FILE NO. 333-61001
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
A. Exact name of Trust:
NASDAQ-100 TRUST, SERIES l
(formerly known as the Nasdaq GOLD Trust, Series 1)
B. Name of Depositor (Sponsor):
NASDAQ-AMEX INVESTMENT PRODUCT SERVICES, INC.
(formerly known as Investment Product Services, Inc.)
C. Complete address of Sponsor's principal executive offices:
NASDAQ-AMEX INVESTMENT PRODUCT SERVICES, INC.
c/o THE NASDAQ STOCK MARKET, INC.
1735 K Street, N.W.
Washington, D.C. 20006
D. Name and complete address of agent for service:
John L. Jacobs
NASDAQ-AMEX INVESTMENT PRODUCT SERVICES, INC.
c/o THE NASDAQ STOCK MARKET, INC.
1735 K Street, N.W.
Washington, D.C. 20006
Copy to:
David M. Mahle
JONES, DAY, REAVIS & POGUE
599 Lexington Avenue, 32nd Floor
New York, New York 10022
E. Title and amount of securities being registered:
An indefinite number of units of beneficial interest pursuant to Rule 24f-2
under the Investment Company Act of 1940.
F. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT.
/ / Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
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NASDAQ-100 TRUST, SERIES 1
CROSS REFERENCE SHEET
PURSUANT TO REGULATION C
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(FORM N-8B-2 ITEMS REQUIRED BY INSTRUCTION 1
AS TO PROSPECTUS IN FORM S-6)
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
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I. Organization and General Information
l. (a) Name of Trust....................................................... Prospectus Front Cover
(b) Title of securities issued.......................................... Prospectus Front Cover
2. Name, address and Internal Revenue Service Employer Identification Number of
sponsor........................................................................ Sponsor
3. Name, address and Internal Revenue Service Employer Identification Number of
trustee........................................................................ Trustee
4. Name, address and Internal Revenue Service Employer Identification Number of
principal underwriter.......................................................... Prospectus Summary -
Underwriting
5. State of organization of Trust................................................. Prospectus Summary - The Trust
6. (a) Dates of execution and termination of Trust Agreement............... Prospectus Summary - The
Trust; Prospectus Summary -
Termination; The Trust;
Administration of the Trust -
Termination
(b) Dates of execution and termination of Trust Agreement............... Same as set forth in 6(a)
7. Changes of name................................................................ *
8. Fiscal Year.................................................................... *
9. Material Litigation............................................................ *
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer securities..................................... The Trust - Book-Entry-Only
System
(b) Cumulative or distributive.......................................... Prospectus Summary -
Distributions
(c) Rights of holders as to withdrawal or redemption.................... Prospectus Summary -
Redemption; Redemption of
Nasdaq-100 Shares;
Administration of the Trust -
Rights of Beneficial Owners
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* Not applicable, answer negative or not required.
i
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
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(d) Rights of holders as to conversion, transfer, etc................... Prospectus Summary -
Redemption; Administration of
the Trust - Register of
Ownership and Transfer; -
Rights of Beneficial Owners;
Redemption of Nasdaq-100
Shares
(e) Lapses or defaults in principal payments with respect to periodic
payment plan certificates........................................... *
(f) Voting rights....................................................... Administration of the Trust -
Voting
(g) Notice to holders as to change in:
(l) Composition of Trust assets..................................... *
(2) Terms and conditions of Trust's securities...................... Administration of the Trust -
Amendment
(3) Provisions of Trust Agreement................................... Same as set forth in 10(g) (2)
(4) Identity of sponsor and trustee................................. Resignation, Removal and
Liability - The Trustee; - The
Sponsor
(h) Consent of holders required to change:
(1) Composition of Trust assets..................................... *
(2) Terms and conditions of Trust's securities...................... Administration of the Trust -
Amendment
(3) Provisions of Trust Agreement................................... Same as set forth in 10(h) (2)
(4) Identity of sponsor and trustee................................. Resignation, Removal and
Liability - The Sponsor; - The
Trustee
(i) Other principal features of the securities.......................... Prospectus Summary
11. Type of securities comprising units............................................ The Prospectus - Front Cover;
Prospectus Summary - The
Trust; The Portfolio; The
Index
12. Certain information regarding securities comprising periodic payment
certificates................................................................... *
13. (a) Certain information regarding loads, fees, expenses and charges..... Expenses of the Trust;
Redemption of Nasdaq-100
Shares - Procedure for
Redemption of Nasdaq-100
Shares
(b) Certain information regarding periodic payment plan
certificates........................................... *
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* Not applicable, answer negative or not required.
ii
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
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(c) Certain percentages................................................. Expenses of the Trust; The
Trust - Creation of Creation
Units; Redemption of
Nasdaq-100 Shares - Procedure
for Redemption of Nasdaq-100
Shares
(d) Reasons for certain differences in price............................ *
(e) Certain other loads, fees or charges payable by holders............. Prospectus Summary -
Transaction Fee; The Trust -
Creation of Creation Units;
Redemption of Nasdaq-100
Shares - Procedure for
Redemptions of Nasdaq-100
Shares
(f) Certain profits receivable by sponsor, principal underwriters,
custodian, trustee or affiliated persons............................ Same as set forth in 13(a) and
also The Portfolio -
Adjustments to the Portfolio;
License Agreement
(g) Ratio of annual charges and deductions to income.................... *
14. Issuance of Trust's securities................................................. The Trust - Creation of
Creation Units; - Book-
Entry-Only System
15. Receipt and handling of payments from purchasers............................... The Trust
16. Acquisition and disposition of underlying securities........................... The Trust - Creation of
Creation Units; The Portfolio;
Administration of the Trust;
Redemption of Nasdaq-100
Shares - Procedure for
Redemption of Nasdaq-100
Shares
17. (a) Withdrawal or redemption by holders................................. Administration of the Trust -
Register of Ownership and
Transfer; - Rights of
Beneficial Owners; Redemption
of Nasdaq-100 Shares
(b) Persons entitled or required to redeem or repurchase securities..... Same as set forth in 17(a)
(c) Cancellation or resale of repurchased or redeemed securities........ Same as set forth in 17(a)
18. (a) Receipt, custody and disposition of income.......................... Administration of the Trust -
Distributions to Beneficial
Owners
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* Not applicable, answer negative or not required.
iii
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
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(b) Reinvestment of distributions....................................... Dividend Reinvestment Service
(c) Reserves or special funds........................................... Same as set forth in 18(a)
(d) Schedule of distributions........................................... *
19. Records, accounts and reports.................................................. Administration of the Trust -
Records; - Distributions to
Beneficial Owners; -
Statements to Beneficial
Owners; - Register of
Ownership and Transfer
20. Certain miscellaneous provisions of Trust Agreement
(a) Amendments.......................................................... Administration of the Trust -
Amendment
(b) Extension or termination............................................ Administration of the Trust -
Amendment; - Termination
(c) Removal or resignation of trustee................................... Resignation, Removal and
Liability - The Trustee
(d) Successor trustee................................................... Same as set forth in 20(c)
(e) Removal or resignation of sponsor................................... Resignation, Removal and
Liability - The Sponsor
(f) Successor sponsor................................................... Same as set forth in 20(c) and
20(e)
21. Loans to security holders...................................................... *
22. Limitations on liabilities..................................................... Resignation, Removal and
Liability - The Trustee; - The
Sponsor
23. Bonding arrangements........................................................... *
24. Other material provisions of Trust Agreement................................... *
III. Organization, Personnel and Affiliated Persons of Sponsor
25. Organization of sponsor........................................................ Sponsor
26. Fees received by sponsor....................................................... License Agreement
27. Business of sponsor............................................................ Sponsor
28. Certain information as to officials and affiliated persons of sponsor.......... Sponsor
29. Ownership of voting securities of sponsor...................................... Sponsor
30. Persons controlling sponsor.................................................... *
31. Remuneration of officers of sponsor to Trust................................... *
32. Remuneration of directors of sponsor........................................... *
33. Remuneration of employees of sponsor for certain services rendered to Trust....
*
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* Not applicable, answer negative or not required.
iv
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
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34. Compensation of other persons for certain services rendered to Trust...........
*
IV. Distribution and Redemption of Securities
35. Distribution of Trust's securities in states................................... Distribution of Nasdaq-100
Shares; Continuous Offering of
Nasdaq-100 Shares
36. Suspension of sales of Trust's securities...................................... *
37. Denial or revocation of authority to distribute................................ *
38. (a) Method of distribution.............................................. Prospectus Summary -
Underwriting; The Trust;
Marketplace Listing;
Continuous Offering of
Nasdaq-100 Shares
(b) Underwriting agreements............................................. Prospectus Summary -
Underwriting; - Distribution;
Continuous Offering of
Nasdaq-100 Shares; The Trust -
Placement of Creation Orders
using the Nasdaq-100 Clearing
Process
(c) Selling agreements.................................................. Same as set forth in 38(b)
39. (a) Organization of principal underwriter............................... Prospectus Summary -
Underwriting
(b) NASD membership of principal underwriter............................ Prospectus Summary -
Underwriting
40. Certain fees received by principal underwriters................................ *
41. (a) Business of principal underwriters.................................. Prospectus Summary -
Underwriting
(b) Branch offices of principal underwriters............................ *
(c) Salesmen of principal underwriters.................................. *
42. Ownership of Trust's securities by certain persons............................. *
43. Certain brokerage commissions received by principal underwriters............... *
44. (a) Method of valuation for determining offering price.................. The Portfolio; Valuation
(b) Schedule as to components of offering price......................... *
(c) Variation in offering price to certain persons...................... *
45. Suspension of redemption rights................................................ *
46. (a) Certain information regarding redemption or withdrawal valuation.... Valuation; Redemption of
Nasdaq-100 Shares
(b) Schedule as to components of redemption price....................... *
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* Not applicable, answer negative or not required.
v
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
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47. Maintenance of position in underlying securities............................... The Trust; The Portfolio;
Valuation; Administration of
the Trust - Distributions to
Beneficial Owners; Redemption
of Nasdaq-100 Shares;
Continuous Offering of
Nasdaq-100 Shares
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of trustee......................................... Trustee
49. Fees and expenses of trustee................................................... Prospectus Summary -
Transaction Fee; Expenses of
the Trust
50. Trustee's lien................................................................. Expenses of the Trust;
Redemption of Nasdaq-100
Shares
VI. Information Concerning Insurance of Holders of Securities
51. (a) Name and address of insurance company............................... *
(b) Types of policies................................................... *
(c) Types of risks insured and excluded................................. *
(d) Coverage............................................................ *
(e) Beneficiaries....................................................... *
(f) Terms and manner of cancellation.................................... *
(g) Method of determining premiums...................................... *
(h) Aggregate premiums paid............................................. *
(i) Recipients of premiums.............................................. *
(j) Other material provisions of Trust Agreement relating to
insurance........................................................... *
VII. Policy of Registrant
52. (a) Method of selecting and eliminating securities from the Trust....... The Trust - Creation of
Creation Units; The Portfolio;
Administration of the Trust;
Redemption of Nasdaq-100
Shares - Procedure for
Redemption of Nasdaq-100
Shares
(b) Elimination of securities from the Trust............................ *
(c) Policy of Trust regarding substitution and elimination of
securities.......................................................... Same as set forth in 52(a)
(d) Description of any other fundamental policy of the Trust............ *
53. (a) Taxable status of the Trust......................................... Tax Status of the Trust
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* Not applicable, answer negative or not required.
vi
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
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(b) Qualification of the Trust as a regulated investment company........ Same as set forth in 53(a)
VIII. Financial and Statistical Information
54. Information regarding the Trust's last ten fiscal years........................ *
55. Certain information regarding periodic payment plan certificates............... *
56. Certain information regarding periodic payment plan certificates............... *
57. Certain information regarding periodic payment plan certificates............... *
58. Certain information regarding periodic payment plan certificates............... *
59. Financial statements (Instruction 1(c) to Form S-6)............................ *
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* Not applicable, answer negative or not required.
vii
PROSPECTUS
NASDAQ-100 TRUST(SM), SERIES 1
A UNIT INVESTMENT TRUST
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The Nasdaq-100 Trust, Series 1 (the "Trust") was formed by Nasdaq-Amex
Investment Product Services, Inc., a Delaware corporation (the "Sponsor") and a
wholly-owned subsidiary of The Nasdaq Stock Market, Inc. ("Nasdaq"), to provide
investors with the opportunity to purchase units of beneficial interest in the
Trust representing proportionate undivided interests in the portfolio of
securities held by the Trust (the "Securities") consisting of substantially all
of the securities, in substantially the same weighting, as the component
securities of the Nasdaq-100 Index-Registered Trademark- (the "Index").* While
the investment objective of the Trust is to provide investment results that
generally correspond to the price and yield performance of the Index, there is
no assurance that this investment objective can be fully achieved. Each unit of
fractional undivided interest in the Trust is referred to as a "Nasdaq-100
Share(SM)".* The value of the Securities and, consequently, the value of
Nasdaq-100 Shares, will fluctuate. The minimum number of Nasdaq-100 Shares that
may be created or redeemed at any one time as described below is 50,000, which
aggregation is referred to herein as a "Creation Unit."
Nasdaq-100 Shares have been approved for listing on the American Stock
Exchange (the "Amex"), subject to official notice of issuance. The market symbol
for Nasdaq-100 Shares is "QQQ". Once created, Nasdaq-100 Shares may be traded in
the secondary market on a per Nasdaq-100 Share basis, and need not be traded in
Creation Unit size aggregations. Prior to the date of this Prospectus, there has
been no market for Nasdaq-100 Shares trading individually or in Creation Unit
size aggregations and, consequently, there can be no assurance that active
trading markets will develop, nor is there a certain basis for predicting the
actual price levels at which Nasdaq-100 Shares may trade.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
Prospectus dated March 5, 1999
--------------------------
NASDAQ-100 SHARES-SM-
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Investors are advised to read and retain this Prospectus for future
reference.
--------------------------
* The "Nasdaq-100 Index-Registered Trademark-",
"Nasdaq-100-Registered Trademark-", "Nasdaq-Registered Trademark-", "The
Nasdaq Stock Market-Registered Trademark-", "Nasdaq-100 Shares(SM)", and
"Nasdaq-100 Trust(SM)" are trademarks and service marks of Nasdaq and have
been licensed for use for certain purposes by Nasdaq-Amex Investment Product
Services, Inc. pursuant to a License Agreement with Nasdaq.
COPYRIGHT -C- 1999 by Nasdaq-Amex Investment Product Services, Inc., all rights
reserved
ESSENTIAL INFORMATION AS OF MARCH 5, 1999+
Number of Nasdaq-100 Shares: 150,000
Fractional Undivided Interest in the Trust
Represented by each Nasdaq-100 Share:
1/150,000th
Net Asset Value per Nasdaq-100 Share (based on the
value of the Securities, other net assets of the Trust,
and the number of Nasdaq-100 Shares outstanding):
$96.65
Annual Trust Ordinary AMOUNT
Operating Expenses AS A % OF PER
(as a percentage of average AVERAGE NET NASDAQ-100
net assets)* ASSETS SHARE**
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Trustee's Fee............ 0.10%*** $0.09
Licensee Fee............. 0.00%**** $0.00
Estimated Other Operating
Expenses............... 0.08% $0.08
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Total Expenses........... 0.18%***** $0.17
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* The expenses listed do not include expenses incident to the organization
of the Trust, as Nasdaq has agreed to assume these expenses. For a more
complete description of the various costs and expenses of the Trust, see
"Expenses of the Trust."
** Assumes the per Nasdaq-100 Share net asset value is $94.
*** The Trustee's annual fee will range from 0.06% to 0.10%, based on the
net asset value of the Trust. See "Expenses of the Trust."
**** The Sponsor has committed not to seek reimbursement from the Trust for
licensing fees paid to Nasdaq for the period through the Trust's fiscal
year ending September 30, 1999. Thereafter, the Sponsor intends to
charge the Trust for the annual licensing fee it pays for use of the
Index as the basis for the Trust. The annual license fee, without regard
to this commitment, is 0.04% per annum of the net asset value of the
Trust.
***** Until further notice, the Sponsor has undertaken that for the period
through the Trust's fiscal year ending September 30, 2000, the ordinary
operating expenses of the Trust as calculated by the Trustee will not be
permitted to exceed an amount which, on a per-annum basis, is 0.18% of
the net asset value of the Trust. Gross expenses of the Trust, without
regard to this undertaking, are estimated to be 0.22% of the net asset
value of the Trust. After September 30, 2000, the Sponsor may, in its
sole discretion, discontinue its undertaking to limit ordinary operating
expenses of the Trust or renew this undertaking for an additional period
of time and, if renewed, such 0.18% level may be changed and may exceed
0.18%. See "Expenses of the Trust."
2
Example of Expenses: An investor would pay the following expenses on
a $1,000 investment, assuming the estimated
operating expense ratio of 0.18% set forth above
and a 5% annual return on investment throughout
the periods:
Cumulative Expenses Paid for Period of:
1 YEAR 3 YEARS
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$ 1.84 $ 5.80
The above example assumes the reinvestment of
all dividends and distributions and utilizes a
5% annual rate of return as mandated by
Securities and Exchange Commission regulations
applicable to mutual funds. Although the Trust
is a unit investment trust rather than a mutual
fund, this information is presented to permit a
comparison of fees. The example should not be
considered a representation of past or future
expenses or annual rate of return; the actual
expenses and annual rate of return may be more
or less than those assumed for purposes of this
example. Investors should also note that the
presentation of a $1,000 investment is for
illustration purposes only.
Dividend Payment
Dates: Quarterly, on the last Business Day of April,
July, October, and January. Distributions (if
any) will be of the dividends accumulated in
respect of the Securities held by the Trust net
of Trust fees and expenses. Based on historical
rates of dividend payments of the portfolio of
securities comprising the Index and estimated
ordinary operating expenses of the Trust, little
or no net dividend distributions to Beneficial
Owners of Nasdaq-100 Shares are expected to be
made.++
Record Dates: Quarterly, on the second Business Day following
the third Friday in each of March, June,
September, and December.++
3
Evaluation Time: Closing time of the regular trading session on
the Nasdaq Stock Market (ordinarily 4:00 p.m.
New York time).
Licensor: The Nasdaq Stock Market, Inc.
Mandatory
Termination Date: The first to occur of (i) March 4, 2124 or (ii)
the date 20 years after the death of the last
survivor of fifteen persons named in the Trust
Agreement, the oldest of whom was born in 1986
and the youngest of whom was born in 1996.
