,907
|
|
|
|
(850,368,565
|
)
|
Net Assets at Beginning of Year
|
|
|
9,339,890,790
|
|
|
|
6,559,617,883
|
|
|
|
7,409,986,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets at End of Year*
|
|
$
|
9,114,230,276
|
|
|
$
|
9,339,890,790
|
|
|
$
|
6,559,617,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes Undistributed Net Investment Income
|
|
$
|
2,493,120
|
|
|
$
|
17,835,012
|
|
|
$
|
3,534,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
18
DIAMONDS
Trust Series 1
Selected Data for a DIAMOND Outstanding During the
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net asset value, beginning of year
|
|
$
|
139.17
|
|
|
$
|
120.69
|
|
|
$
|
104.31
|
|
|
$
|
100.48
|
|
|
$
|
98.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income(1)
|
|
|
2.96
|
|
|
|
2.85
|
|
|
|
2.45
|
|
|
|
2.39
|
(5)
|
|
|
1.94
|
|
Net realized and unrealized gain (loss) on investments
|
|
|
(45.91
|
)
|
|
|
18.57
|
|
|
|
16.37
|
|
|
|
3.91
|
|
|
|
2.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
(42.95
|
)
|
|
|
21.42
|
|
|
|
18.82
|
|
|
|
6.30
|
|
|
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net equalization credits and charges(1)
|
|
|
0.02
|
|
|
|
(0.24
|
)
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
0.00
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(3.02
|
)
|
|
|
(2.70
|
)
|
|
|
(2.41
|
)
|
|
|
(2.44
|
)
|
|
|
(1.94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
93.22
|
|
|
$
|
139.17
|
|
|
$
|
120.69
|
|
|
$
|
104.31
|
|
|
$
|
100.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment return(3)
|
|
|
(31.23
|
)%
|
|
|
17.72
|
%
|
|
|
18.23
|
%
|
|
|
6.23
|
%
|
|
|
4.27
|
%
|
Ratios and supplemental data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
2.49
|
%
|
|
|
2.19
|
%
|
|
|
2.21
|
%
|
|
|
2.27
|
%
|
|
|
1.89
|
%
|
Total expenses
|
|
|
0.17
|
%
|
|
|
0.16
|
%
|
|
|
0.18
|
%
|
|
|
0.18
|
%
|
|
|
0.18
|
%
|
Net expenses excluding trustee earnings credit
|
|
|
0.17
|
%
|
|
|
0.14
|
%
|
|
|
0.17
|
%
|
|
|
0.17
|
%
|
|
|
0.18
|
%
|
Portfolio turnover rate(4)
|
|
|
11.27
|
%
|
|
|
1.45
|
%
|
|
|
0.01
|
%
|
|
|
7.69
|
%
|
|
|
13.88
|
%
|
Net asset value, end of year (000s)
|
|
$
|
9,114,230
|
|
|
$
|
9,339,891
|
|
|
$
|
6,559,618
|
|
|
$
|
7,409,986
|
|
|
$
|
8,190,891
|
|
|
|
|
(1)
|
|
Per unit numbers have been
calculated using the average shares method.
|
|
(2)
|
|
Amount shown represents less than
$0.005.
|
|
(3)
|
|
Total return is calculated assuming
a purchase of shares at net asset value per share on the first
day and a sale at net asset value per share on the last day of
each period reported. Distributions are assumed, for the
purposes of this calculation, to be reinvested at the net asset
value per share on the respective payment dates of the Trust.
Broker commission charges are not included in the calculation.
|
|
(4)
|
|
Portfolio turnover ratio excludes
securities received or delivered from processing creations or
redemptions of DIAMONDS.
|
|
(5)
|
|
Net investment income per unit
reflects receipt of a one time dividend from a portfolio holding
(Microsoft Corp.). The effect of this dividend amounted to $0.22
per unit.
|
See accompanying notes to financial statements.
19
DIAMONDS
Trust Series 1
October 31, 2008
DIAMONDS 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, as
amended. 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 component common stocks, in
substantially the same weighting, which comprise the Dow Jones
Industrial Average (the DJIA). Each unit of
fractional undivided interest in the Trust is referred to as a
DIAMOND. The Trust commenced operations on
January 14, 1998 upon the initial issuance of 500,000
DIAMONDS (equivalent to ten Creation
Units see Note 4) in exchange for a
portfolio of securities assembled to reflect the intended
portfolio composition of the Trust.
Under the Trust Agreement, the Sponsor and Trustee (each as
defined below) are indemnified against certain liabilities
arising from the performance of their duties to the Trust.
Additionally, in the normal course of business, the Trust enters
into contracts with service providers that contain general
indemnification clauses. The Trusts maximum exposure under
these arrangements is unknown as this would involve future
claims that may be made against the Trust that have not yet
occurred. However, based on experience the Trust expects the
risk of material loss to be remote.
|
|
NOTE 2
|
SIGNIFICANT
ACCOUNTING POLICIES
|
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America (US GAAP) requires management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could
differ from these estimates. The following is a summary of
significant accounting policies followed by the Trust.
Security
Valuation
The value of the Trusts portfolio securities is based on
the market price of the securities, which generally means a
valuation obtained from an exchange or other market (or based on
a price quotation or other equivalent indication of value
supplied by an exchange or other market) or a valuation obtained
from an independent pricing service.
In September 2006, Statement of Financial Accounting Standards
No. 157, Fair Value Measurements
(SFAS 157 or the Statement),
was issued and is effective for fiscal years beginning after
November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair
20
DIAMONDS
Trust Series 1
Notes to Financial Statements
October 31, 2008
value measurements. As a result, the Trust will adopt
SFAS 157 for the fiscal year beginning November 1,
2008. The Trustee is evaluating the application of the Statement
to the Trust, and believes the impact will be limited to
expanded disclosures resulting from the adoption of this
Statement in the Trusts financial statements.
Investment
Risk
The Trust invests in various investments which are exposed to
risks, such as market risk. Due to the level of risk associated
with certain investments it is at least reasonably possible that
changes in the values of investment securities will occur in the
near term and that such changes could materially affect the
amounts reported in the financial statements.
An investment in the Trust involves risks similar to those of
investing in any fund of equity securities, such as market
fluctuations caused by such factors as economic and political
developments, changes in interest rates and perceived trends in
stock prices. You should anticipate that the value of DIAMONDS
will decline, more or less, in correlation with any decline in
value of the DJIA. The values of equity securities could decline
generally or could underperform other investments. Further, the
Trust would not sell an equity security because the
securitys issuer was in financial trouble unless that
security is removed from the DJIA.
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.
Distributions
to Unitholders
The Trust declares and distributes dividends from net investment
income to its unitholders monthly. The Trust will distribute net
realized capital gains, if any, at least annually.
Equalization
The Trust follows the accounting practice known as
Equalization by which a portion of the proceeds from
sales and costs of reacquiring the Trusts units,
equivalent on a per unit basis to the amount of distributable
net investment income on the date of the transaction, is
credited or charged to undistributed net investment income. As a
result, undistributed net investment income per unit is
unaffected by sales or reacquisitions of the Trusts units.
21
DIAMONDS
Trust Series 1
Notes to Financial Statements
October 31, 2008
Federal
Income Tax
The Trust has qualified and intends to continue to qualify 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
those determined in accordance with US GAAP. 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 unit calculations in the
financial highlights for all years presented exclude these
differences.
During the fiscal year ended October 31, 2008, the Trust
reclassified $341,238,222 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 October 31, 2008, the Trust had the following capital
loss carryforwards which may be used to offset any net realized
gains, expiring October 31:
|
|
|
|
|
2010
|
|
$
|
2,065,467
|
|
2011
|
|
|
68,716,435
|
|
2012
|
|
|
221,460,584
|
|
2014
|
|
|
52,316
|
|
2016
|
|
|
506,750,845
|
|
The tax character of distributions paid during the year ended
October 31, 2008, 2007, and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid from:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Ordinary Income
|
|
$
|
218,527,182
|
|
|
$
|
147,731,248
|
|
|
$
|
141,435,357
|
|
There were no significant differences between the book basis and
tax basis components of net assets other than differences in the
net unrealized appreciation (depreciation) in value of
investments attributable to the tax deferral of losses on wash
sales and undistributed ordinary income attributable to
dividends payable at period end.
22
DIAMONDS
Trust Series 1
Notes to Financial Statements
October 31, 2008
As of October 31, 2008, the components of distributable
earnings (excluding unrealized appreciation/(depreciation)) on
the tax basis were undistributed ordinary income of $19,057,854
and undistributed long term capital gain of $0.
On July 13, 2006, the Financial Accounting Standards Board
(FASB) released FASB Interpretation No. 48
Accounting for Uncertainty in Income Taxes
(FIN 48 or the Interpretation).
FIN 48 provides guidance for how uncertain tax positions
should be recognized, measured, presented and disclosed in the
financial statements. FIN 48 requires the evaluation of tax
positions taken or expected to be taken in the course of
preparing the Trusts tax return to determine whether the
tax positions are more-likely-than-not of being
sustained by the applicable tax authority. Tax positions not
deemed to meet a more-likely-than-not threshold
would be recorded as a tax expense in the current year. Adoption
of FIN 48 is required for fiscal years beginning after
December 15, 2006 and is to be applied to all open tax
years as of the effective date.
The Trust adopted the provisions of FIN 48 on
November 1, 2007. Management evaluated the implications of
FIN 48 and determined that the tax positions met the
more-likely than not threshold. There was no impact
resulting from the adoption of this Interpretation on the
Trusts financial statements. The Trusts federal tax
returns for the prior three fiscal years remain subject to
examination by the Internal Revenue Service. It is the
Trusts policy to record interest and penalty charges on
underpaid taxes associated with its tax positions as interest
expense and miscellaneous expense, respectively. No such charges
were recorded in the current financial statements.
|
|
NOTE 3
|
TRANSACTIONS
WITH THE TRUSTEE AND SPONSOR
|
In accordance with the Trust Agreement, State Street Bank
and Trust Company (the Trustee) maintains the
Trusts accounting records, acts as custodian and transfer
agent to the Trust, and provides certain administrative
services. The Trustee is also responsible for determining the
composition of the portfolio of securities which must be
delivered
and/or
received in exchange for the issuance
and/or
redemption of Creation Units of the Trust, and for adjusting the
composition of the Trusts portfolio from time to time to
conform to changes in the composition
23
DIAMONDS
Trust Series 1
Notes to Financial Statements
October 31, 2008
and/or
weighting structure of the DJIA. For these services, the Trustee
received a fee at the following annual rates for the year ended
October 31, 2008:
|
|
|
|
|
Fee as a percentage of
|
Net asset value of the Trust
|
|
net asset value of the Trust
|
|
$0 $499,999,999
|
|
10/100 of 1% per annum plus or minus the Adjustment Amount
|
$500,000,000 $2,499,999,999
|
|
8/100 of 1% per annum plus or minus the Adjustment Amount
|
$2,500,000,000 and above
|
|
6/100 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 DIAMONDS 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 October 31,
2008, the Adjustment Amount reduced the Trustees fee by
$1,011,636. The Adjustment Amount included an excess of net
transaction fees from processing orders of $624,774 and a
Trustee earnings credit of $386,862. Prior to 2008, the Trustee
earnings credits were presented seperately on the Statements of
Operation.
Effective November 1, 2006, the Trustee changed the method
of computing the Adjustment Amount to the Trustee Fee such that
all income earned with respect to cash held for the benefit of
the Trust is credited against the Trustees Fee. In
addition, during the period from December 1, 2006 through
December 31, 2006, the Trustee applied incremental cash
balance credits of $374,030 which is included in the Trustee
earnings credit of $965,742.
PDR Services LLC (the Sponsor), a wholly-owned
subsidiary of NYSE Alternext US LLC, formerly the American Stock
Exchange LLC (NYSE Alternext), agreed to reimburse
the Trust for, or assume, the ordinary operating expenses of the
Trust which exceeded 18.00/100 of 1% per annum of the daily net
asset value of the Trust. There were no such reimbursements by
the Sponsor for the fiscal years ended October 31, 2006,
October 31, 2007 and October 31, 2008.
Dow Jones & Company, Inc. (Dow Jones),
NYSE Alternext, the Sponsor and State Street Global Markets, LLC
(SSgM) have entered into a License Agreement. The
License Agreement grants SSgM, an affiliate of the Trustee, a
license to use the DJIA as a basis for determining the
composition of the Portfolio and to use certain trade names and
trademarks of Dow Jones in connection with the Portfolio. The
Trustee on behalf of the Trust, the Sponsor and the Exchange
have each received a sublicense from SSgM for the use of the
DJIA and such trade names and trademarks
24
DIAMONDS
Trust Series 1
Notes to Financial Statements
October 31, 2008
in connection with their rights and duties with respect to the
Trust. The License Agreement may be amended without the consent
of any of the owners of beneficial interests of DIAMONDS, as
shown on, and effected only through, records maintained by the
Depository Trust Company (DTC) and DTCs
Participants, as defined in the prospectus (Beneficial
Owners). Currently, the License Agreement is scheduled to
terminate on December 31, 2017, but its term may be
extended without the consent of any of the Beneficial Owners of
DIAMONDS. The Trust pays an annual sub-license fee to Dow Jones
of an amount equal to 0.05% on the first $1 billion of the
then rolling average asset balance, and 0.04% on any excess
rolling average asset balance over and above $1 billion.
The minimum annual fee for the Trust is $1 million.
|
|
NOTE 4
|
TRUST TRANSACTIONS
IN DIAMONDS
|
Transactions in DIAMONDS were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2008
|
|
|
|
DIAMONDS
|
|
|
Amounts
|
|
|
DIAMONDS sold
|
|
|
366,850,000
|
|
|
$
|
43,007,862,019
|
|
DIAMONDS issued upon dividend reinvestment
|
|
|
11,778
|
|
|
|
1,388,124
|
|
DIAMONDS redeemed
|
|
|
(336,200,000
|
)
|
|
|
(39,824,961,718
|
)
|
Net income equalization
|
|
|
|
|
|
|
(1,639,517
|
)
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
30,661,778
|
|
|
$
|
3,182,648,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2007
|
|
|
|
DIAMONDS
|
|
|
Amounts
|
|
|
DIAMONDS sold
|
|
|
283,800,000
|
|
|
$
|
37,094,855,531
|
|
DIAMONDS issued upon dividend reinvestment
|
|
|
9,870
|
|
|
|
1,275,186
|
|
DIAMONDS redeemed
|
|
|
(271,050,000
|
)
|
|
|
(35,324,440,592
|
)
|
Net income equalization
|
|
|
|
|
|
|
13,594,558
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
12,759,870
|
|
|
$
|
1,785,284,683
|
|
|
|
|
|
|
|
|
|
|
25
DIAMONDS
Trust Series 1
Notes to Financial Statements
October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2006
|
|
|
|
DIAMONDS
|
|
|
Amounts
|
|
|
DIAMONDS sold
|
|
|
142,300,000
|
|
|
$
|
15,848,129,501
|
|
DIAMONDS issued upon dividend reinvestment
|
|
|
12,974
|
|
|
|
1,429,406
|
|
DIAMONDS redeemed
|
|
|
(159,000,000
|
)
|
|
|
(17,633,216,795
|
)
|
Net income equalization
|
|
|
|
|
|
|
1,800,594
|
|
|
|
|
|
|
|
|
|
|
Net decrease
|
|
|
(16,687,026
|
)
|
|
$
|
(1,781,857,294
|
)
|
|
|
|
|
|
|
|
|
|
With the exception of the Trusts dividend reinvestment
plan, DIAMONDS are issued and redeemed by the Trust only in
Creation Unit size aggregations of 50,000 DIAMONDS. 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 DIAMOND (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 $1,000 is charged in connection with each
creation or redemption of Creation Units through the DIAMONDS
Clearing Process per participating party per day, regardless of
the number of Creation Units created or redeemed. For creations
and redemptions outside the DIAMONDS Clearing Process, an
additional amount not to exceed three (3) times the
Transaction Fee applicable for one Creation Unit is charged per
Creation Unit per day. Under the current schedule, therefore,
the total fee charged in connection with creation or redemption
outside the DIAMONDS Clearing Process would be $1,000 (the
Transaction Fee for the creation or redemption of one Creation
Unit) plus an additional amount up to $3,000 (3 times $1,000),
for a total not to exceed $4,000. Transaction fees are received
by the Trustee and used to defray the expense of processing
orders.
|
|
NOTE 5
|
INVESTMENT
TRANSACTIONS
|
For the year ended October 31, 2008, the Trust had net
in-kind contributions, net in-kind redemptions, purchases and
sales of investment securities of $26,714,386,380,
$23,539,127,988, $994,695,926 and $986,832,359, respectively. At
October 31, 2008, the cost of investments for federal
income tax purposes was $12,793,577,527, accordingly, gross
unrealized appreciation was $0 and gross unrealized depreciation
was $3,688,477,664, resulting in net unrealized depreciation of
$3,688,477,664.
