e497
DIAMONDS®
Trust Series 1
Supplement
Dated October 30, 2009
to the
Prospectus Dated February 27, 2009
The footnote to the text on page 4 of the prospectus is
hereby deleted and replaced with the following:
See, however, the discussion of termination of the Trust in this
Prospectus for a description of the circumstances in which
DIAMONDS may be redeemed in less than a Creation Unit size
aggregation of 50,000 DIAMONDS.
The second paragraph after the title DIAMONDS Make
Periodic Dividend Payments on pages 9-10 of the
prospectus is hereby deleted and replaced with the following:
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 satisfy certain
distribution requirements imposed by the Internal Revenue Code
of 1986, as amended (Code). Although all
distributions are currently made monthly, under certain limited
circumstances the Trustee may vary the periodicity with which
distributions are made. Those Beneficial Owners interested in
reinvesting their monthly distributions may do so through a
dividend reinvestment service, if one is offered by their
broker-dealer. Under limited certain circumstances, special
dividend payments also may be made to the Beneficial Owners. See
Administration of the Trust Distributions to
Beneficial Owners.
The entire section under the title DIVIDEND REINVESTMENT
SERVICE on pages 56-57 of the prospectus is hereby
deleted and replaced with the following:
Broker-dealers, at their own discretion, may offer a dividend
reinvestment program under which additional DIAMONDS are
purchased in the secondary market at current market prices.
Investors should consult their broker dealer for further
information regarding any dividend reinvestment program offered
by such broker dealer.
Distributions in cash that are reinvested in additional DIAMONDS
through of a dividend reinvestment service, if offered by an
investors broker-dealer, will nevertheless be taxable
dividends to the same extent as if such dividends had been
received in cash.
The footnote appearing on page 57 of the prospectus is
hereby deleted in its entirety.
The last paragraph after the title Distributions to
Beneficial Owners on page 62 of the prospectus is
hereby deleted in its entirety.
PLEASE
RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
Filed Pursuant to Rule 497(b)
Registration File No. 333-31247
SUPPLEMENTAL
INFORMATION MEMORANDUM
FOR THE NETHERLANDS
Units issued in respect of
DIAMONDS®
DIAMONDS TRUST, SERIES 1
(A Unit Investment Trust organised in the United States)
This supplemental information memorandum (Supplemental
Information Memorandum) dated March 2, 2009
incorporates the attached prospectus dated February 27,
2009 (Prospectus and, together with this
Supplemental Information Memorandum, Introduction
Memorandum(1))
issued by the DIAMONDS Trust, Series 1 (Trust).
Terms defined in the Prospectus shall have the same meaning when
used in this Supplemental Information Memorandum.
The Introduction Memorandum constitutes an offering in the
Netherlands only. The Introduction Memorandum does not
constitute an offer of, nor an invitation by or on behalf of the
Trust to purchase any DIAMONDS, and may not be used for or in
connection with any offer to, or solicitation by, anyone in any
other jurisdiction or in any circumstance in which such offer or
solicitation is not authorized by the Trust or is unlawful. No
action is being taken to permit an offering of DIAMONDS or the
distribution of the Introduction Memorandum in any jurisdiction
where such action is required.
DIAMONDS are listed on Euronext Amsterdam by NYSE Euronext
(Euronext Amsterdam), the regulated market of
Euronext Amsterdam N.V. This Supplemental Information Memorandum
contains additional information as required by the Dutch
Financial Supervision Act (Wet op het financieel
toezicht), as amended, and the rules promulgated thereunder
and the Netherlands Authority for the Financial Markets
(Stichting Autoriteit Financiële Markten) (the
AFM).
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(1)
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The Introduction Memorandum
constitutes a prospectus for the Dutch market as required by the
Dutch Financial Supervision Act (Wet op het Financieel
toezicht), as amended, and the rules promulgated
thereunder.
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DIAMONDS
BY
DIAMONDS TRUST,
SERIES 1
SUPPLEMENTAL
INFORMATION MEMORANDUM
FOR THE NETHERLANDS
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,
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.
S-2
DIAMONDS
TRUST, SERIES 1
The Trust is a unit investment trust organised in the United
States (US) that issues securities called
DIAMONDS, which represent an undivided ownership
interest in the portfolio of stocks held by the Trust. The
portfolio consists of all of the component common stocks which
comprise the Dow Jones Industrial Average (DJIA or
Index).
Only PDR Services LLC, the sponsor of the Trust
(Sponsor), accepts full responsibility for the
accuracy of information contained in the Introduction Memorandum
other than that given in the 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, there are no other
facts the omission of which would make any statement in the
Introduction Memorandum misleading.