Discretionary
Termination: The Trust may be terminated if at any time after
six months following and prior to three years
following the Initial Date of Deposit the value
of the Securities held by the Trust is less than
$150,000,000 or if at any time on or after three
years following the Initial Date of Deposit the
value of the Securities held by the Trust is
less than $350,000,000, as such amount shall be
adjusted for inflation.+++
Minimum and
Maximum
Transaction Fee: A transaction fee is payable to the Trustee in
connection with each creation and each
redemption of Nasdaq-100 Shares. The minimum
transaction fee payable for the creation or
redemption of Creation Unit size aggregations of
Nasdaq-100 Shares is $1,000, and the maximum
transaction fee payable for the creation or
redemption of Creation Unit size aggregations of
Nasdaq-100 Shares is $4,000.++++
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+ The Trust Agreement became effective and the initial deposit was made on
March 4, 1999 (the "Initial Date of Deposit").
++ See "Administration of the Trust--Distributions to Beneficial Owners"
and "Special Considerations and Risk Factors--Little or No Expected Net
Dividend Distributions to Beneficial Owners."
+++ The Trust may also be terminated under other circumstances. See
"Administration of the Trust--Termination."
++++ See "Prospectus Summary--Transaction Fee."
4
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
OBJECTIVES
The Sponsor formed the Trust to provide investors with the opportunity to
purchase units of beneficial interest in the Trust representing proportionate
undivided interests in the Securities, which consist of substantially all of the
securities, in substantially the same weighting, as the component securities of
the Nasdaq-100 Index-Registered Trademark- (the "Index") in the form of a
security that closely tracks the Index and that may be traded as a share of
common stock. The investment objective of the Trust is to provide investment
results that generally correspond to the price and yield performance of the
component securities of the Index (the component securities of the Index are
sometimes referred to herein as "Index Securities"). There can be no assurance
that this investment objective will be met fully. For example, it may not be
possible for the Trust to replicate and maintain exactly the composition of the
Index Securities. It is also possible that, from time to time, the Trust will be
unable to purchase all of the Index Securities. In certain circumstances, the
Trust may also be required to make distributions in excess of the yield
performance of the Index Securities (see "Tax Status of the Trust"). The value
of the Securities and, consequently, the value of Nasdaq-100 Shares, are subject
to changes in the value of common stocks generally and to other factors.
Further, the payment, if any, of dividends (net of Trust fees and expenses) and
the maintenance of capital are subject to a number of conditions, including the
financial condition of the issuers of the Securities (see "Special
Considerations and Risk Factors").
THE TRUST
The Trust is a unit investment trust organized under the laws of the State
of New York. The Trust is governed by a trust agreement (the "Trust Agreement")
between The Bank of New York, a corporation organized under the laws of the
State of New York with trust powers (the "Trustee"), and the Sponsor dated and
executed as of March 4, 1999.
DISTRIBUTOR
The Distributor for Nasdaq-100 Shares is ALPS Mutual Funds Services, Inc., a
registered broker-dealer and a member of the National Association of Securities
Dealers, Inc. (see "Underwriting").
5
PORTFOLIO DEPOSITS
All orders to create Nasdaq-100 Shares in Creation Unit size aggregations
must be placed with the Distributor (see "Underwriting" and "The Trust--
Procedures for Creation of Creation Units"). To be eligible to place orders with
the Distributor to create Creation Unit size aggregations of Nasdaq-100 Shares,
an entity or person either must be (1) a "Participating Party", as hereinafter
defined or (2) a Depository Trust Company Participant (see "Book Entry Ownership
of Nasdaq-100 Shares"), and in each case must have executed a Nasdaq-100
Participant Agreement, as hereinafter defined (see "The Trust--Procedures for
Creation of Creation Units" and "The Trust--Placement of Creation Orders Using
the Nasdaq-100 Clearing Process"). As used herein, the term "Participating
Party" means a broker-dealer or other participant in the Nasdaq-100 Clearing
Process, as hereinafter defined, through the Continuous Net Settlement ("CNS")
System of the National Securities Clearing Corporation ("NSCC"), a clearing
agency that is registered with the Securities and Exchange Commission (the
"Commission").(*) Upon acceptance of an order to create Nasdaq-100 Shares, the
Distributor will transmit such order to the Trustee and instruct the Trustee to
initiate the book entry movement of the appropriate number of Nasdaq-100 Shares
to the account of the entity placing the order. Payment for orders to create
Nasdaq-100 Shares will be made by deposits with the Trustee of a portfolio of
securities that is substantially similar in composition and weighting to the
Index Securities (see "The Trust--Creation of Nasdaq-100 Shares"), together, in
certain cases, with a cash payment in an amount which shall be equal to the
Income Net of Expense Amount (as hereinafter defined), plus or minus, as the
case may be, the Balancing Amount (as hereinafter defined). The "Income Net of
Expense Amount" is an amount equal, on a per Creation Unit basis, to the
dividends on all the Securities with ex-dividend dates within the period
beginning on the most recent ex-dividend date for Nasdaq-100 Shares (generally,
the third Friday in each of March, June, September, and December, see
"Distributions") through and including the current Business Day (the
"Accumulation Period") as if all of the Securities had been held for such
period, net of accrued expenses and liabilities for such period not previously
deducted (including, without limitation, (x) taxes or other governmental charges
against the Trust not previously deducted, if any, and (y) accrued fees of the
Trustee and other expenses of the Trust (including legal and auditing expenses)
and other expenses not previously deducted (see "Expenses of the Trust")). The
"Balancing Amount" serves the function of
- ------------------------
* As of December 31, 1998, the National Association of Securities Dealers,
Inc. owned indirectly 66 2/3% of the issued and outstanding shares of common
stock of NSCC. The National Association of Securities Dealers, Inc. is also
the parent company of Nasdaq.
6
compensating for any differences between (1) the value of the portfolio of
securities deposited with the Trustee in connection with a creation of
Nasdaq-100 Shares, together with the Income Net of Expense Amount, and (2) the
net asset value of the Trust on a per Creation Unit basis (see "The
Portfolio--Adjustments to the Portfolio Deposit" for a further description
thereof).
The Income Net of Expense Amount and the Balancing Amount are collectively
referred to herein as the "Cash Component" and the deposit of such a portfolio
of securities and the Cash Component are collectively referred to herein as a
"Portfolio Deposit." In connection with an order to create Nasdaq-100 Shares on
any given day, the Cash Component of the Portfolio Deposit may be payable either
by the Trustee on behalf of the Trust to the creator of Nasdaq-100 Shares or by
the creator of Nasdaq-100 Shares to the Trustee on behalf of the Trust,
depending upon the respective amounts of the Income Net of Expense Amount and
the Balancing Amount. For example, if the sum of dividends on all Securities
with ex-dividend dates within the Accumulation Period, plus or minus the
Balancing Amount, exceeds the accrued expenses and liabilities of the Trust for
such period (I.E., the Cash Component has a positive value), then the creator of
Nasdaq-100 Shares will be obligated to pay such amount to the Trustee on behalf
of the Trust in connection with an order to create Nasdaq-100 Shares.
Conversely, if the sum of dividends on all Securities with ex-dividend dates
within the Accumulation Period, plus or minus the Balancing Amount, is less than
the accrued expenses and liabilities of the Trust for such period (I.E., the
Cash Component has a negative value), then the Trustee on behalf of the Trust
will pay such Cash Component to the entity placing an order to create Nasdaq-100
Shares.
All matters as to the number of shares of each of the Index Securities and
the amount of the Cash Component comprising the Portfolio Deposit shall be
determined by the Trustee in its discretion, whose determination shall be final
and binding. In certain instances, the securities portion of the Portfolio
Deposit may differ in composition and weighting relative to the composition and
weighting of the securities in the Index. For example, in connection with the
creation of Nasdaq-100 Shares, in the event that the Trustee determines, in its
discretion, that one or more Index Securities are likely to be unavailable for
delivery or available in insufficient quantity for delivery to the Trust upon
the creation of Nasdaq-100 Shares in Creation Unit size aggregations, then the
Trustee shall have the right in its discretion to permit the cash equivalent
value of such Index Security or Index Securities to be included in the Portfolio
Deposit in the calculation of the Cash Component in lieu of the inclusion of
such Index Security or Index Securities in the securities portion of the
Portfolio Deposit (see "The Portfolio--Adjustments to the Portfolio Deposit").
7
Similarly, in connection with the creation of Nasdaq-100 Shares, if a
creator is restricted by regulation or otherwise from investing or engaging in a
transaction in one or more Index Securities, the Trustee shall have the right,
in its discretion, to permit the cash equivalent value of such Index Security or
Index Securities to be included in the Portfolio Deposit, based on the market
value of such Index Security or Index Securities as of the Evaluation Time on
the date such creation order is deemed received by the Distributor, in the
calculation of the Cash Component in lieu of the inclusion of such Index
Security or Index Securities in the securities portion of the Portfolio Deposit.
In such case the creator will pay the Trustee the standard Transaction Fee
described below, plus an additional amount not to exceed three (3) times the
Transaction Fee applicable for one Creation Unit.
An entity or person placing creation orders with the Distributor must either
(i) initiate instructions pertaining to Portfolio Deposits through the CNS
clearing processes of NSCC, as such processes have been enhanced to effect
creations and redemptions of Creation Unit size aggregations of Nasdaq-100
Shares, such processes being referred to herein as the "Nasdaq-100 Clearing
Process", or (ii) deposit Portfolio Deposits with the Trustee outside the
Nasdaq-100 Clearing Process (I.E., through the facilities of The Depository
Trust Company).
TRANSACTION FEE
A transaction fee is payable to the Trustee in connection with each creation
and each redemption made through the Nasdaq-100 Clearing Process of Creation
Unit size aggregations of Nasdaq-100 Shares (the "Transaction Fee"), subject to
the changes, modifications or waivers, if any, described below. Such Transaction
Fee is non-refundable, regardless of the net asset value of the Trust.
Until further notice is given as described below, the Transaction Fee
charged in connection with each creation of Creation Units through the
Nasdaq-100 Clearing Process (see "The Trust--Procedures for Creation of Creation
Units") is $1,000 per Participating Party per day, regardless of the number of
Creation Units created on such day by such Participating Party. Likewise, until
further notice is given as described below, the Transaction Fee charged in
connection with the redemption of Creation Units through the Nasdaq-100 Clearing
Process is $1,000 per Participating Party per day, regardless of the number of
Creation Units redeemed on such day by such Participating Party. This
Transaction Fee may subsequently be changed by the Trustee, upon the consent of
the Sponsor, but will not in any event exceed 10/100 of one percent (10 basis
points) of the value of a Creation Unit at the time of
8
creation or redemption as the case may be (the "10 Basis Point Limit"). No
modifications to, or reductions, discounts or waivers of, the Transaction Fee
charged in connection with the creation of Creation Units are scheduled or
currently contemplated by the Sponsor or the Trustee.
If Creation Units are created or redeemed outside the Nasdaq-100 Clearing
Process, an additional amount not to exceed three (3) times the applicable
Transaction Fee will be charged to the creator or redeemer. Under the current
schedule, therefore, the total fee charged in connection with the creation or
redemption of Creation Units outside the Nasdaq-100 Clearing Process would be
$1,000 (the Transaction Fee for the creation or redemption of a Creation Unit)
plus an additional amount not to exceed $3,000 (3 times $1,000) for a total of
$4,000.
From time to time, and for such periods as the Sponsor and the Trustee
together may determine, the Transaction Fee (as well as any additional amounts
charged in connection with creations and/or redemptions outside the Nasdaq-100
Clearing Process) may be increased, decreased, or otherwise modified or waived
in its entirety for certain numbers of Creation Units of Nasdaq-100 Shares
created or redeemed, or for creations and/or redemptions made under certain
specified circumstances, in each case without the consent of Beneficial Owners,
subject to certain conditions (see "The Trust--Creation of Creation Units" and
"The Trust--Procedures for Redemption of Nasdaq-100 Shares"). The Sponsor also
reserves the right, from time to time, to vary the number of Nasdaq-100 Shares
per Creation Unit (currently 50,000 shares) and such change may or may not be
made in conjunction with a change to the Transaction Fee. Any change to the
Transaction Fee so made will not cause the amount of the Transaction Fee to
exceed the 10 Basis Point Limit at the time of a creation or redemption, as the
case may be. Such changes or variations will be effected by an amendment to the
current Trust prospectus. The amount of the Transaction Fee in effect at any
given time will be available from the Trustee.
SIZE OF CREATION UNIT AGGREGATIONS OF NASDAQ-100 SHARES
Nasdaq-100 Shares may be created or redeemed only in Creation Unit size
aggregations of 50,000 shares, or in multiples thereof (E.G., 100,000, 150,000
Nasdaq-100 Shares), and in no event will fractional Creation Units be created or
redeemed. The Sponsor reserves the right to direct the Trustee to declare a
split or reverse split in the number of Nasdaq-100 Shares outstanding in the
event that the per Nasdaq-100 Share price in the secondary market changes to an
amount that the Sponsor believes falls outside a desirable retail range. The
Sponsor also reserves the right to make a corresponding change in
9
the number of Nasdaq-100 Shares constituting a Creation Unit. For example, if a
2-for-1 split were declared and the Sponsor also determined to make a
corresponding change in the number of Nasdaq-100 Shares per Creation Unit, the
number of Nasdaq-100 Shares in a Creation Unit size aggregation of Nasdaq-100
Shares would double (E.G., from 50,000 to 100,000 Nasdaq-100 Shares).
PORTFOLIO ADJUSTMENTS
To maintain the correspondence between the composition and weighting of
Securities held in the Trust and that of the Index Securities, the composition
and weighting of the Securities are adjusted from time to time to conform to
periodic changes in the composition and weighting of the Index Securities made
by Nasdaq. The Trustee aggregates certain of these adjustments and makes
conforming changes to the Trust's portfolio at least monthly; adjustments are
made more frequently, however, in the case of changes to the Index that are
significant (see "The Portfolio--Adjustments to the Portfolio"). The composition
and weighting of the securities portion of a Portfolio Deposit are also adjusted
to conform to changes in the Index. Any change in the identity or weighting of
an Index Security will result in a corresponding adjustment to the prescribed
Portfolio Deposit effective on the Business Day (a "Business Day" being any day
that the Nasdaq Stock Market is open for business) on which the change to the
Index takes effect. Changes to the Index are made after the close of the market
(see "The Portfolio--Adjustments to the Portfolio Deposit").
BOOK-ENTRY OWNERSHIP OF NASDAQ-100 SHARES
The Depository Trust Company, New York, New York, a limited purpose trust
company organized under the laws of the State of New York (referred to herein as
"DTC" or the "Depository") or its nominee will be the record or registered owner
of all outstanding Nasdaq-100 Shares. Beneficial ownership of Nasdaq-100 Shares
will be shown on the records of the Depository or its participants. Certificates
will not be issued for Nasdaq-100 Shares, whether in Creation Unit size
aggregations or otherwise (see "The Trust-- Book-Entry-Only System").
EXPENSES
The Trustee's fees are set forth generally in the "Summary of Essential
Information" and more specifically in "Expenses of the Trust" below. Other
expenses of the Trust are also described more fully in "Expenses of the Trust."
10
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to cover Trust fees and expenses
(which would currently be the case if the Trust were in existence and its
ordinary operating expenses were 0.18% per annum of the net asset value of the
Trust consistent with the Sponsor's undertaking to limit the Trust's ordinary
operating expenses to such 0.18% per annum level, see "Expenses of the Trust"),
then the Trustee will be required to sell Securities in an amount sufficient to
pay the shortfall. Such a sale of Securities will ordinarily be required to
occur whenever the Trustee determines that projected annualized fees and
expenses accrued on a daily basis exceed projected annualized dividends and
other Trust income accrued on a daily basis by more than 1/100 of one percent
(0.01%) of the net asset value of the Trust and will ordinarily be made no later
than the next occurring adjustment to the Securities held in the Trust to
conform to changes in the composition and weighting of the Index Securities (see
"Expenses of the Trust" and "The Portfolio--Adjustments to the Portfolio").
FEDERAL INCOME TAX CONSIDERATIONS
The Trust intends to adopt a fiscal year ending on September 30 of each
year. The Trust intends to qualify for and elect tax treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and to distribute annually its entire investment company
taxable income and net capital gain. Distributions that are taxable as ordinary
income to Beneficial Owners generally are expected to constitute dividend income
for federal income tax purposes and to be eligible for the dividends-received
deduction available to many corporations to the extent of qualifying dividend
income received by the Trust (see "Tax Status of the Trust"). The quarterly
distributions, if any, made by the Trust will be based on the dividend
performance of the Securities held during such quarterly distribution period,
net of Trust fees and expenses, rather than the actual taxable income of the
Trust. (See "Administration of the Trust--Distributions to Beneficial Owners.")
As a result, a portion of any such distributions of the Trust may be treated as
a return of capital or a capital gain dividend for federal income tax purposes
or the Trust may be required to make additional distributions to maintain its
status as a regulated investment company or to avoid imposition of income or
excise taxes on undistributed income (see "Tax Status of the Trust" and
"Administration of the Trust--Distributions to Beneficial Owners").
ERISA CONSIDERATIONS
In considering the advisability of an investment in Nasdaq-100 Shares,
fiduciaries of pension, profit sharing, or other tax-qualified retirement plans
(including Keogh Plans) and welfare plans (collectively, "Plans") subject to the
11
fiduciary responsibility requirements of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), should consider whether an investment in
Nasdaq-100 Shares is permitted by the documents and instruments governing the
Plan and whether the investment satisfies the exclusive benefit, prudence, and
diversification requirements of ERISA. Individual retirement account ("IRA")
investors should consider that an IRA may make only such investments as are
authorized by its governing instruments.
The fiduciary standards and prohibited transactions rules of ERISA and
Section 4975 of the Code will not apply to transactions involving the Trust's
assets while Nasdaq-100 Shares are held by a Plan or IRA. Unlike many other
investment vehicles offered to Plans and IRAs, the Trust's assets will not be
treated as "plan assets" of the Plans or IRAs which acquire or purchase
Nasdaq-100 Shares. Although ERISA imposes certain duties on Plan fiduciaries and
ERISA and/or Section 4975 of the Code prohibit certain transactions involving
"plan assets" between Plans or IRAs and their fiduciaries or certain related
persons, those rules will not apply to transactions involving the Trust's assets
because Nasdaq-100 Shares represent an interest in the Trust, and the Trust is
registered as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). ERISA, the Code, and U.S. Department of Labor
regulations contain unconditional language exempting the assets of registered
investment companies from treatment as "plan assets" in applying the fiduciary
and prohibited transaction provisions of ERISA and the Code.