26
DIAMONDS
Trust Series 1
Notes to Financial Statements
October 31, 2008
Tax
Information
For federal income tax purposes, the percentage of Trust
ordinary distributions which qualify for the corporate dividends
received deduction for the fiscal year ended October 31,
2008 is 99.79%.
For the fiscal year ended October 31, 2008, certain
dividends paid by the Trust may be designated as qualified
dividend income and subject to a maximum tax rate of 15%, as
provided for by the Jobs and Growth Tax Relief Reconciliation
Act of 2003. Complete information will be reported in
conjunction with your 2008
Form 1099-DIV.
FREQUENCY
DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Bid/Ask
Price(1) vs Net Asset Value
As of October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bid/Ask Price
|
|
|
Bid/Ask Price
|
|
|
|
Above NAV
|
|
|
Below NAV
|
|
|
|
50-99
|
|
|
100-199
|
|
|
>200
|
|
|
50-99
|
|
|
100-199
|
|
|
>200
|
|
|
|
BASIS
|
|
|
BASIS
|
|
|
BASIS
|
|
|
BASIS
|
|
|
BASIS
|
|
|
BASIS
|
|
|
|
POINTS
|
|
|
POINTS
|
|
|
POINTS
|
|
|
POINTS
|
|
|
POINTS
|
|
|
POINTS
|
|
|
2008
|
|
|
3
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
0
|
|
|
|
0
|
|
2007
|
|
|
1
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
2006
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
2005
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
2004
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Comparison
of Total Returns Based on NAV and Bid/Ask Price(1)
The table below is provided to compare the Trusts total
pre-tax returns at NAV with the total pre-tax returns based on
bid/ask price and the performance of the DJIA. Past performance
is not necessarily an indication of how the Trust will perform
in the future.
Cumulative
Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
5 Year
|
|
|
10 Year
|
|
|
DIAMONDS Trust, Series 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Based on NAV
|
|
|
−31.23
|
%
|
|
|
6.02
|
%
|
|
|
31.62
|
%
|
Return Based on Bid/Ask Price
|
|
|
−31.37
|
%
|
|
|
5.81
|
%
|
|
|
31.06
|
%
|
DJIA
|
|
|
−31.24
|
%
|
|
|
6.83
|
%
|
|
|
33.51
|
%
|
27
DIAMONDS
Trust Series 1
Notes to Financial Statements
October 31, 2008
Average
Annual Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
5 Year
|
|
|
10 Year
|
|
|
DIAMONDS Trust, Series 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Based on NAV
|
|
|
−31.23
|
%
|
|
|
1.18
|
%
|
|
|
2.79
|
%
|
Return Based on Bid/Ask Price
|
|
|
−31.37
|
%
|
|
|
1.14
|
%
|
|
|
2.74
|
%
|
DJIA
|
|
|
−31.24
|
%
|
|
|
1.33
|
%
|
|
|
2.93
|
%
|
|
|
|
(1) |
|
The Bid/Ask Price is calculated based on the best bid and best
offer on the NYSE Alternext at 4:00 p.m. |
28
DIAMONDS
Trust Series 1
October 31, 2008
|
|
|
|
|
|
|
|
|
Common Stocks
|
|
Shares
|
|
|
Value
|
|
|
3M Co.
|
|
|
7,776,952
|
|
|
$
|
500,058,014
|
|
Alcoa, Inc.
|
|
|
7,776,952
|
|
|
|
89,512,718
|
|
American Express Co.
|
|
|
7,776,952
|
|
|
|
213,866,180
|
|
AT&T, Inc.
|
|
|
7,776,952
|
|
|
|
208,189,005
|
|
Bank of America Corp.
|
|
|
7,776,952
|
|
|
|
187,968,930
|
|
Boeing Co.
|
|
|
7,776,952
|
|
|
|
406,501,281
|
|
Caterpillar, Inc.
|
|
|
7,776,952
|
|
|
|
296,846,258
|
|
Chevron Corp.
|
|
|
7,776,952
|
|
|
|
580,160,619
|
|
Citigroup, Inc.
|
|
|
7,776,952
|
|
|
|
106,155,395
|
|
Coca-Cola
Co.
|
|
|
7,776,952
|
|
|
|
342,652,505
|
|
Du Pont (E.I.) de Nemours & Co.
|
|
|
7,776,952
|
|
|
|
248,862,464
|
|
Exxon Mobil Corp.
|
|
|
7,776,952
|
|
|
|
576,427,682
|
|
General Electric Co.
|
|
|
7,776,952
|
|
|
|
151,728,333
|
|
General Motors Corp.
|
|
|
7,776,952
|
|
|
|
44,950,783
|
|
Hewlett-Packard Co.
|
|
|
7,776,952
|
|
|
|
297,701,723
|
|
Home Depot, Inc.
|
|
|
7,776,952
|
|
|
|
183,458,298
|
|
Intel Corp.
|
|
|
7,776,952
|
|
|
|
124,431,232
|
|
International Business Machines Corp.
|
|
|
7,776,952
|
|
|
|
723,023,227
|
|
Johnson & Johnson
|
|
|
7,776,952
|
|
|
|
477,038,236
|
|
JPMorgan Chase & Co.
|
|
|
7,776,952
|
|
|
|
320,799,270
|
|
Kraft Foods, Inc. (Class A)
|
|
|
7,776,952
|
|
|
|
226,620,381
|
|
McDonalds Corp.
|
|
|
7,776,952
|
|
|
|
450,518,829
|
|
Merck & Co., Inc.
|
|
|
7,776,952
|
|
|
|
240,696,664
|
|
Microsoft Corp.
|
|
|
7,776,952
|
|
|
|
173,659,338
|
|
Pfizer, Inc.
|
|
|
7,776,952
|
|
|
|
137,729,820
|
|
Procter & Gamble Co.
|
|
|
7,776,952
|
|
|
|
501,924,482
|
|
United Technologies Corp.
|
|
|
7,776,952
|
|
|
|
427,421,282
|
|
Verizon Communications, Inc.
|
|
|
7,776,952
|
|
|
|
230,742,166
|
|
Wal-Mart Stores, Inc.
|
|
|
7,776,952
|
|
|
|
434,031,691
|
|
Walt Disney Co.
|
|
|
7,776,952
|
|
|
|
201,423,057
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks (Cost $12,791,948,720)
|
|
|
|
|
|
$
|
9,105,099,863
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
29
THE
TRUST
The Trust, an exchange traded fund or ETF, is a
registered investment company which both (a) continuously
issues and redeems in-kind its shares, known as
DIAMONDS, only in large lot sizes called Creation Units at their
once-daily NAV and (b) lists DIAMONDS individually for
trading on the Exchange at prices established throughout the
trading day, like any other listed equity security trading in
the secondary market on the Exchange.
Creation
of Creation Units
Portfolio Deposits may be made through the DIAMONDS Clearing
Process or outside the DIAMONDS Clearing Process only by a
person who executed a Participant Agreement with the Distributor
and the Trustee. The Distributor shall reject any order that is
not submitted in proper form. A creation order is deemed
received by the Distributor on the date on which it is placed
(Transmittal Date) if (a) such order is
received by the Distributor not later than the Closing Time (as
defined below) on such Transmittal Date and (b) all other
procedures set forth in the Participant Agreement are properly
followed. The Transaction Fee is charged at the time of creation
of a Creation Unit, and an additional amount not to exceed three
(3) times the Transaction Fee applicable for one Creation
Unit is charged for creations outside the DIAMONDS Clearing
Process, in part due to the increased expense associated with
settlement.
The Trustee, at the direction of the Sponsor, may increase*,
reduce or waive the Transaction Fee (and/or the additional
amounts charged in connection with creations
and/or
redemptions outside the DIAMONDS Clearing Process) for certain
lot-size creations
and/or
redemptions of Creation Units. The Sponsor has the right to vary
the lot-size of Creation Units subject to such an increase,
reduction or waiver. The existence of any such variation shall
be disclosed in the then current DIAMONDS Prospectus.
The DJIA is a price-weighted stock index; that is, the component
stocks of the DJIA are represented in exactly equal share
amounts and therefore are accorded relative importance in the
DJIA based on their prices. The shares of common stock of the
stock portion of a Portfolio Deposit on any date of deposit will
reflect the composition of the component stocks of the DJIA on
such day. The portfolio of Index Securities that is the basis
for a Portfolio Deposit varies as changes are made in the
composition of the Index Securities. Further, the Trustee is
permitted to take account of changes to the identity or
weighting of any Index Security resulting from a change to the
Index by making a corresponding adjustment to the Portfolio
Deposit on the day prior to the day on which the change to the
DJIA takes effect.
* Such increase is subject to the 10 Basis Point
Limit.
30
The Trustee makes available to NSCC** before the commencement of
trading on each Business Day a list of the names and required
number of shares of each of the Index Securities in the current
Portfolio Deposit as well as the amount of the Dividend
Equivalent Payment for the previous Business Day. Under certain
extraordinary circumstances which may make it impossible for the
Trustee to provide such information to NSCC on a given Business
Day, NSCC shall use the information regarding the identity of
the Index Securities of the Portfolio Deposit on the previous
Business Day. The identity of each Index Security required for a
Portfolio Deposit, as in effect on October 31, 2008, is set
forth in the above Schedule of Investments. The Sponsor makes
available (a) on each Business Day, the Dividend Equivalent
Payment effective through and including the previous Business
Day, per outstanding DIAMONDS unit, and (b) every 15
seconds throughout the day at the Exchange a number
representing, on a per DIAMONDS unit basis, the sum of the
Dividend Equivalent Payment effective through and including the
previous Business Day, plus the current value of the securities
portion of a Portfolio Deposit as in effect on such day (which
value may occasionally include a cash in lieu amount to
compensate for the omission of a particular Index Security from
such Portfolio Deposit). Such information is calculated based
upon the best information available to the Sponsor and may be
calculated by other persons designated to do so by the Sponsor.
The inability of the Sponsor to provide such information will
not in itself result in a halt in the trading of DIAMONDS on the
Exchange.
Upon receipt of one or more Portfolio Deposits, following
placement with the Distributor of an order to create DIAMONDS,
the Trustee (a) delivers one or more Creation Units to DTC,
(b) removes the DIAMONDS unit position from its account at
DTC and allocates it to the account of the DTC Participant
acting on behalf of the investor creating Creation Unit(s),
(c) increases the aggregate value of the Portfolio, and
(d) decreases the fractional undivided interest in the
Trust represented by each DIAMONDS unit.
Under certain circumstances, (a) a portion of the stock
portion of a Portfolio Deposit may consist of contracts to
purchase certain Index Securities or (b) a portion of the
Cash Component may consist of cash in an amount required to
enable the Trustee to purchase such Index Securities. If there
is a failure to deliver Index Securities that are the subject of
such contracts to purchase, the Trustee will acquire such Index
Securities in a timely manner. To the extent the price of any
such Index Security increases or decreases between the time of
creation and the time of its purchase and delivery, DIAMONDS
will represent fewer or more shares of such
** As of December 31, 2008, the Depository Trust
and Clearing Corporation (DTCC) owned 100% of the
issued and outstanding shares of common stock of NSCC. Also, as
of such date, NYSE Euronext, the parent company of the Sponsor,
and its affiliates collectively owned less than 0.3% of the
issued and outstanding shares of common stock of DTCC
(DTCC Shares), and the Trustee owned 6.2% of DTCC
Shares.
31
Index Security. Therefore, 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 DIAMONDS.
Procedures
for Creation of Creation Units
All creation orders must be placed in Creation Units and must be
received by the Distributor by no later than the closing time of
the regular trading session on the NYSE (Closing
Time) (ordinarily 4:00 p.m. New York time) in
each case on the date such order is placed in order for creation
to be effected based on the NAV of the Trust as determined on
such date. Orders must be transmitted by telephone, through the
Internet or other transmission methods acceptable to the
Distributor and the Trustee, pursuant to procedures set forth in
the Participant Agreement and described in this prospectus. In
addition, orders submitted through the Internet must also comply
with the terms and provisions of the State Street
Fund Connect Buy-Side User Agreement and other applicable
agreements and documents, including but not limited to the
applicable Fund Connect User Guide or successor documents.
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.
DIAMONDS may be created in advance of receipt by the Trustee of
all or a portion of the Portfolio Deposit. In these
circumstances, the initial deposit has a value greater than the
NAV of the DIAMONDS on the date the order is placed in proper
form, because in addition to available Index Securities, cash
collateral must be deposited with the Trustee in an amount equal
to the sum of (a) the Cash Component, plus (b) 115% of
the market value of the undelivered Index Securities
(Additional Cash Deposit). The Trustee holds such
Additional Cash Deposit as collateral in an account separate and
apart from the Trust. The order is deemed received on the
Business Day on which the order is placed if the order is placed
in proper form before the Closing 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 Business Day.
If the order is not placed in proper form by the Closing Time or
federal funds in the appropriate amount are not received by
11:00 a.m. New York time on the next Business Day, the
order may be deemed to be rejected and the investor shall be
liable to the Trust for any losses, resulting therefrom. An
additional amount of cash must be deposited with the Trustee,
pending delivery of the missing Index 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
mark-to-market value of the missing Index Securities. If missing
Index 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 and if 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 Index Securities of the Portfolio Deposit. The Trustee
will return any unused portion of the Additional Cash
32
Deposit once all of the missing Index Securities have been
properly received or purchased by the Trustee and deposited into
the Trust. In addition, a Transaction Fee of $4,000 is charged
in all cases. The delivery of Creation Units so created will
occur no later than the third (3rd) Business Day following the
day on which the purchase order is deemed received. The
Participant Agreement for any Participating Party intending to
follow these procedures contains terms and conditions permitting
the Trustee to buy the missing portion(s) of the Portfolio
Deposit at any time and will subject the Participating Party to
liability for any shortfall between the cost to the Trust of
purchasing such stocks and the value of such collateral. The
Participating Party is liable to the Trust for the costs
incurred by the Trust in connection with any such purchases. The
Trust will have no liability for any such shortfall.
All questions as to the number of shares of each Index Security,
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 are resolved by
the Trustee. The Trustee may reject a creation order if
(a) the depositor or group of depositors, upon obtaining
the DIAMONDS ordered, would own 80% or more of the current
outstanding DIAMONDS, (b) the Portfolio Deposit is not in
proper form; (c) acceptance of the Portfolio Deposit would
have certain adverse tax consequences; (d) the acceptance
of the Portfolio Deposit would, in the opinion of counsel, be
unlawful; (e) the acceptance of the Portfolio Deposit would
otherwise have an adverse effect on the Trust or the rights of
Beneficial Owners; or (f) circumstances outside the control
of the Trustee make it for all practical purposes impossible to
process creations of DIAMONDS. 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 and neither of them shall incur any liability
for the failure to give any such notification.
Placement
of Creation Orders Using DIAMONDS Clearing Process
Creation Units created through the DIAMONDS Clearing Process
must be delivered through a Participating Party that has
executed a Participant Agreement. The Participant Agreement
authorizes the Trustee to transmit to the Participating Party
such trade instructions as are necessary to effect the creation
order. Pursuant to the 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 DIAMONDS Clearing
Process in a regular way manner by the third NSCC
Business Day) and the Cash Component to the Trustee, together
with such additional information as may be required by the
Trustee.
Placement
of Creation Orders Outside DIAMONDS Clearing
Process
Creation Units created outside the DIAMONDS Clearing Process
must be delivered through a DTC Participant that has executed a
Participant Agreement and has stated in its order that it is not
using the DIAMONDS Clearing Process and that
33
creation will instead be effected through a transfer of stocks
and cash. The requisite number of Index Securities must be
delivered 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. The Trustee, through the Federal
Reserve Bank wire transfer system, must receive the Cash
Component no later than 2:00 p.m. on the next Business Day
immediately following the Transmittal Date. If the Trustee does
not receive both the requisite Index Securities and the Cash
Component in a timely fashion, the order will be cancelled. Upon
written notice to the Distributor, the cancelled order may be
resubmitted the following Business Day using a Portfolio Deposit
as newly constituted to reflect the current NAV of the Trust.
The delivery of DIAMONDS 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.
Securities
Depository; Book-Entry-Only System
DTC acts as securities depository for DIAMONDS. DIAMONDS are
represented by one or more global securities, registered in the
name of Cede & Co., as nominee for DTC and deposited
with, or on behalf of, DTC.
