DIAMONDS TRUST, SERIES 1
AND
ANY SUBSEQUENT AND SIMILAR SERIES OF
THE DIAMONDS TRUST
STANDARD TERMS AND CONDITIONS OF TRUST
for all or similar Series formed on
or subsequent to the effective date specified below
Effective January 13, 1998
These Standard Terms and Conditions of Trust dated as of January 1,
1998 and effective January 13, 1998 are executed between PDR Services
Corporation, as Sponsor, and State Street Bank and Trust Company, as Trustee.
WITNESSETH THAT:
WHEREAS, the Sponsor desires to establish one or more unit investment
trusts pursuant to the provisions of the Investment Company Act of 1940 and the
laws of the State of New York and each such trust may issue a Series (as
hereinafter defined) of redeemable securities, each series representing
undivided interests in a Trust or Trust Fund (as hereinafter defined) that will
be composed primarily of Securities (as hereinafter defined) included from time
to time in the DJIA (as hereinafter defined);
WHEREAS, the Sponsor desires to provide for the adjustment by the
Trustee of the Securities of each Trust to reflect the DJIA, the collection by
the Trustee of the dividends and other income of and capital gains on such
Securities held in the Trust for each Series, and the distribution by the
Trustee of such dividends and other income of and capital gains on such
Securities to the Depository (as hereinafter defined) for distribution to
Beneficial Owners as provided herein, and to provide for other terms and
conditions upon which such Trusts shall be established and administered as
hereinafter provided; and
WHEREAS, in order to facilitate the creation of various series of unit
investment trusts as aforesaid, the terms and conditions of establishment and
administration of which will be in many respects substantially similar, it is
desirable to set forth standard terms and conditions of trust upon which such
Trusts will be established and administered, subject to the terms and provisions
of this Agreement (as hereinafter defined) and the terms and conditions of an
Indenture (as hereinafter defined) into which this Agreement will be, as to each
Series, incorporated;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the Sponsor and the Trustee hereby agree as
follows:
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INTRODUCTION
These Standard Terms and Conditions of Trust effective as of the day
and year first above written shall be applicable to DIAMONDS Trust, Series 1 (a
unit investment trust) and to all Series of DIAMONDS Trust formed on or
subsequent to the date hereof for which their applicability and their
incorporation by reference is specified in the applicable Indenture relating to
such Series. For each Series of DIAMONDS Trust to which these Standard Terms
and Conditions of Trust are to be applicable, the Sponsor and the Trustee shall
execute an Indenture (or supplement or amendment to such Indenture)
incorporating by reference these Standard Terms and Conditions of Trust and
designating any exclusion from or exception to such incorporation by reference
for the purposes of that Series or variation of the terms hereof for the
purposes of that Series and specifying for that Series (i) the Initial Portfolio
Deposit to be deposited in trust pursuant to Section 2.02 and the number of
Creation Unit size aggregations of DIAMONDS to be delivered by the Trustee in
exchange for the Initial Portfolio Deposit so deposited, (ii) the initial
undivided interest represented by each Creation Unit size aggregations of
DIAMONDS, (iii) the number of DIAMONDS which, when aggregated, constitute one
Creation Unit, (iv) the Mandatory Termination Date, and the date on which the
Trustee will begin to distribute or sell Securities pursuant to Section 9.01,
(v) the Initial Date of Deposit and the Series name of the Trust, (vi) the
fiscal year of the Trust and (vii) any other terms specific to any Series of the
DIAMONDS Trust.
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ARTICLE I
Definitions
-----------
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
Accumulation Period
-------------------
Shall mean any period during which Securities held by the Trust earn
their respective dividends, each such period being measured from one ex-dividend
Date to but not including the next succeeding Ex-Dividend Date.
Adjustment Amount
-----------------
Shall have the meaning assigned to such term in Section 3.04.
Adjustment Day
--------------
The day(s) specified in Section 2.04.
Agreement
---------
The Standard Terms and Conditions of Trust embodied in this instrument
and all amendments and supplements hereto.
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Authorized Officer
------------------
Shall mean the President, any Vice President, any Secretary and any
other person or category of persons named in the resolution(s) authorizing the
Sponsor to establish the Trust or authorizing the Trustee to act as such.
Balancing Amount
----------------
Shall have the meaning assigned to such term in Section 2.04(i).
Beneficial Owner
----------------
Shall have the meaning assigned to such term in Section 3.11.
Business Day
------------
Any day that the New York Stock Exchange is open for business.
Cash Component
--------------
Shall have the meaning assigned to such term in Section 2.03(c).
Cash Redemption Payment
-----------------------
Shall have the meaning assigned to such term in Section 5.02.
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CNS System
----------
The continuous net settlement system of NSCC.
CPI-U
-----
The National Consumer Price Index for All Urban Consumers, as
published by the United States Department for Labor, or any successor index.
Creation Unit
-------------
The minimum number of DIAMONDS that may be created at any one time as
described below in Section 2.03 is 50,000, unless otherwise provided in the
Indenture or the Registration Statement.
Depositor
---------
Each person or organization having a Participant Agreement with the
Trustee and that may from time to time deposit Portfolio Deposits with the
Trustee, including, without limitation, the Depositor making the Initial
Portfolio Deposit(s) on the Initial Date of Deposit.
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Depository
----------
The Depository Trust Company, New York, New York, or such other
depository as may be selected by the Trustee as specified herein.
Depository Agreement
--------------------
The agreement or Letter of Representation among the Trustee, the
Sponsor and the Depository, dated as of January 13, 1998, as the same may be
from time to time amended in accordance with its terms.
DIAMONDS
--------
Shall mean the DIAMONDS Units, which constitute, in 50,000 DIAMONDS
Unit aggregations, a Creation Unit, unless (1) a different aggregate number of
DIAMONDS Units necessary to constitute a Creation Unit is set forth in the
Indenture for a particular Series or (2) a different aggregate number for an
existing series is effectuated by means of an amendment to the Indenture and
current Prospectus for such series.
DIAMONDS Clearing Process
-------------------------
The CNS system of NSCC, as such processes have been enhanced to effect
creations and redemptions of Creation Unit size aggregations of DIAMONDS.
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DIAMONDS Unit
-------------
Each unit of fractional undivided interest in and ownership of the
Trust Fund, which shall be initially equal to the fraction specified in the
Indenture, the denominator of which shall be decreased by the number of any
DIAMONDS Units redeemed as provided in Section 5.02 and shall be increased by
the number of any DIAMONDS Units created and issued pursuant to Section 2.02.
Distributor
-----------
ALPS Mutual Funds Services, Inc., any successor corporation thereto
and any other corporation appointed by the Sponsor and the Trustee to act as the
Distributor hereunder, provided that such corporation is identified as the
Distributor in the current version of the Trust Prospectus.
Discretionary Termination Amount
--------------------------------
The amount specified in Section 9.01.
Dividend Equivalent Payment
---------------------------
The cash payment required to accompany a deposit of Securities into
the Trust as specified in Section 2.03(b).
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Dividend Payment Date
---------------------
The date(s) specified in Section 3.04.
DJIA
----
Dow Xxxxx Industrial Average.
XXX XXXXX
---------
Dow Xxxxx & Company, Inc.
DTC Participant
---------------
Shall have the meaning assigned to such term in Section 3.11.
Evaluation Time
---------------
Closing time at the New York Stock Exchange, Inc. of the regular
trading session (currently 4:00 p.m. New York time) unless another meaning is
assigned to such term in the Indenture, or is otherwise provided for in the
Registration Statement.
Ex-Dividend Date
----------------
The date(s) specified in Section 3.04.
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Exchange
--------
The American Stock Exchange, Inc.
Global Security
---------------
The global certificate issued to the Depository as provided in the
Depository Agreement, substantially in the form attached hereto as Exhibit B.
Income
------
Any income or cash or other dividend distribution by an issuer of a
Security, whether or not such payment or distribution is taxable to the
recipient thereof.
Indenture
---------
The indenture into which this Agreement will be, as to each Series,
incorporated and all amendments and supplemental indentures thereto.
Index Securities
----------------
The securities that constitute the DJIA.
Indirect Participant
--------------------
Shall have the meaning assigned to such term in
Section 3.11.
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Initial Date of Deposit
-----------------------
The date so designated in the Indenture.
Initial Portfolio Deposit
-------------------------
The Portfolio Deposit(s) as in effect on the Initial Date of Deposit.
Internal Revenue Code
---------------------
The Internal Revenue Code of 1986, as amended, or any successor
provisions.
License Agreement
-----------------
The Agreement dated June 5, 1997 among Dow Xxxxx, the Exchange and
the Sponsor under which the Sponsor has been granted the license to use certain
trademarks and service marks of Dow Xxxxx.
Mandatory Termination Date
--------------------------
The date specified in the Indenture.
NAV Amount
----------
The amount specified in Section 2.04.
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NSCC
----
The National Securities Clearing Corporation.
Participant Agreement
---------------------
An Agreement among the Distributor, the Trustee and either (1) a
Participating Party or (2) a DTC Participant, substantially in the form set
forth in Exhibit A hereto, as the same may be from time to time amended in
accordance with its terms.
Participating Party
-------------------
A participant in the DIAMONDS Clearing Process.
Portfolio
---------
The Securities held by the Trust consisting of a portfolio of common
stocks or, in the case of securities not yet delivered on the Initial Date of
Deposit (or, subsequently, securities not yet delivered in connection with
purchases made by the Trust or subsequent Portfolio Deposits), confirmations of
contracts to purchase such securities.
Portfolio Deposit
-----------------
Shall have the meaning assigned to such term in Section 2.03(c).
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Portfolio Deposit Amount
------------------------
Shall have the meaning assigned to such term in Section 2.04(i).
Prospectus
----------
The prospectus relating to a particular Trust filed with the
Securities and Exchange Commission pursuant to Rule 424 of the Securities Act of
1933, as amended.
Record Date
-----------
The date(s) specified in Section 3.04.
Redemption Date
---------------
Shall have the meaning assigned to such term in Section 5.02.
Regulated Investment Company
----------------------------
A trust which qualifies as a "regulated investment company" under the
current provisions of the Internal Revenue Code of 1986, as amended or successor
provisions.
Request Day
-----------
Shall have the meaning assigned to such term in Section 2.04(h)
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Securities
----------
Publicly traded common stocks and other securities convertible into or
representing common stock of issuers, including contracts to purchase
securities, (a) that are listed or referred to as securities in Schedule A to
the Indenture, (b) that have been received by the Trust in subsequent Portfolio
Deposits pursuant to Section 2.02, (c) that have been acquired by the Trust as a
result of the reinvestment of proceeds from any sale of securities or as a
result of purchases and sales of securities to conform the Portfolio to the DJIA
all pursuant to Section 2.04, (d) that have been received by the Trust as a
distribution or dividend in respect of any of the securities held by the Trust,
or (e) that have been received by the Trust in exchange or substitution pursuant
to Section 3.07, each as may from time to time continue to be held as a part of
the Trust, unless another meaning is assigned to such term in the Indenture.
Series
------
Any series of or series similar to the Trusts.
Sponsor
-------
PDR Services Corporation, or any corporation into which it may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which it shall be a party, or any corporation
succeeding to all or substantially all of its business as sponsor of unit
investment trusts, or any successor Sponsor designated as such by operation of
law or any successor Sponsor appointed as herein provided.
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Sponsor Indemnified Party
-------------------------
Shall have the meaning assigned to such term in Section 7.04.
Transaction Fee
---------------
Shall have the meaning assigned to such term in Section 2.03(i).
Trust or Trust Fund
-------------------
Shall mean the individual trust fund created by a particular Indenture
which shall consist of the Portfolio and all undistributed income or other
amounts received or receivable thereon and any undistributed cash held or
realized from the sale or liquidation of the Securities, or from the deposit of
Portfolio Deposits.
Trust Fund Evaluation
---------------------
Shall have the meaning assigned to such term in Section 5.01.
Trustee
-------
(a) State Street Bank and Trust Company or its successor or (b) any
successor Trustee designated by operation of law or appointed as herein provided
or (c) any other bank, trust company, corporation or national banking
association designated as Trustee in the Indenture for the applicable Trust
Series which bank, trust company, corporation or national banking association
shall be a party to such Indenture and whose execution thereof shall subject
such bank, trust company, corporation or national banking association to all
rights, duties and
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liabilities hereunder and thereunder, in each case acting as Trustee and not
individually, unless otherwise indicated.
Trustee Indemnified Party
-------------------------
Shall have the meaning assigned to such term in Section 8.05.
ARTICLE II
Declaration of Trust;
Deposit of Securities;
The Portfolio;
Creation and Issuance
of DIAMONDS in
Creation Unit
Size Aggregations
-----------------
Section 2.01. Declaration of Trust. The Trustee declares it holds
--------------------
and will hold the Trust Fund as Trustee for the use and benefit of all present
and future Beneficial Owners and subject to the terms and conditions of the
Indenture and this Agreement. The Trustee hereby declares on behalf of the
Trust that it elects the treatment for tax purposes as a Regulated Investment
Company and covenants to comply with the provisions of Section 4.03 hereof to
continue the qualification of the Trust as a Regulated Investment Company. The
Trustee is
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hereby directed to make such elections, including any appropriate election to be
taxed as a corporation, as shall be necessary to effect such qualification.
Section 2.02. Deposit of Securities. (a) Concurrently with the
---------------------
execution and delivery of the Indenture, a Depositor will deposit the Initial
Portfolio Deposit with the Trustee, and from time to time thereafter, Depositors
may make, as provided below in this Section 2.02, additional deposits of
Portfolio Deposits with the Trustee, and in each case the Trustee will be
granted and conveyed all right, title and interest in and to, and there will be
conveyed and deposited with the Trustee in an irrevocable trust, all cash and
securities so deposited in connection with each such Portfolio Deposit. With
respect to the Initial Portfolio Deposit made by a Depositor concurrently with
the execution and delivery of the Indenture, the securities portion of the
Initial Portfolio Deposit will be comprised of the securities listed in Schedule
A to the Indenture, and each of such securities will be duly endorsed in blank
or accompanied by all necessary instruments of assignment and transfer in proper
form, to be held and applied by the Trustee as herein provided. There also will
be a Cash Component (as hereinafter defined in Section 2.03(c))included in the
Initial Portfolio Deposit, which is listed in Schedule A to the Indenture. The
first accrual period for dividends payable on the first Dividend Payment Date
will commence on the Business Day following the Initial Date of Deposit. Upon
the delivery of the Initial Portfolio Deposit, the Depositor will also deliver
to the Trustee one of the following: a certified check or checks, cash or cash
equivalent or an irrevocable letter or letters of credit or an irrevocable loan
commitment issued by a commercial bank or banks rated A or better (or
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other equivalent rating) by a nationally recognized rating agency in an amount
necessary to satisfy applicable regulatory requirements.
(b) From time to time following the Initial Date of Deposit, the
Trustee is authorized to accept on behalf of the Trust additional deposits of
Portfolio Deposits, and all Index Securities deposited in connection therewith
shall be duly endorsed in blank or accompanied by all necessary instruments of
assignment and transfer in proper form, to be held and applied by the Trustee as
herein provided. The Trustee shall ensure that the securities portion of each
Portfolio Deposit shall be comprised of such Index Securities and in such
numbers as specified in Section 2.04. The Trustee shall also ensure that, in
the event certain Securities held by the Trust Fund are removed from the DJIA or
the composition of the DJIA changes, or certain corporate actions relating to
the Index Securities occur as specified in Section 2.04, the Trustee shall
recalculate the composition of the Portfolio Deposit and adjust the composition
of the Portfolio, in each case as required by the provisions of Section 2.04.