The Trust is governed by the Standard Terms and Conditions of
Trust and Trust Indenture, as amended, between State Street
Bank and Trust Company, the trustee of the Trust
(Trustee), and the Sponsor dated as of
January 1, 1998 and effective as of January 13, 1998,
as amended. Terms defined in the Trust Agreement shall have
the same meaning when used in this Supplemental Information
Memorandum.
All orders to buy and sell DIAMONDS trading on Euronext
Amsterdam will be made in euro (). The primary trading
markets for the securities held by the Trust (Portfolio
Securities) and the securities in the DJIA are the New
York Stock Exchange LLC (NYSE) and the Nasdaq Stock
Market where the Portfolio Securities trade in US dollars. The
NYSE and the Nasdaq Stock Market are in New York, NY, US, in the
US Eastern Time Zone, and have regular trading hours between
9:30 a.m. and 4:00 p.m. Certain of the securities in
the DJIA (Index Securities) may trade in euro on
various European markets and in other currencies on other
national markets.
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 49 of the
Prospectus. Trading of DIAMONDS on Euronext Amsterdam may be
halted if the Trust fails to comply with certain requirements of
Euronext Amsterdam. Regular trading for DIAMONDS ends at
4:00 p.m. on NYSE Arca (New York Trading
Hours). Investors should be aware that Netherlands time is
generally six hours ahead of US Eastern Standard time. Trading
on Euronext Amsterdam currently occurs between the hours of
9:00 a.m. and 5:30 p.m. in the Netherlands. Therefore,
trading in DIAMONDS on Euronext Amsterdam will begin before US
markets open and end before regular trading concludes in the US.
Also, the securities markets in the Netherlands and the US will
be closed on certain national holidays in each country, so there
will be days when DIAMONDS can trade on Euronext Amsterdam but
not in the US, and vice versa.
S-3
On behalf of the Sponsor, NYSE Arca makes available every 15
seconds throughout the trading day at NYSE Arca a number
representing the intraday indicative value (IIV) for
a DIAMONDS unit. The IIV represents, on a per DIAMONDS unit
basis, the sum of an amount equal, on a per Creation Unit basis,
to the dividends on the securities held in the Trusts
portfolio (with ex-dividend dates within the accumulation
period), net of expenses and accrued liabilities for such
period, 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).(2)(
During trading hours on Euronext Amsterdam, Euronext N.V. will
calculate and publish throughout its trading day an intraday
figure in euro for a DIAMONDS unit called the indicative net
asset value
(INAV).(3)(
Because Euronext N.V. uses a different methodology and different
data to calculate the INAV than that used to calculate the IIV
published by NYSE Arca, the INAV and the IIV may not be the
same. Investors interested in creating or redeeming DIAMONDS or
purchasing or selling DIAMONDS in the secondary market should
not rely solely on the INAV or IIV in making investment
decisions but should also consider other market information and
relevant economic and other factors (including, without
limitation, information regarding the DJIA, the Index Securities
and financial instruments based on the DJIA).
The Trust issues and redeems DIAMONDS in the US and only in
multiples of 50,000 DIAMONDS in exchange for the specified
portfolio of DJIA stocks and cash. Individual DIAMONDS trade in
the secondary market on Euronext Amsterdam in round lots of 1
DIAMONDS unit. DIAMONDS listed on Euronext Amsterdam can only be
transferred through the book-entry settlement system of
Euroclear. No separate share certificates representing one or
more DIAMONDS unit will be issued. The Trust is independent of
all secondary market activities occurring on Euronext Amsterdam
and does not make a market in DIAMONDS either directly or
through an intermediary. Investors purchasing or selling
DIAMONDS on Euronext Amsterdam
((2) NYSE
Arca makes every effort to ensure the accuracy of the IIV.
However, it should be noted that the IIV is derived from
external sources. NYSE Arca accepts no explicit or implicit
liability for the accuracy, completeness or updating of the IIV,
or for the value thereof. The inability of NYSE Arca to provide
the IIV will not in itself result in a halt in the trading of
DIAMONDS on NYSE Arca.
((3) Euronext
N.V. makes every effort to ensure the accuracy of the INAV.
However, it should be noted that the INAV is derived from
external sources. Euronext N.V. accepts no explicit or implicit
liability for the accuracy, completeness or updating of the
INAV, or for the value thereof. The inability of Euronext N.V.
to provide the INAV will not itself result in a halt in the
trading of DIAMONDS on Euronext Amsterdam. The Sponsor is not
responsible for the calculation of the INAV and accepts no
explicit or implicit liability for the accuracy or completeness
of the INAV, or of the value thereof.