DTC 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. DTC*
was created to hold securities of its participants (DTC
Participants) and to facilitate the clearance and
settlement of securities transactions among the DTC Participants
through electronic book-entry changes in their accounts, 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. Access to the DTC system also is
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 (Indirect Participants).
Upon the settlement date of any creation, transfer or redemption
of DIAMONDS, DTC credits or debits, on its book-entry
registration and transfer system, the amount of DIAMONDS so
created, transferred or redeemed to the accounts of the
appropriate DTC Participants. The accounts to be credited and
charged are designated by the Trustee to NSCC, in the case of a
creation or redemption through the DIAMONDS Clearing Process, or
by the Trustee and the DTC Participant, in the case of a
creation or redemption outside of the DIAMONDS Clearing Process.
Beneficial ownership of DIAMONDS is limited to DTC Participants,
Indirect Participants and persons holding interests through DTC
Participants and Indirect Participants. Ownership of beneficial
interests in DIAMONDS (owners of such beneficial interests are
* As of December 31, 2008, DTCC owned 100%
of the issued and outstanding shares of the common stock of DTC.
34
referred to herein as Beneficial Owners) is shown
on, and the transfer of ownership is effected only through,
records maintained by DTC (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 DIAMONDS. 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 DIAMONDS.
As long as Cede & Co., as nominee of DTC, is the
registered owner of DIAMONDS, references to the registered or
record owner of DIAMONDS shall mean Cede & Co. and
shall not mean the Beneficial Owners of DIAMONDS. Beneficial
Owners of DIAMONDS are not entitled to have DIAMONDS 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 holders thereof under
the Trust Agreement. Accordingly, each Beneficial Owner
must rely on the procedures of DTC, the DTC Participant and any
Indirect Participant through which such Beneficial Owner holds
its interests, to exercise any rights under the
Trust Agreement.
The Trustee recognizes DTC or its nominee as the owner of all
DIAMONDS for all purposes except as expressly set forth in the
Trust Agreement. Pursuant to the agreement between the
Trustee and DTC (Depository Agreement), DTC is
required to make available to the Trustee upon request and for a
fee to be charged to the Trust a listing of the DIAMONDS
holdings of each DTC Participant. The Trustee inquires of each
such DTC Participant as to the number of Beneficial Owners
holding DIAMONDS, directly or indirectly, through the DTC
Participant. The Trustee provides each such DTC Participant with
copies of such notice, statement or other communication, in the
form, number and at the place as the DTC Participant may
reasonably request, in order that the notice, statement or
communication may be transmitted by the DTC Participant,
directly or indirectly, to the Beneficial Owners. In addition,
the Trust pays to each such DTC Participant a fair and
reasonable amount as reimbursement for the expense attendant to
such transmittal, all subject to applicable statutory and
regulatory requirements.
Distributions are made to DTC or its nominee, Cede &
Co. DTC or Cede & Co., upon receipt of any payment of
distributions in respect of DIAMONDS, is required immediately to
credit DTC Participants accounts with payments in amounts
proportionate to their respective beneficial interests in
DIAMONDS, as shown on the records of DTC or its nominee.
Payments by DTC Participants to Indirect Participants and
Beneficial Owners of DIAMONDS 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
35
of the records relating to or notices to Beneficial Owners, or
payments made on account of beneficial ownership interests in
DIAMONDS, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for
any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants
and the Indirect Participants and Beneficial Owners owning
through such DTC Participants.
DTC may discontinue providing its service with respect to
DIAMONDS 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 DTC to perform its functions at a comparable
cost or, if such a replacement is unavailable, to terminate the
Trust.
REDEMPTION OF
DIAMONDS
DIAMONDS are redeemable only in Creation Units. Creation Units
are redeemable in kind only and are not redeemable for cash
except as described under
SummaryHighlightsTermination of the
Trust.
Procedures
for Redemption of Creation Units
Redemption orders must be placed with a Participating Party (for
redemptions through the DIAMONDS Clearing Process) or DTC
Participant (for redemptions outside the DIAMONDS Clearing
Process), as applicable, in the form required by such
Participating Party or DTC Participant. A particular broker may
not have executed a Participant Agreement, and redemption orders
may have to be placed by the 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.
Redeemers should afford sufficient time to permit
(a) proper submission of the order by a Participating Party
or DTC Participant to the Trustee and (b) the receipt of
the DIAMONDS to be redeemed and any Excess Cash Amounts (as
defined below) by the Trustee in a timely manner. Orders for
redemption effected outside the DIAMONDS Clearing Process are
likely to require transmittal by the DTC Participant earlier on
the Transmittal Date than orders effected using the DIAMONDS
Clearing Process. These deadlines vary by institution. Persons
redeeming outside the DIAMONDS Clearing Process are required to
transfer DIAMONDS through DTC and the Excess Cash amounts, if
any, through the Federal Reserve Bank wire transfer system in a
timely manner.
Requests for redemption may be made on any Business Day to the
Trustee and not to the Distributor. In the case of redemptions
made through the DIAMONDS Clearing Process, the Transaction Fee
is deducted from the amount delivered to the redeemer. In the
case of redemptions outside the DIAMONDS Clearing Process, the
Transaction Fee plus an additional amount not to exceed three
(3) times the
36
Transaction Fee applicable for one Creation Unit per Creation
Unit redeemed, and such amount is deducted from the amount
delivered to the redeemer.
The Trustee transfers to the redeeming Beneficial Owner via DTC
and the relevant DTC Participant(s) a portfolio of stocks for
each Creation Unit delivered, generally identical in weighting
and composition to the stock portion of a Portfolio Deposit as
in effect (a) on the date a request for redemption is
deemed received by the Trustee or (b) in the case of the
termination of the Trust, on the date that notice of the
termination of the Trust is given. The Trustee also transfers
via the relevant DTC Participant(s) to the redeeming Beneficial
Owner a 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 the Portfolio Securities for the period
through the date of redemption, net of expenses and liabilities
for such period including, without limitation, (i) taxes or
other governmental charges against the Trust not previously
deducted if any, and (ii) accrued fees of the Trustee and
other expenses of the Trust, as if the Portfolio Securities had
been held for the entire accumulation period for such
distribution, plus or minus the Balancing Amount. The redeeming
Beneficial Owner must deliver to the Trustee any amount by which
the amount payable to the Trust by such Beneficial Owner exceeds
the amount of the Cash Redemption Payment (Excess
Cash Amounts). For redemptions through the DIAMONDS
Clearing Process, the Trustee effects a transfer of the Cash
Redemption Payment and stocks to the redeeming Beneficial
Owner by the third (3rd) NSCC Business Day following the date on
which request for redemption is deemed received. For redemptions
outside the DIAMONDS Clearing Process, the Trustee transfers the
Cash Redemption Payment and the stocks 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 DIAMONDS delivered upon redemption.
If the Trustee determines that an Index Security is likely to be
unavailable or available in insufficient quantity for delivery
by the Trust upon redemption, the Trustee may elect to deliver
the cash equivalent value of any such Index Securities, based on
its market value as of the Evaluation Time on the date such
redemption is deemed received by the Trustee as a part of the
Cash Redemption Payment in lieu thereof.
If a redeemer is restricted by regulation or otherwise from
investing or engaging in a transaction in one or more Index
Securities, the Trustee may elect to deliver the cash equivalent
value based on the market value of any such Index Securities as
of the Evaluation Time on the date of the redemption as a part
of the Cash Redemption Payment in lieu thereof. In such
case, the investor will pay the Trustee the standard Transaction
Fee, and may pay 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.
37
The Trustee upon the request of a redeeming investor, may elect
to redeem Creation Units in whole or in part by providing such
redeemer, with a portfolio of stocks differing in exact
composition from Index Securities but not differing in NAV 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 Trusts correspondence
to the composition and weighting of the DJIA Index.
The Trustee may sell Portfolio 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 required amount, such cash proceeds shall be held by the
Trustee and applied in accordance with the guidelines applicable
to residual cash set forth under The
PortfolioPortfolio Securities Conform to the DJIA.
All redemption 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.
The calculation of the value of the stocks and the Cash
Redemption Payment to be delivered to the redeeming
Beneficial Owner is made by the Trustee according to the
procedures set forth under Valuation and is 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 DIAMONDS are delivered to
the Trustee prior to DTC Cut-Off Time on such Transmittal Date,
then the value of the stocks and the Cash
Redemption Payment to be delivered to the Beneficial Owner
is determined by the Trustee as of the Evaluation Time on such
Transmittal Date. If, however, a redemption order is submitted
not later than the Closing Time on a Transmittal Date but either
(a) the requisite DIAMONDS are not delivered by DTC Cut-Off
Time on the next Business Day immediately following such
Transmittal Date or (b) the redemption order is not
submitted in proper form, then the redemption order is not
deemed received as of such Transmittal Date. In such case, the
value of the stocks and the Cash Redemption Payment to be
delivered to the Beneficial Owner is 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 DIAMONDS are delivered through DTC to the Trustee by DTC
Cut-Off Time on such Business Day pursuant to a properly
submitted redemption order.
The Trustee may suspend the right of redemption, or postpone the
date of payment of the NAV for more than five (5) Business
Days following the date on which the request for redemption is
deemed received by the Trustee (a) for any period during
which the NYSE is closed, (b) for any period during which
an emergency exists as a result of which disposal or evaluation
of the Portfolio Securities is not
38
THE
PORTFOLIO
Because the objective of the Trust is to provide investment
results that, before expenses, generally correspond to the price
and yield performance of the DJIA, the Portfolio at any time
will consist of as many of 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 Trusts net assets. Although the Trust may at any
time fail to own certain of 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 DJIA
and that derived from ownership of DIAMONDS.
Portfolio
Securities Conform to the DJIA
The DJIA is a price-weighted index of 30 component common
stocks, the components of which are determined by the editors of
The Wall Street Journal, without any consultation with
the companies, the respective stock exchange or any official
agency.
The Trust is not managed and therefore the adverse financial
condition of an issuer does not require the sale of stocks from
the Portfolio. The Trustee on a non-discretionary basis adjusts
the composition of the Portfolio to conform to changes in the
composition
and/or
weighting structure of Index Securities. To the extent that the
method of determining the DJIA is changed by Dow Jones in a
manner that would affect the adjustments provided for herein,
the Trustee and the Sponsor have the right to amend the
Trust Agreement, without the consent of DTC or Beneficial
Owners, to conform the adjustments to such changes and to
maintain the objective of tracking the DJIA.
The Trustee aggregates certain of these adjustments and makes
conforming changes to the Portfolio at least monthly. The
Trustee directs its stock 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. Adjustments are made more frequently in the case of
significant changes to the DJIA. Specifically, the Trustee is
required to adjust the composition of the Portfolio whenever
there is a change in the identity of any Index Security
(i.e., a substitution of one security for another) within
three (3) Business Days before or after the day on which
the change is scheduled to take effect. While other DJIA changes
may lead to adjustments in the Portfolio, the most common
changes are likely to occur as a result of changes in the Index
Securities included in the DJIA and as a result of stock splits.
The Trust Agreement sets forth the method of adjustments
which may occur thereunder as a result of corporate actions to
the DJIA, such as stock splits or changes in the identity of the
component stocks.
For example, in the event of an Index Security change (in which
the common stock of one issuer held in the DJIA is replaced by
the common stock of another), the Trustee may sell all shares of
the Portfolio Security corresponding to the old Index
40
Security and use the proceeds of such sale to purchase the
replacement Portfolio Security corresponding to the new Index
Security. If the share price of the removed Portfolio Security
was higher than the price of its replacement, the Trustee will
calculate how to allocate the proceeds of the sale of the
removed Portfolio Security between the purchase of its
replacement and purchases of additional shares of other
Portfolio Securities so that the number of shares of each
Portfolio Security after the transactions would be as nearly
equal as practicable. If the share price of the removed
Portfolio Security was lower than the price of its replacement,
the Trustee will calculate the number of shares of each of the
other Portfolio Securities that must be sold in order to
purchase enough shares of the replacement Portfolio Security so
that the number of shares of each Portfolio Security after the
transactions would be as nearly equal as practicable.
In the event of a stock split, the price weighting of the stock
which is split will drop. The Trustee may make the corresponding
adjustment by selling the additional shares of the Portfolio
Security received from the stock split. The Trustee may then use
the proceeds of the sale to buy an equal number of shares of
each Portfolio Security-including the Portfolio Security which
had just experienced a stock split. In practice, of course, not
all the shares received in the split would be sold: enough of
those shares would be retained to make an increase in the number
of split shares equal to the increase in the number of shares in
each of the other Portfolio Securities purchased with the
proceeds of the sale of the remaining shares resulting from such
split.
As a result of the purchase and sale of stock 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 stock or cash delivered in lieu of Index Securities
or undistributed income or undistributed capital gains). This
amount may not exceed for more than two (2) consecutive
Business Days 5/10th of 1 percent of the value of the
Portfolio. If the Trustee has made all required adjustments and
is left with cash in excess of 5/10th of 1 percent of
the value of the Portfolio, the Trustee will use such cash to
purchase additional Index Securities.
All portfolio adjustments are 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 Code. Additionally, the Trustee is required to adjust the
composition of the Portfolio at any time to insure the continued
qualification of the Trust as a regulated investment company.
The Trustee relies on Dow Jones for information as to the
composition and weightings of 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, the Trustee shall use the composition and
weightings of Index Securities for the most recently effective
Portfolio Deposit for the purposes of all adjustments and
determinations (including, without limitation, determination of
41
the stock portion of the Portfolio Deposit) until the earlier of
(a) such time as current information with respect to 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 Portfolio Securities
(as opposed to Index Securities) shall be used for the purposes
of all adjustments and determinations (including, without
limitation, determination of the stock portion of the Portfolio
Deposit) until current information with respect to Index
Securities is available.
If the Trust is terminated, the Trustee shall use the
composition and weightings of Portfolio 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 Dow Jones may adjust the composition of the
DJIA because of a merger or acquisition involving one or more
Index Securities. In such cases, the Trust, as shareholder 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 stocks
of the issuer will be removed from the DJIA. As stocks of an
issuer are often removed from the DJIA 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 is
reinvested in Index Securities in accordance with the criteria
set forth above.
Any stocks received as a part of the consideration that are not
Index Securities are sold as soon as practicable and the cash
proceeds of such sale are reinvested in accordance with the
criteria set forth above.
Adjustments
to the Portfolio Deposit
On each Business Day (each such day an Adjustment
Day), the number of shares and identity of each Index
Security in a Portfolio Deposit are adjusted in accordance with
the following procedure. At the close of the market the Trustee
calculates the NAV of the Trust. The NAV is divided by the
number of outstanding DIAMONDS multiplied by 50,000 DIAMONDS in
one Creation Unit, resulting in a NAV per Creation Unit
(NAV Amount). The Trustee then calculates the number
of shares (without rounding) of each of the component stocks of
the DJIA in a Portfolio Deposit for the following Business Day
(Request Day), so that (a) the market value at
the close of the market on the Adjustment Day of the stocks to
be included in the Portfolio Deposit on Request Day, together
with the Dividend Equivalent Payment effective for requests to
create or redeem on the Adjustment Day, equals the NAV Amount
and (b) the identity and weighting of each of the stocks in
a Portfolio Deposit mirrors proportionately the identity and
weightings of the stocks in the DJIA, each as in effect on
Request Day. For each stock, the number resulting from such
calculation
42
is rounded down to the nearest whole share. The identities and
weightings of the stocks so calculated constitute the stock
portion of the Portfolio Deposit effective on Request Day and
thereafter until the next subsequent Adjustment Day, as well as
Portfolio Securities to be delivered by the Trustee in the event
of request for redemption on the Request Day and thereafter
until the following Adjustment Day.
In addition to the foregoing adjustments, if a corporate action
such as a stock split, stock dividend or reverse split occurs
with respect to any Index Security that results in an adjustment
to the DJIA divisor, the Portfolio Deposit shall be adjusted to
take into account the corporate action in each case rounded to
the nearest whole share. Further, the Trustee is permitted to
take account of changes to the identity or weighting of any
Index Security resulting from a change to the Index by making a
corresponding adjustment to the Portfolio Deposit on the day
prior to the day on which the change to the DJIA takes effect.
On the Request Day and on each day that a request for the
creation or redemption is deemed received, the Trustee
calculates the market value of the stock portion of the
Portfolio Deposit as in effect on the 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 Portfolio Deposit
Amount). The Trustee then calculates the NAV Amount, based
on the close of the market on the 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,
(a) differences in the market value of the securities in
the Portfolio Deposit and the market value of the Securities on
Request Day and (b) any variances from the proper
composition of the Portfolio Deposit.