(c) The Trustee is hereby irrevocably authorized to effect
registration or transfer of the Securities in fully registered form to the name
of the Trustee or to the name of its nominee or the nominee of its agent.
Section 2.03. Creation and Issuance of Creation Units. (a) The
---------------------------------------
Trustee acknowledges that the Initial Portfolio Deposit(s) specified in the
Indenture (which include the Securities and Cash Component listed in Schedule A
to the Indenture) have been deposited with
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it by the Depositor on the Initial Date of Deposit. The Trustee shall accept
such Initial Portfolio Deposit(s) and issue an appropriate corresponding number
of DIAMONDS in Creation Unit size aggregations in exchange therefor.
(b) The Portfolio Deposits accepted by the Trustee from time to time
thereafter shall include a portfolio of securities (initially the securities
listed in Exhibit A to the Indenture and thereafter, such securities as the
composition and number of shares thereof may be adjusted as required by Section
2.04) together, in each case, with a cash payment, to the extent applicable,
equal to the Dividend Equivalent Payment (as hereinafter defined), plus or
minus, as the case may be, the Balancing Amount (as hereinafter defined - see
Section 2.04). The "Dividend Equivalent Payment" enables the Trustee to make a
distribution of dividends on the next Dividend Payment Date (as hereinafter
defined), as if all of the Securities had been held for the entire Accumulation
Period for such distribution, and is an amount equal, on a per Creation Unit
basis, to the dividends accrued on all the Securities for such Accumulation
Period, net of expenses for such period (including, without limitation, (x)
taxes or other governmental charges against the Trust not previously deducted,
if any and (y) accrued fees of the Trustee and other expenses of the Trust
(including legal and auditing expenses) and other expenses not previously
deducted).
(c) The Dividend Equivalent Payment and the Balancing Amount are
collectively referred to herein as the "Cash Component" and the deposit of such
a portfolio of securities and the Cash Component are collectively referred to
herein as a "Portfolio Deposit". In the event
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that the Trustee determines, in its discretion, that an Index Security is likely
to be unavailable or available in insufficient quantity for delivery to the
Trust upon the creation of DIAMONDS in Creation Unit size aggregations, or upon
the redemption of DIAMONDS in Creation Unit size aggregations, the cash
equivalent value of such Index Security may be included in the Portfolio Deposit
as a part of the Cash Component in lieu of the inclusion of such Index Security
in the securities portion of the Portfolio Deposit. The cash equivalent value
of such Index Security will be calculated in accordance with the provisions of
Section 4.01.
(d) Requests to create DIAMONDS in Creation Unit size aggregations
through the Distributor must be made by or through a Participating Party or a
DTC Participant as specified below. A Participating Party, pursuant to the
Participant Agreement described below, agrees to transfer the requisite Index
Securities (or contracts to purchase such Index Securities which are expected to
be delivered in a "regular way" manner in three (3) Business Days) and the Cash
Component to the Trustee by means of the DIAMONDS Clearing Process, together
with such additional information as may be required by the Trustee. The
Participant Agreement shall set forth the procedures for requesting the creation
of Creation Units and delivering Portfolio Deposits, confirming requests for
creations, and for delivering DIAMONDS in Creation Unit size aggregations for
redemption. A list of the entities that are party to the Participant Agreement
is available at the office of the Trustee at 0000 Xxxxxxxx Xxxxx, Xxxxx Xxxxxx,
Xxxxxxxxxxxxx 00000 and the office of the Distributor at 000 00xx Xxxxxx, Xxxxx
0000, Xxxxxx, XX 00000 during normal business hours or at such other address as
may be specified to the other parties hereto in writing.
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(e) Under certain circumstances, DIAMONDS in Creation Unit size
aggregations may be created by or through a DTC Participant through the
Distributor outside the DIAMONDS Clearing Process. In such cases, the DTC
Participant shall effectuate the transfer of the requisite Index Securities and
the Cash Component to the Trustee directly through DTC on the day on which the
order is accepted by the Distributor for DIAMONDS delivery to the creating party
directly through DTC not later than on the third (3rd) Business Day following
the day on which the order is accepted by the Distributor.
(f) Upon receipt of a Portfolio Deposit or Deposits following
acceptance by the Distributor of an order to create DIAMONDS, the Trustee will
deliver DIAMONDS thereby created in Creation Unit size aggregations to the
Depository in the name of Cede & Co. for the account of such Depositor, if such
Depositor is a DTC Participant, or for the account of the DTC Participant acting
on behalf of such Depositor. The Trustee shall acknowledge the deposit of such
Portfolio Deposit(s) by recording on its books the name of the Depositor and the
aggregate number of Creation Unit(s) created in respect of the Portfolio
Deposit(s) so deposited. The Trustee shall also credit (a) the Dividend
Equivalent Payment, if any, accompanying such Portfolio Deposit(s) to the Trust,
to be added to dividends to be received on the deposited Index Securities for
distribution pursuant to Section 3.04, and (b) the Balancing Amount, if any, to
the Trust to be applied or distributed as provided in this Agreement.
(g) The identity and number of shares of the Index Securities required
for a Portfolio Deposit, which will change as the composition and number of
shares of the Index
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Securities change, shall be determined in the manner specified in Section 2.04.
The Trustee shall, as set forth in this Agreement, determine the number of
shares of each of the Index Securities and the Cash Component in each Portfolio
Deposit. Such determination by the Trustee shall be final and binding in
connection with all Portfolio Deposits.
(h) The Trustee may reject an order to create DIAMONDS in Creation
Unit size aggregations transmitted to it by the Distributor if the Depositor or
group of Depositors, upon obtaining the DIAMONDS ordered, would own or appear to
own eighty percent (80%) or more of the outstanding DIAMONDS Units and if
pursuant to Section 351 of the Internal Revenue Code, such circumstance would
result in the Trust having a basis in the Index Securities deposited different
from the market value of such Index Securities on the date of such deposit. The
Trustee shall have the right to require information regarding DIAMONDS Unit
ownership pursuant to the Participant Agreement and from the Depository and to
rely thereon to the extent necessary to make the foregoing determination as a
condition to the acceptance of an order to create DIAMONDS. The Trustee further
reserves the absolute right to reject any Portfolio Deposit or any component
thereof (a) determined by it not to be in proper form; (b) that the Trustee
believes would have adverse tax consequences to the Trust or to Beneficial
Owners; (c) the acceptance for deposit of which would, in the opinion of
counsel, be unlawful; (d) that would otherwise, in the discretion of the
Trustee, have an adverse effect on the Trust or the rights of Beneficial Owners;
or (e) in the event of the inability of the creator to deliver or cause to be
delivered the Portfolio Deposit through the Depository or otherwise in the event
that
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circumstances outside the control of the Trustee make it for all practical
purposes not feasible to process creations of DIAMONDS.
(i) The Trustee will not issue certificates for DIAMONDS in Creation
Unit size aggregations or otherwise, other than the Global Security issued to
the Depository. The Trustee and the Sponsor are under no duty to give
notification of any defects or irregularities in the delivery of Portfolio
Deposits or any component thereof nor shall either of them incur any liability
for the failure to give any such notification. A transaction fee will be
payable to the Trustee for its own account in connection with each creation and
each redemption of each Creation Unit size aggregation of DIAMONDS (the
"Transaction Fee"). The Transaction Fee charged in connection with the creation
of Creation Units through the DIAMONDS Clearing Process shall be $1,000 per
Participating Party per day, regardless of the number of Creation Units created
on such day by such Participating Party.
(j) The Transaction Fee charged in connection with redemptions through
the DIAMONDS Clearing Process shall be $1,000 per Participating Party per day,
regardless of the number of Creation Units redeemed on such day by such
Participating Party.
(k) The Transaction Fee may subsequently be waived, modified, reduced,
increased or otherwise changed by the Trustee in consideration of the advice of
the Sponsor but in the Trustee's sole discretion, but will not in any event
exceed 1/10th of one percent of the
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value of a Creation Unit at the time of creation or redemption, as the case may
be. Prior to implementing such change, the Sponsor shall cause the current
Prospectus for the Trust to be amended to reflect any such changes in the
Transaction Fee. The amount of the Transaction Fee in effect at any given time
shall be made available upon request by the Trustee. If one or more Creation
Units are created or redeemed outside the DIAMONDS Clearing Process, an
additional amount not to exceed three (3) times the Transaction Fee applicable
for a Creation Unit will be charged to the creator or redeemer in part due to
the increased expense associated with settlement outside the DIAMONDS Clearing
Process.
(l) So long as the Depository Agreement is in effect, DIAMONDS in
Creation Unit size aggregations will be transferable solely through the book-
entry system of the Depository. The Depository may determine to discontinue
providing its service with respect to DIAMONDS by giving notice to the Trustee
and the Sponsor pursuant to and in conformity with the provisions of the
Depository Agreement and discharging its responsibilities with respect thereto
under applicable law. Under such circumstances, the Trustee and the Sponsor
shall take action either to find a replacement for the Depository to perform its
functions at a comparable cost or, if such a replacement is unavailable, to
terminate the Trust.
Section 2.04. Portfolio and Portfolio Deposit Adjustments. (a) The
-------------------------------------------
Trustee will adjust the composition of the Portfolio from time to time to
conform, to the extent practicable, to changes in the composition and/or price
weightings of the Index Securities. Generally, this will require the Trustee
to hold as nearly as practicable an equal number of shares of each of the
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Index Securities. Specifically, the Trustee will be required to adjust the
composition of the Portfolio at any time that there is a change in the identity
of any Index Security (i.e., a substitution of one security in replacement of
another), which adjustment shall be made within three (3) Business Days before
or after the day on which the change in the identity of such Index Security is
scheduled to take effect at the close of the market. In addition, the Trustee
will be required to adjust, to the extent practicable, the composition of the
Portfolio any time there is a corporate action, such as a stock split in one of
the Index Securities, which requires Dow Xxxxx to change the "divisor" in the
computation of the DJIA. The Trustee will be required to adjust the Portfolio
holdings to track the adjusted DJIA, such adjustment to be made within three (3)
Business Days before or after the day on which the change in the DJIA divisor is
scheduled to take effect.
(b) From time to time Xxx Xxxxx may make adjustments to the composition
of the DJIA as a result of a merger or acquisition involving one or more of the
Index Securities. In such cases, the Trust, as shareholder of securities of an
issuer that is the object of such merger or acquisition activity, may receive
various offers from would-be acquirors of the issuer. The Trustee will not be
permitted to accept any such offers until such time as it has been determined
that the securities of the issuer will be removed from the DJIA. Since
securities 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
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received in such transactions will be reinvested in Index Securities in
accordance with the criteria set forth in subparagraph (a) above. Any
securities received as a part of the consideration that are not Index Securities
will be sold as soon as practicable and the cash proceeds of such sale will be
reinvested in Index Securities in accordance with the criteria set forth in
subparagraph (a) above.
(c) Purchases and sales of securities resulting from the adjustments
described herein will be made in the share amounts dictated by the
specifications set forth herein, whether round lot or odd lot. All Portfolio
adjustments will be made as described herein unless such adjustments would cause
the Trust to lose its status as a Regulated Investment Company.
(d) Pursuant to these guidelines the Trustee will calculate the required
adjustments and will purchase and sell the appropriate securities. As a result
of the purchase and sale of securities in accordance with these requirements, or
the creation of Creation Units, the Trust may hold some amount of residual cash
(other than cash held temporarily due to timing differences between the sale and
purchase of securities or cash delivered in lieu of Index Securities or
undistributed income (including but not limited to Dividend Equivalent Payments)
or undistributed capital gains) as a result of such transactions, which amount
shall not exceed for more than two (2) consecutive Business Days 5/10ths of 1
percent of the aggregate value of the Securities. In the event that the Trustee
has made all required adjustments and is left with cash in excess of 5/10ths of
1 percent of the aggregate value of the Securities, the Trustee shall use such
cash to purchase additional Index Securities.
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(e) All adjustments to the Portfolio held by the Trustee will be made
by the Trustee pursuant to the foregoing specifications and as set forth in the
Trust Agreement and will be non-discretionary. In addition, the Trustee shall
have the power and shall be required to adjust the composition of the Portfolio
at any time if it determines that if such action is necessary to insure the
continued qualification of the Trust as a Regulated Investment Company, even if
such adjustment will cause the composition of the Portfolio to deviate from that
of the DJIA. The adjustments provided herein are intended to conform the
composition and security weightings of the Portfolio, to the extent practicable,
to the composition and security weightings of the Index Securities. Such
adjustments are based upon the DJIA as it is determined by Xxx Xxxxx. To the
extent that the method of determining the DJIA is changed by Xxx Xxxxx in a
manner that would affect the adjustments provided for herein, the Trustee and
the Sponsor shall have the right to amend the Trust Agreement, without the
consent of the Depository or Beneficial Owners, to conform the adjustments
provided herein and in the Trust Agreement to such changes so that the objective
of tracking the DJIA is maintained.
(f) At such time as the Trustee gives written notice of the termination
of the Trust as provided in Section 9.01, from and after the date of such notice
the Trustee shall use the composition and weightings of the Securities as of
such date for the purpose and determination of all redemptions or other required
uses of the basket.
(g) The Trustee will direct its securities transactions only to brokers
or dealers, which may include affiliates of the Trustee, from whom it expects to
obtain the most favorable
27
prices for execution of orders. The net proceeds of any sales of Securities
shall either be reinvested in accordance with Section 2.04 or distributed in
accordance with Section 3.07.
(h) After the Initial Date of Deposit, on each Business Day thereafter
(each such day an "Adjustment Day"), the number of shares and/or identity of
each of the Index Securities in a Portfolio Deposit will be adjusted in
accordance with the following procedure. At the close of the market on each
Adjustment Day, the Trustee will calculate the net asset value of the Trust as
provided in Section 5.01. The net asset value will be divided by the number of
outstanding DIAMONDS, then multiplied by the number of DIAMONDS in one Creation
Unit size aggregation, resulting in a net asset value per Creation Unit (the
"NAV Amount"). The Trustee will then calculate 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"), such that (1) the market value at
the close of the market on Adjustment Day of the securities to be included in
the Portfolio Deposit on Request Day, together with the Dividend Equivalent
Payment effective for requests to create or redeem on Adjustment Day, will equal
the NAV Amount and (2) the identity and price weighting of each of the
securities in a Portfolio Deposit will mirror proportionately, to the extent
practicable, the identity and price weighting of the securities in the DJIA,
each as in effect on Request Day. For each security, the number resulting from
such calculation will be rounded down to the nearest whole share. The identities
and number of shares of the securities so calculated will constitute the
securities portion of the Portfolio Deposit effective on Request Day and
thereafter until the next subsequent Adjustment Day, as well as the Securities
to be delivered by the Trustee in the event of request for redemption of
DIAMONDS
28
in Creation Unit size aggregations on Request Day and thereafter until the
following Adjustment Day pursuant to Section 5.02. In addition to the foregoing
adjustments, in the event that there shall occur a stock split, stock dividend,
or other corporate action with respect to any Index Security that results in an
adjustment to the DJIA Index divisor, the Portfolio Deposit in effect on the day
prior to the effective day of the adjustment to the DJIA Index divisor shall be
adjusted to take account of such stock split, stock dividend, or other corporate
action by adjusting the price of the Index Security so affected to reflect the
impact of such stock split, stock dividend, or other corporate action before
applying the actions set forth in (1) and (2) of this subsection (h); in each
such case each Index Security will be rounded down to the nearest whole share.