S-4
will do so at market prices and will pay ordinary commissions
and other usual charges for their trades in DIAMONDS to their
brokers.
The Trust is registered as a unit investment trust under the US
Investment Company Act of 1940, as amended, and DIAMONDS are
registered under the US Securities Act of 1933, as amended, with
the US Securities and Exchange Commission (SEC).
Regulatory oversight of the Trust is primarily the province of
the SEC.
The Trust and the Sponsor are subject to the Dutch Financial
Supervision Act (Wet op het financieel toezicht), as
amended. Pursuant to Article 2:65 of the Dutch Financial
Supervision Act, it is prohibited to offer in the Netherlands
interests in a collective investment scheme, such as the Trust,
if the management company of such collective investment scheme
(or, if the collective investment scheme does not have a
separate management company, the collective investment scheme
itself) does not have a license from the AFM, unless an
exception, exemption or individual dispensation applies. Under
the Dutch Financial Supervision Act, an exception applies to the
Sponsor in respect of the requirement to obtain a license from
the AFM to act as the management company of a collective
investment scheme for so long as the United States is considered
by the Dutch Minister of Finance (Minister van
Financiën) to have adequate supervision of
collective investment schemes. By Ministerial Decree of
January 1, 2007, as amended, in respect of the
accreditation of states as referred to in Article 2:66 of
the Dutch Financial Supervision Act, the United States was
accredited by the Dutch Minister of Finance to have such
adequate supervision, in respect of collective investment
schemes authorized by and subject to supervision of the SEC. The
Trust and the Sponsor will remain subject to certain ongoing
requirements under the Dutch Financial Supervision Act relating
to the disclosure of certain information to investors, including
the publication of financial statements. The Trust is registered
with the AFM pursuant to Article 1:107 of the Dutch
Financial Supervision Act.
The Sponsor, as legal representative of the Trust, may
discontinue the listing of DIAMONDS on Euronext Amsterdam and
request the AFM to terminate the registration in the Netherlands
if the Sponsor determines that to do so is in the best interest
of the Trust and the investors, which determination the Sponsor
will make in its sole discretion. In that event, delisting of
DIAMONDS in the Netherlands will take effect as of the close of
business on the fifth (5th) business day after public notice by
Euronext Amsterdam N.V. of having received an application for
discontinuation of the listing of DIAMONDS, provided DIAMONDS
are listed on another stock exchange on the day of delisting on
Euronext Amsterdam. The AFM will terminate the Trusts
registration as soon as practicable following the delisting of
DIAMONDS on Euronext Amsterdam. The decision to delist from
Euronext Amsterdam and the request to the AFM to terminate the
registration will be announced by means of a press release and
through a notice in a daily newspaper of wide circulation in the
Netherlands, the Euronext Amsterdam Daily Official List
(Officiële Prijscourant)
S-5
and on SNS Securities N.V.s website at
www.snssecurities.nl/diamonds. After the DIAMONDS are delisted
from Euronext Amsterdam, investors may be able to trade DIAMONDS
on other markets. Higher brokerage fees may apply for trades of
DIAMONDS on other markets.
If the Trust were to terminate in accordance with the terms of
the Trust Agreement, investors would be notified at least
20 days prior to such termination, as described in the
Prospectus. In the case of termination of the Trust, DIAMONDS
shall similarly be delisted and the registration of the Trust in
the Netherlands shall be terminated.
Any change in the investment policy of the Trust, and any change
in the conditions of the Trust, whereby any right or security of
the investors is to be reduced or any burden is to be imposed on
them, can only enter into force three months after notice of
such change has been given in a daily newspaper of wide
circulation in the Netherlands and on SNS Securities N.V.s
website at www.snssecurities.nl/diamonds together with a brief
description of such change and within this period investors are
allowed to redeem their DIAMONDS under the usual conditions, as
described in the Prospectus. Notice of a proposal to make any
such change will also be published in a daily newspaper of wide
circulation in the Netherlands and on SNS Securities N.V.s
website at www.snssecurities.nl/diamonds, together with a brief
description of such change.
In the event a meeting of the holders of DIAMONDS is convened,
notice of such meeting will be published in a daily newspaper of
wide circulation in the Netherlands, the Euronext Amsterdam
Daily Official List and on SNS Securities N.V.s website at
www.snssecurities.nl/diamonds no later than on the fifteenth
(15th)
day prior to the day of the meeting. The notice will contain the
agenda and the contents of all documents cognizance of which is
of importance to the holders of DIAMONDS trading on Euronext
Amsterdam for the purposes of the agenda or an indication of
that and where these documents may be obtained in the
Netherlands free of charge.