The Dividend Equivalent Payment and the Balancing Amount in
effect at the close of business on the Request Date are
collectively referred to as the Cash Component or the Cash
Redemption Payment. If the Balancing Amount is a positive
number (i.e., if the NAV Amount exceeds the Portfolio
Deposit Amount) then, with respect to creation, the Balancing
Amount increases the Cash Component of the then effective
Portfolio Deposit transferred to the Trustee by the creator.
With respect to redemptions, the Balancing Amount is added to
the cash transferred to the 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 creation, this amount decreases 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 must be paid by the Trustee to
the creator. With respect to redemptions, the Balancing Amount
is deducted from the cash transferred to the redeemer or, if
such cash is less than the Balancing Amount, the difference must
be paid by the redeemer to the Trustee.
43
If 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, or if a creator or redeemer is restricted from
investing or engaging in transactions in one or more of such
Index Securities, the Portfolio Deposit so constituted shall
determine the Index Securities to be delivered in connection
with the creation of DIAMONDS in Creation Unit size aggregations
and upon the redemption of DIAMONDS until the time the stock
portion of the Portfolio Deposit is subsequently adjusted.
THE
DJIA
The DJIA was first published in 1896. Initially comprised of
12 companies, the DJIA has evolved into the most
recognizable stock indicator in the world, and the only index
composed of companies that have sustained earnings performance
over a significant period of time. In its second century, the
DJIA is the oldest continuous barometer of the U.S. stock
market, and the most widely quoted indicator of U.S. stock
market activity.
The 30 stocks now comprising the DJIA are all leaders in their
respective industries, and their stocks are widely held by
individuals and institutional investors. These stocks represent
more than one-quarter of the $14.4 trillion market value of all
US common stocks.
Dow Jones is not responsible for and shall not participate in
the creation or sale of DIAMONDS 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 Dow Jones
and the DJIA 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 DJIA for
the years 1896 through 2008. 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 DJIA in the future, nor should the
results be considered as a representation of the performance of
the Trust.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
DJIA
|
|
|
Point
|
|
|
Year %
|
|
|
|
|
|
%
|
|
Ended
|
|
Close
|
|
|
Change
|
|
|
Change
|
|
|
Divs
|
|
|
Yield
|
|
|
2008
|
|
|
8776.39
|
|
|
|
−4488.42
|
|
|
|
−33.84
|
%
|
|
|
316.40
|
|
|
|
3.61
|
%
|
2007
|
|
|
13264.82
|
|
|
|
801.67
|
|
|
|
6.43
|
|
|
|
298.97
|
|
|
|
2.35
|
|
2006
|
|
|
12463.15
|
|
|
|
1745.65
|
|
|
|
16.29
|
|
|
|
267.75
|
|
|
|
2.24
|
|
2005
|
|
|
10717.50
|
|
|
|
−65.51
|
|
|
|
−.61
|
|
|
|
246.85
|
|
|
|
2.30
|
|
2004
|
|
|
10783.01
|
|
|
|
329.09
|
|
|
|
3.15
|
|
|
|
239.27
|
|
|
|
2.22
|
|
2003
|
|
|
10453.92
|
|
|
|
2112.29
|
|
|
|
25.32
|
|
|
|
209.42
|
|
|
|
2.00
|
|
2002
|
|
|
8341.63
|
|
|
|
−1679.87
|
|
|
|
−16.76
|
|
|
|
189.68
|
|
|
|
2.27
|
|
2001
|
|
|
10021.50
|
|
|
|
−765.35
|
|
|
|
−7.10
|
|
|
|
181.07
|
|
|
|
1.81
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
DJIA
|
|
|
Point
|
|
|
Year %
|
|
|
|
|
|
%
|
|
Ended
|
|
Close
|
|
|
Change
|
|
|
Change
|
|
|
Divs
|
|
|
Yield
|
|
|
2000
|
|
|
10786.85
|
|
|
|
−710.27
|
|
|
|
−6.18
|
|
|
|
172.08
|
|
|
|
1.60
|
|
1999
|
|
|
11497.12
|
|
|
|
2315.69
|
|
|
|
25.20
|
|
|
|
168.52
|
|
|
|
1.47
|
|
1998
|
|
|
9181.43
|
|
|
|
1273.18
|
|
|
|
16.10
|
|
|
|
151.13
|
|
|
|
1.65
|
|
1997
|
|
|
7908.25
|
|
|
|
1459.98
|
|
|
|
22.60
|
|
|
|
136.10
|
|
|
|
1.72
|
|
1996
|
|
|
6448.27
|
|
|
|
1331.20
|
|
|
|
26.00
|
|
|
|
131.14
|
|
|
|
2.03
|
|
1995
|
|
|
5117.12
|
|
|
|
1282.70
|
|
|
|
33.50
|
|
|
|
116.56
|
|
|
|
2.28
|
|
1994
|
|
|
3834.44
|
|
|
|
80.30
|
|
|
|
2.10
|
|
|
|
105.66
|
|
|
|
2.76
|
|
1993
|
|
|
3754.09
|
|
|
|
453.00
|
|
|
|
13.70
|
|
|
|
99.66
|
|
|
|
2.65
|
|
1992
|
|
|
3301.11
|
|
|
|
132.30
|
|
|
|
4.20
|
|
|
|
100.72
|
|
|
|
3.05
|
|
1991
|
|
|
3168.83
|
|
|
|
535.20
|
|
|
|
20.30
|
|
|
|
95.18
|
|
|
|
3.00
|
|
1990
|
|
|
2633.66
|
|
|
|
−119.50
|
|
|
|
−4.30
|
|
|
|
103.70
|
|
|
|
3.94
|
|
1989
|
|
|
2753.20
|
|
|
|
584.60
|
|
|
|
27.00
|
|
|
|
103.00
|
|
|
|
3.74
|
|
1988
|
|
|
2168.57
|
|
|
|
229.70
|
|
|
|
11.80
|
|
|
|
79.53
|
|
|
|
3.67
|
|
1987
|
|
|
1938.83
|
|
|
|
42.90
|
|
|
|
2.30
|
|
|
|
71.20
|
|
|
|
3.67
|
|
1986
|
|
|
1895.95
|
|
|
|
349.30
|
|
|
|
22.60
|
|
|
|
67.04
|
|
|
|
3.54
|
|
1985
|
|
|
1546.67
|
|
|
|
335.10
|
|
|
|
27.70
|
|
|
|
62.03
|
|
|
|
4.01
|
|
1984
|
|
|
1211.57
|
|
|
|
−47.10
|
|
|
|
−3.70
|
|
|
|
60.63
|
|
|
|
5.00
|
|
1983
|
|
|
1258.64
|
|
|
|
212.10
|
|
|
|
20.30
|
|
|
|
56.33
|
|
|
|
4.48
|
|
1982
|
|
|
1046.54
|
|
|
|
171.50
|
|
|
|
19.60
|
|
|
|
54.14
|
|
|
|
5.17
|
|
1981
|
|
|
875.00
|
|
|
|
−89.00
|
|
|
|
−9.20
|
|
|
|
56.22
|
|
|
|
6.43
|
|
1980
|
|
|
963.99
|
|
|
|
125.30
|
|
|
|
14.90
|
|
|
|
54.36
|
|
|
|
5.64
|
|
1979
|
|
|
838.74
|
|
|
|
33.70
|
|
|
|
4.20
|
|
|
|
50.98
|
|
|
|
6.08
|
|
1978
|
|
|
805.01
|
|
|
|
−26.20
|
|
|
|
−3.10
|
|
|
|
48.52
|
|
|
|
6.03
|
|
1977
|
|
|
831.17
|
|
|
|
−173.50
|
|
|
|
−17.30
|
|
|
|
45.84
|
|
|
|
5.52
|
|
1976
|
|
|
1004.65
|
|
|
|
152.20
|
|
|
|
17.90
|
|
|
|
41.40
|
|
|
|
4.12
|
|
1975
|
|
|
852.41
|
|
|
|
236.20
|
|
|
|
38.30
|
|
|
|
37.46
|
|
|
|
4.39
|
|
1974
|
|
|
616.24
|
|
|
|
−234.60
|
|
|
|
−27.60
|
|
|
|
37.72
|
|
|
|
6.12
|
|
1973
|
|
|
850.86
|
|
|
|
−169.20
|
|
|
|
−16.60
|
|
|
|
35.33
|
|
|
|
4.15
|
|
1972
|
|
|
1020.02
|
|
|
|
129.80
|
|
|
|
14.60
|
|
|
|
32.27
|
|
|
|
3.16
|
|
1971
|
|
|
890.20
|
|
|
|
51.30
|
|
|
|
6.10
|
|
|
|
30.86
|
|
|
|
3.47
|
|
1970
|
|
|
838.92
|
|
|
|
38.60
|
|
|
|
4.80
|
|
|
|
31.53
|
|
|
|
3.76
|
|
1969
|
|
|
800.36
|
|
|
|
−143.40
|
|
|
|
−15.20
|
|
|
|
33.90
|
|
|
|
4.24
|
|
1968
|
|
|
943.75
|
|
|
|
38.60
|
|
|
|
4.30
|
|
|
|
31.34
|
|
|
|
3.32
|
|
1967
|
|
|
905.11
|
|
|
|
119.40
|
|
|
|
15.20
|
|
|
|
30.19
|
|
|
|
3.34
|
|
1966
|
|
|
785.69
|
|
|
|
−183.60
|
|
|
|
−18.90
|
|
|
|
31.89
|
|
|
|
4.06
|
|
1965
|
|
|
969.26
|
|
|
|
95.10
|
|
|
|
10.90
|
|
|
|
28.61
|
|
|
|
2.95
|
|
1964
|
|
|
874.13
|
|
|
|
111.20
|
|
|
|
14.60
|
|
|
|
31.24
|
|
|
|
3.57
|
|
1963
|
|
|
762.95
|
|
|
|
110.90
|
|
|
|
17.00
|
|
|
|
23.41
|
|
|
|
3.07
|
|
1962
|
|
|
652.10
|
|
|
|
−79.00
|
|
|
|
−10.80
|
|
|
|
23.30
|
|
|
|
3.57
|
|
1961
|
|
|
731.14
|
|
|
|
115.30
|
|
|
|
18.70
|
|
|
|
22.71
|
|
|
|
3.11
|
|
1960
|
|
|
615.89
|
|
|
|
−63.50
|
|
|
|
−9.30
|
|
|
|
21.36
|
|
|
|
3.47
|
|
1959
|
|
|
679.36
|
|
|
|
95.70
|
|
|
|
16.40
|
|
|
|
20.74
|
|
|
|
3.05
|
|
1958
|
|
|
583.65
|
|
|
|
148.00
|
|
|
|
34.00
|
|
|
|
20.00
|
|
|
|
3.43
|
|
1957
|
|
|
435.69
|
|
|
|
−63.80
|
|
|
|
−12.80
|
|
|
|
21.61
|
|
|
|
4.96
|
|
1956
|
|
|
499.47
|
|
|
|
11.10
|
|
|
|
2.30
|
|
|
|
22.99
|
|
|
|
4.60
|
|
1955
|
|
|
488.40
|
|
|
|
84.00
|
|
|
|
20.80
|
|
|
|
21.58
|
|
|
|
4.42
|
|
1954
|
|
|
404.39
|
|
|
|
123.50
|
|
|
|
44.00
|
|
|
|
17.47
|
|
|
|
4.32
|
|
1953
|
|
|
280.90
|
|
|
|
−11.00
|
|
|
|
−3.80
|
|
|
|
16.11
|
|
|
|
5.74
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
DJIA
|
|
|
Point
|
|
|
Year %
|
|
|
|
|
|
%
|
|
Ended
|
|
Close
|
|
|
Change
|
|
|
Change
|
|
|
Divs
|
|
|
Yield
|
|
|
1952
|
|
|
291.90
|
|
|
|
22.70
|
|
|
|
8.40
|
|
|
|
15.43
|
|
|
|
5.29
|
|
1951
|
|
|
269.23
|
|
|
|
33.80
|
|
|
|
14.40
|
|
|
|
16.34
|
|
|
|
6.07
|
|
1950
|
|
|
235.41
|
|
|
|
35.30
|
|
|
|
17.60
|
|
|
|
16.13
|
|
|
|
6.85
|
|
1949
|
|
|
200.13
|
|
|
|
22.80
|
|
|
|
12.90
|
|
|
|
12.79
|
|
|
|
6.39
|
|
1948
|
|
|
177.30
|
|
|
|
−3.90
|
|
|
|
−2.10
|
|
|
|
11.50
|
|
|
|
6.49
|
|
1947
|
|
|
181.16
|
|
|
|
4.00
|
|
|
|
2.20
|
|
|
|
9.21
|
|
|
|
5.08
|
|
1946
|
|
|
177.20
|
|
|
|
−15.70
|
|
|
|
−8.10
|
|
|
|
7.50
|
|
|
|
4.23
|
|
1945
|
|
|
192.91
|
|
|
|
40.60
|
|
|
|
26.60
|
|
|
|
6.69
|
|
|
|
3.47
|
|
1944
|
|
|
152.32
|
|
|
|
16.40
|
|
|
|
12.10
|
|
|
|
6.57
|
|
|
|
4.31
|
|
1943
|
|
|
135.89
|
|
|
|
16.50
|
|
|
|
13.80
|
|
|
|
6.30
|
|
|
|
4.64
|
|
1942
|
|
|
119.40
|
|
|
|
8.40
|
|
|
|
7.60
|
|
|
|
6.40
|
|
|
|
5.36
|
|
1941
|
|
|
110.96
|
|
|
|
−20.20
|
|
|
|
−15.40
|
|
|
|
7.59
|
|
|
|
6.84
|
|
1940
|
|
|
131.13
|
|
|
|
−19.10
|
|
|
|
−12.70
|
|
|
|
7.06
|
|
|
|
5.38
|
|
1939
|
|
|
150.24
|
|
|
|
−4.50
|
|
|
|
−2.90
|
|
|
|
6.11
|
|
|
|
4.07
|
|
1938
|
|
|
154.76
|
|
|
|
33.90
|
|
|
|
28.10
|
|
|
|
4.98
|
|
|
|
3.22
|
|
1937
|
|
|
120.85
|
|
|
|
−59.10
|
|
|
|
−32.80
|
|
|
|
8.78
|
|
|
|
7.27
|
|
1936
|
|
|
179.90
|
|
|
|
35.80
|
|
|
|
24.80
|
|
|
|
7.05
|
|
|
|
3.92
|
|
1935
|
|
|
144.13
|
|
|
|
40.10
|
|
|
|
38.50
|
|
|
|
4.55
|
|
|
|
3.16
|
|
1934
|
|
|
104.04
|
|
|
|
4.10
|
|
|
|
4.10
|
|
|
|
3.66
|
|
|
|
3.52
|
|
1933
|
|
|
99.90
|
|
|
|
40.00
|
|
|
|
66.70
|
|
|
|
3.40
|
|
|
|
3.40
|
|
1932
|
|
|
59.93
|
|
|
|
−18.00
|
|
|
|
−23.10
|
|
|
|
4.62
|
|
|
|
7.71
|
|
1931
|
|
|
77.90
|
|
|
|
−86.70
|
|
|
|
−52.70
|
|
|
|
8.40
|
|
|
|
10.78
|
|
1930
|
|
|
164.58
|
|
|
|
−83.90
|
|
|
|
−33.80
|
|
|
|
11.13
|
|
|
|
6.76
|
|
1929
|
|
|
248.48
|
|
|
|
−51.50
|
|
|
|
−17.20
|
|
|
|
12.75
|
|
|
|
5.13
|
|
1928
|
|
|
300.00
|
|
|
|
97.60
|
|
|
|
48.20
|
|
|
|
NA
|
|
|
|
NA
|
|
1927
|
|
|
202.40
|
|
|
|
45.20
|
|
|
|
28.80
|
|
|
|
NA
|
|
|
|
NA
|
|
1926
|
|
|
157.20
|
|
|
|
0.50
|
|
|
|
0.30
|
|
|
|
NA
|
|
|
|
NA
|
|
1925
|
|
|
156.66
|
|
|
|
36.20
|
|
|
|
30.00
|
|
|
|
NA
|
|
|
|
NA
|
|
1924
|
|
|
120.51
|
|
|
|
25.00
|
|
|
|
26.20
|
|
|
|
NA
|
|
|
|
NA
|
|
1923
|
|
|
95.52
|
|
|
|
−3.20
|
|
|
|
−3.30
|
|
|
|
NA
|
|
|
|
NA
|
|
1922
|
|
|
98.73
|
|
|
|
17.60
|
|
|
|
21.70
|
|
|
|
NA
|
|
|
|
NA
|
|
1921
|
|
|
81.10
|
|
|
|
9.10
|
|
|
|
12.70
|
|
|
|
NA
|
|
|
|
NA
|
|
1920
|
|
|
71.95
|
|
|
|
−35.30
|
|
|
|
−32.90
|
|
|
|
NA
|
|
|
|
NA
|
|
1919
|
|
|
107.23
|
|
|
|
25.00
|
|
|
|
30.50
|
|
|
|
NA
|
|
|
|
NA
|
|
1918
|
|
|
82.20
|
|
|
|
7.80
|
|
|
|
10.50
|
|
|
|
NA
|
|
|
|
NA
|
|
1917
|
|
|
74.38
|
|
|
|
−20.60
|
|
|
|
−21.70
|
|
|
|
NA
|
|
|
|
NA
|
|
1916
|
|
|
95.00
|
|
|
|
−4.20
|
|
|
|
−4.20
|
|
|
|
NA
|
|
|
|
NA
|
|
1915
|
|
|
99.15
|
|
|
|
44.60
|
|
|
|
81.70
|
|
|
|
NA
|
|
|
|
NA
|
|
1914
|
|
|
54.58
|
|
|
|
−24.20
|
|
|
|
−30.70
|
|
|
|
NA
|
|
|
|
NA
|
|
1913
|
|
|
78.78
|
|
|
|
−9.10
|
|
|
|
−10.30
|
|
|
|
NA
|
|
|
|
NA
|
|
1912
|
|
|
87.87
|
|
|
|
6.20
|
|
|
|
7.60
|
|
|
|
NA
|
|
|
|
NA
|
|
1911
|
|
|
81.68
|
|
|
|
0.30
|
|
|
|
0.40
|
|
|
|
NA
|
|
|
|
NA
|
|
1910
|
|
|
81.36
|
|
|
|
−17.70
|
|
|
|
−17.90
|
|
|
|
NA
|
|
|
|
NA
|
|
1909
|
|
|
99.05
|
|
|
|
12.90
|
|
|
|
15.00
|
|
|
|
NA
|
|
|
|
NA
|
|
1908
|
|
|
86.15
|
|
|
|
27.40
|
|
|
|
46.60
|
|
|
|
NA
|
|
|
|
NA
|
|
1907
|
|
|
58.75
|
|
|
|
−35.60
|
|
|
|
−37.70
|
|
|
|
NA
|
|
|
|
NA
|
|
1906
|
|
|
94.35
|
|
|
|
−1.90
|
|
|
|
−1.90
|
|
|
|
NA
|
|
|
|
NA
|
|
1905
|
|
|
96.20
|
|
|
|
26.60
|
|
|
|
38.20
|
|
|
|
NA
|
|
|
|
NA
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
DJIA
|
|
|
Point
|
|
|
Year %
|
|
|
|
|
|
%
|
|
Ended
|
|
Close
|
|
|
Change
|
|
|
Change
|
|
|
Divs
|
|
|
Yield
|
|
|
1904
|
|
|
69.61
|
|
|
|
20.50
|
|
|
|
41.70
|
|
|
|
NA
|
|
|
|
NA
|
|
1903
|
|
|
49.11
|
|
|
|
−15.20
|
|
|
|
−23.60
|
|
|
|
NA
|
|
|
|
NA
|
|
1902
|
|
|
64.29
|
|
|
|
−0.30
|
|
|
|
−0.40
|
|
|
|
NA
|
|
|
|
NA
|
|
1901
|
|
|
64.56
|
|
|
|
−6.10
|
|
|
|
−8.70
|
|
|
|
NA
|
|
|
|
NA
|
|
1900
|
|
|
70.71
|
|
|
|
4.60
|
|
|
|
7.00
|
|
|
|
NA
|
|
|
|
NA
|
|
1899
|
|
|
66.08
|
|
|
|
5.60
|
|
|
|
9.20
|
|
|
|
NA
|
|
|
|
NA
|
|
1898
|
|
|
60.52
|
|
|
|
11.10
|
|
|
|
22.50
|
|
|
|
NA
|
|
|
|
NA
|
|
1897
|
|
|
49.41
|
|
|
|
9.00
|
|
|
|
22.20
|
|
|
|
NA
|
|
|
|
NA
|
|
1896
|
|
|
40.45
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Source: Dow Jones Indexes. Year-end index values reflect neither
reinvestment of dividends nor costs associated with investing,
such as brokerage commissions. Yields are calculated by dividing
the sum of the most recent four quarterly per-share dividend
payments of all components by the sum of the component prices.