RESTRICTIONS ON PURCHASES BY INVESTMENT COMPANIES
The acquisition of Nasdaq-100 Shares by registered investment companies is
subject to the restrictions set forth in section 12(d)(l) of the 1940 Act.
INVESTMENT MANAGEMENT
The Trust will hold the Securities and cash and will not be actively
"managed" by traditional methods, which typically involve effecting changes in
the Securities on the basis of judgments made relating to economic, financial,
and market considerations. The composition of the Securities will be adjusted,
however, to conform to changes in the composition of the Index Securities in the
manner set forth in the Trust Agreement as described herein (see "The
Portfolio--Adjustments to the Portfolio").
DISTRIBUTIONS
Distributions by the Trust will be made quarterly to the extent that
dividends accumulated in respect of the Securities and other income, if any,
12
received by the Trust exceed Trust fees and expenses accrued during the
quarterly Accumulation Period which ends on the Business Day preceding each
ex-dividend date for Nasdaq-100 Shares. The regular quarterly ex-dividend date
with respect to net dividends, if any, for Nasdaq-100 Shares will be the third
Friday in each of March, June, September, and December, unless such day is not a
Business Day, in which case the ex-dividend date will be the immediately
preceding Business Day (the "Ex-Dividend Date"). However, no net dividend
distribution will be made in any given quarter, and any net dividend amounts
will be rolled into the next Accumulation Period, if the aggregate net dividend
distribution would be in an amount less than 5/100 of one percent (0.05%) of the
net asset value of the Trust, unless the Trustee determines that such
distribution is required to be made in order to maintain the Trust's status as a
regulated investment company or to avoid the imposition of income or excise
taxes on undistributed income. (See "Administration of the Trust--Distributions
to Beneficial Owners.")
At present, and possibly for extended periods of time during the life of the
Trust, the expenses of the Trust may be as great as or in excess of the dividend
and other income to be received by the Trust during any quarter and, under such
circumstances, no quarterly net dividend distributions would be made (see
"Special Consideration and Risk Factors--Little or No Expected Net Dividend
Distributions to Beneficial Owners"). Distributions (if any) will be made on
Dividend Payment Dates to Beneficial Owners via the Depository and its
participants (see "The Trust--Book-Entry-Only System"). For federal income tax
purposes, a portion of any net dividend distributions may result in a return of
capital to Beneficial Owners of Nasdaq-100 Shares (see "Tax Status of the
Trust").
Any net capital gains recognized by the Trust in any taxable year will be
distributed at least annually. The Trust may make additional distributions after
the end of the year in order to satisfy certain distribution requirements
imposed by the Code (see "Tax Status of the Trust" and "Administration of the
Trust--Distributions to Beneficial Owners"). Although income distributions, if
any, are currently planned to be made on a quarterly basis, the Trustee reserves
the right to vary the frequency of distributions (see "Administration of the
Trust--Distributions to Beneficial Owners").
REDEMPTION
Nasdaq-100 Shares in Creation Unit size aggregations are ordinarily
redeemable in kind only and are not redeemable for cash except under certain
circumstances (see "Redemption of Nasdaq-100 Shares"). Nasdaq-100 Shares
13
can be redeemed only in Creation Unit size aggregations effected by a
Participating Party (with respect to redemptions through the Nasdaq-100 Clearing
Process) or a DTC Participant (with respect to redemptions outside the
Nasdaq-100 Clearing Process), in either case which has executed a Nasdaq-100
Participant Agreement (see "Redemption of Nasdaq-100 Shares--Procedure for
Redemption of Nasdaq-100 Shares"). Individual Nasdaq-100 Shares are not
redeemable, but entitle the owners thereof to certain payments upon termination
of the Trust (see "Administration of the Trust--Termination"). Prior to
termination, Nasdaq-100 Share owners may aggregate individual Nasdaq-100 Shares
to Creation Unit size or multiples thereof (E.G., 50,000, 100,000 shares, etc.)
and request that the Trustee redeem the Nasdaq-100 Shares so aggregated. There
can be no assurance, however, that there will always be sufficient depth and
liquidity in the public trading market to complete all such transactions (see
"Special Considerations and Risk Factors"). Owners of Nasdaq-100 Shares in less
than Creation Unit size aggregations may have to pay brokerage fees and
commissions to acquire sufficient Nasdaq-100 Shares (I.E., 50,000 shares) to
constitute a Creation Unit. Persons redeeming Nasdaq-100 Shares in Creation Unit
size aggregations may also be entitled to receive, or be required to pay, a Cash
Redemption Amount (as hereinafter defined, see "Redemption of Nasdaq-100
Shares--Procedure for Redemption of Nasdaq-100 Shares"). On any given Business
Day, the Cash Redemption Amount will be an amount typically identical to the
Cash Component of a Portfolio Deposit.
In the event that the Trustee determines in its discretion that an Index
Security is likely to be unavailable for delivery or available in insufficient
quantity for delivery by the Trust upon the redemption of Nasdaq-100 Shares in
Creation Unit size aggregations, then the Trustee shall have the right in its
discretion to include the cash equivalent value of such Index Security or Index
Securities, based on the market value of such Index Security or Index Securities
as of the Evaluation Time on the date such redemption order is deemed received
by the Trustee (see "Redemption of Nasdaq-100 Shares"), in the calculation of
the Cash Redemption Amount in lieu of delivering the Index Security or Index
Securities to the redeeming investor.
Similarly, in connection with the redemption of Nasdaq-100 Shares, if a
redeeming investor requests redemption in cash, rather than in kind, with
respect to one or more Index Securities (for example, because a redeeming
investor is restricted by regulation or otherwise from investing or engaging in
a transaction in one or more Index Securities), the Trustee shall have the right
in its discretion to include the cash equivalent value of such Index Security or
Index Securities, based on the market value of such Index Security or Index
Securities as of the Evaluation Time on the date such redemption order is deemed
received by the Trustee, in the calculation of the Cash Redemption
14
Amount in lieu of delivering such Index Security or Index Securities to the
redeeming investor. In all such cases, such investor will pay the Trustee the
standard Transaction Fee, plus an additional amount not to exceed three (3)
times the Transaction Fee applicable for a Creation Unit.
Furthermore, the Trustee, in its discretion, upon the request of a redeeming
investor, may redeem Creation Units in whole or in part by providing such
redeeming investor with a Portfolio Deposit differing in composition, but not
differing in net asset value, from the then-current Portfolio Deposit. Such a
redemption is likely to be made only if it were determined to be appropriate in
order to maintain the Trust portfolio's correspondence to the composition and
weighting of the Index when a change to the composition and/or weighting of the
Index Securities occurs (see "The Portfolio", "The Index", and "The
Index--Rebalancing of the Index").
The Transaction Fee will be charged in connection with the redemption of
Creation Unit size aggregations of Nasdaq-100 Shares. If a request for
redemption is made directly to the Trustee outside the Nasdaq-100 Clearing
Process, an additional amount not to exceed three (3) times the Transaction Fee
applicable for a Creation Unit will be charged to the redeemer due to the
increased expense associated with delivery outside the Nasdaq-100 Clearing
Process (see "Transaction Fee").
TERMINATION
The Trust will terminate by its terms on the first to occur of: (i) the date
one hundred twenty-five (125) years from the Initial Date of Deposit (I.E.,
March 4, 2124) or (ii) the date twenty (20) years after the death of the last
survivor of fifteen persons named in the Trust Agreement, the oldest of whom was
born in 1986 and the youngest of whom was born in 1996 (the "Mandatory
Termination Date"). The Trust may also be terminated earlier upon the agreement
of the Beneficial Owners of 66 2/3% of the then outstanding Nasdaq-100 Shares.
The Sponsor will also have the discretionary right to direct the Trustee to
terminate the Trust if at anytime 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 or if on or after three years following the Initial
Date of Deposit the net asset value of the Trust is less than $350,000,000, as
such dollar amount shall be adjusted for inflation in accordance with the
National Consumer Price Index for All Urban Consumers (the "CPI-U")(*) as
published by the United States Department of Labor, such adjustment to take
effect at the end of the fourth year following the Initial
- ------------------------
* The CPI-U measures the inflation rate of specified commodities deemed
representative of the purchases of all urban consumers.
15
Date of Deposit and at the end of each year thereafter and to be made so as to
reflect the percentage increase in consumer prices as set forth in the CPI-U for
the twelve month period ending in the month preceding the month in which such
adjustment is made. The Trustee shall have the right to terminate the Trust in
the event that (a) the Sponsor resigns or becomes incapable of discharging its
duties and a successor is not appointed; (b) the Depository is unable or
unwilling to continue to perform its functions as set forth under the Trust
Agreement and a suitable replacement is unavailable; (c) NSCC no longer provides
clearance services with respect to Nasdaq-100 Shares and a suitable replacement
is unavailable, or if the Trustee is no longer a member of NSCC or any successor
to NSCC providing clearance services; (d) Nasdaq ceases publishing the Index;
(e) Nasdaq-100 Shares are delisted from the Amex and are not subsequently
relisted on a national securities exchange or a quotation medium operated by a
national securities association (see "Marketplace Listing"); or (f) the License
Agreement (as hereinafter defined) is terminated. The License Agreement
currently is scheduled to terminate five years from the commencement date of
trading of Nasdaq-100 Shares, subject to a five-year renewal period following
such date (see "License Agreement"). The Trust shall also terminate if the
Trustee resigns or becomes incapable of discharging its duties and a successor
is not appointed (see "Administration of the Trust--Termination").
UNDERWRITING
ALPS Mutual Funds Services, Inc. (the "Distributor") acts as underwriter of
Nasdaq-100 Shares on an agency basis. All orders to create Nasdaq-100 Shares in
Creation Unit size aggregations must be placed with the Distributor, and it is
the responsibility of the Distributor to transmit such orders to the Trustee.
The Distributor will furnish to those placing such orders confirmation that the
orders have been accepted, but the Distributor will reject any order which is
not submitted in proper form. Upon acceptance of an order to create Nasdaq-100
Shares, the Distributor will instruct the Trustee to initiate the book-entry
movement of the appropriate number of Nasdaq-100 Shares to the account of the
entity placing the order. The Distributor is also responsible for delivering a
prospectus to those persons creating Nasdaq-100 Shares. The Distributor also
maintains records of both the orders placed with it for the creation of
Nasdaq-100 Shares and the confirmations of acceptance issued by it. In addition,
the Distributor maintains a record of the instructions given to implement
delivery of Nasdaq-100 Shares in response to orders placed with it. The
Distributor may also provide certain other administrative services, such as
those related to state securities law compliance. The Distributor is a
corporation organized under the laws of the State of Colorado and is located at
370
16
17th Street, Suite 3100, Denver, CO 80202. The Distributor is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. The Sponsor pays the Distributor for its services a flat annual fee. The
Sponsor will not seek reimbursement for such payment from the Trust without
obtaining prior exemptive relief from the Commission.
17
SPECIAL CONSIDERATIONS AND RISK FACTORS
GENERAL
Investment in the Trust should be made with an understanding that the value
of the Securities may fluctuate in accordance with changes in the financial
condition of the issuers of the Securities, the value of common stocks
generally, and other factors. The composition and weighting of the Index
Securities and hence the composition and weighting of the Securities held in the
Trust also change from time to time (see "The Portfolio--Adjustments to the
Portfolio", "The Portfolio--Selection and Acquisition of Securities", and "The
Index--Rebalancing of the Index"). There can be no assurance that the issuers of
the Securities will pay dividends on outstanding shares of common stock.
Distributions on the Securities will generally depend upon the declaration of
dividends by the issuers of the Securities; the declaration of such dividends
generally depends upon various factors, including the financial condition of the
issuers and general economic conditions. As discussed above, the Trust, unlike a
managed investment company, will not be actively "managed" by traditional
methods, and therefore the adverse financial condition of an issuer will not
result in the elimination of its securities from the Securities held by the
Trust unless the Securities of such issuer are removed from the Index (see "The
Portfolio--Adjustments to the Portfolio").
An investment in the Trust should also be made with an understanding of the
risks inherent in an investment in equity securities, including the risk that
the financial condition of the issuers of the Securities may become impaired or
that the general condition of the stock market may deteriorate (either of which
may cause a decrease in the value of the Securities and thus in the value of
Nasdaq-100 Shares). Common stocks are susceptible to general stock market
fluctuations and to volatile increases and decreases in value as market
confidence in and perceptions of their issuers change. These investor
perceptions are based on various and unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic, and banking crises. As discussed above, the Trust
will not be actively "managed" and therefore securities held by the Trust will
not be disposed of as a result of or in anticipation of normal fluctuations in
the market.
Holders of common stocks of any given issuer incur more risk than holders of
preferred stocks and debt obligations of such issuer because common
stockholders, as owners of such issuer, have generally inferior rights to
receive payments from such issuer in comparison with the rights of creditors of,
or holders of debt obligations or preferred stocks issued by, such issuer.
Further, unlike debt securities which typically have a stated principal amount
payable at
18
maturity (whose value, however, will be subject to market fluctuations prior
thereto), or preferred stocks which typically have a liquidation preference and
which may have stated optional or mandatory redemption provisions, common stocks
have neither a fixed principal amount nor a maturity. Common stock values are
subject to market fluctuations as long as the common stock remains outstanding.
The value of the Securities may therefore be expected to fluctuate over the
entire life of the Trust to values higher or lower than those prevailing on the
Initial Date of Deposit (see "Market Risks").
All of the Securities are currently listed on the Nasdaq Stock Market. The
existence of a liquid trading market for certain Securities may depend on
whether dealers will make a market in such Securities. There can be no assurance
that a market will be made for any of the Securities, that any market for the
Securities will be maintained, or that any such market will be or remain liquid.
The price at which the Securities may be sold and the value of the Trust will be
adversely affected if trading markets for the Securities are limited or absent.
An investment in the Trust should also be made with an understanding that
the Trust will not be able to replicate exactly the performance of the Index
because the total return generated by the Securities will be reduced by
transaction costs incurred in adjusting the actual balance of the Securities and
other Trust expenses, whereas such transaction costs and expenses are not
included in the calculation of the Index. It is also possible that for short
periods of time, the Trust may not fully replicate the performance of the Index
due to the temporary unavailability of certain Index Securities in the secondary
market or due to other extraordinary circumstances. Such events are unlikely to
continue for an extended period of time because the Trustee is required to
correct such imbalances by means of adjusting the composition of the Securities
(see "The Portfolio--Adjustments to the Portfolio"). It is also possible that
the composition of the Trust may not exactly replicate the composition of the
Index if the Trust has to adjust its portfolio holdings in order to continue to
qualify as a "regulated investment company" under the Code (see "Tax Status of
the Trust").
Neither the Depository nor Beneficial Owners of Nasdaq-100 Shares are
entitled either to dispose of any of the Securities in the Trust, as such, or to
vote the Securities. As the beneficial owner of the Securities, the Trustee has
the right to vote all of the voting Securities (see "Administration of the
Trust-- Voting").
Except as otherwise specifically noted, the time frames for delivery of
Securities, cash, or Nasdaq-100 Shares in connection with creation and
redemption activity within the Nasdaq-100 Clearing Process as set forth herein
19
are based on NSCC's current "regular way" settlement period of three (3) days
during which NSCC is open for business (each such day an "NSCC Business Day").
NSCC may, in the future, reduce or increase such "regular way" settlement
period, in which case it is anticipated that there would be a corresponding
reduction or increase in settlement periods applicable to Nasdaq-100 Share
creations and redemptions. Investors should note that NSCC Business Days do not
always coincide with the days during which the Trustee is open for business.
LITTLE OR NO EXPECTED NET DIVIDEND DISTRIBUTIONS TO BENEFICIAL OWNERS
The Trust Agreement provides for quarterly distributions to Beneficial
Owners via the Depository and its participants (see "The Trust-- Book-Entry-Only
System") on Dividend Payment Dates in the event that dividends accumulated in
respect of the Securities and other income, if any, received by the Trust exceed
Trust fees and expenses accrued during the quarterly Accumulation Period which
ends on the Business Day preceding each Ex-Dividend Date; subject, however, to
such amount falling below a floor for de-minimus distributions, in which event a
net dividend distribution may not be paid and such amount will be rolled into
the next Accumulation Period (see "Administration of the Trust--Distributions to
Beneficial Owners"). Historically, the portfolio of securities comprising the
Index has paid relatively low dividends when compared to the securities
comprising other broad-based stock indices. For example, for the 1996, 1997, and
1998 calendar years, the ratio of the aggregate dividends paid to total
capitalization for the securities comprising the Index in those periods was
0.11%, 0.13%, and 0.07%, respectively. In comparison, the comparable dividend
ratio for the securities comprising the Standard & Poor's 500
Index-Registered Trademark- in those periods was 2.01%, 1.60%, and 1.68%,
respectively. (See "The Index" for the historical aggregate dividend yields of
the securities comprising the Index.)
The Sponsor has undertaken that on each day during each fiscal year up to
and including the fiscal year ending September 30, 2000, the ordinary operating
expenses of the Trust will not be permitted to exceed an amount which is 18/100
of one percent (0.18%) per annum of the daily net asset value of the Trust (see
"Expenses of the Trust"). Notwithstanding such limitation on Trust expenses, the
fees and expenses of the Trust may exceed the dividend and other income on the
Securities received by the Trust during each quarter. In such event, no net
dividend distributions would be made by the Trust. Based on the 1998 dividend
yield noted above of the securities comprising the Index in that year, no net
dividend distributions would have been made by the Trust if it were in existence
during the 1998 calendar year and if ordinary operating
20
expenses were 0.18% per annum of the net asset value of the Trust consistent
with the Sponsor's undertaking to limit the Trust's ordinary operating expenses.
Moreover, after September 30, 2000, the Sponsor may, in its sole discretion,
discontinue its undertaking to limit ordinary operating expenses of the Trust,
or may renew this undertaking for an additional period of time but at a
different level which may be higher than 0.18%. In such event, the likelihood
may increase that expenses of the Trust would exceed the dividend and other
income received by the Trust during each quarter. The Trust will pay any such
excess expenses with the proceeds realized from the sale of Securities effected
ordinarily whenever the Trustee determines that projected annualized fees and
expenses accrued on a daily basis exceed projected annualized dividends and
other Trust income accrued on a daily basis by more than 1/100 of one percent
(0.01%) of the net asset value of the Trust (see "Expenses of the Trust"). Such
a sale of Securities will ordinarily be required to occur no later than the next
occurring adjustment to the Securities held in the Trust to conform to changes
in the composition and weighting of the Index Securities (see "The Portfolio--
Adjustments to the Portfolio").