A copy of the semi-annual reports of the Trust will be published
within nine (9) weeks following the end of the first half
(1/2) of the Trusts fiscal year, and a copy of the
Trusts annual report will be published within four
(4) months following the end of the Trusts fiscal
year. All such reports can be obtained free of charge at the
offices of SNS Securities N.V. and on SNS Securities N.V.s
website at www.snssecurities.nl/diamonds. Announcement of the
availability of the semi-annual and annual reports will be made
through a notice in a daily newspaper of wide circulation in the
Netherlands and the Euronext Amsterdam Daily Official List.
Dividends on DIAMONDS trading on Euronext Amsterdam will be paid
by the Trust in immediately available funds in US dollars.
Any dividends or other distributions on DIAMONDS will be
announced on SNS Securities N.V.s website at
www.snssecurities.nl/diamonds. In those circumstances where the
actual dividend amount is not available in time to allow for
publication on the Ex-Dividend Date, on the Ex-Dividend Date,
the Euronext Amsterdam Daily
S-6
Official List will include the dividend amount estimated as of
the day before the Ex-Dividend Date and the notice in the daily
newspaper of wide circulation will specify that the actual
dividend amount will be available from SNS Securities
N.V.s website at www.snssecurities.nl/diamonds prior to
the opening of trading on Euronext Amsterdam.
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 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 review the Introduction
Memorandum in its entirety and carefully consider the risk
factors set out under the heading RISK FACTORS on
pages 11 to 14 of the Prospectus, and to refer to the sections
of this Supplemental Information Memorandum entitled
United States Taxation and Netherlands
Taxation for a discussion of the tax consequences of an
investment by Dutch investors in DIAMONDS.
A Financial Information Leaflet (financiële bijsluiter)
is available with information about the Trust including the
costs and risks associated with an investment in DIAMONDS.
Investors are advised to obtain this leaflet from the website of
SNS Securities N.V. at www.snssecurities.nl/diamonds and read it
carefully before buying DIAMONDS.
ENQUIRIES
All enquiries about the Trust should be directed to DIAMONDS
Trust, Series 1,
c/o SNS
Securities N.V., Nieuwezijds Voorburgwal 162, 1012 SJ Amsterdam,
the Netherlands, telephone 020 550 8509, telefax 020 427 3486.
The 2006, 2007 and 2008 annual reports of the Trust are
incorporated by reference. Copies of these reports, the letter
from the AFM confirming the registration with the AFM pursuant
to Article 1:107 of the Dutch Financial Supervision Act
(Wet op het financieel toezicht), the Introduction
Memorandum, Trust Agreement, latest
report(4)(
and Financial Information Leaflet can be obtained free of charge
at the offices of SNS Securities N.V. or on SNS Securities
N.V.s website at www.snssecurities.nl/diamonds.
Additional information regarding DIAMONDS, including semi-annual
reports may be obtained free of charge on SNS Securities
N.V.s website at www.snssecurities.nl/diamonds and at
www.spdrs.com.
((4) This
report, published on a daily basis, contains the information
required by Article 50(2) of the Netherlands Decree on
Market Conduct Supervision of Financial Undertakings (Besluit
Gedragstoezicht financiële ondernemingen Wft),
including the composition and total value of the investments
of the Trust, the number of outstanding DIAMONDS and the net
asset value per DIAMONDS unit.
S-7
UNITED
STATES TAXATION
GENERAL
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 the 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.
US INCOME TAX
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 income tax treaty.
However, for Trust tax years beginning on or before
December 31, 2009, interest-related dividends (i.e.,
dividends derived from certain types of interest-related income)
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 US withholding tax; provided that a Foreign Beneficial Owner
furnishes the Trust with a completed
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
S-8
Beneficial Owner were to receive the related amounts directly
rather than as dividends from the Trust.
Under certain circumstances, the thirty percent (30%)
withholding tax rate may be reduced pursuant to an income tax
treaty. Pursuant to the
US-Netherlands
Income Tax Treaty, a qualified resident of the Netherlands (as
determined under rules promulgated under the
US-Netherlands
Income Tax Treaty) will be subject to US withholding tax at
a reduced rate of fifteen percent (15%) with respect to ordinary
income dividends from the Trust; provided that the qualified
Netherlands resident certifies entitlement to the benefits of
the
US-Netherlands
Income Tax Treaty on a
Form W-8BEN.