The DJIA is a price-weighted stock index, meaning that the
component stocks of the DJIA are accorded relative importance
based on their prices. In this regard, the DJIA is unlike many
other stock indexes which weight their component stocks by
market capitalization (price times shares outstanding). The DJIA
is called an average because originally it was
calculated by adding up the component stock prices and then
dividing by the number of stocks. The method remains the same
today, but the number of significant digits in the divisor (the
number that is divided into the total of the stock prices) has
been increased to eight significant digits to minimize
distortions due to rounding and has been adjusted over time to
insure continuity of the DJIA after component stock changes and
corporate actions, as discussed below.
The DJIA divisor is adjusted due to corporate actions that
change the price of any of its component shares. The most
frequent reason for such an adjustment is a stock split. For
example, suppose a company in the DJIA issues one new share for
each share outstanding. After this two-for-one
split, each share of stock is worth half what it was
immediately before, other things being equal. But without an
adjustment in the divisor, this split would produce a distortion
in the DJIA. An adjustment must be made to compensate so that
the average will remain unchanged. At Dow Jones,
this adjustment is handled by changing the divisor.* The formula
used to calculate divisor adjustments is:
|
|
|
|
|
|
|
|
|
|
|
Current Divisor x Adjusted Sum of Prices
|
|
|
New Divisor
|
|
=
|
|
|
|
|
|
|
|
|
Unadjusted Sum of Prices
|
|
|
* Currently, the divisor is adjusted after the
close of business on the day prior to the occurrence of the
split; the divisor is not adjusted for regular cash dividends.
47
Changes in the composition of the DJIA are made entirely by the
editors of The Wall Street Journal without consultation
with the companies, the respective stock exchange, or any
official agency. Additions or deletions of components may be
made to achieve better representation of the broad market and of
American industry.
In selecting components for the DJIA, the following criteria are
used: (a) the company is not a utility or in the
transportation business; (b) the company has a premier
reputation in its field; (c) the company has a history of
successful growth; and (d) there is wide interest among
individual and institutional investors. Whenever one component
is changed, the others are reviewed. For the sake of historical
continuity, composition changes are made rarely.
The most recent change in the components of the DJIA was made
effective with trading on September 22, 2008.
Company removed:
|
|
|
|
|
American International Group Inc.
|
Company added:
LICENSE
AGREEMENT
The License Agreement grants SSgM, an affiliate of the Trustee,
a license to use the DJIA as a basis for determining the
composition of the Portfolio and to use certain trade names and
trademarks of Dow Jones in connection with the Portfolio.
The Trustee on behalf of the Trust, the Sponsor and the Exchange
have each received a sublicense from SSgM for the use of the
DJIA and certain trade names and trademarks in connection with
their rights and duties with respect to the Trust. The License
Agreement may be amended without the consent of any of the
Beneficial Owners of DIAMONDS. Currently, the License Agreement
is scheduled to terminate on December 31, 2017, but its
term may be extended without the consent of any of the
Beneficial Owners of DIAMONDS.
None of the Trust, the Trustee, the Exchange, the Sponsor, SSgM,
the Distributor, DTC, NSCC, any Authorized Participant, any
Beneficial Owner of DIAMONDS or any other person is entitled to
any rights whatsoever under the foregoing licensing arrangements
or to use the trademarks and service marks Dow
Jones, DIAMONDS, The Dow,
DJIA or Dow Jones Industrial Average or
to use the DJIA except as specifically described in the License
Agreement or sublicenses or as may be specified in the
Trust Agreement.
48
The Trust is not sponsored, endorsed, sold or promoted by Dow
Jones and Dow Jones makes no representation or warranty, express
or implied, to the Beneficial Owners of DIAMONDS or any member
of the public regarding the advisability of investing in
securities generally or in the Trust particularly. Dow
Jones only relationship to the Trust is the licensing of
certain trademarks, trade names and service marks of Dow Jones
and of the DJIA which is determined, comprised and calculated by
Dow Jones without regard to the Trust or the Beneficial Owners
of DIAMONDS. Dow Jones has no obligation to take the needs of
the Sponsor, the Exchange, the Trust or the Beneficial Owners of
DIAMONDS into consideration in determining, comprising or
calculating the DJIA. Dow Jones is not responsible for and has
not participated in any determination or calculation made with
respect to issuance or redemption of DIAMONDS. Dow Jones has no
obligation or liability in connection with the administration,
marketing or trading of DIAMONDS.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE DJIA OR ANY DATA INCLUDED THEREIN AND DOW
JONES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. DOW JONES MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE SPONSOR, THE
EXCHANGE, THE TRUST, BENEFICIAL OWNERS OF DIAMONDS OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE DJIA OR ANY DATA INCLUDED
THEREIN. DOW JONES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE, WITH RESPECT TO THE
DJIA OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL DOW JONES HAVE ANY LIABILITY FOR
ANY LOST PROFITS OR INDIRECT, PUNITIVE SPECIAL OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY
BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
DOW JONES, THE SPONSOR AND THE EXCHANGE.
EXCHANGE
LISTING
On October 1, 2008, NYSE Euronext acquired the American
Stock Exchange LLC, which was renamed NYSE Alternext
US. As the listing and trading of all exchange traded
funds on NYSE was being consolidated on a single trading venue,
NYSE Arca, the Sponsor and the Trustee decided to move the
listing for the Trust from NYSE Alternext to NYSE Arca.
Therefore, DIAMONDS have been listed on NYSE Arca as of
November 7, 2008. The Trust is not required to pay an
initial listing fee to the Exchange. Transactions involving
DIAMONDS in the public trading market are subject to customary
brokerage charges and commissions.
49
DIAMONDS also are listed and traded on the Singapore Exchange
Securities Trading Limited. In the future, DIAMONDS may be
listed and traded on other non-U.S. exchanges pursuant to
similar arrangements.
There can be no assurance that DIAMONDS will always be listed on
the Exchange. The Trust will be terminated if DIAMONDS are
delisted. Trading in DIAMONDS may be halted under certain
circumstances as set forth in the Exchange rules and procedures.
The Exchange will consider the suspension of trading in or
removal from listing of DIAMONDS if: (a) the Trust has more
than 60 days remaining until termination and there are
fewer than 50 record
and/or
beneficial holders of DIAMONDS for 30 or more consecutive
trading days; (b) the value of the DJIA is no longer
calculated or available; or (c) such other event occurs or
condition exists which, in the opinion of the Exchange, makes
further dealings on the Exchange inadvisable. In addition,
trading is subject to trading halts caused by extraordinary
market volatility pursuant to Exchange circuit
breaker rules that require trading to be halted for a
specified period based on a specified market decline. The
Exchange also must halt trading if required intraday valuation
information is not disseminated for longer than one Business Day.
The Sponsors aim in designing DIAMONDS was to provide
investors with a security whose initial market value would
approximate one-hundredth (1/100th) the value of the DJIA. Of
course, the market value of a DIAMONDS unit is affected by a
variety of factors, including capital gains distributions made,
and expenses incurred, by the Trust, and therefore, over time, a
DIAMONDS unit may no longer approximate
(1/100th) the
value of the DJIA. The market price of a DIAMONDS unit should
reflect its share of the dividends accumulated on Portfolio
Securities and may be affected by supply and demand, market
volatility, sentiment and other factors.
FEDERAL
INCOME TAXES
The following is a summary of the material U.S. federal
income tax considerations applicable to an investment in
DIAMONDS. The summary is based on the laws in effect on the date
of this Prospectus and existing judicial and administrative
interpretations thereof, all of which are subject to change,
possibly with retroactive effect. In addition, this summary
assumes that Beneficial Owners hold DIAMONDS as capital assets
within the meaning of the U.S. Internal Revenue Code of
1986, as amended (the Code), and do not hold
DIAMONDS in connection with a trade or business. This summary
does not address all potential U.S. federal income tax
considerations possibly applicable to an investment in DIAMONDS
or to any Beneficial Owner who or that is (a) treated as a
partnership (or other pass-through entity) for U.S. federal
income tax purposes, (b) holding DIAMONDS through a
partnership (or other pass-through entity), or
(c) otherwise subject to special tax rules, such as dealers
in securities or foreign currency, tax-exempt entities,
financial institutions, regulated investment companies,
50
real estate investment trusts, insurance companies, persons that
hold DIAMONDS as part of a straddle, a
hedge or a conversion transaction,
investors that have a functional currency other than
the U.S. dollar, persons liable for alternative minimum
tax, traders in securities that elect to use a mark-to-market
method of accounting for their securities holdings,
controlled foreign corporations, passive foreign
investment companies or, United States expatriates.
Prospective Beneficial Owners are urged to consult their own tax
advisors with respect to the specific tax consequences of
investing in DIAMONDS.
Tax
Treatment of the Trust
For the fiscal year ended October 31, 2008, the Trust
believes that it qualified for tax treatment as a
regulated investment company under 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 ninety
percent (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 asset diversification tests, and (c) distribute in
each year at least ninety percent (90%) of its investment
company taxable income. If the Trust qualifies as a regulated
investment company, the Trust will not be subject, in general,
to federal income tax if and to the extent the Trust distributes
its income in a timely manner. Any undistributed income may be
subject to tax, including a four percent (4%) excise tax on
certain undistributed income in the event that the Trust does
not distribute to the Beneficial Owners in a timely manner at
least ninety-eight percent (98%) of its taxable income
(including capital gains).
If the Trust fails to qualify as a regulated investment company
for any year, the Trust will be subject to corporate-level
income tax in that year on all of its taxable income, regardless
of whether the Trust makes any distributions to the Beneficial
Owners. In addition, any distributions from a non-qualifying
Trust will be taxable to a Beneficial Owner generally as
ordinary dividends to the extent of the Trusts current and
accumulated earnings and profits, possibly eligible for
(a) in the case of a non-corporate Beneficial Owner (i.e.,
an individual, trust or estate), treatment as a qualifying
dividend (as discussed below) subject to tax at preferential
capital gains rates or (b) in the case of a corporate
Beneficial Owner, a dividends-received deduction. To meet the
distribution requirements necessary to qualify as a regulated
investment company (as outlined above), the Trust may be
required to make distributions in excess of the yield
performance of the Portfolio Securities.
Tax
Treatment of the Beneficial Owners
Considerations for a Beneficial Owner that is a
U.S. Person. The following are certain
U.S. federal income tax considerations for Beneficial
Owners that are U.S. persons. A Beneficial Owner will be a
U.S. person if the Beneficial Owners is, for
U.S. federal income tax purposes: (a) a citizen or
individual resident of the United States; (b) a
corporation, or other entity taxable as a corporation for
U.S. federal
51
income tax purposes, created or organized in or under the laws
or the United States or of any political subdivision thereof;
(c) an estate, the income of which is subject to United
States federal income taxation regardless of its source; or
(d) a trust if (i) a court within the United States is
able to exercise primary supervision over the administration of
the trust and one or more U.S. persons have the authority
to control all substantial decisions of the trust, or
(ii) the trust was in existence on August 20, 1996 and
has a valid election in effect under applicable United States
Treasury regulations to continue to be treated as a
U.S. person.
Distributions. Distributions of the
Trusts net investment income (other than, as discussed
below, qualifying dividend income) and net short-term capital
gains are taxable as ordinary income to the extent of the
Trusts current or accumulated earnings and profits.
Distributions of the Trusts net long-term capital gains in
excess of net short-term capital losses are taxable as long-term
capital gain to the extent of the Trusts current or
accumulated earnings and profits, regardless of a Beneficial
Owners holding period in the Trusts shares.
Distributions of qualifying dividend income are taxable as
long-term capital gain to the extent of the Trusts current
or accumulated earnings and profits, provided that the
Beneficial Owner meets certain holding period and other
requirements with respect to the Trusts shares and the
Trust meets certain holding period and other requirements with
respect to its dividend-paying stocks.
Distributions in excess of the Trusts current or
accumulated earnings and profits are treated as a return of
capital, which reduce a Beneficial Owners tax basis in
DIAMONDS. Return-of-capital distributions may result if, for
example, Trust distributions are derived from cash amounts
deposited in connection with Portfolio Deposits, rather than
dividends actually received by the Trust on the Portfolio
Securities. Return-of-capital distributions may be more likely
to occur in periods during which the number of outstanding
DIAMONDS fluctuates significantly.
Because the taxability of a distribution depends upon the
Trusts current and accumulated earnings and profits, a
distribution received shortly after an acquisition of DIAMONDS
may be taxable, even though, as an economic matter, the
distribution represents a return of a Beneficial Owners
initial investment.