Dividend payment rates of the securities comprising the Index may change
based on numerous factors, including the financial condition of the issuers and
general economic conditions, as well as from changes to the price level of Index
Securities, and from changes to the composition of Index Securities (I.E., the
substitution of one security in the Index with another paying higher or lower
dividends than the security being replaced). (See "The Index" for a discussion
of the selection criteria for determining the Index Securities.) In addition,
the Trust has no operating history by which to measure Trust expenses and
although the amounts of certain ordinary Trust expenses can be estimated, the
growth rate of the Trust, which cannot be anticipated, will directly affect the
level of Trust expenses as a percentage of the Trust's net asset value (I.E., as
the Trust grows in net asset value, certain relatively fixed Trust expenses will
be borne by a greater number of holders of Nasdaq-100 Shares). Accordingly, no
assurances can be given as to the actual level of dividends payable by the
issuers of the Securities or the actual level of Trust expenses, and no
representations are being made as to the level of net dividend distributions, if
any, that may be payable by the Trust.
NET ASSET VALUE AND MARKET PRICES
The Trust's assets consist primarily of the Securities. Therefore, the net
asset value of Nasdaq-100 Shares in Creation Unit size aggregations and,
proportionately, the net asset value per Nasdaq-100 Share changes as
fluctuations occur in the market value of the Securities. Investors should also
be aware that
21
the aggregate public trading market price of 50,000 Nasdaq-100 Shares may be
different from the net asset value of a Creation Unit size aggregation of
Nasdaq-100 Shares (I.E., 50,000 Nasdaq-100 Shares may trade at a premium over or
at a discount to the net asset value of a Creation Unit) and similarly the
public trading market price per Nasdaq-100 Share may be different from the net
asset value of a Creation Unit on a per Nasdaq-100 Share basis (see "--Market
Risks"). This price difference may be due, in large part, to the fact that
supply and demand forces at work in the secondary trading market for Nasdaq-100
Shares will be closely related to, but not identical to, the same forces
influencing the prices of the Index component securities trading individually or
in the aggregate at any point in time. The expenses of the Trust are reflected
in the net asset value of Nasdaq-100 Shares in Creation Unit size aggregations
and the expenses of the Trust are accrued daily (see "Expenses of the Trust").
TRADING CONSIDERATIONS
Prior to the date of this Prospectus, there has been no market for
Nasdaq-100 Shares trading individually or in Creation Unit size aggregations
and, consequently, there can be no assurance that active trading markets will
develop, nor is there a certain basis for predicting the actual price levels at
which Nasdaq-100 Shares may trade.
Further, there can be no assurance that Nasdaq-100 Shares will experience
trading or pricing patterns similar to those of market-traded securities which
are issued by investment companies based upon indexes other than the Index
(E.G., SPDRs-Registered Trademark-, MidCap SPDRs-TM-, DIAMONDS(SM), and
WEBS(SM)).*
The Sponsor's aim in designing Nasdaq-100 Shares was to provide investors
with a security whose initial market value would approximate one-twentieth
(1/20th) the value of the Index. Thus, for example, if the Index were at 1600,
investors might expect a Nasdaq-100 Share to trade initially at approximately
$80. Investors should be aware, however, that the market price of a Nasdaq-100
Share may be affected by supply and demand, market volatility, sentiment, and
other factors. In addition, due to these factors as well as other factors
including required distributions for tax purposes (see "Tax Status of the
Trust") or the sale of Securities to meet Trust expenses in excess of the
dividends received on the Securities (see "Expenses of the Trust"), the
- ------------------------
* SPDRs-Registered Trademark- and MidCap SPDRs-TM- are trademarks of The
McGraw-Hill Companies, Inc., DIAMONDS-SM- is a service mark of Dow Jones &
Company, Inc., and WEBS-SM- is a service mark of Morgan Stanley, Dean
Witter, Discover & Co.
22
one-twentieth (1/20th) relationship between the initial value of a Nasdaq-100
Share and the value of the Index is not expected to persist indefinitely.
The Sponsor does not maintain a secondary market in Nasdaq-100 Shares.
Nasdaq-100 Shares have been approved for listing on the Amex, subject to
official notice of issuance. The market symbol for Nasdaq-100 Shares is "QQQ".
Trading in Nasdaq-100 Shares on the Amex may be halted due to market conditions
or, in light of Amex rules and procedures, for reasons that, in the view of the
Amex, make trading in Nasdaq-100 Shares inadvisable. In addition, trading in
Nasdaq-100 Shares on the Amex is subject to trading halts caused by
extraordinary market volatility pursuant to Amex "circuit breaker" rules that
require trading in securities on the Amex to be halted for a specified time
period based on a specified market decline. There can be no assurance that the
requirements of the Amex necessary to maintain the listing of Nasdaq-100 Shares
will continue to be met or will remain unchanged. The Trust will be terminated
in the event Nasdaq-100 Shares are delisted from the Amex and are not
subsequently relisted on a national securities exchange or a quotation medium
operated by a national securities association. (For a description of the
conditions for the listing of Nasdaq-100 Shares and the circumstances under
which the Amex would consider the suspension of trading in or the delisting of
Nasdaq-100 Shares, see "Marketplace Listing.") Further, the Trust may be
terminated, among other reasons, in the event that the net asset value of the
Trust falls below a specified level (see "Administration of the
Trust--Termination").
MARKET RISKS
Nasdaq-100 Shares are subject to the risk of an investment in a broad market
portfolio of equity securities, including the risk that the general level of
stock prices may decline, thereby adversely affecting the value of such
investment. Nasdaq-100 Shares are also subject to the risk of an investment in a
portfolio of equity securities in economic sectors in which the Index may be
highly concentrated (E.G., technology, see "The Index") as well as to the risks
specific to the performance of a few individual component securities which
currently represent a highly concentrated weighting in the Index (E.G.,
Microsoft Corporation and Intel Corporation, see "The Index"). These include the
risks that the level of stock prices in these sectors or the stock prices of
these specific companies may decline, thereby adversely affecting the value of
Nasdaq-100 Shares. In addition, because it is the policy of the Trust to invest
in the securities that comprise the Index, if the Index is concentrated in an
industry or group of industries, the portfolio of Securities also will be
concentrated in that industry or group of industries. Furthermore, investors
should be aware that in the event that one or more stocks which currently have a
highly
23
concentrated weighting in the Index were to leave the Nasdaq Stock Market, if a
company with a large market capitalization were to list its shares on the Nasdaq
Stock Market, or if there were a significant rebalancing of the Index (see "The
Index--Rebalancing of the Index"), then the composition and weighting of the
Index, and hence the composition and weighting of the Securities in the Trust,
would change significantly and the performance of Nasdaq-100 Shares would
reflect the performance of the new Index as reconfigured (see "The
Portfolio--Adjustments to the Portfolio").
Furthermore, due to the concentration of the Index in sectors characterized
by relatively higher volatility in price performance when compared to other
economic sectors, the performance of the Index may be more volatile when
compared to other broad based stock indices. For example, the annual volatility
of the Index for the 1998 calendar year was 32.2%, while the annual volatility
of the Standard & Poor's 100 Index-Registered Trademark- and the Standard &
Poor's 500 Index-Registered Trademark- for the same period was 20.9% and 20.3%,
respectively. For this reason, it is anticipated that the price volatility of
Nasdaq-100 Shares may be greater than the price volatility of other
market-traded securities which are issued by investment companies based upon
indices other than the Index.
Nasdaq-100 Shares are also subject to risks other than those associated with
an investment in a broad market portfolio of equity securities in that the
selection of the securities included in the Trust's portfolio, the expenses
associated with the Trust, or other factors distinguishing an ownership interest
in a trust from the direct ownership of a portfolio of securities may affect
trading in Nasdaq-100 Shares as compared with trading in a broad market
portfolio of equity securities. Nasdaq-100 Shares are further subject to the
risk that extraordinary events may cause any of the parties providing services
to the Trust, such as the Trustee, the Sponsor, the Distributor, the Depository,
NSCC, or Nasdaq (as the licensor of the Index and the Index calculator) to be
closed or otherwise unable to perform such party's obligations as set forth
herein and in the agreements between and among such parties. According to the
terms of the Trust Agreement, if any of the above named entities fails or is
otherwise unable to perform adequately its duties, a successor entity may be
named or appointed to assume all duties and obligations of its predecessor. If,
however, no suitable successor is available or willing to undertake all such
duties and obligations, under the Trust Agreement the Trust will then be
terminated (see "Administration of the Trust--Termination").
The Trustee will ordinarily deliver a portfolio of Securities for each
Creation Unit size aggregation of Nasdaq-100 Shares delivered for redemption,
identical in composition to the Securities portion of a Portfolio Deposit as in
effect on the date a request for redemption is deemed received by the Trustee
24
(see "Redemption of Nasdaq-100 Shares"). If a redemption is processed through
the Nasdaq-100 Clearing Process, to the extent that the Securities to be
delivered on settlement date are not delivered, they will be covered by NSCC's
guarantee of the completion of such delivery. Any Securities not received on
settlement date will be marked to the market on a daily basis until delivery is
completed. The Trust, to the extent it has not already done so, remains
obligated to deliver such Securities to NSCC, and the market risk of any
increase in the value of such Securities until delivery is made by the Trust to
NSCC could adversely affect the net asset value of the Trust. Investors should
note that the Securities to be delivered to a redeemer submitting a redemption
request outside of the Nasdaq-100 Clearing Process that are not delivered to
such redeemer are not covered by NSCC's guarantee of completion of such
delivery.
Investors should also note that the size of the Trust in terms of total
assets held may change substantially over time and from time to time as
Nasdaq-100 Shares in Creation Unit size aggregations are created and redeemed.
Such fluctuations in Trust size should not adversely impact the net asset value
per Nasdaq-100 Share at any time because the amount of the Cash Component or the
Cash Redemption Amount upon creations or redemptions, respectively, of
Nasdaq-100 Shares in Creation Unit size aggregations is determined each day to
equate the value of the Portfolio Deposit to the net asset value of the Trust,
on a per Creation Unit basis, at the close of business on the day such request
is deemed received by the Trustee (see "The Portfolio-- Adjustments to the
Portfolio Deposit").
Investors in the Trust should also be aware that there are tax consequences
associated with the ownership of Nasdaq-100 Shares resulting from the
distribution, if any, of Trust net dividends and sales of Nasdaq-100 Shares, as
well as the sale of underlying Securities held by the Trust in connection with
redemptions or changes in the Index under certain circumstances (see "Tax Status
of the Trust--Tax Consequences to Beneficial Owners").
RECENT REVISIONS TO THE INDEX
Effective after the close of trading on December 18, 1998, the method for
calculating the Index was revised to a "modified capitalization weighted"
methodology which resulted in changes to the weighting of the component
securities in the Index after such date. This methodology is expected to promote
portfolio weight diversification (thereby limiting domination of the Index by a
few large common stocks) while retaining in general the economic attributes of
capitalization weighting. Under this methodology, the Index share weights of the
component securities of the Index are subject to quarterly rebalancing, if
25
necessary, to ensure that the relative weighting of the Index Securities
continues to meet minimum pre-established requirements for a diversified
portfolio (see "The Index--Rebalancing of the Index"). Accordingly, the
composition and weighting of the Securities in the Trust will be based upon the
Index as calculated in accordance with this new methodology.
IMPACT OF THE YEAR 2000 PROBLEM
Like other investment funds and financial and business organizations around
the world, the Trust relies significantly upon the smooth functioning of
computer systems. The Trust could be adversely affected if computer systems,
including those used by the Trustee in the administration of the Trust or those
used by Nasdaq in the calculation of the Index, do not properly process and
calculate date-related information concerning dates after January 1, 2000. Many
computer systems in use today were originally written using two digits rather
than four to define a particular year. As a result, these computer programs have
time-sensitive software that may recognize a date using "00" as the year 1900
rather than the year 2000. That failure could have a negative impact on the
handling of securities trades, pricing, and trust services, among other things.
This is commonly known as the "Year 2000 Problem." As discussed below, both
Nasdaq and the Trustee have taken steps in their view reasonably necessary to
address the Year 2000 Problem with respect to the computer systems they use and
to monitor Year 2000 compliance by vendors and external service providers.
THE TRUSTEE
The Bank of New York Company, Inc. ("BNY"), of which the Trustee is a wholly
owned subsidiary, has established a Year 2000 compliance program consisting of
updating major BNY-owned application systems, business-areas supported systems,
and BNY's proprietary customer software and evaluating the Year 2000 compliance
efforts of vendors of major vendor-supplied systems.
BNY divided major proprietary applications systems designated by BNY as
"mission critical" into three business-line groups. The applications in each
group were subjected to a four-phase process of assessment, renovation,
certification testing, and implementation. These systems have completed all four
phases and are currently in use in production environments. BNY has also
identified its critical vendor-supplied systems. All but one of these systems
have been certified as Year 2000 compliant in accordance with certification
procedures established by BNY. BNY expects to receive a Year 2000 compliant
version of the remaining system in May 1999.
26
One-third of BNY's business-area supported systems has been designated as
exempt from the Year 2000 compliance effort as those systems are scheduled to be
retired or replaced. An additional third has been successfully tested or is
undergoing certification testing. The remaining third is scheduled to complete
testing by March 31, 1999. Lastly, BNY has developed an inventory of its
business partners, including other financial service providers, correspondents,
counterparties, sub-custodians, vendors, and settlement agencies, for the
purpose of assessing their Year 2000 compliance. BNY is conducting a review of
the Year 2000 readiness of each significant third party.
BNY's Year 2000 compliance program is currently on schedule to meet the
needs of its customers and compliance deadlines defined by its regulators.
NASDAQ
In 1996, Nasdaq's parent, the National Association of Securities Dealers,
Inc., established the NASD Year 2000 Program Office responsible for coordinating
all Year 2000 compliance activities for the NASD and its operating subsidiaries,
including Nasdaq. All Nasdaq systems have been analyzed and a determination has
been made about whether to retire, replace, or repair systems. As of December
1998, Nasdaq had completed modifications and upgrades for Year 2000 compliance
for mission critical, mission essential, and other applications (including the
programs responsible for calculating the Index). Nasdaq has also established a
test center which has begun testing external systems that interact with Nasdaq;
ongoing testing is expected to continue through 1999. Nasdaq is also in the
process of providing for independent back-up calculations of the Index to be
performed on an intra-day basis beginning well in advance of the Year 2000.
POSSIBLE IMPACT ON THE TRUST
Due to the general uncertainty inherent in the Year 2000 Problem, at this
time there can be no assurance that the steps taken by BNY and Nasdaq will be
sufficient to avoid any adverse impact to the Trust, and interaction with other
non-complying computer systems of other service providers, including the
Distributor, DTC, and NSCC, may have an adverse effect on the Trust.
In addition, the Year 2000 Problem is expected to affect business entities,
including issuers whose securities are included in the Index, to varying extents
based upon a number of factors, including, but not limited to, industry sector
and level of technological sophistication. The Sponsor is unable to predict what
impact, if any, the Year 2000 Problem will have on issuers of securities
included in the Index and hence included in the Trust.
27
AFFILIATED RELATIONSHIPS AND TRANSACTIONS
Investors in the Trust should be aware that the Sponsor of the Trust is a
wholly-owned subsidiary of Nasdaq. Nasdaq is the proprietor of the Index as well
as the operator of the Nasdaq Stock Market, the marketplace where the Index
Securities trade. Effective as of November 2, 1998, Nasdaq and the Amex, the
exchange on which Nasdaq-100 Shares will be listed, operate as separate
subsidiaries of The Nasdaq-Amex Market Group, a newly created subsidiary of The
National Association of Securities Dealers, Inc.
Under the terms of a license agreement with Nasdaq, the Sponsor has been
granted a license to use the Index as a basis for determining the composition of
the Trust and to use certain service marks and trademarks of Nasdaq in
connection with the Trust (see "License Agreement"). Under the terms of the
license agreement, the Sponsor pays to Nasdaq an annual licensing fee for use of
the Index. The Sponsor ordinarily will seek reimbursement from the Trust for the
amount of licensing fees (see "Expenses of the Trust"). However, the Sponsor has
committed not to seek reimbursement from the Trust for licensing fees to Nasdaq
for the period through the Trust's fiscal year ending September 30, 1999.
Thereafter, the Sponsor intends to charge the Trust for the annual licensing
fee. The Trust is not required to pay a listing fee to the Amex in connection
with the listing of Nasdaq-100 Shares on the Amex.
The Index is determined, composed, and calculated by Nasdaq without regard
to the Sponsor, the Trust, or the Beneficial Owners of Nasdaq-100 Shares. Nasdaq
has complete control and sole discretion in determining, composing, or
calculating the Index or in modifying in any way its method for determining,
composing, or calculating the Index in the future.
28
NASDAQ-100 TRUST, SERIES 1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- ---------------------------------------------------------------------
TO THE SPONSOR, TRUSTEE AND THE UNITHOLDERS OF THE NASDAQ-100 TRUST, SERIES 1:
We have audited the accompanying statement of financial condition, including
the schedule of investments, of the Nasdaq-100 Trust, Series 1 as of the opening
of business on March 5, 1999. The statement of financial condition is the
responsibility of the Trust's Sponsor, Nasdaq-Amex Investment Product Services,
Inc. Our responsibility is to express an opinion on this statement of financial
condition based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial condition is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial condition.
Our procedures included confirmation of the irrevocable letter of credit held by
the Trustee and deposited in the Trust on March 4, 1999. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall presentation of the statement of
financial condition. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the statement of financial condition, including the schedule
of investments, referred to above presents fairly, in all material respects, the
financial position of the Nasdaq-100 Trust, Series 1 at the opening of business
on March 5, 1999, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Washington, D.C.