(i) On Request Day and on each day that a request for the creation or
redemption of DIAMONDS in Creation Unit size aggregations is made, the Trustee
will calculate the market value of the securities portion of the Portfolio
Deposit as in effect on Request Day as of the close of the market and add to
that amount the Dividend Equivalent Payment effective for requests to create or
redeem on Request Day (such market value and Dividend Equivalent Payment are
collectively referred to herein as the "Portfolio Deposit Amount"). The Trustee
will then calculate the NAV Amount, based on the close of the market on Request
Day. The difference between the NAV Amount so calculated and the Portfolio
Deposit Amount shall be the "Balancing Amount". The Balancing Amount serves the
function of compensating for any differences between the value of the Portfolio
Deposit Amount and the NAV Amount at the close of trading on Request Day due to,
for example, (1) differences in the market value of the securities in the
Portfolio Deposit and the market value of the Securities on Request Day and
29
(2) any variances of the actual Portfolio Deposit from the proper composition of
the Portfolio Deposit due to rounding.
(j) Notwithstanding the foregoing, on any Adjustment Day on which no
change in the identity and/or price weighting of any Index Security is scheduled
to take effect that would cause the DJIA divisor to be adjusted after the close
of the market on such Business Day,/*/ the Trustee reserves the right to forego
making any adjustment to the Securities portion of the Portfolio Deposit and to
use the composition and price weightings of the Index Securities for the most
recently effective Portfolio Deposit for the Request Day following such
Adjustment Day. Notwithstanding the foregoing, the amount of the Cash Component
shall at all times be determined in accordance with the procedures set forth
above. In addition, the Trustee further reserves the right to calculate the
adjustment to the price weighting and/or identity of the Index Securities in a
Portfolio Deposit as described above except that such calculation would be
employed for two (2) Business Days rather than one (1) Business Day prior to
Request Day.
(k) As previously discussed, the Dividend Equivalent Payment and the
Balancing Amount in effect at the close of business on Request Date are
collectively referred to as the Cash Component or the Cash Redemption Payment.
If the Balancing Amount is a positive number (i.e., if the NAV Amount exceeds
the Portfolio Deposit Amount) then with respect to the creation of DIAMONDS, the
Balancing Amount shall increase the Cash Component of the then
---------------
/*/ Xxx Xxxxx publicly announces any change in identity of the DJIA component
securities two (2) or three (3) trading days in advance of the
implementation of such change on the following Business Day.
30
effective Portfolio Deposit, and with respect to redemptions of DIAMONDS in
Creation Unit size aggregations, the Balancing Amount shall be added to the cash
transferred to a redeemer by the Trustee. If the Balancing Amount is a negative
number (i.e. if the NAV Amount is less than the Portfolio Deposit Amount), then
with respect to the creation of DIAMONDS such amount shall decrease the Cash
Component of the then effective Portfolio Deposit or, if such cash portion is
less than the Balancing Amount, the difference shall be paid by the Trustee to
the creator, and with respect to redemptions of DIAMONDS in Creation Unit size
aggregations, the Balancing Amount shall be deducted from the cash transferred
to the redeemer or, if such cash is less than the Balancing Amount, the
difference shall be paid by the redeemer to the Trustee.
(l) In making the adjustments described above, the Trustee will rely
on industry sources generally available for information as to the composition
and price weightings of the Index Securities. If the Trustee becomes incapable
of obtaining or processing such information or NSCC is unable to receive such
information from the Trustee on any Business Day, then the Trustee shall use the
composition and price weightings of the Index Securities for the most recently
effective Portfolio Deposit for the purposes of all adjustments and
determinations described herein (including, without limitation determination of
the securities portion of the Portfolio Deposit) until the earlier of (a) such
time as current information with respect to the Index Securities is available or
(b) three (3) consecutive Business Days have elapsed. If such current
information is not available and three (3) consecutive Business Days have
elapsed, the composition and price weightings of the Securities shall be used
for the purposes of all adjustments and determinations herein (including,
without limitation, determination of the
31
securities portion of the Portfolio Deposit) until current information with
respect to the Index Securities is available.
(m) If the Trustee shall determine, in its discretion, that an Index
Security is likely to be unavailable or available in insufficient quantity for
delivery upon the creation of DIAMONDS in Creation Unit size aggregations for
the following Business Day or for any period thereafter, the Trustee shall have
the right to include the cash equivalent value of such Index Security determined
in accordance with the protocols listed in Section 4.01 hereof in the Portfolio
Deposit as a part of the Cash Component, in lieu of the inclusion of such Index
Security in the securities portion of such Portfolio Deposit. In the event that
such a determination is made, the Portfolio Deposit so constituted shall dictate
the Index Securities to be delivered in connection with the creation of DIAMONDS
in Creation Unit size aggregations for all purposes hereunder until such time as
the securities portion of the Portfolio Deposit is subsequently adjusted.
(n) In connection with creation of DIAMONDS, if an investor is
restricted by regulation or otherwise from investing or engaging in a
transaction in one or more Index Securities, the Trustee, in its discretion,
shall have the right to include the cash equivalent value of such Index
Securities (determined in accordance with the protocols listed in Section 4.01
hereof) in the Portfolio Deposit as part of the Cash Component in lieu of the
inclusion of such Index Securities in the securities portion of the Portfolio
Deposit for the affected investor. The amount of such cash equivalent payment
shall be used by the Trustee in accordance with the
32
foregoing guidelines regarding permissible amounts of cash. In such cases, the
Trustee, to effectuate the policy described above, may purchase the appropriate
number of shares of the Index Security that the investor was unable to purchase.
In any such case an investor shall pay the Trustee the standard Transaction Fee
plus an additional amount not to exceed 3 times the standard Transaction Fee.
Section 2.05 Bank Accounts. The Trustee shall open and maintain a
-------------
separate bank account or accounts in the banking department of the Trustee in
the name, and for the benefit, of the Trust, subject only to draft or order by
the Trustee acting pursuant to the terms of this Agreement, and shall hold in
such account or accounts all cash received by it from or for the account of the
Trust. Each Series of the Trust shall be separately identified and shall have
an account or accounts unique to it.
ARTICLE III
Administration of Trust
-----------------------
Section 3.01. Collection of Income. (a) The Trustee shall collect,
--------------------
or claim on, any Income on the Securities as it becomes payable (including the
Dividend Equivalent Payment and that part of the proceeds of the sale or
liquidation of any of the Securities which represents accrued dividends or
distributions and capital gains thereon). Income so collected shall be held
uninvested until distributed pursuant to the provisions of this Agreement. The
Trustee shall
33
accrue all Income to the Trust as of the date on which the Trust is entitled to
such Income as a holder of record of the Securities.
(b) The Trustee may, in its discretion, sell securities pursuant to
Section 3.06 or advance out of its own funds such amounts as may be necessary to
permit distributions pursuant to Section 3.04 and payments in respect of the
redemption of DIAMONDS in Creation Unit size aggregations pursuant to Section
5.02. The Trustee shall pay to itself the amounts which it is entitled to
receive as reimbursement for amounts advanced pursuant to the preceding
sentence, by deducting such amounts from the Income on the Securities when
funds are available. The Trustee will reimburse itself in the amount of such
advance, plus Federal Reserve Board requirements, together with interest thereon
at a percentage rate equal to then current overnight federal funds rate, by
deducting such amounts from (1) dividend payments or other income of the Trust
when such payments or other income is received, (2) the amounts earned or
benefits derived by the Trustee on cash held by the Trustee for the benefit of
the Trust, and (3) the sale of Securities. In the event any such advance
remains outstanding for more than forty-five (45) Business Days, the Trustee
shall sell Securities to reimburse itself for such advance and any accrued
interest thereon. The Trustee shall be deemed to be the beneficial owner of the
Income payments in question to the extent of all amounts advanced by it pursuant
to this Section 3.01(b), and such advances shall be secured by a lien on the
Trust.
Section 3.02. Collection of Other Moneys. All moneys other than
--------------------------
amounts received by the Trustee in respect of the Securities under this
Agreement as described in
34
Section 3.01 or reinvested in the purchase of Index Securities as provided in
Section 2.04 (including, but not limited to, the Balancing Amount and all moneys
realized by the Trustee from the sale of options, warrants or other similar
rights received in respect of the Securities representing dividends or
distributions thereon), including any capital gains dividends, shall be credited
to the Trust in accordance with generally accepted accounting principles;
provided, however, that moneys which are required to cover the price of
securities purchased by the Trust but not yet delivered shall be held for such
purchase. Moneys so collected shall be held uninvested. Any moneys collected
other than amounts collected pursuant to Section 3.01 in respect of the
Securities may be reinvested in additional Securities in lieu of distributions
of dividend payments and other income, if necessary, as provided in Section
3.04.
Section 3.03. Establishment of Reserves. From time to time the
-------------------------
Trustee may, as required by generally accepted accounting principles, establish
reserves for any applicable taxes or other governmental charges that may be
payable out of the Trust Fund. The Trustee shall not be required to transmit to
the Depository for distribution to Beneficial Owners as described in Section
3.11 any of the amounts held in such reserves; provided, however, that if the
Trustee, in its sole discretion, determines that such amounts are no longer
necessary for payment of any applicable taxes or other governmental charges,
then such amounts shall no longer be considered to be held in such reserves. If
the Trust Fund has been terminated or is in the process of termination, the
Trustee shall transmit to the Depository for distribution to Beneficial Owners
as described in Section 3.11 such Beneficial Owners' interest in the amounts
previously reserved in accordance with Section 9.01.
35
Section 3.04. Certain Deductions and Distributions. (a) On each
------------------------------------
Business Day, the Trustee shall deduct from moneys held as described above and
pay to itself individually the amounts that it is at the time entitled to
receive pursuant to Sections 8.01 and 8.04 on account of its services performed,
in accordance with the fee schedule set forth below (based on the net asset
value of the Trust on such Business Day). Expenses of the Trust will be
annualized and accrued on each Business Day.
(b) The following charges are or may be accrued and paid by the Trust:
The (1) Trustee's fees as set forth below, (2) fees payable to transfer
agents for the provision of transfer agency services, if any,; (3) fees of the
Trustee for extraordinary services performed under this Agreement; (4) various
governmental charges; (5) any taxes, fees and charges payable by the Trustee
with respect to DIAMONDS (whether in Creation Unit size aggregations or
otherwise); (6) expenses and costs of any action taken by the Trustee
Indemnified Party or the Sponsor Indemnified Party to protect the Trust and the
rights and interests of Beneficial Owners of DIAMONDS (whether in Creation Unit
size aggregations or otherwise); (7) indemnification of the Trustee or the
Sponsor for any losses, liabilities or expenses incurred by it in the
administration of the Trust without gross negligence, bad faith, wilful
misconduct, wilful malfeasance on their part or reckless disregard of their
obligations and duties; (8) expenses incurred in contacting Beneficial Owners of
DIAMONDS both during the life of the Trust and upon termination of the Trust;
and (9) other out-of-pocket expenses of the
36
Trust not otherwise stated above incurred pursuant to actions permitted or
required under this Agreement or the Indenture.
(c) In addition to those discussed above, the following expenses will
be charged to the Trust: (i) reimbursement to the Sponsor of amounts paid by it
to Dow Xxxxx in respect of annual licensing fees due under the License Agreement
pursuant to Section 10.03, (ii) federal and state annual fees in keeping the
registration of DIAMONDS on a current basis pursuant to Section 10.02 for the
issuance of DIAMONDS, (iii) 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), and (iv) initial fees and expenses
totaling approximately $300,000, in connection with the organization of the
Trust ("Initial Costs"), which will be capitalized and amortized ratably over
five years on a straight-line basis unless (1) the Trust is sooner terminated,
in which case all amounts still due and owing shall be payable to the Trustee
from the assets of the Trust or (2) by law or regulation the Trust is required
to amortize such Initial Costs over a period of time shorter than five years, in
which case the Trustee shall follow the requisite time period for such
amortization./*/
---------------
/*/ In accordance with the provisions of the exemptive order granted by the
Commission in Release IC-22979 dated December 30, 1997 (the "Order"), the
expenses listed in clauses (i), (ii), (iii) and (iv) above may only be
charged by the Trustee to the Trust in an amount equal to their actual
costs, but in no case may exceed 20 basis points (20/100 of 1%) of the net
asset value of the Trust per year. Further, if in any one year such cost
exceeds such 20 basis point limit, the Sponsor shall absorb such excess
costs and shall not authorize the Trustee to carry such excess forward into
the following calendar year.
37
(d) The Sponsor reserves the right to charge the Trust a special
sponsor fee from time to time, pursuant to the provisions of Section 8.01(k), in
reimbursement for certain services it may provide to the Trust which would
otherwise be provided by the Trustee in an amount not to exceed the actual cost
of providing such services. The Sponsor or the Trustee from time to time may
voluntarily assume some expenses or reimburse the Trust so that total expenses
of the Trust are reduced, although neither the Sponsor nor the Trustee is
obligated to do so and either one or both parties may discontinue such voluntary
assumption of expenses or reimbursement at any time without notice.
(e) The Sponsor intends to monitor the actual expenses of the Trust,
and may choose to reimburse the Trust for or assume some or all of the expenses
and charges mentioned above in order to assure that the Trust remains
economically attractive to current as well as prospective investors, but the
Sponsor is not obligated to do so for any period of time. In the event the
Sponsor chooses to so reimburse or assume certain expenses on behalf of the
Trust, the Sponsor shall have the right to be repaid the amount of any such
reimbursement or assumption to the extent that subsequently during the year
expenses fall below the 20/100 of 1% per annum level on any given day.
(f) If the income received by the Trust in the form of dividends and
other distributions on the Securities is insufficient to cover these above-
mentioned expenses, the Trustee may make advances to the Trust to cover the
expenses discussed above; otherwise the Trustee may sell Securities in an amount
sufficient to pay such expenses. The Trustee will
38
reimburse itself in the amount of any such advance, including those advances
made pursuant to Section 3.01(b), together with interest thereon at a percentage
rate equal to the then current overnight federal funds rate plus Federal Reserve
Board requirements, by deducting such amounts from (1) dividend payments or
other income of the Trust when such payments or other income is received, (2)
the amounts earned or benefits derived by the Trustee on cash held by the
Trustee for the benefit of the Trust, and (3) the sale of Securities.
Notwithstanding the foregoing, in the event that any advance remains outstanding
for more than forty-five (45) Business Days, the Trustee shall sell Securities
to reimburse itself for the amount of such advance and any accrued interest
thereon. Such advances will be secured by a lien on the assets of the Trust in
favor of the Trustee. The expenses of the Trust will be reflected in the net
asset value of the Trust.
(g) For services performed under the Trust Agreement, the Trustee will
be paid by the Trust a fee at an annual rate of 11/100 of 1% to 15/100 of 1% of
the net asset value of the Trust, as shown below, such percentage amount to vary
depending on the net asset value of the Trust, plus or minus the Adjustment
Amount (as hereinafter defined). Such compensation will be computed on each
Business Day on the basis of the net asset value of the Trust on such day, and
the amount thereof shall be accrued daily and paid quarterly.