The Trust intends to distribute its long-term capital gains at
least annually. However, by providing written notice to
Beneficial Owners no later than sixty (60) days after its
year-end, the Trust may elect to retain some or all of its
long-term capital gains and designate the retained amount as a
deemed distribution. In that event, the Trust pays
income tax on the retained long-term capital gain, and each
Beneficial Owner recognizes a proportionate share of the
Trusts undistributed long-term capital gain. In addition,
each Beneficial Owner can claim a refundable tax credit for the
Beneficial Owners proportionate share of the Trusts
income taxes paid on the undistributed long-term capital gain
and increase the tax basis of the DIAMONDS by an amount equal to
sixty-five percent (65%) of the Beneficial Owners
proportionate share of the Trusts undistributed long-term
capital gains.
52
Long-term capital gains of non-corporate Beneficial Owners are
taxed at a maximum rate of fifteen percent (15%) for taxable
years beginning on or before December 31, 2010. In
addition, for those taxable years, Trust distributions of
qualifying dividend income to non-corporate Beneficial Owners
qualify for taxation at long-term capital gain rates. Under
current law, the taxation of qualifying dividend income at
long-term capital gain rates will no longer apply for taxable
years beginning after December 31, 2010.
Sales and Redemptions. In general, any capital
gain or loss realized upon a sale of a DIAMOND is treated
generally as a long-term gain or loss if the DIAMOND has been
held for more than one year. Any capital gain or loss realized
upon a sale of a DIAMOND held for one year or less is generally
treated as a short-term gain or loss, except that any capital
loss on the sale of a DIAMOND held for six months or less is
treated as long-term capital loss to the extent that capital
gain dividends were paid with respect to the DIAMOND.
An in-kind redemption of a DIAMOND does not result in the
recognition of taxable gain or loss by the Trust. Upon an
in-kind redemption of a DIAMOND, a Beneficial Owner recognizes
gain or loss, in an amount equal to the difference between the
sum of the aggregate fair market value (as determined on the
redemption date) of the stocks and cash received as a result of
the DIAMOND redemption and the Beneficial Owners basis in
the redeemed DIAMOND. Stocks received upon a DIAMOND redemption
(which will be comprised of the stock portion of the Portfolio
Deposit in effect on the date of redemption) generally 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 Owners economic
position or that the transaction has no significant economic or
business utility apart from the anticipated tax consequences.
Portfolio Deposits. In general, the Trust
recognizes no gain or loss on the issue of Creation Units in
exchange for Portfolio Deposits. However, the person
transferring the Portfolio Deposit to the Trust generally
recognizes gain or loss with respect to the stocks included in
the Portfolio Deposit, in an amount equal to the difference
between the amount realized in respect of the stock and such
persons basis in the stock. The particular amount realized
with respect to each stock included in a Portfolio Deposit is
determined by allocating the total fair market value (as
determined on the transfer date of the Portfolio Deposit) of the
DIAMONDS received, less any cash paid to the Trust or plus any
cash received from the Trust, in connection with the Portfolio
Deposit, among all of the stocks included in the Portfolio
Deposit based on their relative fair market values (as
determined on the transfer date of the Portfolio Deposit). The
IRS may assert that a person transferring a Portfolio Deposit
may not be able to deduct a resulting loss on the grounds that
there has been no material change in such persons economic
position or that the transaction has no significant economic or
business utility or purpose apart from the anticipated tax
consequences.
53
Special Considerations for Foreign Beneficial
Owners. If a Beneficial Owner is not a
U.S. person as described above (a Foreign Beneficial
Owner), the Trusts ordinary income dividends
(including distributions of net short-term capital gains and
other amounts that would not be subject to U.S. withholding
tax if paid directly to the Foreign Beneficial Owner) will be
subject, in general, to withholding tax at a rate of thirty
percent (30%) or at a lower rate established under an applicable
tax treaty. However, for Trust tax years beginning on or before
December 31, 2009, interest related dividends and
short-term capital gain dividends generally will not be subject
to withholding tax; provided that the Foreign Beneficial Owner
furnishes the Trust with a completed IRS
Form W-8BEN
(or acceptable substitute documentation) establishing the
Foreign Beneficial Owners status as foreign and that the
Trust does not have actual knowledge or reason to know that the
Foreign Beneficial Owner would be subject to withholding tax if
the Foreign Beneficial Owner were to receive the related amounts
directly rather than as dividends from the Trust.
In general, gain on a sale of a DIAMOND unit will be exempt from
federal income tax (including withholding at the source) unless,
in the case of an individual Foreign Beneficial Owner, such
individual Foreign Beneficial Owner is physically present in the
United States for one hundred eighty three (183) days or
more during the taxable year and meets certain other
requirements.
To claim a credit or refund for any Trust-level taxes on any
undistributed long-term capital gains (as discussed above) or
any taxes collected through
back-up
withholding, a foreign Beneficial Owner must obtain a
U.S. taxpayer identification number and file a federal
income tax return even if the Foreign Beneficial Owner would not
otherwise be required to obtain a U.S. taxpayer
identification number or file a U.S. income tax return.
Back-Up
Withholding. The Trust may be required to report
certain information on a Beneficial Owner to the IRS and
withhold federal income tax (known as backup
withholding) at a twenty-eight percent (28%) rate from all
taxable distributions and redemption proceeds payable to the
Beneficial Owner if the Beneficial Owner fails to provide the
Trust with a correct taxpayer identification or a completed
exemption certificate (e.g., in the case of a Foreign Beneficial
Owner (as defined below), an IRS
Form W-8BEN)
or if the IRS notifies the Trust that a Beneficial Owner is
subject to backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a
Beneficial Owners federal income tax liability. The amount
of any backup withholding from a payment to a Beneficial Owner
is allowed as a credit against the Beneficial Owners
U.S. federal income tax liability and may entitle the
Beneficial Owner to a refund of tax upon prompt filing of a
valid refund claim.
ERISA
Considerations
In considering the advisability of an investment in DIAMONDS,
fiduciaries of pension, profit sharing or other tax-qualified
retirement plans (including Keogh
54
Plans) and funded 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 DIAMONDS (a) is permitted by the documents
and instruments governing the Plan, (b) is made solely in
the interest of participants and beneficiaries of the Plans,
(c) is consistent with the prudence and diversification
requirements of ERISA, and that the acquisition and holding of
DIAMONDS does not result in a non-exempt prohibited
transaction under Section 406 of ERISA or
Section 4975 of the Code. Individual retirement account
(IRA) investors should consider that an IRA may make
only such investments as are authorized by the IRAs
governing instruments and that IRAs are subject to the
prohibited transaction rules of Section 4975 of the Code.
As described in the preceding paragraph, 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
persons who have certain specified relationships to the Plan or
IRA (that is, parties in interest as defined in
ERISA or disqualified persons as defined in the
Code). The fiduciary standards and prohibited transaction rules
that apply to an investment in DIAMONDS by a Plan will not apply
to transactions involving the Trusts assets because the
Trust is an investment company registered under the Investment
Company Act of 1940. As such, the Trusts assets are not
deemed to be plan assets under ERISA and
U.S. Department of Labor regulations by virtue of Plan
and/or IRA
investments in DIAMONDS.
Employee benefit plans that are government plans (as defined in
Section 3(32) of ERISA), certain church plans (as defined
in Section 3(33) of ERISA) and foreign plans (as described
in Section 4(b)(4) of ERISA) are not subject to the
requirements of ERISA or Section 4975 of the Code. The
fiduciaries of governmental plans should, however, consider the
impact of their respective state pension codes or other
applicable law on investments in DIAMONDS and the considerations
discussed above, to the extent such considerations apply.
CONTINUOUS
OFFERING OF DIAMONDS
Creation Units are offered continuously to the public by the
Trust through the Distributor. Persons making Portfolio Deposits
and creating Creation Units receive no fees, commissions or
other form of compensation or inducement of any kind from the
Sponsor or the Distributor, and no such person has any
obligation or responsibility to the Sponsor or Distributor to
effect any sale or resale of DIAMONDS.
Because new DIAMONDS 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 (1933 Act), may be occurring.
Broker-dealers and other persons are cautioned that some of
their activities may result in their being deemed participants
in a distribution in a manner which could render them statutory
underwriters and subject
55
them to the prospectus-delivery and liability provisions of the
1933 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 DIAMONDS and sells the DIAMONDS
directly to its customers; or if it chooses to couple the
creation of a supply of new DIAMONDS with an active selling
effort involving solicitation of secondary market demand for
DIAMONDS. 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 DIAMONDS
that are part of an unsold allotment within the
meaning of Section 4(3)(C) of the 1933 Act, would be
unable to take advantage of the prospectus-delivery exemption
provided by Section 4(3) of the 1933 Act.
The Sponsor intends to qualify DIAMONDS in states selected by
the Sponsor and through broker-dealers who are members of FINRA.
Investors intending to create or redeem Creation Units in
transactions not involving a broker-dealer registered in such
investors state of domicile or residence should consult
their legal advisor regarding applicable broker-dealer or
securities regulatory requirements under the state securities
laws prior to such creation or redemption.
DIVIDEND
REINVESTMENT SERVICE
The Trust has made the Service available for use by Beneficial
Owners through DTC Participants for reinvestment of their cash
proceeds. Some DTC Participants may not elect to utilize the
Service; therefore, an interested DIAMONDS investor may wish to
contact such investors broker to ascertain the
availability of the Service through such broker. 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.
Distributions reinvested in additional DIAMONDS through the
Service are nevertheless taxable dividends to Beneficial Owners
to the same extent as if received in cash.
The Trustee generally uses 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 DIAMONDS at the
close of business on each DIAMONDS distribution date. Any cash
balance remaining after the requisite number of DIAMONDS has
been created is distributed, on a pro rata basis, to all
Beneficial Owners who participated in the Service. Brokerage
commissions, if any, incurred in obtaining Index Securities
necessary to create
56
additional DIAMONDS with the cash from the distributions are an
expense of the Trust.*
EXPENSES
OF THE TRUST
Ordinary operating expenses of the Trust are currently being
accrued at an annual rate of less than 0.1800%. Future accruals
will depend primarily on the level of the Trusts net
assets and the level of Trust expenses. There is no guarantee
that the Trusts ordinary operating expenses will not
exceed 0.1800% of the Trusts daily net asset value and
such rate may be changed without notice.
Until further notice, the Sponsor has undertaken that it will
not permit the ordinary operating expenses of the Trust, as
calculated by the Trustee, to exceed an amount that is 18/100 of
1% (0.1800%) per annum of the daily NAV of the Trust after
taking into account any expense offset credits. To the extent
the ordinary operating expenses of the Trust do exceed such
0.1800% amount, the Sponsor will reimburse the Trust for, or
assume, the excess. 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
0.1800% per annum level on any given day. For purposes of this
undertaking, ordinary operating expenses of the Trust do not
include taxes, brokerage commissions and any extraordinary
non-recurring expenses, including the cost of any litigation to
which the Trust or the Trustee may be a party. The Sponsor may
discontinue this undertaking or renew it for a specified period
of time, or may choose to reimburse or assume certain Trust
expenses in later periods to keep Trust expenses at a level it
believes to be attractive to investors. In any event, on any day
and during any period over the life of the Trust, total fees and
expenses of the Trust may exceed 0.1800% per annum.
Subject to any applicable cap, the Sponsor may charge the Trust
a special fee for certain services the Sponsor 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. 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 Trustees fee; (b) fees payable to
transfer agents for the provision of transfer agency services;
(c) fees of the Trustee for extraordinary services
performed under the
* 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 2008,
the approximate amount of annual brokerage commissions incurred
in implementing the Service was less than $0.001 per DIAMONDS
unit.
57
Trust Agreement; (d) various governmental charges;
(e) any taxes, fees and charges payable by the Trustee with
respect to DIAMONDS (whether in Creation Units 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 DIAMONDS (whether in Creation Units 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; (h) expenses incurred
in contacting Beneficial Owners of DIAMONDS 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, the following expenses are or may be charged to the
Trust: (a) reimbursement to the Sponsor of amounts paid by
it to Dow Jones in respect of annual licensing fees pursuant to
the License Agreement; (b) federal and state annual
registration fees for the issuance of DIAMONDS; and
(c) expenses of the Sponsor relating to the printing and
distribution of marketing materials describing DIAMONDS and the
Trust (including, but not limited to, associated legal,
consulting, advertising, and marketing costs and other
out-of-pocket expenses such as printing). Pursuant to the
provisions of an exemptive order, the expenses set forth in this
paragraph may be charged to the Trust by the Trustee in an
amount equal to the actual costs incurred, but in no case shall
such charges exceed 20/100 of 1% (0.20%) per annum of the daily
NAV of the Trust.
With respect to the marketing expenses described in item (c)
above, the Sponsor has entered into an agreement with State
Street Global Markets, LLC, an affiliate of the Trustee (the
Marketing Agent), pursuant to which the Marketing
Agent has agreed to market and promote the Trust, The Marketing
Agent is reimbursed by the Sponsor for the expenses it incurs
for providing such services out of amounts that the Trust
reimburses the Sponsor.
If the income received by the Trust in the form of dividends and
other distributions on Portfolio Securities is insufficient to
cover Trust expenses, the Trustee may make advances to the Trust
to cover such expenses. Otherwise, the Trustee may sell
Portfolio 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 (a) dividend payments or other
income of the Trust when such payments or other income is
received, (b) the amounts earned or benefits derived by the
Trustee on cash held by the Trustee for the benefit of the
Trust, and (c) the sale of Portfolio Securities.
Notwithstanding the foregoing, if any advance remains
outstanding for more than forty-five (45) Business Days,
the Trustee may sell Portfolio Securities to reimburse itself
for such advance and any accrued interest thereon. These
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 NAV of the Trust.
58
For services performed under the Trust Agreement, the
Trustee is paid a fee at an annual rate of 6/100 of 1% to 10/100
of 1% of the NAV of the Trust, as shown below, such percentage
amount to vary depending on the NAV of the Trust, plus or minus
the Adjustment Amount. The compensation is computed on each
Business Day based on the NAV of the Trust on such day, and the
amount thereof is accrued daily and paid quarterly. To the
extent that the amount of the Trustees compensation,
before 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. Notwithstanding the fee schedule
set forth in the table below, in the fourth year of the
Trusts operation and in subsequent years, the Trustee
shall be paid a minimum fee of $400,000 per annum as adjusted by
the CPI-U to take effect at the beginning of the fourth year and
each year thereafter. To the extent that the amount of the
Trustees 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 also may waive all or a portion of such fee.
Trustee
Fee Scale
|
|
|
|
|
Fee as a Percentage of
|
Net Asset Value of the Trust
|
|
Net Asset Value of the Trust
|
|
$0 $499,999,999
|
|
10/100 of 1% per annum plus or minus the Adjustment Amount*
|
$500,000,000 $2,499,999,999
|
|
8/100 of 1% per annum plus or minus the Adjustment Amount*
|
$2,500,000,000 and above
|
|
6/100 of 1% per annum plus or minus the Adjustment Amount*
|
|
|
|
* |
|
The fee indicated applies to that portion of the net asset value
of the Trust which falls in the size category indicated. |
As of October 31, 2008, and as of December 31, 2008,
the NAV of the Trust was $9,114,230,276 and $9,115,093,531,
respectively. No representation is made as to the actual NAV of
the Trust on any future date as it is subject to change at any
time due to fluctuations in the market value of the Portfolio
Securities or to creations or redemptions made in the future.
The Adjustment Amount is calculated at the end of each quarter
and applied against the Trustees fee for the following
quarter. Adjustment Amount is an amount which is
intended, depending upon the circumstances, either to
(a) reduce the Trustees fee by the amount that the
Transaction Fees paid on creation and redemption exceed the
costs of those activities, and by the amount of excess earnings
on cash held for the benefit of the Trust* or (b) increase
the Trustees fee by the amount that the Transaction Fee
(plus additional amounts paid in connection with creations or
redemptions outside the DIAMONDS Clearing Process), 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
* The excess earnings on cash amount is currently
calculated, and applied, on a monthly basis.
59
Trustee as set forth above, the Trustee uses 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 Trusts expenses for such quarter, any
remaining excess is 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 DIAMONDS Clearing
Process) net of the excess earnings, if any, on cash held for
the benefit of the Trust, the Trustee will augment the
Trustees fee by the resulting Adjustment Amount. The
net Adjustment Amount is usually a credit to the Trust. The
amount of the earnings credit will be equal to the then current
Federal Funds Rate, as reported in nationally distributed
publications, multiplied by each days daily cash balance
in the Trusts cash account, reduced by the amount of
reserves for that account required by the Federal Reserve Board
of Governors.