March 5, 1999
29
NASDAQ-100 TRUST, SERIES 1
STATEMENT OF FINANCIAL CONDITION
OPENING OF BUSINESS, MARCH 5, 1999
- ---------------------------------------------------------------------
ASSETS
Investment in Securities, at market value (cost
$14,497,770) (Note 1)............................ $ 14,497,770
TOTAL ASSETS................................... 14,497,770
-------------
LIABILITIES AND INTEREST OF NASDAQ-100 SHARE HOLDERS
TOTAL LIABILITIES.............................. 0
-------------
TOTAL NET ASSETS....................................... $ 14,497,770
-------------
-------------
NET ASSET VALUE PER NASDAQ-100 SHARE................... $96.65
-------------
-------------
(comprised of $14,497,770/150,000 Nasdaq-100 Shares
outstanding)
NOTES TO STATEMENT OF FINANCIAL CONDITION:
1. Nasdaq-100 Trust, Series 1 (the "Trust") is a unit investment trust
created under the laws of the State of New York and registered under the
Investment Company Act of 1940. The Trust was created to provide investors with
the opportunity to purchase units of beneficial interest in the Trust
representing proportionate undivided interests in the portfolio of securities
held by the Trust consisting of substantially all of the securities, in
substantially the same weighting, as the component securities of the Nasdaq-100
Index-Registered Trademark-. On the Initial Date of Deposit, Portfolio Deposits
were received by The Bank of New York, the Trust's Trustee, in the form of
executed securities transactions which will settle within three business days of
the Initial Date of Deposit, in exchange for three (3) Creation Units of the
Trust equivalent to 150,000 Nasdaq-100 Shares. An irrevocable letter of credit
issued by The Chase Manhattan Bank, in the amount of $20,000,000 has been
delivered to the Trustee, to be drawn on if necessary, for the benefit of the
Trust to collateralize the settlement of the executed securities transactions.
The value of the Securities is based on the March 4, 1999 closing sale prices
therefor on The Nasdaq Stock Market.
30
2. It is anticipated that the Trust will pay the expenses of its operation,
including the fees of its Trustee and payments to The Nasdaq Stock Market, Inc.
("Nasdaq") for a license to use the Nasdaq-100 Index-Registered Trademark- as a
basis for determining the composition and weighting of Securities held by the
Trust, as described under "Expenses of the Trust" and "License Agreement" in
this Prospectus. Nasdaq has agreed to pay fees and expenses incurred in
connection with the organization of the Trust and its registration as an
investment company, and such expenses will not be borne by the Trust.
Nasdaq-Amex Investment Product Services, Inc., the Sponsor of the Trust, has
undertaken that on each day during each fiscal year up to and including the
fiscal year ending September 30, 2000, the ordinary operating expenses of the
Trust as calculated by the Trustee will not be permitted to exceed an amount
which is 18/100 of one percent (0.18%) per annum of the daily net asset value of
the Trust. To the extent during such period the ordinary operating expenses of
the Trust do exceed such 0.18% amount, the Sponsor will reimburse the Trust or
assume invoices on behalf of the Trust for such excess ordinary operating
expenses. The Sponsor retains the ability to be repaid by the Trust for expenses
so reimbursed or assumed to the extent that subsequently during the fiscal year
expenses fall below the 0.18% per annum level on any given day (see "Expenses of
the Trust" in this Prospectus). The Sponsor has also undertaken for the fiscal
year ending September 30, 1999, not to seek reimbursement from the Trust for
licensing fees paid to Nasdaq for use of the Index during such period (see
"License Agreement" in this Prospectus).
3. Nasdaq-100 Shares are created and redeemed by the Trust only in Creation
Unit size aggregations of 50,000 Nasdaq-100 Shares. Transaction fees of varying
amounts are charged to those persons creating or redeeming Creation Units. See
"Prospectus Summary--Portfolio Deposits" and "The Trust-- Creation of Creation
Units" in this Prospectus for further description.
31
Nasdaq-100 Trust, Series 1
Schedule of Investments and
Securities Required for a Portfolio Deposit
On the Opening of Business, March 5, 1999
- ---------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE
- ----------------------------------------------- --------- -------------
Microsoft Corporation.......................... 14,427 $ 2,196,511
Intel Corporation.............................. 9,825 1,113,909
Cisco Systems, Inc............................. 9,483 931,705
MCI WordCom, Inc............................... 11,088 907,830
Dell Computer Corporation...................... 7,887 645,748
Oracle Corporation............................. 10,218 371,680
Sun Microsystems, Inc.......................... 2,784 282,228
Amgen Inc...................................... 3,990 258,103
Yahoo! Inc..................................... 1,596 241,794
Tele-Communications, Inc....................... 3,630 235,950
Amazon.com, Inc................................ 1,767 212,261
Level 3 Communications, Inc.................... 3,585 207,706
Comcast Corporation............................ 2,715 194,801
Applied Materials, Inc......................... 3,210 184,776
Qwest Communications International Inc......... 2,955 176,561
Nextel Communications, Inc..................... 5,838 170,762
Costco Companies, Inc.......................... 1,929 167,341
Netscape Communications Corporation............ 2,094 159,929
Biogen, Inc.................................... 1,521 159,705
Ascend Communications, Inc..................... 2,043 157,056
Nordstrom Inc.................................. 3,666 153,972
Cintas Corporation............................. 2,118 153,423
Linear Technology Corporation.................. 3,378 150,321
Tellabs, Inc................................... 1,860 148,916
Staples, Inc................................... 5,205 148,343
Novell, Inc.................................... 7,098 142,404
Chancellor Media Corporation................... 2,928 141,825
Maxim Integrated Products, Inc................. 3,081 140,186
Immunex Corporation............................ 924 137,965
LM Ericsson Telephone Company.................. 5,202 131,351
Altera Corporation............................. 2,301 124,110
Xilinx, Inc.................................... 1,722 119,033
Starbucks Corporation.......................... 2,082 117,763
PanAmSat Corporation........................... 3,381 115,377
Intuit Inc..................................... 1,263 115,091
See accompanying notes to Statement of Financial Condition.
32
NASDAQ-100 TRUST, SERIES 1
SCHEDULE OF INVESTMENTS AND
SECURITIES REQUIRED FOR A PORTFOLIO DEPOSIT
ON THE OPENING OF BUSINESS, MARCH 5, 1999 (CONTINUED)
- ---------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE
- ----------------------------------------------- --------- -------------
ADC Telecommunications, Inc.................... 2,829 $ 112,099
Paychex, Inc................................... 2,607 111,775
Network Associates, Inc........................ 2,358 107,289
QUALCOMM Incorporated.......................... 1,434 106,743
BMC Software, Inc.............................. 2,760 106,432
Apple Computer, Inc............................ 3,156 105,529
PeopleSoft, Inc................................ 5,535 102,052
Bed Bath & Beyond Inc.......................... 3,138 99,435
Compuware Corporation.......................... 3,810 96,917
Biomet, Inc.................................... 2,541 96,717
KLA-Tencor Corporation......................... 1,782 94,000
Parametric Technology Corporation.............. 6,216 91,297
USA Networks, Inc.............................. 2,382 91,111
Chiron Corporation............................. 4,200 90,825
Fiserv, Inc.................................... 1,725 85,819
NTL Incorporated............................... 1,050 83,869
Genzyme General................................ 1,701 81,967
Quintiles Transnational Corp................... 1,836 81,013
3Com Corporation............................... 3,060 76,500
American Power Conversion Corporation.......... 2,115 70,059
Citrix Systems, Inc............................ 852 68,213
Quantum Corporation............................ 3,423 67,176
Synopsys, Inc.................................. 1,368 63,355
Smurfit-Stone Container Corporation............ 3,543 63,110
Vitesse Semiconductor Corporation.............. 1,335 62,745
Jacor Communications, Inc...................... 897 62,678
PACCAR Inc..................................... 1,473 62,142
VERITAS Software Corporation................... 816 61,404
Concord EFS, Inc............................... 1,854 60,487
Comverse Technology, Inc....................... 780 56,452
Sanmina Corporation............................ 996 53,784
Centocor, Inc.................................. 1,155 47,932
Sigma-Aldrich Corporation...................... 1,779 47,588
Adobe Systems Incorporated..................... 996 45,442
Electronic Arts Inc............................ 1,032 42,828
See accompanying notes to Statement of Financial Condition.
33
NASDAQ-100 TRUST, SERIES 1
SCHEDULE OF INVESTMENTS AND
SECURITIES REQUIRED FOR A PORTFOLIO DEPOSIT
ON THE OPENING OF BUSINESS, MARCH 5, 1999 (CONTINUED)
- ---------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE
- ----------------------------------------------- --------- -------------
Reuters Group PLC.............................. 483 $ 41,296
Apollo Group, Inc.............................. 1,215 36,982
Dollar Tree Stores, Inc........................ 906 36,636
PacifiCare Health Systems, Inc................. 471 35,737
Molex Incorporated............................. 1,260 35,674
Comair Holdings, Inc........................... 903 35,669
McLeodUSA Incorporated......................... 861 35,301
Food Lion, Inc................................. 3,468 33,813
Adaptec, Inc................................... 1,497 31,437
Ross Stores, Inc............................... 600 28,688
Northwest Airlines Corporation................. 1,128 28,341
Lincare Holdings Inc........................... 819 28,051
Autodesk, Inc.................................. 654 26,405
McCormick & Company, Incorporated.............. 894 25,032
Electronics for Imaging, Inc................... 702 24,658
Stewart Enterprises, Inc....................... 1,563 22,859
FORE Systems, Inc.............................. 1,545 21,727
Atmel Corporation.............................. 1,254 21,083
Microchip Technology Incorporated.............. 717 20,390
Herman Miller, Inc............................. 1,140 18,668
Cambridge Technology Partners, Inc............. 714 17,939
Fastenal Company............................... 474 17,775
Andrew Corporation............................. 1,098 16,058
Micron Electronics, Inc........................ 1,320 15,840
Worthington Industries, Inc.................... 1,074 14,096
CBRL Group, Inc................................ 753 13,601
Tech Data Corporation.......................... 741 12,736
Rexall Sundown, Inc............................ 759 11,385
First Health Group Corp........................ 681 11,024
Corporate Express, Inc......................... 1,089 5,649
Total Investments--(Cost $14,497,770).......... $ 14,497,770
-------------
-------------
See accompanying notes to Statement of Financial Condition.
34
THE TRUST
The Trust is a unit investment trust created under the laws of the State of
New York pursuant to the Trust Agreement.* The Securities held by the Trust
consist of a portfolio of equity securities or, in the case of securities not
yet delivered in connection with purchases made by the Trust or Portfolio
Deposits, confirmations of contracts to purchase such securities (collectively,
the "Portfolio").
CREATION OF CREATION UNITS
On the Initial Date of Deposit, Portfolio Deposits were deposited with the
Trustee via instructions submitted through the clearing processes of NSCC,
following placement with the Distributor of orders to create Nasdaq-100 Shares.
The Distributor shall reject any order that is not submitted in proper form. To
permit the Trustee to ensure that the process of settlement is working
satisfactorily, there shall be no further Portfolio Deposits accepted by the
Trustee for a period of three (3) Business Days following the Initial Date of
Deposit, and the Sponsor and the Trustee shall jointly announce the day
thereafter on which further Portfolio Deposits will be accepted, and trading of
Nasdaq-100 Shares on the Amex shall not commence until such date. On or after
such date, Portfolio Deposits may be deposited with the Trustee via instructions
submitted through the clearing processes of NSCC, following placement with the
Distributor of orders to create Nasdaq-100 Shares. Investors may deposit
Portfolio Deposits through the Nasdaq-100 Clearing Process or directly with the
Trustee outside the Nasdaq-100 Clearing Process. The Transaction Fee will be
charged at the time of creation of a Creation Unit size aggregation of
Nasdaq-100 Shares. An additional amount not to exceed three (3) times the
Transaction Fee applicable for a Creation Unit will be charged to a creator
creating outside the Nasdaq-100 Clearing Process (I.E., depositing Portfolio
Deposits directly with the Trustee through DTC), in part due to the increased
expense associated with settlement outside the Nasdaq-100 Clearing Process. See
"Prospectus Summary--Transaction Fee" for a detailed description of the amount
of the Transaction Fee and the additional amounts and reductions, limitations,
and waivers applicable thereto, if any. The shares of the Index Securities in a
Portfolio Deposit on the Initial Date of Deposit had an aggregate market value
of $14,497,770 (see "Schedule of Investments").
- ------------------------
* Reference is hereby made to the Trust Agreement (a copy of which is
available to prospective purchasers of Nasdaq-100 Shares at the corporate
trust office of the Trustee at 101 Barclay Street, New York, New York 10286
during normal business hours), and any statements contained herein are
qualified in their entirety by the provisions of the Trust Agreement.
35
Nasdaq-100 Shares will be initially priced to approximate 1/20th of the value of
the Index (see "Marketplace Listing").
The Trustee and the Sponsor, from time to time and for such periods as they
may determine, together may increase* or reduce the amount and/or waive the
imposition altogether of the Transaction Fee (and/or the additional amounts
charged in connection with creations and/or redemptions outside the Nasdaq-100
Clearing Process) for certain numbers of Creation Units of Nasdaq-100 Shares
created or redeemed, whether applied solely to creations and/or redemptions made
through the Nasdaq-100 Clearing Process (see "Procedures for Creation of
Creation Units"), solely to creations and/or redemptions made outside the
Nasdaq-100 Clearing Process, or to both methods of creation and/or redemption.
The Sponsor also reserves the right, from time to time, to vary the number of
Nasdaq-100 Shares per Creation Unit (currently 50,000 shares) and such change
may or may not be made in conjunction with a change to the Transaction Fee. The
occurrence of any increase, reduction, or waiver of the Transaction Fee (as well
as any additional amounts, if applicable) and the number of Creation Units
created or redeemed to which such increase, reduction, or waiver applies shall
be disclosed in the current Nasdaq-100 Share Prospectus (see "Prospectus
Summary--Transaction Fee"). As of the date hereof, the Sponsor and the Trustee
do not contemplate the increase, reduction, variation by lot-size, or waiver of
Transaction Fees in connection with the creation or redemption of Nasdaq-100
Shares or of the additional amounts charged in connection with the creation or
redemption of Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process beyond
that which is discussed herein under the caption "Prospectus
Summary--Transaction Fee."
The shares of equity securities comprising the securities portion of a
Portfolio Deposit on any date of deposit will reflect the composition and
weighting of the component securities of the Index on such day. The portfolio of
Index Securities that is the basis for a Portfolio Deposit varies as changes are
made in the composition and weighting of the Index Securities (see "The
Portfolio-- Adjustments to the Portfolio Deposit"). The Trustee will make
available to NSCC prior to the commencement of trading on each Business Day a
list of the names and required number of shares of each of the Index Securities
in the current Portfolio Deposit as well as the amount of the Income Net of
Expense Amount 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 share amounts of the Index Securities of the
- ------------------------
* Such increase is subject to the 10 Basis Point Limit discussed above under
"Prospectus Summary--Transaction Fee."
36
Portfolio Deposit on the previous Business Day. The identity and share amounts
of each of the Index Securities required for a Portfolio Deposit, as in effect
on the Initial Date of Deposit, is set forth in the above Schedule of
Investments.
The Sponsor intends to make available, or may designate other persons to
make available, on each Business Day, a list of the names and the required
number of shares for each of the securities in the current Portfolio Deposit as
well as the Income Net of Expense Amount effective through and including the
previous Business Day per outstanding Nasdaq-100 Share. The Sponsor may choose
within its discretion to make available, frequently throughout each Business
Day, a number representing, on a per Nasdaq-100 Share basis, the sum of the
Income Net of Expense Amount effective through and including the previous
Business Day plus the current value of the securities portion of a Portfolio
Deposit as in effect on such day (which value will occasionally include a
cash-in-lieu amount to compensate for the omission of a particular Index
Security from such Portfolio Deposit, see "The Portfolio--Adjustments to the
Portfolio Deposit"). If the Sponsor elects to make such information available,
it would 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. If
the Sponsor elects to make such information available, the inability of the
Sponsor or its designee to provide such information for any period of time will
not in itself result in a halt in the trading of Nasdaq-100 Shares on the Amex.
If such information is made available, investors interested in creating
Nasdaq-100 Shares or purchasing Nasdaq-100 Shares in the secondary market should
not rely solely on such information in making investment decisions but should
also consider other market information and relevant economic and other factors
(including, without limitation, information regarding the Index, the Index
Securities, and financial instruments based on the Index).
Upon receipt of a Portfolio Deposit or Deposits following placement with the
Distributor of an order to create Nasdaq-100 Shares, the Trustee will register
the ownership of the Nasdaq-100 Shares in Creation Unit size aggregations in the
name of the Depository or its nominee. In turn, the Nasdaq-100 Share position
will be removed from the Trustee's account at the Depository and will be
allocated to the account of the DTC Participant acting on behalf of the
depositor creating Creation Unit(s) (see "Procedures for Creation of Creation
Units" and "Book-Entry-Only System"). Each Nasdaq-100 Share will represent a
fractional undivided interest in the Trust in an amount equal to one (1) divided
by the total number of Nasdaq-100 Shares outstanding. The Trustee may reject a
request to create Creation Units made by any depositor or group of depositors if
such depositor(s), upon the acceptance by the Trustee of such request and the
issuance to such depositor(s) of Nasdaq-100 Shares, would
37
own eighty percent (80%) or more of the outstanding Nasdaq-100 Shares (see "Tax
Status of the Trust"). The Trustee also may reject any Portfolio Deposit or any
component thereof under certain other circumstances (see "Procedures for
Creation of Creation Units").
Additional Nasdaq-100 Shares in Creation Unit size aggregations will be
created upon receipt of the appropriate Portfolio Deposits from creators. As
additional Nasdaq-100 Shares in Creation Unit size aggregations are created, the
aggregate value of the Portfolio will be increased and the fractional undivided
interest in the Trust represented by each Nasdaq-100 Share will be decreased. As
discussed above, under certain circumstances (1) a portion of the securities
portion of a Portfolio Deposit may consist of contracts to purchase certain
Index Securities that are expected to be delivered in a "regular way" manner
through NSCC or (2) a portion of the Cash Component may consist of cash in an
amount sufficient to enable the Trustee to purchase such Index Securities (E.G.,
in the event that the Trustee determines that one or more Index Securities are
likely to be unavailable or available in insufficient quantity, or if an entity
placing an order to create Nasdaq-100 Shares is restricted by regulation or
otherwise from engaging in a transaction in an Index Security, see "The
Portfolio--Adjustments to the Portfolio Deposit"). In the event there is a
failure to deliver the Index Securities which are the subject of such contracts
to purchase or the Cash Component includes cash in lieu of the delivery of one
or more Index Securities, the Trustee will be instructed pursuant to the Trust
Agreement to acquire such Index Securities in an expeditious manner. To the
extent the price of any such Index Security increases or decreases between the
time of creation and the time any such Index Security is purchased and
delivered, Nasdaq-100 Shares will represent fewer or more shares of such Index
Security and more or fewer of the other Index Securities in the Trust. Hence,
price fluctuations during the period from the time the cash is received by the
Trustee to the time the requisite Index Securities are purchased and delivered
will affect the value of all Nasdaq-100 Shares.
The identity and appropriate number of shares of the Index Securities
required for a Portfolio Deposit are determined in the manner described herein.