39
TRUSTEE FEE SCALE*
-----------------
Net Asset Value Fee as a Percentage of Net
of the Trust Asset Value of the Trust
-------------- --------------------------
0 - $499,999,999 15/100 of 1% per annum plus or minus the
Adjustment Amount
$500,000,000 - $999,999,999 13/100 of 1% per annum plus or minus the
Adjustment Amount
$1,000,000,000 and above 11/100 of 1% per annum plus or minus the
Adjustment Amount
------------------
* During the first two years of operation of the Trust, the Trustee's fee shall
be reduced to 12/100 of 1% per annum plus or minus the Adjustment Amount for
any day on which the net asset value of the Trust is below $350,000,000. The
fee indicated applies to that portion of the net asset value of the Trust
which falls in the size category indicated.
(h) Notwithstanding the fee schedule set forth in the table above, in
the fourth year of the Trust's operation and in subsequent years, the Trustee's
minimum fee shall be $400,000 per annum, as adjusted by the CPI-U to take effect
at the beginning of the fourth year and each year thereafter. The Adjustment
Amount shall be calculated at the end of each quarter commencing April 30, 1998
and applied against the Trustee's fee for the following quarter. The Adjustment
Amount is an amount which is intended, depending upon the circumstances, either
to (x) reduce the Trustee's fee by the amount that Transaction Fees paid on
creation and redemption exceed the costs of those activities, and by the amounts
of excess earnings on cash held for the benefit of the Trust or (y) increase the
Trustee's fee by the amount that the Transaction Fee (plus additional amounts
paid in connection with creations or redemptions outside the DIAMONDS Clearing
Process), if any, paid on creations or redemptions, falls short of the actual
costs of such
40
activities. Therefore, the "Adjustment Amount" shall equal the sum of (z) the
amount of the Transaction Fees paid to the Trustee during the most recent
quarter, net of the expenses of issuance and settlement incurred in processing
the associated creations and redemptions (which expenses shall include but not
be limited to the cost of transactions with the Depository, telephone and other
costs incurred in processing creation and redemption information with NSCC,
direct systems hardware and software costs as well as telephone and other costs
associated with taking and processing orders from Participants, collectively
referred to herein as the "Processing Costs"), plus (zz) the amounts earned or
benefits derived by the Trustee during the previous quarter in respect of cash
held by the Trustee for the benefit of the Trust not otherwise utilized or
expended for the benefit of the Trust. If in any quarter the Adjustment Amount
exceeds the fee payable to the Trustee for such quarter as set forth above, the
Trustee shall use such excess amount to reduce other Trust expenses, subject to
certain federal tax limitations. To the extent that the amount of such excess
exceeds the Trust's expenses for such quarter, any remaining excess shall be
retained by the Trustee as part of its compensation. If in any quarter the
total amount of the Processing Costs calculated in accordance with subparagraph
(z) above exceed the sum of (1) the amounts received by the Trustee as
Transaction Fees, (2) the additional amounts paid in connection with creations
or redemptions outside the DIAMONDS Clearing Process, if any, and (3) the excess
earnings on cash held by the Trust calculated in accordance with subparagraph
(zz) above, then the Trustee shall be entitled to augment the Trustee's Fee by
such sum. The Transaction Fee and any additional amounts prescribed in the
Registration Statement shall be payable to the Trustee for each Creation Unit
size aggregation of
41
DIAMONDS created pursuant to Sections 2.02, 2.03 and 2.04 and for each Creation
Unit size aggregation of DIAMONDS tendered for redemption pursuant to Section
5.02.
(i) The Trustee shall compute on a daily basis the dividends
accumulated and declared for the Securities within each Accumulation Period.
The regular monthly ex-dividend date for DIAMONDS will be the third Friday in
each calendar month, commencing in April, 1998, unless such day is not a
Business Day, in which case the ex-dividend date will be the immediately
preceding Business Day (the "Ex-Dividend Date"). Beneficial Owners as reflected
on the records of the Depository and the DTC Participants on the second (2nd)
Business Day following the Ex-Dividend Date (the "Record Date") will be entitled
to receive an amount representing dividends accumulated on the Securities
through such Ex-Dividend Date, net of fees and expenses, accrued daily for such
period. For the purposes of all dividend distributions, dividends per DIAMOND
Unit will be calculated at least to the nearest 1/100th of $0.01. On each
Record Date, the Trustee shall compute the aggregate amount of funds to be
distributed through the Depository to Beneficial Owners as described in Section
3.11 on the Monday preceding the third (3rd) Friday in the next calendar month
following each such Ex-Dividend Date, unless such day is not a Business Day, in
which case the funds shall be distributed on the next following Business Day
(the "Dividend Payment Date") by deducting from available cash as of the close
of business on the Dividend Payment Date the amount of (a) cash required for the
redemption of unredeemed tendered DIAMONDS in Creation Unit size aggregations
and (b) the sum of the amounts to be deducted on or before such Dividend Payment
Date and pursuant to the foregoing provisions of this Section 3.04. On each
Dividend Payment Date, the Trustee shall
42
distribute to the Depository the aggregate amount of funds to be distributed to
each Beneficial Owner pursuant to this Section 3.04 as described in Section
3.11.
(j) Distribution of funds made to the Depository for distribution to
Beneficial Owners as described in Section 3.11 with respect to moneys received
by the Trust other than Income shall be made at least annually as described
below.
(k) The proceeds of any sale of Securities sold pursuant to Section
3.06 shall be used, subject to the provisions of such Section 3.06, to purchase
shares of Index Securities pursuant to Section 2.04 in lieu of a distribution of
capital as provided in this Section 3.04.
(l) The Trustee further reserves the right to declare special dividends
if, in its reasonable discretion, such action is necessary or advisable to
preserve the status of the Trust as a Regulated Investment Company or to avoid
imposition of income or excise taxes on undistributed income.
(m) The Trustee further reserves the right 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, in their discretion, that such a
variance would be advisable to facilitate compliance with the rules and
regulations applicable to Regulated Investment Companies or would otherwise be
advantageous to the Trust. Notice of any such variance (which notice shall
include changes to the Record Date, the Ex-Dividend Date and the accumulation
period resulting
43
from such variance) shall be provided to Beneficial Owners via the Depository
and the DTC Participants.
(n) During the term of the Trust, the Trustee and the Sponsor shall
undertake to ensure that the Trustee is adequately and reasonably compensated
for its services hereunder. In the event that the Trustee and the Sponsor agree
that additional compensation to the Trustee is warranted and appropriate to the
Trustee, subject to the agreement of the Sponsor, the Trustee may be paid an
additional compensation over and above the fees described above either (i)
directly from the Sponsor or (ii) from the Trust subject to approval by the
Beneficial Owners of 51% or more of the then outstanding DIAMONDS Units.
Section 3.05. Statements and Reports. After the end of each fiscal
-----------------------
year and within the time period required by applicable laws, rules and
regulations, the Trustee will furnish to the DTC Participants for distribution
to each person who was a Beneficial Owner of 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 such laws, rules and regulations.
Section 3.06. Purchase and Sale of Securities. (a) The Trustee shall
-------------------------------
be required to purchase or sell Index Securities to conform the Portfolio to
changes in the DJIA as described in Section 2.04. The Trustee shall calculate
the adjustments to the Portfolio and place the appropriate buy or sell orders at
such times and in the manner so prescribed in Section 2.04.
44
(b) The Trustee intends to make additional distributions with respect
to moneys received by the Trust other than Income to the minimum extent
necessary (i) to distribute the entire annual investment company taxable income
of the Trust, plus any net capital gains (from sales of Securities in connection
with adjustments to the Portfolio or to generate cash for such distributions),
and (ii) to avoid imposition of the excise tax imposed by section 4982 of the
Internal Revenue Code or any successor provision or any similarly imposed tax on
income or gains.
(c) The Trustee is empowered, in its discretion, to sell the requisite
amount of Securities held in the Trust Fund to permit the payment of
distributions pursuant to Section 3.04 in the event that the Trustee has
insufficient amounts available in the Trust Fund to make such distributions.
The Trustee shall not be responsible in any way for depreciation or loss
incurred by reason of such sale.
Section 3.07. Substitute Securities. In the event that an offer by
---------------------
the issuer of any of the Securities held in the Portfolio shall be made to issue
new securities in exchange or substitution for any issue of Securities, the
Trustee shall not accept such offer or take any other action with respect
thereto until such time as it has been determined that the securities of the
issuer will be removed from the DJIA. In the event that a security of an issuer
is removed from the DJIA as a result of the consummation of merger or
acquisition activity of such issuer and the Trust receives cash in exchange for
the Security of such issuer held in the Portfolio, the Trustee shall reinvest
such cash in Index Securities as provided in Section 2.04. If the Trust
receives any
45
securities in exchange for the Security of the issuer held in the Portfolio and
removed from the DJIA, and such securities received in exchange are not included
in the DJIA, the Trustee shall sell such securities as soon as practicable and
reinvest the proceeds of the sale in the new Index Securities as provided in
Section 2.04. The purchases and sales of Securities for the Trust Portfolio
pursuant to this Section 3.07 shall be subject to the terms and conditions of
this Agreement to the same extent as Portfolio Deposits. The Trustee shall not
be liable or responsible in any way for any loss incurred by reason of a
purchase or sale pursuant to this Section 3.07.
Section 3.08. Counsel. The Trustee may employ from time to time
-------
counsel to act on behalf of the Trust and perform any legal services in
connection with the Securities and the Trust, including any legal matters
relating to the possible disposition or acquisition of any Securities pursuant
to any provision hereof. The fees and expenses of such counsel shall be paid by
the Trustee from the assets of the Trust.
Section 3.09. Sale by Trustee. (a) Notwithstanding any provision
---------------
contained in this Agreement, the Trustee shall not sell any Securities in the
Portfolio unless such sale is required as a Portfolio Adjustment pursuant to and
in accordance with Section 2.04 or is otherwise permitted in accordance with the
provisions of Sections 3.01(b), 3.04(f), 3.06, 3.07, 5.02(e) or 8.04(b).
46
(b) If at any time the issuer of any Security fails to pay or declare
an anticipated dividend or interest and provision for such payment has not been
duly made, or there has been a material event affecting an issuer's Security,
the Trustee may not sell such Securities unless and until such Securities are
removed from the DJIA or as otherwise permitted in accordance with Sections 3.06
and 3.07. The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of such sale or the failure to make such
a sale.
Section 3.10. Action by Trustee Regarding Voting. The Trustee shall
----------------------------------
have the exclusive right to vote all of the voting Securities of the Trust, and
shall vote each of the Securities in the same proportion as all shares of each
such Security are voted by all the shareholders of each such Security to the
extent permissible, but if not permitted, shall abstain from voting. The
Trustee shall not be liable to any person for any action or failure to take
action with respect to this Section 3.10.
Section 3.11. Book-Entry-Only System; Global Security. (a) The
---------------------------------------
Depository will act as securities depository for DIAMONDS. DIAMONDS will be
represented by a single Global Security, which will be registered in the name of
Cede & Co., as nominee for the Depository and deposited with, or on behalf of,
the Depository. Certificates will not be issued for DIAMONDS. The Global
Security shall either be (1) in the form attached hereto as Exhibit B or (2) in
a form substantially similar to the form in Exhibit C that shall represent such
DIAMONDS as shall be specified therein and may provide that it shall represent
the aggregate amount of outstanding DIAMONDS from time to time endorsed thereon
and that the aggregate
47
amount of outstanding DIAMONDS represented thereby may from time to time be
reduced or increased to reflect exchanges. Any endorsement of a Global Security
to reflect the amount, or any increase or decrease in the amount, of outstanding
DIAMONDS represented thereby shall be made in such manner and upon instructions
given by the Trustee as specified in the Depository Agreement.
(b) The Trustee shall authenticate and deliver one or more Global
Securities that (i) shall represent and shall be denominated in an aggregate
amount equal to the aggregate principal amount of the outstanding DIAMONDS to be
represented by one or more Global Securities, (ii) shall be registered in the
name of the Depository for such Global Security or Global Securities or the
nominee of such Depository, (iii) shall be delivered by the Trustee to such
Depository or pursuant to such Depository's instruction, and (iv) shall bear a
legend substantially to the following effect: "Unless this certificate is
presented by an authorized representative of The Depository Trust Company, a New
York corporation ("DTC"), to Issuer or its agent for registration of transfer,
exchange, or payment, and any certificate issued is registered in the name of
Cede & Co. or in such other name as is requested by an authorized representative
of DTC (and any payment is made to Cede & Co. or to such other entity as is
required by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein."
48
(c) The Depository has advised the Sponsor and the Trustee as follows:
The Depository is a limited-purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. The Depository was created to hold
securities of its participants (the "DTC Participants") and to facilitate the
clearance and settlement of securities transactions among the DTC Participants
in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations, some of
whom (and/or their representatives) own the Depository./*/ Access to the
Depository system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a DTC Participant, either directly or indirectly (the "indirect Participants").
The Depository agrees with and represents to its participants that it will
administer its book-entry system in accordance with its rules and by-laws and
requirements of law.
(d) Upon the settlement date of any creation, transfer or redemption of
DIAMONDS, the Depository will credit or debit, on its book-entry registration
and transfer
---------------
/*/ As of December 31, 1997, the Exchange owned 4.68347 of the issued and
outstanding shares of common stock of the Depository and an affiliate of the
Exchange, AMEX Clearing Corp., owned 0.00188 of the issued and outstanding
shares of common stock of the Depository and the Trustee owned 4.35685% of
the issued and outstanding shares of common stock of the Depository.
49
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 shall be 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 transacted outside of the
DIAMONDS Clearing Process. Beneficial ownership of DIAMONDS will be 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 referred to herein as
"Beneficial Owners") will be shown on, and the transfer of ownership will be
effected only through, records maintained by the Depository (with respect to DTC
Participants) and on the records of DTC Participants (with respect to indirect
Participants and Beneficial Owners that are not DTC Participants or indirect
Participants). Beneficial Owners are expected to receive from or through the
DTC Participant a written confirmation relating to their purchase of DIAMONDS.
(e) So long as Cede & Co., as nominee of the Depository, is the
registered owner of DIAMONDS, references herein to the registered or record
owners of DIAMONDS shall mean Cede & Co. and shall not mean the Beneficial
Owners of DIAMONDS. Beneficial Owners of DIAMONDS will not be 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 holder thereof under the Trust Agreement. Accordingly,
each Beneficial Owner must rely on the procedures of the DTC Participant or
Depository and, if such Beneficial Owner is not a DTC Participant, on the
procedures of the
50
indirect Participant through which such Beneficial Owner holds its interests, to
exercise any rights of a holder of DIAMONDS under the Trust Agreement. The
Trustee and the Sponsor understand that under existing industry practice, in the
event the Trustee requests any action of DIAMONDS holders, or a Beneficial Owner
desires to take any action that the Depository, as the record owner of all
outstanding DIAMONDS, is entitled to take, the Depository would authorize the
DTC Participants to take such action and that the DTC Participants would
authorize the indirect Participants and Beneficial Owners acting through such
DTC Participants to take such action or would otherwise act upon the
instructions of Beneficial Owners owning through them.
(f) As described above, the Trustee will recognize the Depository or
its nominee as the owner of all DIAMONDS for all purposes except as expressly
set forth in this Agreement. Conveyance of all notices, statements and other
communications to Beneficial Owners will be effected as follows. Pursuant to
the Depository Agreement, the Depository is required to make available to the
Trustee upon request and for a fee to be charged to the Trust a listing of the
DIAMONDS Unit holdings of each DTC Participant. The Trustee shall inquire of
each such DTC Participant as to the number of Beneficial Owners holding
DIAMONDS, directly or indirectly, through such DTC Participant. The Trustee
shall provide each such DTC Participant with sufficient copies of such notice,
statement or other communication, in such form, number and at such place as such
DTC Participant may reasonably request, in order that such notice, statement or
communication may be transmitted by such DTC Participant, directly or
indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each
such DTC Participant an
51
amount as reimbursement for the expenses attendant to such transmittal, all
subject to applicable statutory and regulatory requirements.