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 or proceeds from a
sale or redemption of DIAMONDS will be exempt from US federal
income tax (including withholding at the source).
Backup
Withholding
The Trust may be required to withhold federal income tax (known
as backup withholding) at a twenty-eight percent
(28%) rate from dividends (other than dividends subject to the
thirty-percent withholding tax described above) and redemption
proceeds payable to a non-corporate Foreign Beneficial Owner if
the non-corporate Foreign Beneficial Owner fails to provide the
Trust with a completed exemption certificate
(Form W-8BEN).
Backup withholding is not an additional tax and any amount
withheld may be credited against a Foreign Beneficial
Owners US federal income tax liability or may be
refunded. To claim a credit or refund for any taxes collected
through
back-up
withholding or any Trust-level taxes on any undistributed
long-term capital gains, 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.
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.
S-9
US ESTATE TAX
The estate of an individual non-resident holder of DIAMONDS may
be subject to US estate tax on the value of such DIAMONDS,
which are considered US situs property for such purposes. An
estate tax credit is currently available for the estates of
non-residents, the effect of which is to exempt up to $60,000 of
US situs property. US estate tax is imposed at graduated
rates, the highest of which is currently forty-five percent
(45%). If the non-resident holder is a domiciliary of a country
with which the US maintains an estate tax treaty, DIAMONDS may
be exempt from US estate tax. The
US-Netherlands
Estate Tax Treaty generally exempts DIAMONDS from US estate
tax if the decedent was a domiciliary of the Netherlands.
The estate of a non-resident holder of DIAMONDS that is subject
to US estate tax must generally file an IRS
Form 706-NA
(United States Estate and Generation-Skipping Transfer Tax
ReturnEstate of non-resident not a citizen of the
US) within nine months of the non-resident holders
date of death. Subject to certain exceptions, if the estate
takes a tax return position that any estate tax treaty of the
US overrules or modifies any provision of the Code and
thereby effects (or potentially effects) a reduction of estate
tax, the estate must disclose such position on a statement
attached to such return in the form required by US Treasury
regulations. The requirement of attaching a statement to the
estate tax return is generally satisfied by attaching an IRS
Form 8833 (Treaty-Based Return Position Disclosure
under Section 6114 or 7701(b)) to such return. If a
tax return would not otherwise be required to be filed, a tax
return must nevertheless be filed for purposes of making the
required disclosures discussed above.
The US estate tax is a lien against a non-resident
decedents assets for ten years unless the tax is paid in
full or otherwise provided for in accordance with US Treasury
regulations. Upon payment in full (or provision for such
payment) of the US estate tax liability, a transfer certificate
will be issued permitting the non-resident decedents
assets to be transferred without liability.
The tax
discussion set forth above is included for general information
only. Prospective investors should consult their own tax
advisors concerning the US and foreign tax consequences to them
of an investment in DIAMONDS.
S-10
NETHERLANDS
TAXATION
GENERAL
The following summary describes the principal Netherlands tax
consequences of the acquisition, holding, redemption and
disposal of DIAMONDS. This section solely addresses the
situation of investors resident or deemed resident of the
Netherlands (including the individual investor who has opted to
be taxed as a resident of the Netherlands). This section does
not purport to be a comprehensive description of all Netherlands
tax considerations that may be relevant to a decision to
acquire, hold or dispose of DIAMONDS. Each investor should
consult his or her own professional tax advisor with respect to
the tax consequences of an investment in DIAMONDS. The
discussion of the principal Netherlands tax consequences of the
acquisition, holding, redemption and disposal of DIAMONDS set
forth below is included for general information only.
This summary is based on the Netherlands tax legislation,
published case law, treaties, rules, regulations and similar
documentation in force as at the date hereof without prejudice
to any amendments introduced at a later date and implemented
with or without retroactive effect.
For the purpose of the principal Netherlands tax consequences
described herein, it is assumed that:
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(i) |
neither the Trust is, nor one or more companies whose shares are
included in the Index are, a resident or deemed to be a resident
of the Netherlands for Netherlands tax purposes;
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(ii)
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no individual holder of DIAMONDS (Individual
Holder), alone, or together with his or her partner
(statutorily defined term) or certain other related persons,
directly or indirectly, holds (a) an interest of
5 percent (5%) or more of the total issued capital of the
Trust or a company whose shares are included in the DJIA or of
5 percent (5%) or more of the issued capital of a certain
class of DIAMONDS or a certain class of shares of a company
whose shares are included in the DJIA, (b) rights to
acquire, directly or indirectly, such interest or
(c) certain profit sharing rights in the Trust or certain
profit sharing rights in a company whose shares are included in
the Index; no such interest as mentioned under (a), (b) or
(c) has been disposed of, or is deemed to have been
disposed of, on a non-recognition basis;
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(iii)
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no Individual Holders DIAMONDS or benefits derived
therefrom are in anyway connected to his past, present or future
employment, if any; and
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(iv) |
no corporate body holder of DIAMONDS (Corporate
Holder), is eligible to the participation exemption (as
set out in the Dutch Corporate Income Tax Act 1969).