Due to changes in the composition and weighting of the Index Securities, the
composition and weighting of the Securities and the prescribed Portfolio Deposit
will also change from time to time (see "The Portfolio--Adjustments to the
Portfolio" and "The Portfolio--Adjustments to the Portfolio Deposit"). The
composition and weighting of the Index Securities to be delivered as part of a
Portfolio Deposit are determined daily and reflect the composition of the Index
and, together with the Cash Component, have a value equal to the net asset value
of the Trust on a per Creation Unit basis at the close of business on the day of
request for creation. The composition of the
38
Portfolio is also adjusted from time to time to conform to changes to the Index
as described herein and as set forth in the Trust Agreement. As the composition
and weighting of the Index Securities change, substantially identical changes to
the composition and weighting of the securities portion of the required
Portfolio Deposit are made contemporaneously. Corresponding adjustments to the
composition and weighting of the Portfolio, however, are not necessarily made
contemporaneously with adjustments to the required Portfolio Deposit, but in all
cases will be made in accordance with the specifications set forth in the Trust
Agreement and described herein (see "The Portfolio--Adjustments to the
Portfolio"). Although the composition and weighting of the securities portion of
a Portfolio Deposit change from time to time, the interests of Beneficial Owners
will not be adversely affected because the composition of such securities and
the aggregate value thereof together with the Cash Component (which may itself
have a positive or negative value, as the case may be), will be calculated based
upon the proportionate net asset value of the Trust (see "The
Portfolio--Adjustments to the Portfolio").
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create Nasdaq-100
Shares in Creation Unit size aggregations, an entity or person must be (1) a
Participating Party, with respect to creations through the Nasdaq-100 Clearing
Process or (2) a DTC Participant with respect to creations/redemptions outside
the Nasdaq-100 Clearing Process, and in either case must have executed a
Nasdaq-100 Participant Agreement with the Distributor and the Trustee. All
Nasdaq-100 Shares, however created, will be entered on the records of the
Depository in the name of Cede & Co. for the account of a DTC Participant (see
"The Trust--Book-Entry-Only System").
All orders to create Nasdaq-100 Shares must be placed in multiples of 50,000
Nasdaq-100 Shares (Creation Unit size). All orders to create Nasdaq-100 Shares,
whether through the Nasdaq-100 Clearing Process or outside the Nasdaq-100
Clearing Process, must be received by the Distributor by no later than the
closing time of the regular trading session on the Nasdaq Stock Market ("Closing
Time") (ordinarily 4:00 p.m. New York time) in each case on the date such order
is placed in order for creation of Nasdaq-100 Shares to be effected based on the
net asset value of the Trust as determined on such date. The date on which a
creation order (or order to redeem as discussed below) is placed is herein
referred to as the "Transmittal Date." Orders must be transmitted by telephone
or other transmission method acceptable to the Distributor and Trustee, pursuant
to procedures set forth in the Nasdaq-100 Participant Agreement, as described
below (see "Placement of Creation Orders Using the Nasdaq-100 Clearing Process"
and "Placement of
39
Creation Orders Outside the Nasdaq-100 Clearing Process"). Severe economic or
market changes or disruptions, or telephone or other communication failure, may
impede the ability to reach the Trustee, the Distributor, a Participating Party,
or a DTC Participant.
Orders to create Creation Unit size aggregations of Nasdaq-100 Shares shall
be placed with a Participating Party or DTC Participant, as applicable, in the
form required by such Participating Party or DTC Participant. Investors should
be aware that their particular broker may not have executed a Nasdaq-100
Participant Agreement, and that, therefore, orders to create Creation Unit size
aggregations of Nasdaq-100 Shares may have to be placed by the investor's broker
through a Participating Party or a DTC Participant who has executed a Nasdaq-100
Participant Agreement. At any given time there may be only a limited number of
broker-dealers that have executed a Nasdaq-100 Participant Agreement. Those
placing orders to create Nasdaq-100 Shares through the Nasdaq-100 Clearing
Process should afford sufficient time to permit proper submission of the order
to the Distributor prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the Nasdaq-100 Clearing
Process are likely to require transmittal by the DTC Participant earlier on the
Transmittal Date than orders effected using the Nasdaq-100 Clearing Process.
Those persons placing orders outside the Nasdaq-100 Clearing Process should
ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire
system by contacting the operations department of the broker or depository
institution effectuating such transfer of securities and the Cash Component (if
required). The DTC Participant notified of an order to create Nasdaq-100 Shares
outside the Nasdaq-100 Clearing Process shall be required to effect a transfer
of (1) the requisite Index Securities through DTC by 11:00 a.m. on the next
Business Day immediately following the Transmittal Date in such a way as to
replicate the Portfolio Deposit established on the Transmittal Date by the
Trustee in calculating the net asset value of the Trust and (2) the Cash
Component (if required) through the Federal Reserve Bank wire system so as to be
received by the Trustee by 1:00 p.m. on the next Business Day immediately
following the Transmittal Date. If the Trustee does not receive both the Index
Securities by 11:00 a.m. and the Cash Component (if required) by 1:00 p.m. on
the Business Day immediately following the Transmittal Date, such order shall be
canceled. Upon written notice to the Distributor, such canceled order may be
resubmitted the following Business Day using a Portfolio Deposit as newly
constituted to reflect the current net asset value of the Trust. If the Cash
Component has a negative value, requiring payment of such amount by the Trustee
on behalf of the Trust to the creator of Nasdaq-100 Shares outside the
Nasdaq-100 Clearing Process (I.E., if the sum of dividends on all Securities
with
40
ex-dividend dates within the Accumulation Period, plus or minus the Balancing
Amount, is less than the accrued expenses and liabilities of the Trust for such
period) then payment of such amount by the Trustee to the creator of Nasdaq-100
Shares via the Depository and the DTC Participants is required to be made no
later than 1:00 p.m. on the third (3rd) Business Day immediately following the
Transmittal Date.
All questions as to the number of shares of each of the Index Securities,
the amount and identity of the payor of the Cash Component (I.E., the Trustee on
behalf of the Trust or the Nasdaq-100 Share creator), and the validity, form,
eligibility (including time of receipt), and acceptance for deposit of any Index
Securities to be delivered shall be determined by the Trustee, whose
determination shall be final and binding. The Trustee reserves the absolute
right to reject a creation order transmitted to it by the Distributor in respect
of any Portfolio Deposit or any component thereof if (a) the depositor or group
of depositors, upon obtaining the Nasdaq-100 Shares ordered, would own 80% or
more of the current outstanding Nasdaq-100 Shares (see "Tax Status of the
Trust"); (b) the Portfolio Deposit is not in proper form; (c) acceptance of the
Portfolio Deposit would have certain adverse tax consequences (see "Tax Status
of the Trust"); (d) the acceptance of the Portfolio Deposit would, in the
opinion of counsel, be unlawful; (e) the acceptance of the Portfolio Deposit
would otherwise, in the discretion of the Trustee, have an adverse effect on the
Trust or the rights of Beneficial Owners; or (f) in the event that circumstances
outside the control of the Trustee make it for all practical purposes impossible
to process creations of Nasdaq-100 Shares. The Trustee will provide notice of
its reasons for rejection of a creation order in respect of a Portfolio Deposit
or any component thereof. The Trustee and the Sponsor shall not incur any
liability in connection with any notification of defects or irregularities in
the delivery of Portfolio Deposits or any component thereof or in connection
with the rejection of a creation order.
A list of the Participating Parties or DTC Participants that have executed a
Nasdaq-100 Participant Agreement (as hereinafter defined) is available at the
office of the Trustee at 101 Barclay Street, New York, New York 10286 and the
office of the Distributor at 370 17th Street, Suite 3100, Denver, CO 80202
during normal business hours.
41
PLACEMENT OF CREATION ORDERS USING THE NASDAQ-100 CLEARING PROCESS
Portfolio Deposits created through the Nasdaq-100 Clearing Process must be
delivered through a Participating Party (see "Prospectus Summary--Portfolio
Deposits") that has executed a participant agreement with the Distributor and
with the Trustee (as the same may be from time to time amended in accordance
with its terms, the "Nasdaq-100 Participant Agreement"). The Nasdaq-100
Participant Agreement authorizes the Trustee to transmit to NSCC on behalf of
the Participating Party such trade instructions as are necessary to effect the
Participating Party's creation order. Pursuant to such trade instructions from
the Trustee to NSCC, the Participating Party agrees to transfer the requisite
Index Securities (or contracts to purchase such Index Securities that are
expected to be delivered in a "regular way" manner through NSCC by the third
(3rd) NSCC Business Day) and the Cash Component (if required) to the Trustee,
together with such additional information as may be required by the Trustee. An
order to create Nasdaq-100 Shares through the Nasdaq-100 Clearing Process is
deemed received by the Distributor on the Transmittal Date if (i) such order is
received by the Distributor not later than the Closing Time on such Transmittal
Date and (ii) all other procedures set forth in the Nasdaq-100 Participant
Agreement are properly followed.
Nasdaq-100 Shares may also be created in advance of the receipt by the
Trustee of all or a portion of the securities portion of the Portfolio Deposit
relating to such Nasdaq-100 Shares, but only through the Nasdaq-100 Clearing
Process. In such cases, the Participating Party intending to utilize this
procedure will be required to post collateral with the Trustee outside of NSCC
consisting of cash at least equal to 115% of the closing value, on the day the
order is deemed received, of the portion of the Portfolio Deposit not expected
to be available in the account of the Participating Party for delivery to the
Trust on the third NSCC Business Day following placement of such order, as such
amount is marked-to-the market daily by the Trustee only for increases in such
value. This cash collateral will be required to be posted with the Trustee by
11:00 a.m. on the morning of the NSCC Business Day following the day such order
is deemed received by the Distributor, or else the order to create Nasdaq-100
Shares will be canceled. The Trustee will hold such collateral in an account
separate and apart from the Trust. Under customary NSCC practices, by midnight
of the day following the receipt by NSCC of such order, NSCC will guarantee to
the Trustee the delivery of the Portfolio Deposit on the third NSCC Business Day
following receipt of such order or on a later date. Provided that the NSCC
guarantee is established, the Trustee will issue the Nasdaq-100 Shares (in
Creation Unit size aggregations) so ordered on such third NSCC Business Day,
relying on the NSCC guarantee to make good on the delivery of the Portfolio
Deposit. In the event that the required securities
42
are not delivered on such third NSCC Business Day, the Trustee will take steps
to "buy-in" the missing portion of the Portfolio Deposit in accordance with NSCC
rules. The 115% cash collateral received from the creator will be returned net
of commissions and other buy-in expenses incurred by the Trustee, if any,
promptly upon settlement of delivery of all of the securities portion of the
Portfolio Deposit, or buy-in of all missing securities, or cancellation of the
order to create Nasdaq-100 Shares. Information concerning the procedures for
such cash collateralization is available from the Distributor.
The requirement to post collateral will not apply in instances where the
Trustee, in its discretion, has included in the Cash Component of a Portfolio
Deposit the cash equivalent value of one or more Index Securities either because
the Trustee determines that one or more Index Securities are likely to be
unavailable or available in insufficient quantity, or if the entity placing an
order to create Nasdaq-100 Shares is restricted by regulation or otherwise from
engaging in a transaction in an Index Security (see "The Portfolio--Adjustments
to the Portfolio Deposit").
PLACEMENT OF CREATION ORDERS OUTSIDE THE NASDAQ-100 CLEARING PROCESS
Portfolio Deposits created outside the Nasdaq-100 Clearing Process must be
delivered through a DTC Participant that has executed a Nasdaq-100 Participant
Agreement with the Distributor and with the Trustee. A DTC Participant who
wishes to place an order creating Nasdaq-100 Shares to be effected outside the
Nasdaq-100 Clearing Process need not be a Participating Party, but such orders
must state that the DTC Participant is not using the Nasdaq-100 Clearing Process
and that the creation of Nasdaq-100 Shares will instead be effected through a
transfer of securities and cash. The Portfolio Deposit transfer must be ordered
by the DTC Participant in a timely fashion so as to ensure the delivery of the
requisite number of Index Securities through DTC to the account of the Trustee
by no later than 11:00 a.m. on the next Business Day immediately following the
Transmittal Date. All questions as to the number of Index Securities to be
delivered, and the validity, form, and eligibility (including time of receipt)
for the deposit of any tendered securities will be determined by the Trustee,
whose determination shall be final and binding. On days when the Cash Component
is an amount payable to the Trustee (I.E., when the Cash Component has a
positive value), the cash equal to the Cash Component must be transferred
directly to the Trustee through the Federal Reserve Bank wire system in a timely
manner so as to be received by the Trustee no later than 1:00 p.m. on the next
Business Day immediately following the Transmittal Date. An order to create
Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process is deemed received by
the Distributor on the Transmittal Date if (i) such order is received by the
Distributor not later than the Closing Time on such Transmittal Date and (ii)
all other procedures set forth in the Nasdaq-100
43
Participant Agreement are properly followed. However, if the Trustee does not
receive both the requisite Index Securities and the Cash Component (if required)
in a timely fashion on the next Business Day immediately following the
Transmittal Date, such order will be canceled. Upon written notice to the
Distributor, such canceled order may be resubmitted the following Business Day
using a Portfolio Deposit as newly constituted to reflect the current net asset
value of the Trust. The delivery of Nasdaq-100 Shares so created will occur no
later than the third (3rd) Business Day following the day on which the creation
order is deemed received by the Distributor. The payment of the Cash Component
(at times when such amount is to be paid to the creator of Nasdaq-100 Shares
from the Trustee) is required to be made through the Federal Reserve Bank wire
system no later than the third (3rd) Business Day immediately following the
Transmittal Date. Under the current schedule, the total fee charged in
connection with the creation of one Creation Unit outside the Nasdaq-100
Clearing Process would be an amount not to exceed $4,000 (see "Prospectus
Summary--Transaction Fee").
BOOK-ENTRY-ONLY SYSTEM
The Depository acts as securities depository for Nasdaq-100 Shares. Cede &
Co., as nominee for the Depository, is registered as the record owner of all
Nasdaq-100 Shares on the books of the Trustee. Certificates will not be issued
for Nasdaq-100 Shares.
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
- ------------------------
* As of December 31, 1998, the National Association of Securities Dealers,
Inc. and the Amex combined owned 9.30610% of the issued and outstanding
shares of common stock of the Depository. Also as of such date, the Trustee
owned 4.19892% of the issued and outstanding shares of the common stock of
the Depository.
44
banks, brokers, dealers, and trust companies that maintain a custodial
relationship with a DTC Participant, either directly or indirectly (the
"Indirect Participants"). The Depository agrees with and represents to its
participants that it will administer its book-entry system in accordance with
its rules and by-laws and requirements of law.
Upon the settlement date of any creation, transfer, or redemption of
Nasdaq-100 Shares, the Depository will credit or debit, on its book-entry
registration and transfer system, the number of Nasdaq-100 Shares 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 Nasdaq-100 Clearing
Process, or by the Trustee and the DTC Participant, in the case of a creation or
redemption transacted outside of the Nasdaq-100 Clearing Process (see "The
Trust--Procedures for Creation of Creation Units" and "Redemption of Nasdaq-100
Shares"). Beneficial ownership of Nasdaq-100 Shares is limited to DTC
Participants, Indirect Participants, and persons holding interests through DTC
Participants and Indirect Participants. Ownership of beneficial interests in
Nasdaq-100 Shares (owners of such beneficial interests are referred to herein as
"Beneficial Owners") will be shown on, and the transfer of ownership will be
effected only through, records maintained by the Depository (with respect to DTC
Participants) and on the records of DTC Participants (with respect to Indirect
Participants and Beneficial Owners that are not DTC Participants). Beneficial
Owners are expected to receive from or through the DTC Participant a written
confirmation relating to their purchase of Nasdaq-100 Shares. The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
of certain investors to acquire beneficial interests in Nasdaq-100 Shares.
So long as Cede & Co., as nominee of the Depository, is the registered owner
of Nasdaq-100 Shares, references herein to the registered or record owners of
Nasdaq-100 Shares shall mean Cede & Co. and shall not mean the Beneficial Owners
of Nasdaq-100 Shares. Beneficial Owners of Nasdaq-100 Shares will not be
entitled to have Nasdaq-100 Shares registered in their names, will not receive
or be entitled to receive physical delivery of certificates in definitive form,
and will not be considered the record or registered holder thereof under the
Trust Agreement. Accordingly, each Beneficial Owner must rely on the procedures
of the Depository, the DTC Participant, and any Indirect Participant through
which such Beneficial Owner holds its interests, to exercise any rights of a
holder of Nasdaq-100 Shares under the Trust Agreement. The Trustee and the
Sponsor understand that under existing industry practice, in the event the
Trustee requests any action of Nasdaq-100 Share
45
holders, or a Beneficial Owner desires to take any action that the Depository,
as the record owner of all outstanding Nasdaq-100 Shares, is entitled to take,
the Depository would authorize the DTC Participants to take such action and that
the DTC Participants would authorize the Indirect Participants and Beneficial
Owners acting through such DTC Participants to take such action or would
otherwise act upon the instructions of Beneficial Owners owning through them.
As described above, the Trustee recognizes the Depository or its nominee as
the owner of all Nasdaq-100 Shares for all purposes except as expressly set
forth in the Trust Agreement. Conveyance of all notices, statements, and other
communications to Beneficial Owners is effected as follows. Pursuant to the
agreement between the Trustee and the Depository (as the same may be from time
to time amended in accordance with its terms, the "Depository Agreement"), the
Depository is required to make available to the Trustee upon request and for a
fee to be charged to the Trust a listing of the Nasdaq-100 Share holdings of
each DTC Participant. The Trustee shall inquire of each such DTC Participant as
to the number of Beneficial Owners holding Nasdaq-100 Shares, directly or
indirectly, through such DTC Participant. The Trustee shall provide each such
DTC Participant with copies of such notice, statement, or other communication,
in such form, number, and at such place as such DTC Participant may reasonably
request, in order that such notice, statement, or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trustee on behalf of the Trust shall pay to each such
DTC Participant a fair and reasonable amount as reimbursement for the expenses
attendant to such transmittal, all subject to applicable statutory and
regulatory requirements.
Nasdaq-100 Share distributions shall be made to the Depository or its
nominee, Cede & Co., as the registered owner of all Nasdaq-100 Shares. The
Trustee and the Sponsor expect that the Depository or its nominee, upon receipt
of any payment of distributions in respect of Nasdaq-100 Shares, shall credit
immediately DTC Participants' accounts with payments in amounts proportionate to
their respective beneficial interests in Nasdaq-100 Shares 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 Nasdaq-100 Shares held through such DTC Participants will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in a
"street name," and will be the responsibility of such DTC Participants. Neither
the Trustee nor the Sponsor has or will have any responsibility or liability for
any aspect of the records relating to or notices to Beneficial Owners, or
payments made on account of beneficial ownership interests in
46
Nasdaq-100 Shares, 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.