(g) DIAMONDS Unit distributions shall be made to the Depository or its
nominee, Cede & Co., as the registered owner of all DIAMONDS. The Trustee and
the Sponsor expect that the Depository or its nominee, upon receipt of any
payment of distributions in respect of DIAMONDS, shall credit immediately DTC
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in DIAMONDS as shown on the records of the
Depository or its nominee. The Trustee and the Sponsor also expect that
payments by DTC Participants to indirect Participants and Beneficial Owners of
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 will have any responsibility or liability for any aspects of the
records relating to or notices to Beneficial Owners, or payments made on account
of beneficial ownership interests in DIAMONDS, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests or for
any other aspect of the relationship between the Depository and the DTC
Participants or the relationship between such DTC Participants and the indirect
Participants and Beneficial Owners owning through such DTC Participants.
(h) The Depository may determine to discontinue providing its services
with respect to DIAMONDS at any time by giving notice to the Trustee and the
Sponsor and
52
discharging its responsibilities with respect thereto under applicable law.
Under such circumstances, the Trustee and the Sponsor shall take action either
to find a replacement for the Depository to perform its functions at a
comparable cost or, if such a replacement is unavailable, to terminate the Trust
as provided in Article IX.
ARTICLE IV
Evaluation of Securities
------------------------
Section 4.01. Evaluation of Securities. The Trustee shall make
------------------------
available to NSCC prior to the commencement of trading on each Business Day a
list of the names and required number of shares of each of the Index Securities
in the current Portfolio Deposit as well as the amount of the Dividend
Equivalent Payment for the previous Business Day. Under certain extraordinary
circumstances which may make it impossible for the Trustee to provide such
information to NSCC on a given Business Day, NSCC shall use the information
regarding the identity and required number of shares of the Index Securities of
the Portfolio Deposit on the previous Business Day. Any such determination
shall be effective for all creations and redemptions made at the close of the
Business Day of such creations and redemptions. The evaluation with respect to
the aggregate value of the Securities as used in calculating the net asset value
of the Trust shall be made as follows: If the Securities are listed on one or
more national securities exchanges, such evaluation shall generally be based on
the closing sale price on that day (unless the Trustee deems such price
inappropriate as a basis for evaluation) on the exchange which is deemed to be
the principal market therefor (the New York or American Stock
53
Exchange, if the securities are listed thereon) or, if there is no such
appropriate closing sale price on such exchange, at the closing bid price
(unless the Trustee deems such price inappropriate as a basis for evaluation).
If the Securities are not so listed or, if so listed and the principal market
therefor is other than on such exchange or there is no such closing bid price
available, such evaluation shall generally be made by the Trustee in good faith
based on the closing price on the over-the-counter market (unless the Trustee
deems such price inappropriate as a basis for evaluation) or if there is no such
appropriate closing price, (a) on current bid prices, (b) if bid prices are not
available, on the basis of current bid prices for comparable securities, (c) by
the Trustee's appraising the value of the securities in good faith on the bid
side of the market, or (d) by any combination thereof.
Section 4.02. Responsibility of the Trustee. The Sponsor and the
-----------------------------
Beneficial Owners may rely on any evaluation furnished by the Trustee and the
Sponsor shall have no responsibility for the accuracy thereof. The
determinations made by the Trustee hereunder shall be made in good faith upon
the basis of, and the Trustee shall not be liable for any errors contained in,
information reasonably available to it. The Trustee shall be under no liability
to the Sponsor, or to Beneficial Owners, for errors in judgment, provided,
however, that this provision shall not protect the Trustee against any liability
to which it would otherwise be subject by reason of wilful misfeasance, wilful
misconduct, bad faith or gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties hereunder.
54
Section 4.03. Continued Qualification as Regulated Investment Company.
------------------------------------------------------
The Trustee shall perform such reviews, file such reports or take any and all
such action as it is advised by counsel or accountants employed by the Trustee
as required in order to continue the qualification of the Trust as a Regulated
Investment Company.
ARTICLE V
Trust Fund Evaluation and Redemption of Creation Units
------------------------------------------------------
Section 5.01. Trust Fund Evaluation. As of the Evaluation Time (1) on
---------------------
each Business Day and (2) upon termination of the Trust, the Trustee shall, in
determining the net asset value of the Trust:
(a) subtract all Liabilities (including accrued expenses and dividends payable)
from the total value of the Trust's investments and other assets and (b) divide
the resulting figure by the total number of outstanding DIAMONDS. The resulting
figure is herein called a "Trust Fund Evaluation." The amount of cash held by
the Trust (including dividends receivable on stocks trading ex-dividend) is
computed as of such Evaluation Time (a) on each day on which DIAMONDS in
Creation Unit size aggregations are tendered for redemption and (b) on any other
day desired by the Trustee.
Section 5.02. Redemption of DIAMONDS in Creation Unit Size
--------------------------------------------
Aggregations. (a) DIAMONDS in Creation Unit size aggregations will be
------------
redeemable in kind when such Creation
55
Unit size aggregation is in the account of a single DTC Participant by
submitting a request for redemption to the Trustee in the manner specified
below.
(b) Requests for redemptions of Creation Units may be made on any
Business Day to the Trustee through the DIAMONDS Clearing Process. Requests for
redemptions of Creation Units may also be made directly to the Trustee outside
the DIAMONDS Clearing Process. Requests for redemption shall not be made to the
Distributor. In the case of redemptions made through the DIAMONDS Clearing
Process, the Transaction Fee will be deducted from the amount delivered to the
redeemer and in case of redemptions tendered directly to the Trustee outside the
DIAMONDS Clearing Process, an additional amount not to exceed three (3) times
the Transaction Fee applicable for a Creation Unit, will be deducted from the
amount delivered to the redeemer due in part to the increased expense associated
with delivery outside the DIAMONDS Clearing Processes. In all cases, both the
tender of DIAMONDS for redemption and distributions to the redeemer in respect
of DIAMONDS redeemed will be effected through the Depository and the relevant
DTC Participant(s) to the Beneficial Owner thereof as recorded on the book entry
system of the Depository or the relevant DTC Participant, as the case may be.
(c) The Trustee will transfer to the redeemer via the Depository and
the relevant DTC Participant(s) a portfolio of securities for each Creation Unit
size aggregation of DIAMONDS delivered, in most cases (other than as provided in
subsections (g) and (h) hereof) identical in price weightings and composition to
the securities portion of a Portfolio Deposit as in effect on the date a request
for redemption is made, other than at such time as notice of the
56
termination of the Trust is given, in which case the portfolio of securities so
delivered shall be identical in price weightings and composition to the
Securities in the Trust on the date of such notice. The Trustee will also
transfer via the relevant DTC Participant(s) to the redeeming Beneficial Owner
in cash the "Cash Redemption Payment", which on any given Business Day is an
amount in most cases identical to the amount of the Cash Component and is equal
to a proportional amount of the following: dividends, on a per Creation Unit
basis, on all the Securities for the period through the date of redemption, net
of expenses for such period (including, without limitation, (x) taxes or other
governmental charges against the Trust not previously deducted if any, and (y)
accrued fees of the Trustee and other expenses of the Trust (including legal and
auditing expenses) and other expenses not previously deducted, as if all the
Securities had been held for the entire Accumulation Period for such
distribution, plus or minus the Balancing Amount. To the extent that any
amounts payable to the Trust by the redeeming Beneficial Owner exceed the amount
of the Cash Redemption Payment, such Beneficial Owner shall be required to
deliver payment thereof to the Trustee. The Trustee will transfer the cash and
securities to the redeeming Beneficial Owner on the third (3rd) NSCC Business
Day following the date on which request for redemption is made. The Trustee
will cancel all DIAMONDS delivered upon redemption.
(d) In the event that the Trustee determines, in its discretion, that
an Index Security is likely to be unavailable or available in insufficient
quantity for delivery by the Trust upon the redemption of DIAMONDS in Creation
Unit size aggregations, the cash equivalent based on the market value of such
Index Security (determined in accordance with the protocols listed in
57
Section 4.01 hereof), at the close of the market on the date redemption is
requested may be included in the Portfolio Deposit as a part of the Cash
Redemption Payment, in lieu of the inclusion of such Index Security in the
securities portion of the Portfolio Deposit.
(e) If the income received by the Trust in the form of dividends and
other distributions on the Securities is insufficient to allow distribution of
the Cash Redemption Payment, the Trustee may advance out of its own funds any
amounts necessary in respect of redemptions of DIAMONDS pursuant to Section
3.01(b); otherwise, the Trustee may sell Securities in an amount sufficient to
effect such redemptions. The Trustee will reimburse itself in the amount of
such advance plus Federal Reserve Board reserve requirements together with
interest thereon at a percentage rate equal to then current overnight federal
funds rate by deducting such amounts from (1) dividend payments or other income
of the Trust when such payments or other income is received, (2) the amounts
earned or benefits derived by the Trustee on cash held by the Trustee for the
benefit of the Trust, and (3) the sale of Securities. Notwithstanding the
foregoing, in the event that any advance remains outstanding for more than
forty-five (45) Business Days, the Trustee shall sell Securities to reimburse
itself for such advance and any accrued interest thereon. Such advances will be
secured by a lien on the assets of the Trust in favor of the Trustee.
(f) The Trustee may, in its discretion, and will when so directed by
the Sponsor, suspend the right of redemption, or postpone the date of payment of
the net asset value for more than five (5) Business Days following the date on
which request for redemption is made, for any
58
period during which the New York Stock Exchange is closed or trading is
suspended; for any period during which an emergency exists as a result of which
disposal or evaluation of the Securities is not reasonably practicable; or for
such other period as the Commission may by order permit for the protection of
Beneficial Owners. Neither the Sponsor nor the Trustee is liable to any person
or in any way for any loss or damages which may result from any such suspension
or postponement.
(g) Upon the specific request of a redeemer, the Trustee may, in its
discretion, redeem DIAMONDS in Creation Unit size aggregations delivered by such
redeemer, either in whole or in part, by providing such redeemer with a
portfolio of Securities then held by the Trust which (1) differs in exact
composition and/or weighting from the Index Securities held in the DJIA at such
time (2) but does not differ in net asset value from the then-current Portfolio
Deposit. The Trustee may agree to such redemption if the Trustee were to
determine that such differing portfolio of Securities would be appropriate in
order to maintain the Trust Portfolio's correspondence to the price weighted
composition of the DJIA, for example, when a stock split of one or more of the
Index Securities occurs.
(h) In connection with redemption of DIAMONDS, if an investor states
its belief that it is restricted by regulation or otherwise from investing or
engaging in a transaction in one or more Index Securities, the Trustee, in its
discretion, shall have the right to include the cash equivalent value of such
Index Securities (determined in accordance with the protocols listed in Section
4.01 hereof) in the Portfolio Deposit as part of the Cash Redemption Payment, in
lieu of
59
the inclusion of such Index Securities in the securities portion of the
Portfolio Deposit for the affected investor. In any such case an investor shall
pay the Trustee the standard Transaction Fee plus an additional amount not to
exceed 3 times the standard Transaction Fee.
ARTICLE VI
Transfer of DIAMONDS in Creation Unit
Size Aggregations
-----------------
Section 6.01. Transfer of DIAMONDS in Creation Unit Size Aggregations.
------------------------------------------ ------------
DIAMONDS in Creation Unit size aggregations may be transferred only through the
book-entry system of the Depository as provided in Section 3.11. Beneficial
Owners have the rights accorded to holders of "book-entry" securities under
applicable law. Beneficial Owners may transfer DIAMONDS through the Depository
by instructing the DTC Participant holding the DIAMONDS for such Beneficial
Owner in accordance with standard securities industry practice.
ARTICLE VII
Sponsor
-------
Section 7.01. Responsibility and Duties. The Sponsor shall be liable
-------------------------
in accordance herewith for the obligations imposed upon and undertaken by the
Sponsor hereunder. The Trustee will make available to NSCC prior to the
commencement of trading on each Business Day a list of the names and required
number of shares of each of the Index Securities in the
60
current Portfolio Deposit as well as the amount of the Dividend Equivalent
Payment effective through and including the previous Business Day. The Sponsor
presently intends, but is not obligated, to determine and cause to be announced
(a) on a daily basis, the Dividend Equivalent Payment effective through and
including the previous Business Day, per outstanding DIAMOND Unit, and (b)
throughout the day at the Exchange a number representing, on a per DIAMOND 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 will
occasionally include a cash in lieu amount to compensate for the omission of a
particular Index Security from such Portfolio Deposit). Such information will
be calculated based upon the best information available to the Sponsor and may
be calculated by other persons designated to do so by the Sponsor.
Section 7.02. Certain Matters Regarding Successor Sponsor. The
-------------------------------------------
covenants, provisions and agreements herein contained shall in every case be
binding upon any successor to the business of the Sponsor, except that no
successor Sponsor may be a partnership. In the event of an assignment by the
Sponsor to a successor corporation as permitted by the next following sentence,
the Sponsor shall be relieved of all further liability under this Agreement.
The Sponsor may transfer all or substantially all of its assets to a corporation
which carries on the business of the Sponsor, if at the time of such transfer
such successor duly assumes all the obligations of the Sponsor under this
Agreement.
61
Section 7.03. Resignation of Sponsor; Successors. If at any time the
----------------------------------
Sponsor desires to resign its position as Sponsor hereunder, it may resign by
delivering to the Trustee an instrument of resignation executed by the Sponsor.
Such resignation shall not become effective until the earlier of (i) the
appointment by the Trustee of a successor Sponsor to assume, with such
compensation from the Trust Fund as the Trustee may deem reasonable under the
circumstances, but not exceeding the amounts prescribed by the Securities and
Exchange Commission, the duties and obligations of the resigning Sponsor
hereunder by an instrument of appointment and assumption executed by the Trustee
and the successor Sponsor; or (ii) the Trustee shall have agreed to act as
Sponsor hereunder succeeding to all the rights and duties of the resigning
Sponsor without appointing a successor Sponsor and without terminating this
Agreement or the Indenture; or (iii) the Trustee shall have terminated this
Agreement and liquidated the Trust, which action the Trustee shall have taken
if, within sixty (60) days following the date on which a notice of resignation
shall have been delivered by the Sponsor, a successor Xxxxxxx has not been
appointed or the Trustee has not agreed to act as Sponsor hereunder. If the
Sponsor shall fail to undertake or perform or become incapable of undertaking or
performing its duties hereunder or shall become bankrupt or its affairs shall be
taken over by public authorities, the Trustee shall act in accordance with the
provisions set forth in Section 8.01(g). Any such successor Sponsor shall be
satisfactory to the Trustee. Upon effective resignation hereunder, the
resigning Sponsor shall be discharged and shall no longer be liable in any
manner hereunder except as to acts or omissions occurring prior to such
resignation, and the new Sponsor shall thereupon undertake and perform all
duties and be entitled to all rights and
62
compensation as Sponsor under this Agreement. The successor Sponsor shall not
be under any liability hereunder for occurrences or omissions prior to the
execution of such instrument.