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S-11
DIVIDEND
WITHHOLDING TAX
Distributions from the Trust are not subject to Netherlands
dividend withholding tax.
CORPORATE
INCOME TAX AND INDIVIDUAL INCOME TAX
Corporate
Holders
If a Corporate Holder is subject to Netherlands corporate income
tax and the DIAMONDS are attributable to its (deemed) business
assets, distributions on the DIAMONDS and the gains realised
upon the disposal, transfer or alientation of the DIAMONDS are
generally taxable in the Netherlands.
Special rules apply to Corporate Holders that are Netherlands
qualifying pension funds, Netherlands investment institutions
(as defined in Article 28 of the Corporate Income Tax Act
1969) and other entities that are exempt from Netherlands
corporate income tax.
In general, the US dividend withholding tax which is withheld
with respect to distributions made by the Trust will be
creditable for Netherlands corporate income tax purposes in the
hands of the beneficial owner of the DIAMONDS.
Individual
Holders
Distributions derived from the Trust and actual gains realised
upon the disposal, transfer or alienation of DIAMONDS by an
Individual Holder are subject to individual income tax at the
progressive rates, the maximum being 52 percent (52%), if:
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(i)
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the Individual Holder has an enterprise or an interest in an
enterprise, to which enterprise or part thereof, as the case may
be, DIAMONDS are attributable; or
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(ii)
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such income or gains qualify as income from miscellaneous
activities (resultaat uit overige werkzaamheden) within
the meaning of Section 3.4 of the Income Tax Act 2001,
which include activities with respect to DIAMONDS that exceed
regular, active portfolio management (normaal,
actief vermogensbeheer).
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If neither condition (i) nor condition (ii) applies to
the Individual Holder, the actual distributions derived from
DIAMONDS and the actual gains realised upon the disposal,
transfer or alienation of DIAMONDS will not be taxable as such.
Instead, such Individual Holder will be taxed at a flat rate of
30 percent (30%) on deemed income from savings and
investments (sparen en beleggen) within the meaning
of Section 5.1 of the Income Tax Act 2001. This deemed
income amounts to 4 percent (4%) of the average of the
individuals yield basis
(rendementsgrondslag) within the meaning of
Article 5.3 of the Income Tax Act 2001 at the beginning of
the calendar year and the individuals yield basis at the
end of the calendar year, insofar as the average exceeds a
certain threshold. The fair market value of DIAMONDS on
1 January and 31 December of each year will be
included in the individuals yield basis. The fair market
value on 31 December is determined by reference to the
closing market price on Euronext Amsterdam on 31 December
and this closing
S-12
market price will also be used as the reference value for
1 January of the subsequent year.
In general, the US dividend withholding tax which is withheld
with respect to distributions made by the Trust will be
creditable for Netherlands individual income tax purposes in the
hands of the beneficial owner of the DIAMONDS.
GIFT AND
INHERITANCE TAXES
Generally, gift and inheritance taxes will be due in the
Netherlands in connection with the acquisition of DIAMONDS by
way of gift by, or on the death of, a holder of DIAMONDS who is
a resident or deemed to be a resident of the Netherlands at the
time of the gift or of his or her death.
An individual of the Netherlands nationality is deemed to be a
resident of the Netherlands for the purpose of the Netherlands
gift and inheritance tax if he or she has been a resident of the
Netherlands during the ten years preceding the gift or of his or
her death. An individual of any other nationality is deemed to
be a resident of the Netherlands for the purpose of the
Netherlands gift tax only if he or she has been residing in the
Netherlands at any time during the twelve months preceding the
time of the gift. Applicable tax treaties may override deemed
residency.
VALUE ADDED
TAX (VAT)
No Netherlands VAT should arise in respect of the issuance,
transfer or redemption of DIAMONDS or with regard to
distributions on DIAMONDS.
OTHER TAXES
AND DUTIES
No capital tax, net wealth tax, registration tax, customs duty,
transfer tax, stamp duty or any other similar documentary tax or
duty will be due in the Netherlands by an Individual Holder or a
Corporate Holder in respect of or in connection with the
subscription, issue, placement, allotment or delivery of
DIAMONDS.