VALUATION
The NAV of the Trust is computed as of the Evaluation Time shown
under SummaryEssential Information on each
Business Day. The NAV of the Trust on a per DIAMONDS unit basis
is determined by subtracting all liabilities (including accrued
expenses and dividends payable) from the total value of the
Portfolio and other assets and dividing the result by the total
number of outstanding DIAMONDS. For the most recent NAV
information, please go to www.spdrs.com.
The value of the Portfolio is determined by the Trustee in good
faith in the following manner. If Portfolio Securities are
listed on one or more national securities exchanges, such
evaluation is generally 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 thereof or, if there is no such appropriate
closing price on such exchange at the last sale price (unless
the Trustee deems such price inappropriate as a basis for
evaluation). If the stocks 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 sale 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 stocks, (c) by the Trustees appraising the
value of the stocks in good faith on the bid side of the market,
or (d) by any combination thereof.
ADMINISTRATION
OF THE TRUST
Distributions
to Beneficial Owners
The regular monthly ex-dividend date for DIAMONDS is the third
Friday in each calendar month, unless such day is not a Business
Day, in which case the ex-
60
dividend date is the immediately preceding Business Day
(Ex-Dividend Date). Beneficial Owners reflected on
the records of DTC and the DTC Participants on the second
Business Day following the Ex-Dividend Date (Record
Date) are entitled to receive an amount representing
dividends accumulated on Portfolio Securities through the
monthly dividend period which ends on the Business Day preceding
such Ex-Dividend Date (including stocks with ex-dividend dates
falling within such monthly dividend period), net of fees and
expenses, accrued daily for such period. For the purposes of all
dividend distributions, dividends per DIAMONDS unit are
calculated at least to the nearest
1/1000th of
$0.01. The payment of dividends is made on the Monday preceding
the third (3rd) Friday of the next calendar month or the next
subsequent Business Day if such Monday is not a Business Day
(Dividend Payment Date). Dividend payments are made
through DTC and the DTC Participants to Beneficial Owners then
of record with funds received from the Trustee.
Dividends payable to the Trust in respect of Portfolio
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 Portfolio, 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 Portfolio
Securities as dividends or distributions and capital gains
resulting from the sale of Portfolio Securities are 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 the
account generate interest income or an equivalent benefit to the
Trustee, such interest income or benefit is used to reduce the
Trustees annual fee.
Any additional distributions the Trust may need to make so as to
continue to qualify as a regulated investment
company 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 NAV of
the Trust is reduced in direct proportion to the amount of such
additional distributions. The magnitude of the additional
distributions, if any, depends upon a number of factors,
including the level of redemption activity experienced by the
Trust. Because substantially all proceeds from the sale of
stocks in connection with adjustments to the Portfolio are 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 typically has to sell
an approximately equal number of shares of each of
61
the Portfolio Securities sufficient to produce the cash required
to make such additional distributions.
The Trustee may declare special dividends if 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, and to vary the frequency
with which periodic distributions are made (e.g., from
monthly to quarterly) if it is determined by the Sponsor and the
Trustee 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 may change
the regular ex-dividend date for DIAMONDS to another date within
the month or the quarter if it is determined by the Sponsor and
the Trustee that such a change would be advantageous to the
Trust. Notice of any such variance or change shall be provided
to Beneficial Owners via DTC and the DTC Participants.
As soon as practicable after notice of termination of the Trust,
the Trustee will distribute via DTC and the DTC Participants to
each Beneficial Owner redeeming Creation Units before the
termination date specified in such notice a portion of Portfolio
Securities and cash as described above. Otherwise, the Trustee
will distribute to each Beneficial Owner (whether in Creation
Unit size aggregations or otherwise), as soon as practicable
after termination of the Trust, such Beneficial Owners pro
rata share of the NAV of the Trust.
All distributions are made by the Trustee through DTC and the
DTC Participants to Beneficial Owners as recorded on the book
entry system of DTC and the DTC Participants.
The settlement date for the creation of DIAMONDS or the purchase
of DIAMONDS in the secondary market must occur on or before 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 DIAMONDS
with proceeds received from distributions described above may
elect dividend reinvestment through DTC Participants by means of
the Service, if such service is available through the Beneficial
Owners broker.
Statements
to Beneficial Owners; Annual Reports
With each distribution, the Trustee furnishes for distribution
to Beneficial Owners a statement setting forth the amount being
distributed, expressed as a dollar amount per DIAMONDS unit.
Promptly after the end of each fiscal year, the Trustee
furnishes to the DTC Participants for distribution to each
person who was a Beneficial Owner of
62
DIAMONDS 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.
Rights of
Beneficial Owners
Beneficial Owners may sell DIAMONDS in the secondary market, but
must accumulate enough DIAMONDS to constitute a full Creation
Unit in order to redeem through the Trust. The death or
incapacity of any Beneficial Owner does not operate to terminate
the Trust nor entitle such Beneficial Owners 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 (a) have the right to vote
concerning the Trust, except with respect to termination and as
otherwise expressly set forth in the Trust Agreement,
(b) in any manner control the operation and management of
the Trust, or (c) be liable to any other person by reason
of any action taken by the Sponsor or the Trustee. 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. The Trustee shall not be liable
to any person for any action or failure to take any action with
respect to such voting matters.
Amendments
to the Trust Agreement
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 that may be defective or inconsistent
or to make such other provisions as will not adversely affect
the interests of Beneficial Owners; (b) to change any
provision as may be required by the SEC; (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 as may be necessary or advisable if NSCC or
DTC is unable or unwilling to continue to perform its functions;
and (e) to add or change any provision to conform the
adjustments to the Portfolio and the Portfolio Deposit to
changes, if any, made by Dow Jones in its method of determining
the DJIA. The Trust Agreement may also be amended by the
Sponsor and the Trustee with the consent of the Beneficial
Owners of 51% of the outstanding DIAMONDS to add provisions to,
or change or eliminate any of the provisions of, the
Trust Agreement or to modify the rights of Beneficial
Owners; although, the Trust Agreement may not be amended
without the consent of the Beneficial Owners of all outstanding
DIAMONDS if such amendment would (a) permit the acquisition
of any securities other than those acquired in accordance with
the terms and conditions of the Trust Agreement;
(b) reduce the interest of any
63
Beneficial Owner in the Trust; or (c) reduce the percentage
of Beneficial Owners required to consent to any such amendment.
Promptly after the execution of an amendment, the Trustee
receives from DTC, pursuant to the terms of the Depository
Agreement, a list of all DTC Participants holding DIAMONDS. The
Trustee inquires of each such DTC Participant as to the number
of Beneficial Owners for whom such DTC Participant holds
DIAMONDS, and provides 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 Beneficial
Owners.
The Trust Agreement provides that the Sponsor has the
discretionary right to direct the Trustee to terminate the Trust
if at any time the NAV of the Trust is less than $350,000,000,
as such dollar amount shall be adjusted for inflation in
accordance with the CPI-U. This adjustment is 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 may be terminated (a) by the agreement of the
Beneficial Owners of
662/3%
of outstanding DIAMONDS; (b) if DTC 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 DIAMONDS, or if the Trustee is no
longer a participant in NSCC; (d) if Dow Jones ceases
publishing the DJIA; (e) if the License Agreement is
terminated; or (f) if DIAMONDS are delisted from the
Exchange. The Trust will also terminate by its terms on the
Termination Date.
The Trust will terminate if either the Sponsor or the Trustee
resigns or is removed and a successor is not appointed. 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 must be
given at least twenty (20) days before termination of the
Trust to all Beneficial Owners. The notice must 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 DIAMONDS (whether in Creation Unit
size aggregations or otherwise) will receive in cash the NAV of
the DIAMONDS held, and the date upon which the books of the
Trust shall be closed. The 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 DIAMONDS will be created for the
purpose of reinvesting dividend distributions, and that, as of
the date thereof and thereafter, the
64
portfolio of stocks delivered upon redemption shall be identical
in composition and weighting to Portfolio Securities as of such
date rather than the stock portion of the Portfolio Deposit as
in effect on the date request for redemption is deemed received.
Beneficial Owners of Creation Units may, in advance of the
Termination Date, redeem in kind directly from the Trust.
Within a reasonable period after the Termination Date, the
Trustee shall, subject to any applicable provisions of law, use
its best efforts to sell all of the Portfolio 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 because of any such sale.
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 stock, the closing or
restriction of trading on a stock exchange, the outbreak of
hostilities, or the collapse of the economy. The Trustee shall
deduct from the proceeds of sale its fees and all other expenses
and transmit the remaining amount to DTC for distribution,
together with a final statement setting forth the computation of
the gross amount distributed.
DIAMONDS not redeemed before termination of the Trust will be
redeemed in cash at NAV based on the proceeds of the sale of
Portfolio Securities, with no minimum aggregation of DIAMONDS
required.
The Sponsor is a Delaware limited liability company incorporated
on April 6, 1998 with offices
c/o NYSE
Euronext, 11 Wall Street, New York, New York 10005. The
Sponsors Internal Revenue Service Employer Identification
Number is
26-4126158.
On October 1, 2008, the Sponsor became an indirect
wholly-owned subsidiary of NYSE Euronext following the
acquisition by NYSE Euronext of the American Stock Exchange LLC
and all of its subsidiaries. NYSE Euronext 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 DIAMONDS
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 DIAMONDS within a
specified period.
If at any time the Sponsor fails to undertake or perform or
becomes incapable of undertaking or performing any of the duties
required under the Trust Agreement, or resigns, or becomes
bankrupt or its affairs are taken over by public authorities,
the Trustee may appoint a successor Sponsor, agree to act as
Sponsor itself, or may terminate the Trust Agreement and
liquidate the Trust. Notice of the resignation or removal of the
Sponsor and the appointment of a successor shall be mailed by
the Trustee to DTC and the DTC Participants for distribution to
Beneficial Owners. Upon a successor Sponsors execution of
a written acceptance of appointment as Sponsor of
65
the Trust, the successor Sponsor becomes 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 appointment by the successor Sponsor, unless
the Trustee either agrees to act as Sponsor or terminates the
Trust Agreement and liquidates the Trust. 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 DIAMONDS.
The Trust Agreement provides that the Sponsor is not liable
to the Trustee, the Trust or to the Beneficial Owners of
DIAMONDS 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, willful
misconduct or willful 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 because of the sale of any Portfolio Securities. The
Trust Agreement further provides that the Sponsor and its
directors, subsidiaries, shareholders, officers, employees, and
affiliates under common control with the Sponsor shall be
indemnified from the assets of the Trust and held harmless
against any loss, liability or expense incurred without gross
negligence, bad faith, willful misconduct or willful malfeasance
on the part of any such 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.
The Trustee is a bank and trust company organized under the laws
of the Commonwealth of Massachusetts with its principal place of
business at One Lincoln Street, Boston, Massachusetts 02111. The
Trustees 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.
Information regarding Cash Redemption Payment amounts,
number of outstanding DIAMONDS and Transaction Fees may be
obtained from the Trustee at the toll-free number:
1-800-545-4189.
Complete copies of the Trust Agreement and a list of the
parties that have executed a Participant Agreement may be
obtained from the Trustees principal office.
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
66
notice with the Sponsor and mailing a copy of the notice of
resignation to all DTC Participants reflected on the records of
DTC as owning DIAMONDS for distribution to Beneficial Owners as
provided above not less than sixty (60) days before the
date such resignation is to take effect. Such resignation
becomes effective upon the appointment of and the acceptance of
the Trust by a successor Trustee. The Sponsor, upon receiving
notice of such resignation, is obligated to use its best efforts
to appoint a successor Trustee promptly. If no successor is
appointed within sixty (60) days after the date such notice
of resignation is given, the Trust shall terminate.
If the Trustee becomes incapable of acting as such or is
adjudged 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. The Sponsor
shall mail notice of such discharge and appointment via the DTC
Participants to Beneficial Owners. Upon a successor
Trustees execution of a written acceptance of an
appointment as Trustee for the Trust, the successor Trustee
becomes vested with all the rights, powers, duties and
obligations of the original Trustee. A successor Trustee must be
(a) a trust company, corporation or national banking
association organized, doing business under the laws of the
United States or any state thereof; (b) authorized under
such laws to exercise corporate trust powers; and (c) at
all times have an aggregate capital, surplus and undivided
profit of not less than $50,000,000.
Beneficial Owners of 51% of the then outstanding DIAMONDS 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 as described
above.
The Trust Agreement limits the Trustees liabilities.
It provides, among other things, that the Trustee is not liable
for (a) any action taken in reasonable reliance on properly
executed documents or for the disposition of monies or stocks or
for the evaluations required to be made thereunder, except by
reason of its own gross negligence, bad faith, willful
malfeasance, willful misconduct, or reckless disregard of its
duties and obligations; (b) depreciation or loss incurred
by reason of the sale by the Trustee of any Portfolio
Securities; (c) any action the Trustee takes where the
Sponsor fails to act; and (d) any taxes or other
governmental charges imposed upon or in respect of Portfolio
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.
The Trustee and its directors, subsidiaries, shareholders,
officers, employees, and affiliates under common control with
the Trustee will be indemnified from the assets of the Trust and
held harmless against any loss, liability or expense incurred
without gross negligence, bad faith, willful misconduct, willful
malfeasance on the part of such 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.
67
DTC is a limited purpose trust company and member of the Federal
Reserve System.
The legality of the DIAMONDS offered hereby has been passed upon
by Katten Muchin Rosenman LLP, New York, New York, as counsel
for the Sponsor.
The financial statements as of October 31, 2008 included in
this Prospectus have been so included in reliance upon the
report of PricewaterhouseCoopers LLP, independent registered
public accounting firm, 125 High Street, Boston, Massachusetts,
given on the authority of said firm as experts in auditing and
accounting.
The Trust and the Sponsor have adopted a code of ethics
regarding personal securities transactions by employees. Subject
to certain conditions and standards, the code permits employees
to invest in DIAMONDS for their own accounts. The code is
designed to prevent fraud, deception and misconduct against the
Trust and to provide reasonable standards of conduct. The code
is on file with the SEC and you may obtain a copy by visiting
the SEC at the address listed on the back cover of this
prospectus. The code is also available on the SECs
Internet site at
http:/www.sec.gov.
A copy may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the SEC
at the address listed on the back cover of this prospectus.
The Sponsor makes available daily a list of the names and the
required number of shares of each of the Securities in the
current Portfolio Deposit. The Sponsor also intends to make
available (a) on a daily basis, the Dividend Equivalent
Payment effective through and including the previous Business
Day, per outstanding DIAMONDS unit, and (b) every 15
seconds throughout the trading day at the Exchange a number
representing, on a per DIAMONDS unit basis, the sum of the
Dividend Equivalent Payment effective through and including the
previous Business Day, plus the current value of the securities
portion of a Portfolio Deposit as in effect on such day (which
value may include a cash in lieu amount to compensate for the
omission of a particular Index Security from such Portfolio
Deposit).
Intra-day
information will be available with respect to trades and quotes
and underlying trading values will be published every 15 seconds
throughout the trading day. Information
68
with respect to net asset value, net accumulated dividend, final
dividend amount to be paid, shares outstanding, estimated cash
amount and total cash amount per Creation Unit will be available
daily prior to the opening of trading on the Exchange.
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 DIAMONDS, may
be included from time to time in advertisements, sales
literature and other communications and in reports to current or
prospective Beneficial Owners. Any such performance-related
information will reflect only past performance of DIAMONDS, and
no guarantees can be made of future results.
Specifically, information may be provided to investors regarding
the ability to engage in short sales of DIAMONDS. Selling short
refers to the sale of securities which the seller does not own,
but which the seller arranges to borrow before effecting the
sale. Institutional investors may be advised that lending their
DIAMONDS to short sellers may generate stock loan credits that
may supplement the return they can earn from an investment in
DIAMONDS. These stock loan credits may provide a useful source
of additional income for certain institutional investors who can
arrange to lend DIAMONDS. 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.
In addition, information may be provided to prospective or
current investors comparing and contrasting the tax efficiencies
of conventional mutual funds with DIAMONDS. Both conventional
mutual funds and the Trust may be required to recognize capital
gains incurred as a result of adjustments to the composition of
the DJIA and therefore to their respective portfolios. From a
tax perspective, however, a significant difference between a
conventional mutual fund and the Trust is the process by which
their shares are redeemed. In cases where a conventional mutual
fund experiences redemptions in excess of subscriptions
(net redemptions) and has insufficient cash
available to fund such net redemptions, such fund may have to
sell stocks held in its portfolio to raise and pay cash to
redeeming shareholders. A mutual fund will generally experience
a taxable gain or loss when it sells such portfolio stocks in
order to pay cash to redeeming fund shareholders. In contrast,
the redemption mechanism for DIAMONDS typically does not involve
selling the portfolio stocks. Instead, the Trust delivers the
actual portfolio of stocks in an in-kind exchange to any person
redeeming DIAMONDS in Creation Unit size aggregations. While
this in-kind exchange is a taxable transaction to the redeeming
entity (usually a broker/dealer) making the exchange, it
generally does not constitute a taxable transaction at the Trust
level and, consequently, there is no realization of taxable gain
or loss by the Trust with respect to such in-kind exchanges.