Section 7.04. Liability of Sponsor and Indemnification. (a) The
----------------------------------------
Sponsor shall not be under any liability to the Trust, the Trustee, or any
Beneficial Owner for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment or
for depreciation or loss incurred by reason of the purchase or sale of any
Securities; provided, however, that this provision shall not protect the Sponsor
against any liability to which it would otherwise be subject by reason of its
own gross negligence, bad faith, wilful misconduct or wilful malfeasance in the
performance of its duties hereunder or reckless disregard of its obligations and
duties hereunder. The Sponsor may rely in good faith on any paper, order,
notice, list, affidavit, receipt, evaluation, opinion, endorsement, assignment,
draft or any other document of any kind prima facie properly executed and
submitted to it by the Trustee, the Trustee's counsel or by any other person for
any matters arising hereunder. The Sponsor shall in no event be deemed to have
assumed or incurred any liability, duty, or obligation to any Beneficial Owner
or to the Trustee other than as expressly provided for herein.
(b) The Sponsor and its directors, shareholders, officers, employees,
affiliates (as such term is defined in Regulation S-X) and subsidiaries (each a
"Sponsor Indemnified Party") shall be indemnified from the Trust Fund and held
harmless against any loss, liability or expense incurred without (1) gross
negligence, bad faith, wilful misconduct or wilful malfeasance on the part of
such Sponsor Indemnified Party arising out of or in connection with the
performance of
63
its obligations hereunder or any actions taken in accordance with the provisions
of this Agreement or the Indenture or (2) reckless disregard on the part of such
Sponsor Indemnified Party of its obligations and duties under this Agreement or
the Indenture. Such indemnity shall include payment from the Trust Fund of the
costs and expenses incurred by such Sponsor Indemnified Party in defending
itself against any claim or liability in its capacity as Sponsor hereunder. Any
amounts payable to a Sponsor Indemnified Party under this Section 7.04 may be
payable in advance or shall be secured by a lien on the Trust Fund. The Sponsor
shall not be under any obligation to appear in, prosecute or defend any legal
action which in its opinion may involve it in any expense or liability;
provided, however, that if in the Sponsor's opinion action is required with
respect to an event or condition which would have a material adverse effect on
the Trust, the Sponsor shall notify the Trustee of such event or condition. If
the Trustee does not act within ten days after receipt of such notice, the
Sponsor may undertake any such action it may deem necessary or desirable in
respect of this Agreement and the rights and duties of the parties hereto and
the interests of the Beneficial Owners and, in such event, the legal expenses
and costs of any such action shall be expenses and costs of the Trust Fund and
the Sponsor shall be entitled to be reimbursed therefor by the Trust.
(c) The Sponsor shall not be liable except by reason of its own gross
negligence, bad faith, wilful misconduct or wilful malfeasance for any action
taken or suffered to be taken by it in good faith and believed by it to be
authorized or within the discretion, rights or powers conferred upon it by this
Agreement, or reckless disregard of its obligations and duties hereunder or
under the Indenture.
64
ARTICLE VIII
Trustee
-------
Section 8.01. General Definition of Trustee's Rights, Duties and
--------------------------------------------------
Responsibilities. In addition to and notwithstanding the other duties, rights,
----------------
privileges and liabilities of the Trustee as otherwise set forth in this
Agreement, the duties, rights, privileges and liabilities of the Trustee are
further defined as follows:
(a) All monies deposited with or received by the Trustee hereunder shall
be held by it, without interest other than as provided in Section 3.04, as a
deposit for the account of the Trust in accordance with the provisions of
Section 2.05, until required to be disbursed in accordance with the provisions
of this Agreement. Such monies shall be deemed segregated by maintaining such
monies in an account for the exclusive benefit of the Trust in accordance with
the provisions of Section 2.05.
(b) The Trustee shall not be under any liability for any action taken in
good faith reliance on any appraisal, paper, certification, order, list, demand,
request, consent, affidavit notice, opinion, direction, valuation, endorsement,
assignment, resolution, draft or other documents prima facie properly executed,
provided, however that where a list of authorized officials and their signatures
are on file with the Trustee, the Trustee shall be required to compare such
manual signatures to the signature on any such documents. (Such requirement
65
shall not apply to "personal identification numbers" or "PINS" or other forms of
electronic security devices which function as a proxy for a manual signature.)
(c) The Trustee shall not be under any liability for the disposition of
monies, or of any of the Securities, or in respect of any evaluation which it is
required to make under this Agreement or otherwise, except by reason of its own
gross negligence, bad faith, wilful misconduct or wilful malfeasance, or
reckless disregard of its duties and obligations hereunder and the Trustee may
construe any of the provisions of this Agreement, insofar as the same may be
ambiguous or inconsistent with any other provisions hereof, and any reasonable
construction of any such provision hereof by the Trustee in good faith shall be
binding upon the parties hereto and all Beneficial Owners.
(d) The Trustee shall not be responsible for the due execution hereof by
the Sponsor or for the form, character, genuineness, sufficiency, value or
validity of any of the Securities, or for the due execution thereof by any
Depositor, and the Trustee shall in no event assume or incur any liability, duty
or obligation to any Beneficial Owner or the Sponsor, other than as expressly
provided for herein.
(e) The Trustee shall not be under any obligation to appear in,
prosecute or defend any action which in its opinion may involve it in expense or
liability, unless it shall be furnished with reasonable security and indemnity
against such expense or liability. Any pecuniary cost of
66
the Trustee resulting from the Trustee's appearance in, prosecution of or
defense of any such actions shall be deductible from and constitute a lien
against the assets of the Trust. Subject to the foregoing, the Trustee shall,
in its discretion, undertake such action as it may deem necessary at any and all
times to protect the Trust Fund and the rights and interest of all Beneficial
Owners pursuant to the terms of this Agreement; provided, however, that the
expenses and costs of such actions, undertakings or proceedings shall be
deductible from the assets of the Trust or otherwise reimbursable to the Trustee
from, and shall constitute a lien against, the assets of the Trust.
(f) The Trustee may employ agents, attorneys, accountants, auditors and
other professionals and shall not be answerable for the default or misconduct of
any such agents, attorneys, accountants, auditors and other professionals if
such agents, attorneys, accountants, auditors or other professionals shall have
been selected in good faith. The Trustee shall not be liable in respect of any
action taken under this Agreement or the Indenture, or suffered, in good faith
by the Trustee, in accordance with the opinion of its counsel. The accounts of
the Trust Fund shall be audited, as required by law, by independent certified
public accountants designated from time to time by the Trustee, and the report
of such accountants shall be furnished by the Trustee to Beneficial Owners as
described in Section 3.11 upon request. The fees and expenses charged by such
agents, attorneys, accountants, auditors or other professionals shall constitute
an expense of the Trust.
(g) If the Sponsor shall fail to undertake or perform or shall become
incapable of undertaking or performing any of the duties which by the terms of
this Agreement are required to
67
be undertaken or performed by it, and such failure shall not be cured within
fifteen (15) Business Days following receipt of notice from the Trustee of such
failure, or if the Sponsor shall be adjudged bankrupt or insolvent, or a
receiver of the Sponsor or of its property shall be appointed, or a trustee or
liquidator or any public officer shall take charge or control of the Sponsor or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then in any such case, the Trustee may do any one or more of the
following: (1) appoint a successor Sponsor to assume, with such compensation
from the Trust Fund as the Trustee may deem reasonable under the circumstances,
but not exceeding the reasonable amounts prescribed by the Securities and
Exchange Commission in accordance with Section 26(a)(2)(C) of the Investment
Company Act of 1940, or any successor provision, the duties and obligations of
the resigning Sponsor hereunder by an instrument of appointment and assumption
executed by the Trustee and the successor Sponsor; or (2) agree to act as
Sponsor hereunder without appointing a successor Sponsor and without
terminating this Agreement or the Indenture; or (3) terminate this Agreement and
Indenture and liquidate the Trust pursuant to Section 9.01.
(h) If the evaluation of the Trust Fund as shown by any Trust Fund
Evaluation shall be less than the Discretionary Liquidation Value, the Trustee
shall, only when so directed in writing by the Sponsor, terminate this Agreement
and the applicable Indenture and the Trust Fund created hereby and thereby and
liquidate such Trust Fund, all in the manner provided in Section 9.01.
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(i) In no event shall the Trustee be personally liable for any taxes or
other governmental charges imposed upon or in respect of the Securities or upon
the Income thereon or upon it as Trustee hereunder or upon or in respect of the
Trust Fund which it may be required to pay under any present or future law of
the United States of America or of any other taxing authority having
jurisdiction in the premises. For all such taxes and charges and for any
expenses, including counsel's fees, which the Trustee may sustain or incur with
respect to such taxes or charges, the Trustee shall be reimbursed and
indemnified out of the assets of the Trust Fund and the payment of such amounts
shall be secured by a lien on the Trust Fund.
(j) The Trustee shall not be liable except by reason of its own gross
negligence, bad faith, wilful misconduct or wilful malfeasance for any action
taken or suffered to be taken by it in good faith and believed by it to be
authorized or within the discretion, rights or powers conferred upon it by this
Agreement or reckless disregard of its obligations and duties hereunder or under
the Indenture.
(k) So long as required by Section 26(a)(2)(C) of the Investment Company
Act of 1940, or any successor provision, and the rules promulgated thereunder,
no payment to the Sponsor or to any affiliated person (as so defined) or agent
of the Sponsor shall be allowed as an expense of the Trust except for payment
not in excess of such reasonable amounts as the Securities and Exchange
Commission may prescribe as compensation for performing bookkeeping and other
administrative services of a character normally performed by the Trustee itself
and except as the Securities and Exchange Commission may permit by order.
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(l) The Trustee in its individual or any other capacity may become an
owner or pledgee of, or be an underwriter or dealer in respect of, bonds or
other obligations issued by the same issuer (or an affiliate of such issuer) of
any Securities at any time held as part of the Trust Fund or DIAMONDS and may
deal in any manner with the same or with the issuer (or an affiliate of the
issuer) with the same rights and powers as if it were not the Trustee hereunder,
including, but not limited to making loans or maintaining other banking
relationships with any such issuer.
(m) The Trustee shall discharge all of its obligations and perform all
of its duties under the Participant Agreement.
(n) The Trustee shall not be under any liability for the furnishing of
any information to the Sponsor and the subsequent distribution of any such
information, to Beneficial Owners or potential Beneficial Owners of DIAMONDS
except by reason of its own gross negligence, bad faith, wilful misconduct or
wilful malfeasance, or reckless disregard of its duties and obligations
hereunder. Subject to the foregoing, the Trustee shall undertake to provide to
the Sponsor information necessary for the Sponsor to compute an estimate of the
net asset value, on an intraday basis, and provide such estimate to Beneficial
Owners of DIAMONDS.
Section 8.02. Books, Records and Reports. (a) The Trustee shall keep
--------------------------
proper books of record and account of all the transactions under this Agreement
at its office located in Quincy, Massachusetts or such office as it may
subsequently designate upon notice to the other
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parties hereto. The books and records of the Trust Fund shall be open to
inspection by any Beneficial Owner at all reasonable times during the usual
business hours of the Trustee. The Trustee shall keep proper record of the
creation and redemption of Creation Units at its Quincy Office. Such records of
the creation and redemption of Creation Units shall be open to inspection at all
reasonable times during the usual business hours of the Trustee.
(b) The Trustee shall make, or cause to be made, such annual or other
reports and file such documents as it is advised by counsel or accountants
employed by it as are required of the Trust by the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940 and
including, but not limited to, Form N-SAR and filings pursuant to Rule 24f-2
under the Investment Company Act of 1940, make such elections and file such tax
returns as it is advised by counsel or accountants employed by it as are from
time to time required under any applicable state or federal statute or rule or
regulation thereunder, in particular, for the continuing qualification of the
Trust as a Regulated Investment Company. The Trust's fiscal year shall be set
forth in the Indenture and may be changed from time to time by the Trustee and
the Sponsor without consent of the Beneficial Owners.
Section 8.03. Indenture and List of Securities on File. The Trustee
----------------------------------------
shall keep a certified copy or duplicate original of this Agreement on file in
its office and available for inspection at all reasonable times during its usual
business hours by any Beneficial Owner, together with the Indenture for each
Series then in effect and the Trustee shall keep and so make
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available for inspection a current list of the Securities in the Portfolio,
including the identity and number of shares of each of the Securities.
Section 8.04. Compensation of Trustee. (a) The Trustee shall receive,
-----------------------
at the times set forth in this Agreement, as compensation for performing its
services under this Agreement, an amount equal to the amount specified as
compensation for the Trustee in Section 3.04. The computation of such
compensation shall be made as set forth in Section 3.04. Such compensation
shall be accrued daily by the Trustee in accordance with Section 3.04.
(b) The Trustee shall charge the Trust for those expenses and
disbursements incurred hereunder as contemplated by this Agreement, including
legal, brokerage and auditing expenses; provided, however, that the amount of
any such charge which has not been finally determined as of any Dividend Payment
Date may be estimated and any necessary adjustments shall be made in the
succeeding month. The Trustee may direct that all such expenses and
disbursements shall be paid directly from the assets of the Trust. If the cash
balances of the Trust shall be insufficient to provide for amounts payable
pursuant to this Section 8.04, the Trustee may, in its discretion, advance out
of its own funds such amounts as are payable and reimburse itself for such
advances as funds become available or from the proceeds of Securities sold to
reimburse such advances. The Trustee will reimburse itself in the amount of any
such advance, plus Federal Reserve Board reserve requirements, including those
amounts made pursuant to Section 3.01(b) together with interest thereon at a
percentage rate equal to the then current overnight federal funds rate, by
deducting such amounts from (1) dividend payments or
72
other income of the Trust when such payments or other income is received, (2)
the amounts earned or benefits derived by the Trustee on cash held by the
Trustee for the benefit of the Trust, and (3) the sale of Securities.
Notwithstanding the foregoing, in the event that any advance remains outstanding
for more than forty-five (45) Business Days, the Trustee shall sell Securities
to reimburse itself for the amount of such advance and any accrued interest
thereon. Such advances will be secured by a lien on the assets of the Trust in
favor of the Trustee.
Section 8.05. Indemnification of Trustee. The Trustee and its
--------------------------
directors, shareholders, officers, employees, agents, affiliates (as such term
is defined in Regulation S-X) and subsidiaries (each a "Trustee Indemnified
Party") shall be indemnified from the Trust Fund and held harmless against any
loss, liability or expense incurred without (1) gross negligence, bad faith,
wilful misconduct or wilful malfeasance on the part of such Trustee Indemnified
Party arising out of or in connection with the acceptance or administration of
this Trust and any actions taken in accordance with the provisions of this
Agreement or arising out of the administration of any Section of this Agreement
or any Section of the Indenture or (2) reckless disregard on the part of such
Trustee Indemnified Party of its obligations and duties under this Agreement or
the Indenture. Such indemnity shall include payment from the Trust Fund of the
costs and expenses incurred by such Trustee Indemnified Party in defending
itself against any claim or liability relating to this Agreement, the Indenture
or the Trust Fund, including any loss, liability or expense incurred in acting
pursuant to written directions or instructions to the Trustee given by the
Sponsor or counsel to the Trust from time to time in accordance with the
provisions of this Agreement or in undertaking actions from time to time which
the Trustee deems necessary in its
73
discretion to protect the Trust Fund and the rights and interest of all
Beneficial Owners pursuant to the terms of this Agreement. Any amounts payable
to a Trustee Indemnified Party under this Section 8.05 may be payable in advance
or shall be secured by a lien on the Trust Fund.