S-13
GENERAL
AND STATUTORY INFORMATION
CURRENCY
All valuations set forth in the Introduction Memorandum,
semi-annual and annual reports and other communications or
materials provided by the Trust or the Sponsor shall be stated
in US Dollars ($).
PAYING AGENT
The Trust has appointed SNS Securities N.V. as the Netherlands
paying agent with respect to the offering of DIAMONDS in the
Netherlands.
LISTING
DIAMONDS are listed on Euronext Amsterdam. SNS Securities N.V.
is acting as the listing agent for DIAMONDS for the listing on
Euronext Amsterdam.
CLEARING AND
SETTLEMENT
DIAMONDS have been accepted for settlement through the systems
of Euroclear.
ISIN code: US2527871063
NOTICES
Any notice regarding DIAMONDS shall be validly given if
published in the Euronext Amsterdam Daily Official List and in
at least one daily newspaper of wide circulation in the
Netherlands. Any such notice shall be deemed to have been given
on the date of publication or, if published more than once, on
the date of the first publication.
SNS Securities N.V. will make available free of charge to
investors in the Netherlands investor communications from the
Trust, including semi-annual and annual reports, prospectuses
and communications and materials relating to investor meetings.
COMPLAINTS
Complaints about the Trust or the Sponsor should be sent in
writing to Lisa M. Dallmer, PDR Services LLC, c/o NYSE
Euronext, 11 Wall Street, New York, NY 10005,
telephone +1-800-843-2639.
S-14
TOTAL
EXPENSE RATIO OF THE TRUST SINCE INCEPTION
This chart shows the total expense ratio of the Trust (after
rebates, Trustees earning credits and waivers) for the
fiscal years 1999-2008.
Total
Expense Ratio of the Trust
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For Fiscal
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For Fiscal
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For Fiscal
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For Fiscal
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For Fiscal
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For Fiscal
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For Fiscal
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For Fiscal
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For Fiscal
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For Fiscal
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Year
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Year
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Year
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Year
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Year
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Year
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Year
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Year
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Year
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Year
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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10/31/2008
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10/31/2007
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10/31/2006
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10/31/2005
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10/31/2004
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10/31/2003
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10/31/2002
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10/31/2001
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10/31/2000
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10/31/1999
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0.17
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%
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0.14
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%
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0.17
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%
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0.17
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%
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0.18
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%
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0.18
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%
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0.18
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%
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0.17
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%
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0.17
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%
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0.18
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%
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The total expense ratio is post-calculated at least once a year
by dividing the total costs by the average intrinsic value of
the DIAMONDS Trust.
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Ordinary operating expenses do not include taxes, brokerage
commissions and any extraordinary non-recurring expenses,
including the cost of any litigation to which the DIAMONDS Trust
or the Trustee may be a party.
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STOCK
MOVEMENT INFORMATION CHART:
DAILY CLOSING PRICE OF A DIAMONDS UNIT VS.
DAILY CLOSING INDEX LEVEL OF THE DJIA VS.
DAILY NAV OF A DIAMONDS UNIT
FOR THE PREVIOUS CALENDAR YEAR
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Sources:
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The daily NAV and daily closing
price of the Trust were provided by the NYSE Arca and the daily
closing index level for the DJIA was provided by Bloomberg.
Although information contained in the Stock Movement Information
Chart above has been obtained from sources deemed to be
reliable, all information is provided as is without
warranty of any kind. Because of the possibility of human and
mechanical errors, as well as other factors, the Sponsor is not
responsible for any errors or omissions in the information
contained in the Stock Movement Information Chart above.
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S-15
PORTFOLIO
TURNOVER RATE
DIAMONDS portfolio turnover rate is 22.13% for the fiscal year
ended October 31, 2008. Pursuant to Article 3:25(2) of
the Further Regulations on Market Conduct Supervision of
Financial Undertakings (Nadere Regeling gedragstoezicht
financiële ondernemingen Wft) this portfolio turnover
rate is calculated by dividing the total of security
transactions (security purchases + security sales = total
1) less the total transactions (issue + purchase = total
2) in units by the average intrinsic value of the
investment institution (X) according to the formula:
[(total 1 - total 2)/X]* 100.
Pursuant to the formula promulgated under the
U.S. Investment Company Act of 1940, as amended, DIAMONDS
portfolio turnover rate is 11.27% for the fiscal year ended
October 31, 2008. This portfolio turnover rate is
calculated by dividing the lesser of purchases or sales by the
monthly average value of the portfolio * 100.