The Depository may determine to discontinue providing its service with
respect to Nasdaq-100 Shares at any time by giving notice to the Trustee and the
Sponsor and discharging its responsibilities with respect thereto under
applicable law. Under such circumstances, the Trustee and the Sponsor shall take
action either to find a replacement for the Depository to perform its functions
at a comparable cost or, if such a replacement is unavailable, to terminate the
Trust (see "Administration of the Trust--Termination").
THE PORTFOLIO
Because the objective of the Trust is to provide investment results that
correspond substantially to the price and yield performance of the Index, the
Portfolio will at any time consist of as many of the Index Securities as is
practicable and under most circumstances, all of the Index Securities. It is
anticipated that cash or cash items normally would not be a substantial part of
the Trust's net assets. Although the Trust may at any time fail to own certain
of the Index Securities, the Trust will be substantially invested in Index
Securities and the Sponsor believes that such investment should result in a
close correspondence between the investment performance of the Index and that
derived from ownership of Nasdaq-100 Shares.
ADJUSTMENTS TO THE PORTFOLIO
The Index is a modified capitalization-weighted index of 100 of the largest
non-financial companies listed on the Nasdaq National Market tier of the Nasdaq
Stock Market (see "The Index"). At any moment in time, the value of the Index
equals the aggregate value of the then-current Index share weights of each of
the component 100 Index Securities multiplied by each such security's respective
last sale price on the Nasdaq Stock Market, and divided by a scaling factor (the
"divisor") which becomes the basis for the reported Index value. The divisor
serves the purpose of scaling such aggregate value (otherwise in the trillions)
to a lower order of magnitude which is more desirable for Index reporting
purposes.*
- ------------------------
* For example, on December 31, 1998 the aggregate value of the then- current
Index share weights of each of the Index Securities multiplied by their
respective last sale price on the Nasdaq Stock Market was
$1,545,528,762,347, the divisor was 841,786,680, and the reported Index
value was 1,836.01.
47
Periodically (typically, several times per quarter), Nasdaq may determine
that total shares outstanding have changed in one or more Index Securities due
to secondary offerings, repurchases, conversions, or other corporate actions.
Under such circumstances, in accordance with Nasdaq policies and procedures for
making adjustments to the Index, the Index share weights would be adjusted by
the same percentage amounts by which the total shares outstanding have changed
in such Index Securities. Additionally, Nasdaq may periodically (ordinarily,
several times per quarter) replace one or more component securities in the Index
due to mergers, acquisitions, bankruptcies, or other market conditions, or due
to delistings if an issuer chooses to list its securities on another
marketplace, or if the issuers of such component securities fail to meet the
criteria for continued inclusion in the Index (see "The Index"). For example,
for the 1997 and 1998 calendar years, there were 8 and 5 company changes,
respectively, made during those years due to corporate actions (E.G., mergers,
acquisitions, bankruptcies) and 11 and 9 other company changes, respectively,
made at year-end in connection with Nasdaq's annual evaluation process for
determining the securities comprising the Index for the upcoming year (see "The
Index--Index Security Eligibility Criteria and Annual Ranking Review"). The
ratio of the market capitalization of the securities replaced in the Index in
1997 and 1998 to the total market capitalization of the securities comprising
the Index at year-end was 5.7% and 3.1%, respectively.
The Index share weights, which are based upon the total shares outstanding
in each of the 100 Index Securities, are additionally subject, in certain cases,
to a rebalancing in order to ensure that the relative weightings of the Index
Securities continue to meet minimum pre-established requirements for a
diversified portfolio (see "The Index--Rebalancing of the Index"). Ordinarily,
whenever there is a change in Index share weights or a change in a component
security included in the Index, Nasdaq adjusts the divisor to assure that there
is no discontinuity in the value of the Index which might otherwise be caused by
any such change.
Because the investment objective of the Trust is to provide investment
results that generally correspond to the price and yield performance of the
Index, composition and weighting changes, and associated divisor changes to the
Index, create the need for the Trustee to make corresponding adjustments to the
Securities held in the Trust as described below.
The Trustee adjusts the composition of the Portfolio from time to time to
conform to changes in the composition and/or weighting of the Index Securities.
The Trustee aggregates certain of these adjustments and makes conforming changes
to the Trust's Portfolio at least monthly; however, adjustments
48
are made more frequently in the case of changes to the Index that are
significant. Specifically, the Trustee is required to adjust the composition of
the Portfolio at any time that there is a change in the identity of any Index
Security (I.E., a substitution of one security in replacement of another), which
adjustment is to be made within three (3) Business Days before or after the day
on which the change in the identity of such Index Security is scheduled to take
effect at the close of the market. Although the investment objective of the
Trust is to provide investment results which resemble the performance of the
Index, it is not always efficient to replicate identically the share composition
of the Index if the transaction costs incurred by the Trust in so adjusting the
Portfolio would exceed the expected misweighting that would ensue by failing to
replicate identically minor and insignificant share changes to the Index.
Accordingly, to further the investment objective of the Trust, minor
misweightings are generally permitted within the guidelines set forth below. The
Trustee is required to adjust the composition of the Portfolio at any time that
the weighting of any Security varies in excess of one hundred and fifty percent
(150%) of a specified percentage (a "Misweighting Amount"), from the weighting
of such Security in the Index (a "Misweighting"). The Misweighting Amounts vary
depending on the net asset value of the Trust and are set forth in the table
below:
NET ASSET VALUE MISWEIGHTING
OF THE TRUST AMOUNT
- ----------------------------------------------------- ---------------
Less than $25,000,000................................ 0.25%
$25,000,000--$99,999,999............................. 0.20%
$100,000,000--$499,999,999........................... 0.10%
$500,000,000--$999,999,999........................... 0.05%
$1,000,000,000 and over.............................. 0.02%
The Trustee shall examine each Security in the Portfolio on each Business
Day, comparing the weighting of each such Security in the Portfolio to the
weighting of the corresponding Index Security in the Index, based on prices at
the close of the market on the preceding Business Day (a "Weighting Analysis").
In the event that there is a Misweighting in any Security in excess of one
hundred and fifty percent (150%) of the applicable Misweighting Amount, the
Trustee shall calculate an adjustment to the Portfolio in order to bring the
Misweighting of such Security within the Misweighting Amount, based on prices at
the close of the market on the day on which such Misweighting occurs. Also, on a
monthly basis, the Trustee shall perform a Weighting Analysis for each Security
in the Portfolio, and in any case in which there exists a Misweighting exceeding
one hundred percent (100%) of the applicable Misweighting Amount, the Trustee
shall calculate an adjustment to the Portfolio in
49
order to bring the Misweighting of such Security within the applicable
Misweighting Amount, based on prices at the close of the market on the day on
which such Misweighting occurs. In the case of any adjustment to the Portfolio
due to a Misweighting as described herein, the purchase or sale of securities
necessitated by such adjustment shall be made within three (3) Business Days of
the day on which such Misweighting is determined. In addition to the foregoing
adjustments, the Trustee reserves the right to make additional adjustments
periodically to Securities that may be misweighted by an amount within the
applicable Misweighting Amount in order to reduce the overall Misweighting of
the Portfolio.
The foregoing guidelines with respect to Misweightings shall also apply to
any Index Security that (1) is likely to be unavailable for delivery or
available in insufficient quantity for delivery or (2) cannot be delivered to
the Trustee due to restrictions prohibiting a creator from engaging in a
transaction involving such Index Security. Upon receipt of an order for a
Creation Unit that will involve such an Index Security, the Trustee shall
determine whether the substitution of cash for such Index Security will cause a
Misweighting in the Trust's Portfolio with respect to such Index Security. If a
Misweighting results, the Trustee shall purchase the required number of shares
of such Index Security on the opening of the market on the following Business
Day. If a Misweighting does not result and the Trustee would not hold cash in
excess of the permitted amounts described below, the Trustee may hold such cash
or, if such an excess would result, make the required adjustments to the
Portfolio in accordance with the procedures described herein.
Pursuant to these guidelines the Trustee shall calculate the required
adjustments and shall purchase and sell the appropriate securities. As a result
of the purchase and sale of securities in accordance with these requirements, or
the creation of Creation Units, the Trust may hold some amount of residual cash
(other than cash held temporarily due to timing differences between the sale and
purchase of securities or cash delivered in lieu of Index Securities or
undistributed income or undistributed capital gains) as a result of such
transactions, which amount shall not exceed for more than five (5) consecutive
Business Days 5/10th of 1 percent of the aggregate value of the Securities. In
the event that the Trustee has made all required adjustments and is left with
cash in excess of 5/10th of 1 percent of the aggregate value of the Securities,
the Trustee shall use such cash to purchase additional Index Securities that are
under-weighted in the Portfolio as compared to their relative weighting in the
Index, although the Misweighting of such Index Securities may not be in excess
of the applicable Misweighting Amount.
50
In addition to adjustments to the Portfolio from time to time to conform to
changes in the composition or weighting of the Index Securities, the Trustee is
also ordinarily required to sell Securities to obtain sufficient cash proceeds
for the payment of Trust fees and expenses at any time that projected annualized
fees and expenses accrued on a daily basis exceed projected annualized dividends
and other Trust income accrued on a daily basis by more than 1/100 of one
percent (0.01%) of the net asset value of the Trust (see "Expenses of the
Trust"). Whenever the 0.01% threshold is exceeded, the Trustee will sell
sufficient Securities to cover such excess no later than the next occasion it is
required to make adjustments to the Portfolio due to a Misweighting, unless the
Trustee determines, in its discretion, that such a sale is unnecessary because
the cash to be generated is not needed by the Trust at that time for the payment
of expenses then due or because the Trustee otherwise determines that such a
sale is not warranted or advisable. At the time of the sale, the Trustee shall
first sell Securities that are over-weighted in the Portfolio as compared to
their relative weighting in the Index.
All adjustments to the Portfolio held by the Trustee shall be made by the
Trustee pursuant to the foregoing specifications and as set forth in the Trust
Agreement and shall be non-discretionary. All portfolio adjustments will be made
as described herein unless such adjustments would cause the Trust to lose its
status as a "regulated investment company" under Subchapter M of the Internal
Revenue Code. Additionally, the Trustee is required to adjust the composition of
the Portfolio at any time if it is necessary to ensure the continued
qualification of the Trust as a regulated investment company (see "Tax Status of
the Trust"). The adjustments provided herein are intended to conform the
composition and weighting of the Portfolio, to the extent practicable, to the
composition and weighting of the Index Securities. Such adjustments are based
upon the Index as it is currently determined by Nasdaq. To the extent that the
method of determining the Index is changed by Nasdaq 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
Index is maintained.
In making the adjustments described herein, the Trustee shall rely on
information made publicly available by Nasdaq as to the composition and
weighting 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 weighting of the Index Securities for the most recently
51
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 weighting of the Securities (as opposed to the
Index Securities) shall be used for the purposes of all adjustments and
determinations herein (including, without limitation, determination of the
securities portion of the Portfolio Deposit) until current information with
respect to the Index Securities is available.
At such time as the Trustee gives written notice of the termination of the
Trust (see "Administration of the Trust--Termination"), from and after the date
of such notice the Trustee shall use the composition and weighting of the
Securities held in the Trust as of such notice date (as opposed to the
composition and weighting of the Index Securities) for the purpose and
determination of all redemptions or other required uses of the securities
portion of the Portfolio Deposit.
From time to time Nasdaq may make adjustments to the composition of the
Index as a result of a merger or acquisition involving one or more of the Index
Securities. In such cases, the Trust, as shareholder of securities of an issuer
that is the object of such merger or acquisition activity, may receive various
offers from would-be acquirors of the issuer. The Trustee is not permitted to
accept any such offers until such time as it has been determined that the
securities of the issuer will be removed from the Index. In selling the
securities of such issuer after it has been determined that the security will be
removed from the Index, the Trust may receive, to the extent that market prices
do not provide a more attractive alternative, whatever consideration is being
offered to the shareholders of such issuer that have not tendered their shares
prior to such time. Any cash received in such transactions will be reinvested in
Index Securities in accordance with the criteria set forth above. Any securities
received as a part of the consideration that are not Index Securities will be
sold as soon as practicable and the cash proceeds of such sale will be
reinvested in accordance with the criteria set forth above.
Purchases and sales of Securities resulting from the adjustments described
above will be made in the share amounts dictated by the foregoing
specifications, whether round lot or odd lot. Certain Index Securities, however,
may at times not be available in the quantities that the foregoing calculations
require. For this and other reasons, precise duplication of the proportionate
relationship between the Portfolio and the Index Securities may not ever be
attained
52
but nevertheless will continue to be the objective of the Trust in connection
with all acquisitions and dispositions of Securities.
The Trust is a unit investment trust registered under the 1940 Act and is
not a managed fund. Traditional methods of investment management for a managed
fund typically involve frequent changes to a portfolio of securities on the
basis of economic, financial, and market analyses. The Portfolio held by the
Trust, however, is not managed. Instead, the only purchases and sales that are
made with respect to the Portfolio will be those necessary to create, to the
extent feasible, a portfolio that is designed to replicate the Index to the
extent practicable, taking into consideration the adjustments referred to above.
Since no attempt is made to "manage" the Trust in the traditional sense, the
adverse financial condition of an issuer will not be the basis for the sale of
its securities from the Portfolio unless the issuer is removed from the Index.
The Trust will be liquidated on the fixed Mandatory Termination Date unless
terminated earlier under certain circumstances (see "Administration of the
Trust--Termination"). In addition, Beneficial Owners of Nasdaq-100 Shares in
Creation Unit size aggregations have the right to redeem in kind (see
"Redemption of Nasdaq-100 Shares").
ADJUSTMENTS TO THE PORTFOLIO DEPOSIT
On each Business Day following the Initial Date of Deposit (each such day an
"Adjustment Day"), the number of shares and/or identity of each of the Index
Securities in a Portfolio Deposit is adjusted in accordance with the following
procedure. At the close of the market on each Adjustment Day, the Trustee
calculates the net asset value of the Trust (see "Valuation"). The net asset
value is divided by the number of all outstanding Nasdaq-100 Shares multiplied
by 50,000 shares in one Creation Unit aggregation resulting in a net asset value
per Creation Unit (the "NAV Amount"). The Trustee then calculates the number of
shares (without rounding) of each of the component securities of the Index in a
Portfolio Deposit for the following Business Day ("Request Day"), such that (1)
the market value at the close of the market on Adjustment Day of the securities
to be included in the Portfolio Deposit on Request Day, together with the Income
Net of Expense Amount effective for requests to create or redeem on Adjustment
Day, equals the NAV Amount and (2) the identity and weighting of each of the
securities in a Portfolio Deposit mirrors proportionately the identity and
weighting of the securities in the Index, each as in effect on Request Day. For
each security, the number resulting from such calculation is rounded to the
nearest whole share, with a fraction of 0.50 being rounded up. The identities
and number of shares of the securities so calculated constitute the securities
portion of the Portfolio Deposit effective on Request Day and thereafter until
the next subsequent
53
Adjustment Day, as well as the Securities ordinarily to be delivered by the
Trustee in the event of a request for redemption of Nasdaq-100 Shares in
Creation Unit size aggregations on Request Day and thereafter until the
following Adjustment Day (see "Redemption of Nasdaq-100 Shares"). In addition to
the foregoing adjustments, in the event that there shall occur a stock split,
stock dividend, or reverse split with respect to any Index Security, the
Portfolio Deposit shall be adjusted to take account of such stock split, stock
dividend, or reverse split by applying the stock split, stock dividend, or
reverse stock split multiple (E.G., in the event of a two-for-one stock split of
an Index Security, by doubling the number of shares of such Index Security in
the prescribed Portfolio Deposit), in each case rounded to the nearest whole
share, with a fraction of 0.50 being rounded up.
On Request Day and on each day that a request for the creation or redemption
of Nasdaq-100 Shares in Creation Unit size aggregations is deemed received, the
Trustee calculates the market value of the securities portion of the Portfolio
Deposit as in effect on Request Day as of the close of the market and adds to
that amount the Income Net of Expense Amount effective for requests to create or
redeem on Request Day (such market value and Income Net of Expense Amount are
collectively referred to herein as the "Portfolio Deposit Amount"). The Trustee
then calculates the NAV Amount, based on the close of the market on Request Day.
The difference between the NAV Amount so calculated and the Portfolio Deposit
Amount is the "Balancing Amount." The Balancing Amount serves the function of
compensating for any differences between the value of the Portfolio Deposit
Amount and the NAV Amount at the close of trading on Request Day due to, for
example, (1) differences in the market value of the securities in the Portfolio
Deposit and the market value of the Securities on Request Day and (2) any
variances from the proper composition of the Portfolio Deposit.
Notwithstanding the foregoing, on any Adjustment Day on which (a) no change
in the identity and/or share weighting of any Index Security is scheduled to
take effect that would cause the Index divisor to be adjusted after the close of
the market on such Business Day,* and (b) no stock split, stock dividend, or
reverse stock split with respect to any Index Security has been declared to take
effect on the corresponding Request Day, the Trustee reserves the right to
forego making any adjustment to the securities portion of the Portfolio Deposit
and to use the composition and weighting of the Index Securities for the most
recently effective Portfolio Deposit for the Request Day following such
Adjustment Day. In addition, the Trustee further reserves the
- ------------------------
* Nasdaq normally publicly announces changes in the identity and/or weighting
of the Index Securities in advance of the actual changes.
54
right to calculate the adjustment to the number of shares and/or identity of the
Index Securities in a Portfolio Deposit as described above except that such
calculation would be employed two (2) Business Days rather than one (1) Business
Day prior to Request Day.
As previously discussed, the sum of the Income Net of Expense Amount and the
Balancing Amount in effect at the close of business on Request Day are
collectively referred to as the Cash Component (with respect to creations of
Nasdaq-100 Shares) or the Cash Redemption Amount (with respect to redemptions of
Nasdaq-100 Shares) (see "Prospectus Summary--Portfolio Deposits" and "Prospectus
Summary--Redemption"). If the resulting Cash Component has a positive value,
then the creator of Nasdaq-100 Shares will be obligated to pay such cash to the
Trustee in connection with orders to create Nasdaq-100 Shares; if the resulting
Cash Component has a negative value, then such cash shall be paid by the Trustee
on behalf of the Trust to the creator of Nasdaq-100 Shares. Similarly, if the
resulting Cash Redemption Amount has a positive value, then such cash shall be
transferred to a redeemer by the Trustee on behalf of the Trust in connection
with orders to redeem Nasdaq-100 Shares; if the resulting Cash Redemption Amount
has a negative value, then such cash shall be paid by the redeemer of Nasdaq-100
Shares to the Trustee on behalf of the Trust.