Section 8.06. Resignation, Discharge or Removal of Trustee;
---------------------------------------------
Successors. (a) The Trustee may resign and be discharged of the Trust created
by this Agreement and the Indenture by executing an instrument in writing
resigning as such Trustee, filing the same with the Sponsor, if any, and mailing
a copy of a notice of resignation to all DTC Participants for distribution to
Beneficial Owners as provided in Section 3.11 not less than 60 days before the
date specified in such instrument when, subject to Section 8.06(c), such
resignation is to take effect. The Trustee shall be advised by the Depository
as to the holdings of all DTC Participants pursuant to the Depository Agreement.
In case at any time the Trustee shall not meet the requirements set forth in
Section 8.07 hereof, shall fail to undertake or perform or shall become
incapable of undertaking or performing any of the duties which by the terms of
this Agreement are required to be undertaken or performed by it, and such
failure shall not be cured within fifteen (15) Business Days following receipt
of notice from the Sponsor of such failure, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or a trustee or liquidator or any public officer shall take charge or control of
such Trustee or of its property or affairs for the purposes of rehabilitation,
conservation or liquidation, then in any such case, the Sponsor may, subject to
the requirements of Section 8.06(b) and (c), remove such Trustee and appoint a
successor Trustee by written instrument or instruments delivered to the Trustee
so removed and to the successor Trustee. Upon receiving notice of
74
resignation or removal of the Trustee, the Sponsor shall use its best efforts
promptly to appoint a successor Trustee in the manner and meeting the
qualifications hereinafter provided, by written instrument or instruments
delivered to such resigning Trustee and the successor Trustee. Notice of such
appointment of a successor Trustee shall be mailed promptly after acceptance of
such appointment by the successor Trustee to all DTC Participants for
distribution to Beneficial Owners as provided in Section 3.11. Beneficial
Owners of 51 percent of the DIAMONDS then outstanding may at any time remove the
Trustee by written instrument or instruments delivered to the Trustee and
Sponsor. The Sponsor shall thereupon use its best efforts to appoint a
successor Trustee in the manner provided herein. Upon effective resignation
hereunder, the resigning Trustee shall be discharged and shall no longer be
liable in any manner hereunder except as to acts or omissions occurring prior to
such resignation, and the new Trustee shall thereupon undertake and perform all
duties and be entitled to all rights and compensation as Trustee under this
Agreement. The successor Trustee shall not be under any liability hereunder for
occurrences or omissions prior to the execution of such instrument.
(b) In case at any time the Trustee shall be removed or shall resign and
no successor Trustee shall have been appointed within sixty (60) days after the
date notice of removal has been received by the Trustee or the Trustee has
issued its notice of resignation, the Trustee shall terminate this Agreement and
Indenture and liquidate the Trust pursuant to Section 9.01.
75
(c) Any successor Trustee appointed hereunder shall execute and
acknowledge to the Sponsor and to the retiring Trustee an instrument accepting
such appointment hereunder, and such successor Trustee without any further act,
deed or conveyance shall become vested with all the rights, powers, duties and
obligations of its predecessor hereunder with like effect as if originally named
a Trustee herein and shall be bound by all the terms and conditions of this
Agreement and the Indenture. Upon the request of such successor Trustee the
retiring Trustee and the Sponsor shall, upon payment of all amounts due the
retiring Trustee, execute and deliver an instrument acknowledged by it
transferring to such successor Trustee all the rights and powers of the retiring
Trustee; and the retiring Trustee shall transfer, deliver and pay over to the
successor Trustee all Securities and monies at the time held by it hereunder, if
any, together with all necessary instruments of transfer and assignment or other
documents properly executed necessary to effect such transfer and such of the
records or copies thereof maintained by the retiring Trustee in the
administration hereof as may be requested by the successor Trustee and shall
thereupon be discharged from all duties and responsibilities under this
Agreement. Any resignation or removal of a Trustee and appointment of a
successor Trustee pursuant to this Section 8.06 shall become effective upon such
acceptance of appointment by the successor Trustee. The indemnification of such
Trustee and any other Trustee Indemnified Party provided for under Section 8.05
hereof shall survive any resignation, discharge or removal of the Trustee
hereunder.
(d) Any bank, trust company, corporation or national banking association
into which a Trustee hereunder may be merged or with which it may be
consolidated, or any bank,
76
trust company, corporation or national banking association resulting from any
merger or consolidation to which such Trustee hereunder shall be a party, or any
bank, trust company, corporation or national banking association succeeding to
all or substantially all of the business of the Trustee, shall be the successor
Trustee under this Agreement without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto, anything
herein, or in any agreement relating to such merger, consolidation or
succession, by which any such Trustee may seek to retain certain powers, rights
and privileges theretofore obtaining for any period of time following such
merger or consolidation, to the contrary notwithstanding.
Section 8.07. Qualifications of Trustee. The Trustee or successor
-------------------------
Trustee shall be a bank, trust company, corporation or national banking
association organized and doing business under the laws of the United States or
any state thereof, and shall be authorized under such laws to exercise
corporate trust powers. The Trustee and any successor Trustee shall have at all
times an aggregate capital, surplus, and undivided profits of not less than
$50,000,000.
Section 8.08. Trustee's Duties Expressly Provided for Herein. Except
-----------------------------------------------
as otherwise expressly provided for in this Agreement, the Trustee shall have no
duties or obligations hereunder.
ARTICLE IX
Termination
-----------
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Section 9.01. Procedure Upon Termination. (a) If within 90 days from
--------------------------
the date that the registration statement relating to the Trust becomes effective
under the Securities Act of 1933 the net worth of the Trust shall have fallen to
less than $100,000, the Trustee shall, upon the direction of the Sponsor,
terminate the Trust and distribute to each Beneficial Owner such Beneficial
Owner's pro rata share of the assets of the Trust. The Sponsor will have the
discretionary right to direct the Trustee to terminate the Trust if at any time
after six months following and prior to three years following the Initial Date
of Deposit the net asset value of the Trust falls below $150,000,000 and if at
any time after three years following the Initial Date of Deposit such value is
less than $350,000,000, as such dollar amount shall be adjusted for inflation in
accordance with the CPI-U, such adjustment to take effect at the end of the
fourth year following the Initial Date of Deposit and at the end of each year
thereafter and to be made so as to reflect the percentage increase in consumer
prices as set forth in the CPI-U for the twelve month period ending in the last
month of the preceding fiscal year (the "Discretionary Termination Amount"). In
such case, the Trustee shall, upon receipt of instruction from the Sponsor,
terminate this Agreement, the Indenture and the Trust created hereby. Any
termination pursuant to the two preceding sentences shall be at the complete
discretion of the Sponsor subject to the terms hereof, and the Sponsor shall not
be liable in any way for depreciation or loss occurring as a result of any such
termination. The Trustee shall have no power to terminate the Agreement, the
Indenture or the Trust because the value of the Trust Fund is below the
Discretionary Termination Amount. The Trustee shall terminate the Agreement,
the Indenture
78
and the Trust Fund in the event that DIAMONDS are de-listed from the
Exchange./*/ The Agreement, the Indenture and the Trust Fund may also be
terminated upon receipt by the Trustee of written notice of the occurrence of
any one or more of the following events: (a) by the agreement of the Beneficial
Owners of 66-2/3% of outstanding DIAMONDS; (b) if the Depository is unable or
unwilling to continue to perform its functions as set forth herein 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 Xxxxx ceases publishing the DJIA; or (e) if the License
Agreement is terminated. Notwithstanding the foregoing, the Agreement, the
Indenture and the Trust Fund in any event shall terminate by their terms on the
Mandatory Termination Date or the date 20 years after the death of the last
survivor of the eleven persons named in the Indenture, whichever occurs first,
unless sooner terminated as specified herein. If at any time the Sponsor shall
fail to undertake or perform or become incapable of undertaking or performing
any of the duties which by the terms of the Trust Agreement are required to be
undertaken or performed, or if the Sponsor resigns pursuant to Section 7.03, the
Trustee may, in its discretion, in lieu of appointing a successor Sponsor
pursuant to Section 8.01, terminate this Agreement, the Indenture and the Trust
and liquidate the
---------------
/*/ It is intended that DIAMONDS will be listed for trading on the Exchange.
Transactions involving DIAMONDS in the public trading market will be
subject to customary brokerage charges and commissions. There can be no
assurance, however, that DIAMONDS will always be listed on the Exchange.
Following the initial twelve-month period following formation of the
Trust and commencement of trading on the Exchange, the Exchange will
consider the suspension of trading in or removal from listing DIAMONDS
when, in its opinion, further dealings appear unwarranted if (a) the
Trust interest has more than sixty (60) days remaining until termination
and there are fewer than 50 record Beneficial Owners of DIAMONDS for
thirty (30) or more consecutive trading days; (b) Dow Xxxxx ceases
publishing the DJIA; or (c) such other event shall occur or condition
shall exist which, in the opinion of the Exchange, makes further
dealings on the Exchange inadvisable.
79
Trust pursuant to the provisions hereof. Notwithstanding the foregoing, in no
event shall the Trust Fund, the Indenture and this Agreement continue past the
Mandatory Termination Date set forth in the Indenture unless sooner terminated
as specified herein. As soon as practicable after notice of termination of the
Trust, the Trustee will distribute to redeemers tendering DIAMONDS in Creation
Unit size aggregations prior to the termination date the Securities and cash as
provided in Section 5.02 and upon termination of the Trust the Trustee will sell
the Securities held in the Trust as provided below.
(b) Written notice of termination, specifying the date of termination,
the period during which the assets of the Trust will be liquidated and DIAMONDS
will be redeemed in cash at net asset value, and the date determined by the
Trustee upon which the books of the Trustee, maintained pursuant to Section
6.01, shall be closed, shall be given by the Trustee to each Beneficial Owner at
least twenty (20) days prior to termination of the Trust. Such notice shall
further state that, as of the date thereof and thereafter, neither requests to
create additional Creation Units nor additional Portfolio Deposits will be
accepted and that, as of the date thereof, the portfolio of securities delivered
upon redemption shall be identical in composition and weighting to the
Securities rather than the securities portion of the Portfolio Deposit as in
effect on the date request for redemption is made. Within a reasonable period
of time after such termination the Trustee shall, subject to any applicable
provisions of law, sell all of the Securities not already distributed to
redeemers of DIAMONDS in Creation Unit size aggregations, as provided herein, if
any, in such a manner so as to effectuate orderly sales and a minimal market
impact. The Trustee shall not be liable for or responsible in any way for
80
depreciation or loss incurred by reason of any sale or sales made in accordance
with the provisions of this Section 9.01. The Trustee may suspend its sales of
the Securities upon the occurrence of unusual or unforeseen circumstances,
including, but not limited to, a suspension in trading of a Security, the
closing or restriction of trading on a stock exchange, the outbreak of
hostilities or the collapse of the economy. Upon receipt of proceeds from the
sale of the last Security, the Trustee shall:
(i) pay to itself individually from the Trust Fund an amount equal to
the sum of (1) its accrued compensation for its ordinary services, (2) any
reimbursement due to it for its extraordinary services, (3) any advances made
but not yet repaid and (4) any other services and disbursements as provided
herein;
(ii) deduct any and all fees and expenses from the Trust Fund in
accordance with the provisions of Section 3.04 hereof; provided, however,
-------- -------
that no portion of such amount shall be deducted or paid unless the payment
thereof from the Trust is at that time lawful;
(iii) deduct from the Trust Fund any amounts which it, in its sole
discretion, shall deem requisite to be set aside as reserves for any
applicable taxes or other governmental charges that may be payable out of the
Trust Fund;
(iv) transmit to the Depository for distribution each Beneficial Owner's
interest in the remaining assets of the Trust; and
81
(v) disseminate to each Beneficial Owner as provided in Section 3.11 a
final statement as of the date of the computation of the amount distributable
to the Beneficial Owners, setting forth the data and information in
substantially the form and manner provided for in Section 3.05 hereof.
(c) Dividends to be received by the Trust on Securities sold in
liquidation pursuant to this Section 9.01 subsequent to redemption shall be
aggregated and distributed ratably when all such dividends have been received.
Section 9.02. Moneys to Be Held Without Interest to Beneficial Owners.
-------------------------------------------------------
The Trustee shall be under no liability with respect to moneys held upon
termination, except to hold the same as a deposit without interest for the
benefit of the Beneficial Owners.
Section 9.03. Dissolution of Sponsor Not to Terminate Trust. The
---------------------------------------------
dissolution of the Sponsor, or its ceasing to exist as a legal entity from, or
for, any cause, shall not operate to terminate this Agreement and the Indenture
insofar as the duties and obligations of the Trustee are concerned unless the
Trustee terminates the Trust pursuant to Section 9.01.
ARTICLE X
Miscellaneous Provisions
------------------------
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Section 10.01. Amendment and Waiver. (a) The Indenture and Agreement
--------------------
may be amended from time to time by the Trustee and the Sponsor without the
consent of any Beneficial Owners (1) to cure any ambiguity or to correct or
supplement any provision thereof which may be defective or inconsistent or to
make such other provisions in regard to matters or questions arising thereunder
as will not adversely affect the interests of Beneficial Owners; (2) to change
any provision thereof as may be required by the Commission; (3) 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; (4) to add or
change any provision thereof as may be necessary or advisable in the event that
NSCC or the Depository is unable or unwilling to continue to perform its
functions as set forth therein; and (5) to add or change any provision thereof
to conform the adjustments to the Portfolio and the Portfolio Deposit to
changes, if any, made by Xxx Xxxxx in its method of determining the DJIA. The
Indenture and Agreement may also be amended from time to time by the Sponsor and
the Trustee with the consent of the Beneficial Owners of 51% of the outstanding
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; provided,
however, that the Trust Agreement may not be amended without the consent of the
Beneficial Owners of all outstanding DIAMONDS if such amendment would (x)
permit, except in accordance with the terms and conditions of the Trust
Agreement, the acquisition of any securities other than those acquired in
accordance with the terms and conditions of the Trust Agreement; (y) reduce the
interest of any Beneficial Owner in the Trust; or (z) reduce the percentage of
Beneficial Owners required to consent to any such amendment.
83
(b) Promptly after the execution of any such amendment, the Trustee
shall receive from the Depository, pursuant to the terms of the Depository
Agreement, a list of all DTC Participants holding DIAMONDS. The Trustee shall
inquire of each such DTC Participant as to the number of Beneficial Owners for
whom such DTC Participant holds DIAMONDS, and provide each such DTC Participant
with sufficient copies of a written notice of the substance of such amendment
for transmittal by each such DTC Participant to such Beneficial Owners.
(c) It shall not be necessary for the consent of Beneficial Owners
under this Section 10.01 or under Section 9.01 to approve the particular form
of any proposed amendment, but it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents and of
evidencing the authorization of the execution thereof by Beneficial Owners shall
be subject to such reasonable regulations as the Trustee may prescribe.
Section 10.02. Registration (Initial and Continuing) of DIAMONDS. The
-------------------------------------------------
Sponsor agrees and undertakes on its own part to register or appoint an agent,
which may include the Trustee, to register DIAMONDS with the Securities and
Exchange Commission and under the blue sky laws of such states as the Sponsor
may select and as may be required. If, and to the extent permitted by the
Order, the registration of DIAMONDS with the Securities and Exchange Commission
and under the applicable securities laws of such states shall be payable out of
the Trust. Registration charges, blue sky fees, printing costs, mailing costs,
attorney's fees, and other miscellaneous out-of-pocket expenses incurred
pursuant to this Section and related to all
84
DIAMONDS shall be borne by the Trust only to the extent and in the manner
provided for by Section 3.04 and pursuant to the Order.