LEGAL
PROCEEDINGS
As of the date of this Supplemental Information Memorandum, the
Trust is not involved in any legal proceedings which might have
an impact on the Trusts future financial situation.
MATERIAL
CHANGES
There are no material changes since the last full financial year.
STATEMENT IN ACCORDANCE WITH ARTICLE 4:49(2)(b) DUTCH
FINANCIAL SUPERVISION ACT
The Sponsor believes that it and the Trust comply with the
applicable requirements of the Dutch Financial Supervision Act
(Wet op het financieel toezicht) and the rules
promulgated thereunder and that the Introduction Memorandum
complies with the applicable provisions of the Dutch Financial
Supervision Act and the rules promulgated thereunder.
S-16
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To: |
Mr G. French, Senior Vice President State Street Bank,
Trustee for DIAMONDS Trust, Series 1 and
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Mrs L. Dallmer, President PDR Services LLC,
Sponsor of DIAMONDS Trust, Series 1
Assurance
report
Engagement
and responsibilities
We have performed an assurance engagement in respect of the
contents of the prospectus and supplemental information
memorandum for the Netherlands of DIAMONDS Trust, Series 1.
Our engagement was aimed at establishing whether the prospectus
dated 27 February 2009 of DIAMONDS Trust, Series 1 (the
Prospectus) together with the supplemental
information memorandum for the Netherlands of DIAMONDS Trust,
Series 1, dated 2 March 2009 (the Supplemental
Information Memorandum) at least contains the information
which is required to be included therein pursuant to
section 4:49, subsections 2a through 2e, of the Dutch
Financial Supervision Act. This assurance engagement is aimed at
obtaining a reasonable level of assurance pursuant to
section 4:49, subsections 2b through 2e. Unless
specifically stated to the contrary in the Prospectus and the
Supplemental Information Memorandum, the information contained
in the Prospectus and the Supplemental Information Memorandum is
unaudited.
The respective responsibilities are as follows:
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The Sponsor of the Trust is responsible for preparing the
Prospectus and the Supplemental Information Memorandum, which at
least should contain the data required to be included therein
under the Dutch Financial Supervision Act.
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Our responsibility is to issue a conclusion as referred to in
section 4:49, subsection 2c, of the Dutch Financial
Supervision Act.
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Scope
We conducted our examination in accordance with Dutch law,
including Standard 3000 Assurance engagements other than
engagements of audit or review of historical financial
information. Based thereon, we have performed the
procedures that we deemed necessary under the circumstances to
draw a conclusion.
We have examined whether the Prospectus contains the data
required to be included therein under section 4:49,
subsections 2a through 2e, of the Dutch Financial Supervision
Act.
The law does not require the auditor to perform additional
procedures with respect to section 4:49,
subsection 2a. We believe that the assurance evidence we
have obtained is sufficient and appropriate to provide a basis
for our conclusion.
Conclusion
Based on our procedures performed and the description included
in the section Engagement and
responsibilities, we conclude that the Prospectus
together with the Supplemental Information Memorandum at least
contains the data required to be included therein under
section 4:49, subsections 2a through 2e, of the Dutch
Financial Supervision Act.
With respect to section 4:49, subsection 2a of the Dutch
Financial Supervision Act we report to the extent of our
knowledge that the Prospectus together with the Supplemental
Information Memorandum contains the information required to be
included therein.
Rotterdam,
2 March 2009
PricewaterhouseCoopers
Accountants N.V.
drs. S.
Barendregt-Roojers RA
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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29
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30
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30
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32
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33
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33
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34
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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
|
%
|
|
|
|
(1)
|
|
Currently, the Bid/Ask Price is
calculated based on the best bid and best offer on NYSE Arca at
4:00 p.m. From November 6, 2008 to April 3,
2001, the Bid/Ask Price was calculated based on the best bid and
the best offer on NYSE Alternext US (formerly the American Stock
Exchange) at 4 pm. However, prior to April 3, 2001,
the calculation of the Bid/Ask Price was based on the midpoint
of the best bid and best offer at the close of trading on the
American Stock Exchange, ordinarily 4:15 p.m.
|
|
(2)
|
|
Includes all applicable ordinary
operating expenses set forth in Expenses of the
Trust.
|
|
(3)
|
|
Does not include the Transaction
Fee which is payable to the Trustee only by persons purchasing
and redeeming Creation Units as discussed above 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.
|
|
(4)
|
|
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.
|
|
|
|
* |
|
Source: NYSE Euronext and State Street Bank & Trust Company |
75