69
In a period of market appreciation of the DJIA and,
consequently, appreciation of the portfolio stocks held in the
Trust, this in-kind redemption mechanism has the effect of
eliminating the recognition and distribution of those net
unrealized gains at the Trust level. 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 funds
portfolio. In contrast, the in-kind redemption mechanism of
DIAMONDS may make them more tax efficient investments under most
circumstances than comparable conventional mutual fund shares.
As discussed above, this in-kind redemption feature tends to
lower the amount of annual net capital gains distributions to
DIAMONDS holders as compared to their conventional mutual fund
counterparts. Since shareholders are generally required to pay
income tax on capital gains distributions, the smaller the
amount of such distributions, the less taxes that are payable
currently. To the extent that the Trust is not required to
recognize capital gains, the DIAMONDS holder is able, in effect,
to defer tax on such gains until he sells or otherwise disposes
of his shares, or the Trust terminates. If such holder retains
his shares until his death, under current law the tax basis of
such shares would be adjusted to their then fair market value.
One important difference between DIAMONDS and conventional
mutual fund shares is that DIAMONDS are available for purchase
or sale on an intraday basis on the 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 NAV per share, as
determined by the fund. In contrast, DIAMONDS are not offered
for purchase or redeemed for cash at a fixed relationship to
closing NAV. The tables below illustrate the distribution
relationship of DIAMONDS closing prices to NAV for the period
1/20/98 (the
first trading date of the DIAMONDS Trust) through
12/31/08,
the distribution relationships of high, low and closing prices
over the same period, and distribution of bid/ask spreads for
2008. These tables should help investors evaluate some of the
advantages and disadvantages of DIAMONDS relative to funds sold
and redeemed at prices related to closing NAV. Specifically, the
tables illustrate in an approximate way the risks of buying or
selling DIAMONDS at prices less favorable than closing NAV and,
correspondingly, the opportunities to buy or sell at prices more
favorable than closing NAV.
The investor 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 immediately below illustrates the
distribution of percentage ranges between the high and the low
price each day and
70
between each extreme daily value and the closing NAV for all
trading days from
1/20/98
through
12/31/08.
The investor may wish to compare these ranges with the average
bid/ask
spread on DIAMONDS 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/ask spread
on DIAMONDS may vary materially over time and may be
significantly greater at times in the future. There is some
evidence, for example, that the bid/ask spread will widen in
markets that are more volatile and narrow when markets are less
volatile. Consequently, the investor should expect wider bid/ask
spreads to be associated with wider daily spread ranges.
71
Daily
Percentage Price Ranges: Average and Frequency Distribution
for
Dow Jones Industrial Average and DIAMONDS Trust:
Highs and Lows vs. Close*
(From Inception of Trading through
12/31/2008)
Dow Jones
Industrial Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 0.25%
|
|
|
1
|
|
|
|
0.04
|
%
|
|
|
894
|
|
|
|
32.44
|
%
|
|
|
737
|
|
|
|
26.74
|
%
|
0.25 0.5%
|
|
|
118
|
|
|
|
4.28
|
%
|
|
|
544
|
|
|
|
19.74
|
%
|
|
|
584
|
|
|
|
21.19
|
%
|
0.5 1.0%
|
|
|
824
|
|
|
|
29.90
|
%
|
|
|
655
|
|
|
|
23.77
|
%
|
|
|
716
|
|
|
|
25.98
|
%
|
1.0 1.5%
|
|
|
805
|
|
|
|
29.21
|
%
|
|
|
304
|
|
|
|
11.03
|
%
|
|
|
358
|
|
|
|
12.99
|
%
|
1.5 2.0%
|
|
|
478
|
|
|
|
17.34
|
%
|
|
|
170
|
|
|
|
6.17
|
%
|
|
|
175
|
|
|
|
6.35
|
%
|
2.0 2.5%
|
|
|
232
|
|
|
|
8.42
|
%
|
|
|
86
|
|
|
|
3.12
|
%
|
|
|
91
|
|
|
|
3.30
|
%
|
2.5 3.0%
|
|
|
129
|
|
|
|
4.68
|
%
|
|
|
40
|
|
|
|
1.45
|
%
|
|
|
33
|
|
|
|
1.20
|
%
|
3.0 3.5%
|
|
|
61
|
|
|
|
2.21
|
%
|
|
|
24
|
|
|
|
0.87
|
%
|
|
|
23
|
|
|
|
0.83
|
%
|
> 3.5%
|
|
|
108
|
|
|
|
3.92
|
%
|
|
|
39
|
|
|
|
1.42
|
%
|
|
|
39
|
|
|
|
1.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,756
|
|
|
|
100.00
|
%
|
|
|
2,756
|
|
|
|
100.00
|
%
|
|
|
2,756
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Range: 1.5010%
DIAMONDS
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 0.25%
|
|
|
4
|
|
|
|
0.15
|
%
|
|
|
874
|
|
|
|
31.71
|
%
|
|
|
694
|
|
|
|
25.18
|
%
|
0.25 0.5%
|
|
|
143
|
|
|
|
5.19
|
%
|
|
|
588
|
|
|
|
21.34
|
%
|
|
|
608
|
|
|
|
22.06
|
%
|
0.5 1.0%
|
|
|
834
|
|
|
|
30.26
|
%
|
|
|
647
|
|
|
|
23.48
|
%
|
|
|
772
|
|
|
|
28.01
|
%
|
1.0 1.5%
|
|
|
800
|
|
|
|
29.03
|
%
|
|
|
307
|
|
|
|
11.14
|
%
|
|
|
349
|
|
|
|
12.66
|
%
|
1.5 2.0%
|
|
|
443
|
|
|
|
16.07
|
%
|
|
|
161
|
|
|
|
5.84
|
%
|
|
|
161
|
|
|
|
5.84
|
%
|
2.0 2.5%
|
|
|
237
|
|
|
|
8.60
|
%
|
|
|
81
|
|
|
|
2.94
|
%
|
|
|
66
|
|
|
|
2.39
|
%
|
2.5 3.0%
|
|
|
130
|
|
|
|
4.72
|
%
|
|
|
38
|
|
|
|
1.38
|
%
|
|
|
53
|
|
|
|
1.92
|
%
|
3.0 3.5%
|
|
|
61
|
|
|
|
2.21
|
%
|
|
|
22
|
|
|
|
0.80
|
%
|
|
|
14
|
|
|
|
0.51
|
%
|
> 3.5%
|
|
|
104
|
|
|
|
3.77
|
%
|
|
|
38
|
|
|
|
1.38
|
%
|
|
|
39
|
|
|
|
1.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,756
|
|
|
|
100.00
|
%
|
|
|
2,756
|
|
|
|
100.00
|
%
|
|
|
2,756
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Range: 1.4828%
72
Frequency
Distribution of Discounts and Premiums For the DIAMONDS Trust:
Closing Price vs. Net Asset Value (NAV) as of
12/31/08(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar
|
|
|
Calendar
|
|
|
Calendar
|
|
|
Calendar
|
|
|
|
|
|
From
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Calendar
|
|
|
1/20/1998
|
|
|
|
Ending
|
|
|
Ending
|
|
|
Ending
|
|
|
Ending
|
|
|
Year
|
|
|
Through
|
Range
|
|
|
3/31/2008
|
|
|
6/30/2008
|
|
|
9/30/2008
|
|
|
12/31/2008
|
|
|
2008
|
|
|
12/31/2008
|
> 200
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150 200
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 150
|
|
|
Days
|
|
|
|
|
|
|
|
|
1
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
1.6%
|
|
|
4.7%
|
|
|
1.6%
|
|
|
0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 100
|
|
|
Days
|
|
|
|
|
|
|
|
|
0
|
|
|
6
|
|
|
6
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
0.0%
|
|
|
9.4%
|
|
|
2.4%
|
|
|
0.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 50
|
|
|
Days
|
|
|
9
|
|
|
4
|
|
|
5
|
|
|
7
|
|
|
25
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
14.8%
|
|
|
6.3%
|
|
|
7.8%
|
|
|
10.9%
|
|
|
9.9%
|
|
|
5.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 25
|
|
|
Days
|
|
|
17
|
|
|
27
|
|
|
21
|
|
|
18
|
|
|
83
|
|
|
1224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
27.9%
|
|
|
42.2%
|
|
|
32.8%
|
|
|
28.1%
|
|
|
32.8%
|
|
|
44.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Days
|
|
|
Days
|
|
|
26
|
|
|
31
|
|
|
27
|
|
|
34
|
|
|
118
|
|
|
1410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Premium
|
|
|
%
|
|
|
42.6%
|
|
|
48.4%
|
|
|
42.2%
|
|
|
53.1%
|
|
|
46.6%
|
|
|
51.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Price
|
|
|
Days
|
|
|
0
|
|
|
1
|
|
|
2
|
|
|
0
|
|
|
3
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equal to NAV
|
|
|
%
|
|
|
0.0%
|
|
|
1.6%
|
|
|
3.1%
|
|
|
0.0%
|
|
|
1.2%
|
|
|
2.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Days
|
|
|
Days
|
|
|
35
|
|
|
32
|
|
|
35
|
|
|
30
|
|
|
132
|
|
|
1287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Discount
|
|
|
%
|
|
|
57.4%
|
|
|
50.0%
|
|
|
54.7%
|
|
|
46.9%
|
|
|
52.2%
|
|
|
46.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 −25
|
|
|
Days
|
|
|
27
|
|
|
29
|
|
|
30
|
|
|
18
|
|
|
104
|
|
|
1100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
44.3%
|
|
|
45.3%
|
|
|
46.9%
|
|
|
28.1%
|
|
|
41.1%
|
|
|
39.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−25 −50
|
|
|
Days
|
|
|
7
|
|
|
3
|
|
|
5
|
|
|
4
|
|
|
19
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
11.5%
|
|
|
4.7%
|
|
|
7.8%
|
|
|
6.3%
|
|
|
7.5%
|
|
|
5.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−50 −100
|
|
|
Days
|
|
|
1
|
|
|
|
|
|
|
|
|
4
|
|
|
5
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
1.6%
|
|
|
|
|
|
|
|
|
6.3%
|
|
|
2.0%
|
|
|
0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−100 −150
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
4.7%
|
|
|
1.2%
|
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−150 −200
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
1.6%
|
|
|
0.4%
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< −200
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Close was within 0.25% of NAV better than 86% of the time from
1/20/98
(the first day of trading) through 12/31/08.
|
|
|
(1) |
|
Source: NYSE Euronext |
|
(2) |
|
From 1/2/08 to 11/6/08 the closing price is the last price on
NYSE Alternext US and from 11/7/08 the closing price is the last
price on NYSE Arca. |
73
Frequency
Distribution of Discounts and Premiums for the DIAMONDS
Trust:
Bid/Ask Price vs. Net Asset Value (NAV) as of
12/31/08(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar
|
|
|
Calendar
|
|
|
Calendar
|
|
|
Calendar
|
|
|
|
|
|
From
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Calendar
|
|
|
1/20/1998
|
|
|
|
Ending
|
|
|
Ending
|
|
|
Ending
|
|
|
Ending
|
|
|
Year
|
|
|
Through
|
Range
|
|
|
3/31/2008
|
|
|
6/30/2008
|
|
|
9/30/2008
|
|
|
12/31/2008
|
|
|
2008
|
|
|
12/31/2008
|
> 200
|
|
|
Days
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
1.6%
|
|
|
1.6%
|
|
|
0.8%
|
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150 200
|
|
|
Days
|
|
|
|
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 150
|
|
|
Days
|
|
|
|
|
|
|
|
|
1
|
|
|
2
|
|
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
1.6%
|
|
|
3.1%
|
|
|
1.2%
|
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 100
|
|
|
Days
|
|
|
1
|
|
|
|
|
|
1
|
|
|
1
|
|
|
3
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
1.6%
|
|
|
|
|
|
1.6%
|
|
|
1.6%
|
|
|
1.2%
|
|
|
0.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 50
|
|
|
Days
|
|
|
3
|
|
|
|
|
|
1
|
|
|
5
|
|
|
9
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
4.9%
|
|
|
|
|
|
1.6%
|
|
|
7.8%
|
|
|
3.6%
|
|
|
4.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 25
|
|
|
Days
|
|
|
27
|
|
|
31
|
|
|
33
|
|
|
22
|
|
|
113
|
|
|
1252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
44.3%
|
|
|
48.4%
|
|
|
51.6%
|
|
|
34.4%
|
|
|
44.7%
|
|
|
45.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Days
|
|
|
Days
|
|
|
31
|
|
|
31
|
|
|
37
|
|
|
31
|
|
|
130
|
|
|
1383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Premium
|
|
|
%
|
|
|
50.8%
|
|
|
48.4%
|
|
|
57.8%
|
|
|
48.4%
|
|
|
51.4%
|
|
|
50.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Price
|
|
|
Days
|
|
|
3
|
|
|
2
|
|
|
2
|
|
|
0
|
|
|
7
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equal to NAV
|
|
|
%
|
|
|
4.9%
|
|
|
3.1%
|
|
|
3.1%
|
|
|
0.0%
|
|
|
2.8%
|
|
|
2.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Days
|
|
|
Days
|
|
|
27
|
|
|
31
|
|
|
25
|
|
|
33
|
|
|
116
|
|
|
1301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Discount
|
|
|
%
|
|
|
44.3%
|
|
|
48.4%
|
|
|
39.1%
|
|
|
51.6%
|
|
|
45.8%
|
|
|
47.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 −25
|
|
|
Days
|
|
|
24
|
|
|
31
|
|
|
23
|
|
|
22
|
|
|
100
|
|
|
1185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
39.3%
|
|
|
48.4%
|
|
|
35.9%
|
|
|
34.4%
|
|
|
39.5%
|
|
|
43.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−25 −50
|
|
|
Days
|
|
|
2
|
|
|
|
|
|
2
|
|
|
8
|
|
|
12
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
3.3%
|
|
|
|
|
|
3.1%
|
|
|
12.5%
|
|
|
4.7%
|
|
|
3.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−50 −100
|
|
|
Days
|
|
|
1
|
|
|
|
|
|
|
|
|
2
|
|
|
3
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
1.6%
|
|
|
|
|
|
|
|
|
3.1%
|
|
|
1.2%
|
|
|
0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−100 −150
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−150 −200
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< −200
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Points
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
1.6%
|
|
|
0.4%
|
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Close was within 0.25% of NAV better than 91% of the time from
1/20/98 (the
first day of trading) through
12/31/2008.
|
|
|
(1) |
|
Source: NYSE Euronext |
|
(2) |
|
From 1/2/08 to 11/6/08 the Bid/Ask price is the NYSE Alternext
US Bid/Ask price and from 11/7/08 to 12/31/08 the Bid/Ask price
is the NYSE Arca Bid/Ask price. |
74
Comparison
of Total Returns Based on NAV and Bid/Ask
Price(1)
as of
12/31/08*
The table below is provided to compare the Trusts total
pre-tax returns at NAV with the total pre-tax returns based on
bid/ask price and the performance of the Dow Jones Industrial
Average. Past performance is not necessarily an indication of
how the Trust will perform in the future.
Cumulative
Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
5 Year
|
|
|
10 Year
|
|
|
DIAMONDS Trust Series 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Based on
NAV(2)(3)(4)
|
|
|
31.92
|
%
|
|
|
6.17
|
%
|
|
|
16.31
|
%
|
Return Based on Bid/Ask
Price(2)(3)(4)
|
|
|
31.88
|
%
|
|
|
6.08
|
%
|
|
|
16.17
|
%
|
Dow Jones Industrial Average
|
|
|
31.93
|
%
|
|
|
5.48
|
%
|
|
|
17.95
|
%
|
Average
Annual Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
5 Year
|
|
|
10 Year
|
|
|
DIAMONDS Trust Series 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Based on
NAV(2)(3)(4)
|
|
|
31.92
|
%
|
|
|
1.27
|
%
|
|
|
1.52
|
%
|
Return Based on Bid/Ask
Price(2)(3)(4)
|
|
|
31.88
|
%
|
|
|
1.25
|
%
|
|
|
1.51
|
%
|
Dow Jones Industrial Average
|
|
|
31.93
|
%
|
|
|
1.12
|
%
|
|
|
1.66
|
%
|