Section 10.03. (a) License Agreement with Dow Xxxxx & Company, Inc.
-----------------------------------------------
The Sponsor shall, prior to the Initial Date of Deposit, obtain a license
agreement with Dow Xxxxx & Company, Inc. under which the Trust may use the
trademarks and service marks "Dow Xxxxx Industrial Average", "DJIA", "Xxx
Xxxxx", "DIAMONDS" and "THE DOW INDUSTRIALS" to the extent deemed necessary by
the Sponsor under federal and state securities laws and to indicate the source
of the DJIA as a basis for determining the composition of the Trust pursuant to
Section 2.04.
(b) The Trust shall pay to Dow Xxxxx & Company, Inc., or shall
reimburse the Sponsor for its payment to Dow Xxxxx & Company, Inc., in
accordance with Section 3.04, a licensing fee as set forth in an exhibit to the
License Agreement.
Section 10.04. Certain Matters Relating to Beneficial Owners. (a) By
---------------------------------------------
the purchase and acceptance or other lawful delivery and acceptance of DIAMONDS
(whether in Creation Unit size aggregations or otherwise), each Beneficial Owner
thereof shall be deemed to be a beneficiary of the Trust created by this
Agreement and the Indenture and vested with all right, title and interest in the
Trust Fund therein created to the extent of the DIAMONDS in Creation Unit size
aggregations or DIAMONDS set forth, subject to the terms and conditions of this
Agreement and the Indenture.
85
(b) A redeemer may at any time tender DIAMONDS in Creation Unit size
aggregations to the Trustee for redemption, subject to and in accordance with
Section 5.02.
(c) The death or incapacity of any Beneficial Owner shall not operate to
terminate the Indenture and Agreement or the Trust Fund, nor entitle such
Beneficial Owner's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them. Each Beneficial Owner expressly waives any right
such Beneficial Owner may have under any rule of law, or the provisions of any
statute, or otherwise, to require the Trustee at any time to account, in any
manner other than as expressly provided in the Indenture and Agreement, in
respect of the Securities or moneys from time to time received, held and applied
by the Trustee hereunder.
(d) No Beneficial Owner shall have any right to vote except as provided
in Sections 9.01 and 10.01 or in any manner otherwise to control the operation
and management of the Trust Fund, or the obligations of the parties hereto.
Nothing set forth in this Indenture and Agreement shall be construed so as to
constitute the Beneficial Owners from time to time as partners or members of an
association; nor shall any Beneficial Owner ever be liable to any third person
by reason of any action taken by the parties to this Indenture, or for any other
cause whatsoever.
Section 10.05. New York Law to Govern. The Indenture and Agreement
----------------------
are executed and delivered in the State of New York, and all laws or rules of
construction of such
86
State shall govern the rights of the parties hereto and the Beneficial Owners
and the interpretation of the provisions hereof. The Indenture and Agreement
shall be deemed effective when it is executed by the Sponsor and the Trustee.
Section 10.06. Notices. Any notice, demand, direction or instruction
-------
to be given to the Sponsor hereunder shall be in writing and shall be duly given
if mailed, by certified or registered mail, return receipt requested, or
delivered to the Sponsor, at the following address: PDR Services Corporation,
c/o American Stock Exchange, Inc., 00 Xxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention: Secretary, or at such other address as shall be specified by the
Sponsor to the other parties hereto in writing. Any notice, demand, direction or
instruction to be given to the Trustee shall be in writing and shall be duly
given if mailed, by certified or registered mail, return receipt requested,
delivered to or sent by facsimile transmission and received by State Street Bank
and Trust Company, 000 Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, Attention:
Executive Vice President, Mutual Funds - DIAMONDS, or such other address as
shall be specified to the other parties hereto by the Trustee in writing. Any
notice to be given to a Beneficial Owner shall be duly given if mailed or
delivered to DTC Participants for delivery to Beneficial Owners.
Section 10.07. Severability. If any one or more of the covenants,
-------------
agreements, provisions or terms of this Indenture shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the
87
validity or enforceability of the other provisions of this Agreement or the
rights of the Beneficial Owners.
Section 10.08. Separate and Distinct Series. Each Series of the
----------------------------
DIAMONDS Trust to which these Standard Terms and Conditions of Trust shall be
applicable shall, for all financial and administrative purposes, be considered
separate and distinct from every other Series, and the assets of one Series
shall not be commingled with the assets of another Series nor shall the expenses
of any one Series be charged against any other Series.
Section 10.09. Counterparts. This Standard Terms and Agreement may be
-------------
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
88
IN WITNESS WHEREOF, the parties hereto have caused these Standard Terms
and Conditions of Trust dated as of January 1, 1998 to be duly executed.
PDR SERVICES CORPORATION,
as Sponsor
By ___________________________
Title:
ATTEST:
----------------------------
Title:
STATE STREET BANK AND
TRUST COMPANY,
as Trustee
By ___________________________
Title:
ATTEST:
-----------------------------
Title:
Effective Date: January 13, 1998
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ____ day of January in the year 1998 before me personally came
Xxxxxx Xxxxxxxxxx to me known, who, being by me duly sworn, did depose and say
that he is the President of PDR Services Corporation, the corporation described
in and which executed the above instrument; and that he signed his name thereto
by like authority.
-------------------------------
Notary Public
COMMONWEALTH OF MASSACHUSETTS )
: ss.:
COUNTY OF NORFOLK )
On this ____ day of January, 1998, before me personally appeared
______________, to me known, who, being by me duly sworn, did depose and say
that he is __________________ of State Street Bank and Trust Company, the bank
and trust company described in and which executed the above instrument; and that
he signed his name thereto by authority of the board of directors of said bank
and trust company.
---------------------------------
Notary Public
EXHIBIT B
[FORM A OF GLOBAL CERTIFICATE.]
CERTIFICATE OF BENEFICIAL INTEREST
-Evidencing-
All Undivided Interests
-in-
DIAMONDS TRUST SERIES 1
This is to certify that CEDE & CO. is the owner and registered holder of
this Certificate evidencing the ownership of all of the fractional undivided
interests in the DIAMONDS Trust Series 1 (herein called the "Trust")
("DIAMONDS"), created under the laws of the State of New York by the Standard
Terms and Conditions of Trust and the Trust Indenture and Agreement (hereinafter
called the "Agreement and Indenture"), each between PDR Services Corporation
(hereinafter called the "Sponsor"), and State Street Bank and Trust Company, as
Trustee (hereinafter called the "Trustee"), copies of which are available at the
offices of the Trustee.
At any given time this Certificate shall represent all undivided
interests in the Trust which shall be the total number of Creation Unit size
aggregations of DIAMONDS of undivided interest which are outstanding at such
time. The Agreement and Indenture provide for the deposit of additional
Securities from time to time with the Trustee, at which times the Trustee will
create DIAMONDS in the corresponding number of Creation Unit size aggregations
representing the additional Securities deposited with the Trust.
B-1
The Sponsor and ________________ as the initial depositor of the
Securities hereby grant and convey all of their rights, title and interest in
and to the Trust to the extent of the undivided interest represented hereby to
the registered holder of this Certificate subject to and in pursuance of the
Agreement and Indenture, all the terms, conditions and covenants of which are
incorporated herein as if fully set forth at length.
The registered holder of this Certificate is entitled at any time upon
tender of this Certificate to the Trustee, endorsed in blank or accompanied by
all necessary instruments of assignment and transfer in proper form, at its
Quincy office in the Commonwealth of Massachusetts and, upon payment of any tax
or other governmental charges, to receive on or before the seventh calendar day
following the day on which such tender is made or, if such calendar day is not a
Business Day (as defined in the Indenture), on the next succeeding Business Day
following such calendar day, such holder's ratable portion of each of the
Securities for each Creation Unit size aggregation of DIAMONDS tendered and
evidenced by this Certificate and a check or, if elected, a wire transfer, in an
amount proportionate to money due such holder for each Creation Unit size
aggregations of DIAMONDS tendered.
The holder hereof may be required to pay a charge specified in the
Agreement and Indenture issued in connection with the issuance, transfer or
interchange of this Certificate and any tax or other governmental charge that
may be imposed in connection with the transfer, interchange or other surrender
of this Certificate.
B-2
The holder of this Certificate, by virtue of the purchase and acceptance
hereof, assents to and shall be bound by the terms of the Agreement and
Indenture, copies of which are on file and available for inspection at
reasonable times during business hours at the Quincy office of the Trustee, to
which reference is made for all the terms, conditions and covenants thereof.
The Trustee may deem and treat the person in whose name this Certificate
is registered upon the books of the Trustee as the owner hereof for all purposes
and the Trustee shall not be affected by any notice to the contrary.
The Agreement and Indenture permits, with certain exceptions as therein
provided, the amendment thereof, the modification of the rights and the
obligations of the Sponsor, the Trustee and the holders of DIAMONDS in Creation
Unit size aggregations thereunder and the waiver of the performance of any of
the provisions thereof at any time with the consent of the holders of DIAMONDS
in Creation Unit size aggregations or DIAMONDS, evidencing 51% of Creation Unit
size aggregations of DIAMONDS or, proportionately, DIAMONDS at any time
outstanding under the Indenture. Any such consent or waiver by the holder of
DIAMONDS shall be conclusive and binding upon such holder of DIAMONDS and upon
all future holders of DIAMONDS, and shall be binding upon any DIAMONDS, whether
evidenced by a Certificate or held in uncertificated form, issued upon the
registration or transfer hereof whether or not notation of such consent or
waiver is made upon this Certificate and whether or not the DIAMONDS in Creation
Unit size aggregations evidenced hereby are at such time in
B-3
uncertificated form. The Agreement and Indenture also permits the amendment
thereof, in certain limited circumstances, without the consent of any holders of
DIAMONDS.
This Certificate shall not become valid or binding for any purpose until
properly executed by the Trustee under the Agreement and Indenture.
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the Trustee or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is required by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
B-4
IN WITNESS WHEREOF, State Street Bank and Trust Company, as Trustee, has
caused this Certificate to be manually executed in its corporate name by an
Authorized Officer and PDR Services Corporation, as Sponsor, has caused this
Certificate to be executed in its name by the manual or facsimile signature of
one of its Authorized Officers.
STATE STREET BANK PDR SERVICES CORPORATION,
AND TRUST COMPANY, As Sponsor
As Trustee
By ____________________ By ____________________
Authorized Officer Authorized Officer
Date: January __, 1998
B-5
EXHIBIT C
[FORM B OF GLOBAL CERTIFICATE.]
CERTIFICATE OF BENEFICIAL INTEREST
____ Creation Units
-Evidencing-An Undivided Interest
-in-DIAMONDS TRUST, SERIES ____
This is to certify that ______________ is the owner and registered
holder of this Certificate evidencing the ownership of DIAMONDS in the amount of
____ Creation Unit size aggregations of fractional undivided interest in the
series of DIAMONDS Trust noted on the face hereof (herein called the "Trust"),
created under the laws of the State of New York by the Standard Terms and
Conditions of Trust and the Trust Indenture and Agreement (hereinafter called
the "Agreement and Indenture"), each between PDR Services Corporation
(hereinafter called the "Sponsor"), and State Street Bank and Trust Company, as
Trustee (hereinafter called the "Trustee"), copies of which are available at the
offices of the Trustee.
At any given time this Certificate shall represent an undivided
interest in the Trust, the numerator of which fraction shall be the number of
Creation Unit size aggregations of DIAMONDS set forth on the face hereof and the
denominator of which shall be the total number of Creation Unit size
aggregations of DIAMONDS of undivided interest which are outstanding at such
time. The Agreement and Indenture provide for the deposit of additional
Securities from
C-1
time to time with the Trustee, at which times the Trustee will deliver DIAMONDS
in Creation Unit size aggregations representing the additional Securities
deposited with the Trust.
The Sponsor hereby grants and conveys all of its right, title and
interest in and to the Trust to the extent of the undivided interest represented
hereby to the registered holder of this Certificate subject to and in pursuance
of the Agreement and Indenture, all the terms, conditions and covenants of which
are incorporated herein as if fully set forth at length.
The registered holder of this Certificate is entitled at any time upon
tender of this Certificate to the Trustee, endorsed in blank or accompanied by
all necessary instruments of assignment and transfer in proper form, at its
office in the City of New York and, upon payment of any tax or other
governmental charges, to receive on or before the seventh calendar day following
the day on which such tender is made or, if such calendar day is not a Business
Day (as defined in the Indenture), on the next succeeding Business Day following
such calendar day, such holder's ratable portion of the each of the Securities
for each Creation Unit size aggregation of DIAMONDS tendered and evidenced by
this Certificate and a check or, if elected, a wire transfer, in an amount
proportionate to money due such holder for each Creation Unit size aggregations
of DIAMONDS tendered.
The holder hereof may be required to pay a charge specified in the
Agreement and Indenture issued in connection with the issuance, transfer or
interchange of this Certificate
C-2
and any tax or other governmental charge that may be imposed in connection with
the transfer, interchange or other surrender of this Certificate.
The holder of this Certificate, by virtue of the purchase and
acceptance hereof, assents to and shall be bound by the terms of the Agreement
and Indenture, copies of which are on file and available for inspection at
reasonable times during business hours at the corporate trust office of the
Trustee, to which reference is made for all the terms, conditions and covenants
thereof.
The Trustee may deem and treat the person in whose name this
Certificate is registered upon the books of the Trustee as the owner hereof for
all purposes and the Trustee shall not be affected by any notice to the
contrary.
The Agreement and Indenture permits, with certain exceptions as
therein provided, the amendment thereof, the modification of the rights and the
obligations of the Sponsor, the Trustee and the holders of DIAMONDS in Creation
Unit size aggregations thereunder and the waiver of the performance of any of
the provisions thereof at any time with the consent of the holders of DIAMONDS
in Creation Unit size aggregations or DIAMONDS, evidencing 51% of Creation Unit
size aggregations of DIAMONDS or, proportionately, DIAMONDS at any time
outstanding under the Indenture. Any such consent or waiver by the holder of
DIAMONDS shall be conclusive and binding upon such holder of DIAMONDS and upon
all future holders of DIAMONDS, and shall be binding upon any DIAMONDS, whether
C-3
evidenced by a Certificate or held in uncertificated form, issued upon the
registration or transfer hereof whether or not notation of such consent or
waiver is made upon this Certificate and whether or not the DIAMONDS in Creation
Unit size aggregations evidenced hereby are at such time in uncertificated form.
The Agreement and Indenture also permits the amendment thereof, in certain
limited circumstances, without the consent of any holders of DIAMONDS.
This Certificate shall not become valid or binding for any purpose
until properly executed by the Trustee under the Agreement and Indenture.
Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is required by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
IN WITNESS WHEREOF, State Street Bank and Trust Company, as Trustee,
has caused this Certificate to be manually executed in its corporate name by an
authorized officer and PDR Services Corporation, as Sponsor, has caused this
Certificate to be executed in its names by the facsimile signature of one of its
Authorized Officers.
C-4
STATE STREET BANK AND TRUST COMPANY, PDR SERVICES CORPORATION,
As Trustee As Sponsor
By _______________________________ By ______________________________
Authorized Officer Authorized Officer
Date: January __, 1998
C-5
EXHIBIT A
FORM OF PARTICIPANT AGREEMENT
[Form of Participant Agreement is filed as Exhibit A(9)(b) of this Amendment
No. 1 to Form N-8b-2]
A-1