In the event that the Trustee has included the cash equivalent value of one
or more Index Securities in the Portfolio Deposit because the Trustee has
determined that such Index Securities are likely to be unavailable or available
in insufficient quantity for delivery, the Portfolio Deposit so constituted
shall dictate the Index Securities to be delivered in connection with the
creation of Nasdaq-100 Shares in Creation Unit size aggregations and upon the
redemption of Nasdaq-100 Shares in Creation Unit size aggregations for all
purposes hereunder until such time as the securities portion of the Portfolio
Deposit is subsequently adjusted. Brokerage commissions incurred by the Trustee
in connection with the acquisition of any such Index Securities will be at the
expense of the Trust and will affect the value of all Nasdaq-100 Shares.
In connection with the creation or redemption of Nasdaq-100 Shares, if an
investor is restricted by regulation or otherwise from investing or engaging in
a transaction in one or more Index Securities, the Trustee, in its discretion,
shall have the right to include the cash equivalent value of such Index
Securities in the Portfolio Deposit in the calculation of the Cash Component (or
the Cash Redemption Amount as the case may be) in lieu of the inclusion of such
Index Securities in the securities portion of the Portfolio Deposit for the
particular affected investor. The amount of such cash equivalent payment shall
be used by the Trustee in accordance with the guidelines regarding allowable
Misweightings and permitted amounts of cash (see "Adjustments to the Portfolio")
55
which may require the Trustee to purchase the appropriate number of shares of
the Index Security that such investor was unable to purchase. In any such case,
such investor shall pay the Trustee the standard Transaction Fee, plus an
additional amount not to exceed (3) times the Transaction Fee applicable for a
Creation Unit.
The Trustee, in its discretion, upon the request of the redeeming investor,
may redeem Creation Units in whole or in part by providing such redeemer with a
portfolio of Securities differing in exact composition from the Index Securities
but not differing in net asset value from the then-current Portfolio Deposit.
Such a redemption is likely to be made only if it were to be determined that
this composition would be appropriate in order to maintain the Portfolio of the
Trust in correlation to the modified capitalization-weighted composition of the
Index, for instance, in connection with a replacement of one of the Index
Securities (E.G., due to a merger, acquisition, or bankruptcy).
SELECTION AND ACQUISITION OF SECURITIES
In prescribing the method described above for selecting the Index Securities
that constitute the prescribed Portfolio Deposit from time to time, the Sponsor
intends to replicate, to the extent practicable, the composition and weighting
of the Index Securities as of the relevant date.
Because certain of the Securities from time to time may be sold or their
relative percentages changed under certain circumstances as described herein, no
assurance can be given that the Trust will retain for any length of time its
size and composition (see "Adjustments to the Portfolio"). Also, the deposit of
additional Portfolio Deposits and the redemption of Nasdaq-100 Shares in
Creation Unit size aggregations will affect the size and composition of the
Trust. Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure, or defect in any of the Securities.
THE INDEX
The Sponsor selected the Nasdaq-100 Index(-Registered Trademark-) as the
basis for the selection of the Securities to be held by the Trust because, in
the opinion of the Sponsor, the Index constitutes a broadly diversified segment
of the largest and most actively traded securities listed on the Nasdaq Stock
Market. Additionally, the Index has achieved wide acceptance by both investors
and market professionals. Specifically, the Index is composed of 100 of the
largest and most actively traded non-financial companies listed on the Nasdaq
National Market tier of the Nasdaq Stock Market.
The Index was first published in January 1985, and includes companies across
a variety of major industry groups. As of December 31, 1998, the major
56
industry groups covered in the Index (listed according to their respective
capitalization in the Index) were as follows: computer and office equipment
(32.6%), computer software/services (30.2%), telecommunications (17.8%),
retail/wholesale trade (8.0%), biotechnology (5.0%), services (2.4%), health
care (2.1%), manufacturing (1.5%) and transportation (0.4%). The identity and
capitalization weightings of the five largest companies represented in the Index
as of December 31, 1998 were as follows: Microsoft Corporation (14.5%), Intel
Corporation (8.4%), Cisco Systems, Inc. (6.4%), MCI WORLDCOM, Inc. (5.8%), and
Dell Computer Corporation (4.2%). Current information regarding the market value
of the Index is available from Nasdaq as well as numerous market information
services. The Index is determined, comprised, and calculated by Nasdaq without
regard to the Trust.
The Sponsor, which is wholly-owned by Nasdaq, has been granted a license to
use the Index as a basis for determining the composition of the Trust and to use
certain service marks and trademarks of Nasdaq in connection with the Trust (see
"License Agreement"). Nasdaq is not responsible for and shall not participate in
the creation or sale of Nasdaq-100 Shares or in the determination of the timing
of, prices at, or quantities and proportions in which purchases or sales of
Index Securities or Securities shall be made.
The Index share weights of the component securities of the Index at any time
are based upon the total shares outstanding in each of the 100 Index Securities
and are additionally subject, in certain cases, to rebalancing to ensure that
the relative weighting of the Index Securities continues to meet minimum
pre-established requirements for a diversified portfolio (see "Rebalancing of
the Index"). Accordingly, each Index Security's influence on the value of the
Index is directly proportional to the value of its Index share weight. The
percentage of the Trust's assets invested in each of the Index Securities is
intended to approximate the percentage each Index Security represents in the
Index.
The following table shows the actual performance of the Index for the years
1985 through 1998. Stock prices fluctuated widely during this period and were
higher at the end than at the beginning. The results shown should not be
considered as a representation of the income yield or capital gain or loss that
may be generated by the Index in the future, nor should the results be
considered as a representation of the performance of the Trust. In addition,
after the close of trading on December 18, 1998 the Index share weights of the
component securities in the Index were rebalanced in accordance with the
"modified capitalization weighted" methodology implemented on such date (see
"Rebalancing of the Index"). Hence, the performance of the Index after December
18, 1998 will reflect the performance of the securities in the Index as
calculated in accordance with the revised Index methodology.
57
CALENDAR YEAR-
END INDEX
VALUE* POINT CHANGE IN CALENDAR YEAR- END
(JANUARY 31, INDEX FOR YEAR % CHANGE DIVIDEND
YEAR 1985 = 125.00) CALENDAR YEAR* IN INDEX* YIELD**
- ------------ -------------- --------------- -------------- -----------------
1985***..... 132.29 7.29 5.83% N/A
1986........ 141.41 9.12 6.89% 0.33%
1987........ 156.25 14.84 10.49% 0.41%
1988........ 177.41 21.16 13.54% 0.47%
1989........ 223.84 46.43 26.17% 0.91%
1990........ 200.53 -23.31 -10.41% 1.07%
1991........ 330.86 130.33 64.99% 0.53%
1992........ 360.19 29.33 8.86% 0.55%
1993........ 398.28 38.09 10.57% 0.52%
1994........ 404.27 5.99 1.50% 0.46%
1995 ....... 576.23 171.96 42.54% 0.26%
1996........ 821.36 245.13 42.54% 0.11%
1997........ 990.80 169.44 20.63% 0.13%
1998........ 1836.01 845.21 85.31% 0.07%
- --------------------------
* Source: Nasdaq. Year-end index values shown do not reflect reinvestment of
dividends or costs, such as brokerage charges and transaction costs.
** Source: Nasdaq. Dividend yields are obtained by dividing the aggregate cash
dividends for the year by the aggregate market value of the component
securities in the Index at year-end.
*** 1985 data is for the eleven month period from January 31, 1985 through
December 31, 1985.
The Index value as of March 2, 1999 was 1888.66.
INDEX SECURITY ELIGIBILITY CRITERIA AND ANNUAL RANKING REVIEW
To be eligible for inclusion in the Index, a security must be traded on the
Nasdaq National Market tier of the Nasdaq Stock Market and meet the following
criteria:
- the security must be of a non-financial company;
- only one class of security per issuer is allowed;
- the security may not be issued by an issuer currently in bankruptcy
proceedings;
- the security must have average daily trading volume of at least 100,000
shares per day;
58
- the security must have "seasoned" on the Nasdaq Stock Market or another
recognized market (generally, a company is considered to be seasoned by
Nasdaq if it has been listed on a market for at least two years; in the
case of spin-offs, the operating history of the spin-off will be
considered);
- if a security would otherwise qualify to be in the top 25% of the issuers
included in the Index by market capitalization, then a one year
"seasoning" criteria would apply;
- if the security is of a foreign issuer, the company must have a worldwide
market value of at least $10 billion, a U.S. market value of at least $4
billion, and average trading volume on the Nasdaq Stock Market of at least
200,000 shares per day; in addition, foreign securities must be eligible
for listed options trading; and
- the issuer of the security may not have entered into a definitive
agreement or other arrangement which would result in the security no
longer being listed on the Nasdaq Stock Market within the next six months.
These Index eligibility criteria may be revised from time to time by the
National Association of Securities Dealers, Inc. without regard to the Trust.
The Index Securities are evaluated annually as follows (such evaluation is
referred to herein as the "Annual Ranking Review"). Securities listed on the
Nasdaq Stock Market which meet the above eligibility criteria are ranked by
market value. Index-eligible securities which are already in the Index and which
are in the top 150 eligible securities (based on market value) are retained in
the Index provided that such security was ranked in the top 100 eligible
securities as of the previous year's annual review. Securities not meeting such
criteria are replaced. The replacement securities chosen are those
Index-eligible securities not currently in the Index which have the largest
market capitalization. The list of annual additions and deletions is publicly
announced via a press release in the early part of December. Replacements are
made effective after the close of trading on the third Friday in December.
Moreover, if at any time during the year an Index Security is no longer traded
on the Nasdaq Stock Market, or is otherwise determined by Nasdaq to become
ineligible for continued inclusion in the Index, the security will be replaced
with the largest market capitalization security not currently in the Index and
meeting the Index eligibility criteria listed above.
In addition to the Annual Ranking Review, the securities in the Index are
monitored every day by Nasdaq with respect to changes in total shares
outstanding arising from secondary offerings, stock repurchases, conversions, or
other corporate actions. Nasdaq has adopted the following quarterly scheduled
59
weight adjustment procedures with respect to such changes. If the change in
total shares outstanding arising from such corporate action is greater than or
equal to 5.0%, such change is ordinarily made to the Index on the evening prior
to the effective date of such corporate action. Otherwise, if the change in
total shares outstanding is less than 5%, then all such changes are accumulated
and made effective at one time on a quarterly basis after the close of trading
on the third Friday in each of March, June, September, and December. In either
case, the Index share weights for such Index Securities are adjusted by the same
percentage amount by which the total shares outstanding have changed in such
Index Securities. Ordinarily, whenever there is a change in Index share weights
or a change in a component security included in the Index, Nasdaq adjusts the
divisor to assure that there is no discontinuity in the value of the Index which
might otherwise be caused by any such change.
REBALANCING OF THE INDEX
Effective after the close of trading on December 18, 1998, the Index has
been calculated under a "modified capitalization-weighted" methodology, which is
a hybrid between equal weighting and conventional capitalization weighting. This
methodology is expected to: (1) retain in general the economic attributes of
capitalization weighting; (2) promote portfolio weight diversification (thereby
limiting domination of the Index by a few large stocks); (3) reduce Index
performance distortion by preserving the capitalization ranking of companies;
and (4) reduce market impact on the smallest Index Securities from necessary
weight rebalancings.
Under the methodology employed, on a quarterly basis coinciding with
Nasdaq's quarterly scheduled weight adjustment procedures, the Index Securities
are categorized as either "Large Stocks" or "Small Stocks" depending on whether
their current percentage weights (after taking into account such scheduled
weight adjustments due to stock repurchases, secondary offerings, or other
corporate actions) are greater than, or less than or equal to, the average
percentage weight in the Index (i.e., as a 100-stock index, the average
percentage weight in the Index is 1.0%).
Such quarterly examination will result in an Index rebalancing if either one
or both of the following two weight distribution requirements are not met: (1)
the current weight of the single largest market capitalization Index Security
must be less than or equal to 24.0% and (2) the "collective weight" of those
Index Securities whose individual current weights are in excess of 4.5%, when
added together, must be less than or equal to 48.0%.
60
If either one or both of these weight distribution requirements are not met
upon quarterly review, a weight rebalancing will be performed in accordance with
the following plan. First, relating to weight distribution requirement (1)
above, if the current weight of the single largest Index Security exceeds 24.0%,
then the weights of all Large Stocks will be scaled down proportionately towards
1.0% by enough for the adjusted weight of the single largest Index Security to
be set to 20.0%. Second, relating to weight distribution requirement (2) above,
for those Index Securities whose individual current weights or adjusted weights
in accordance with the preceding step are in excess of 4.5%, if their
"collective weight" exceeds 48.0%, then the weights of all Large Stocks will be
scaled down proportionately towards 1.0% by just enough for the "collective
weight," so adjusted, to be set to 40.0%.
The aggregate weight reduction among the Large Stocks resulting from either
or both of the above rescalings will then be redistributed to the Small Stocks
in the following iterative manner. In the first iteration, the weight of the
largest Small Stock will be scaled upwards by a factor which sets it equal to
the average Index weight of 1.0%. The weights of each of the smaller remaining
Small Stocks will be scaled up by the same factor reduced in relation to each
stock's relative ranking among the Small Stocks such that the smaller the Index
Security in the ranking, the less the scale-up of its weight. This is intended
to reduce the market impact of the weight rebalancing on the smallest component
securities in the Index.
In the second iteration, the weight of the second largest Small Stock,
already adjusted in the first iteration, will be scaled upwards by a factor
which sets it equal to the average index weight of 1.0%. The weights of each of
the smaller remaining Small Stocks will be scaled up by this same factor reduced
in relation to each stock's relative ranking among the Small Stocks such that,
once again, the smaller the stock in the ranking, the less the scale-up of its
weight.
Additional iterations will be performed until the accumulated increase in
weight among the Small Stocks exactly equals the aggregate weight reduction
among the Large Stocks from rebalancing in accordance with weight distribution
requirement (1) and/or weight distribution requirement (2).
Then, to complete the rebalancing procedure, once the final percent weights
of each Index Security are set, the Index share weights will be determined anew
based upon the last sale prices and aggregate capitalization of the Index at the
close of trading on the Thursday in the week immediately preceding the week of
the third Friday in March, June, September, and December. Changes to the Index
share weights will be made effective after the close of
61
trading on the third Friday in March, June, September, and December and an
adjustment to the Index divisor will be made to ensure continuity of the Index.
Effective after the close of trading on December 18, 1998, the Index was
rebalanced in accordance with the above methodology. As a result of the
rebalancing, the Index share weights of the five (5) stocks whose unadjusted
weights were in excess of 4.5% were adjusted downwards on such date. As of the
close of trading on December 31, 1998, the weights of these five stocks in the
Index as rebalanced, in relation to what they would have been if the Index were
not rebalanced, were as follows: Microsoft Corporation (14.5% vs. 22.5%), Intel
Corporation (8.4% vs. 12.8%), Cisco Systems, Inc. (6.4% vs. 9.5%), MCI WORLDCOM,
Inc. (5.8% vs. 8.5%), and Dell Computer Corporation (4.2% vs. 6.1%).
LICENSE AGREEMENT
Under the terms of a license agreement with Nasdaq (the "License
Agreement"), the Sponsor has been granted a license to use the Index as a basis
for determining the composition of the Trust and to use certain trade names,
trademarks, and service marks of Nasdaq in connection with the Trust. The
License Agreement may be amended by the parties thereto without the consent of
any of the Beneficial Owners of Nasdaq-100 Shares. Currently, the License
Agreement is scheduled to expire five years from the commencement date of
trading of Nasdaq-100 Shares, in accordance with its terms and is subject to a
five year renewal period following such date. The parties thereto may extend the
term of the License Agreement beyond such date without the consent of any of the
Beneficial Owners of Nasdaq-100 Shares.
Under the terms of the License Agreement, the Sponsor pays to Nasdaq an
annual licensing fee for use of the Index. The Sponsor ordinarily will seek
reimbursement from the Trust for the amount of licensing fees (see "Expenses of
the Trust"). However, the Sponsor has committed not to seek reimbursement from
the Trust for licensing fees to Nasdaq for the period through the Trust's fiscal
year ending September 30, 1999. Thereafter, the Sponsor intends to charge the
Trust for the annual licensing fee.
None of the Trust, the Trustee, the Distributor, the Depository, or any
Beneficial Owner of Nasdaq-100 Shares is entitled to any rights whatsoever under
the foregoing licensing arrangements or to use the trademarks and service marks
"Nasdaq-100 Index(-Registered Trademark-)",
"Nasdaq-100(-Registered Trademark-)", "Nasdaq(-Registered Trademark-)", "The
Nasdaq Stock Market(-Registered Trademark-)", "Nasdaq-100 Shares(SM)", or
"Nasdaq-100 Trust(SM)" or to use the Index except as specifically described
herein or as may be specified in the Trust Agreement.
62
The Index is determined, composed, and calculated by Nasdaq without regard
to the Sponsor, the Trust, or the Beneficial Owners of Nasdaq-100 Shares. Nasdaq
has complete control and sole discretion in determining, comprising, or
calculating the Index or in modifying in any way its method for determining,
comprising, or calculating the Index in the future.
NASDAQ AND ITS AFFILIATES DO NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA USED TO CALCULATE THE INDEX OR DETERMINE
THE INDEX COMPONENTS. NASDAQ AND ITS AFFILIATES DO NOT GUARANTEE THE
UNINTERRUPTED OR UN-DELAYED CALCULATION OR DISSEMINATION OF THE INDEX. NASDAQ
AND ITS AFFILIATES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. NASDAQ AND ITS AFFILIATES DO NOT GUARANTEE THAT THE INDEX
ACCURATELY REFLECTS PAST, PRESENT, OR FUTURE MARKET PERFORMANCE. NASDAQ AND ITS
AFFILIATES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
THE SPONSOR, THE TRUST, BENEFICIAL OWNERS OF NASDAQ-100 SHARES, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN. NASDAQ
AND ITS AFFILIATES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM
ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE,
WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. NASDAQ AND ITS
AFFILIATES, OTHER THAN THE SPONSOR, MAKE NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, AND BEAR NO LIABILITY WITH RESPECT TO NASDAQ-100 SHARES. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL NASDAQ OR ITS AFFILIATES HAVE
ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
MARKETPLACE LISTING
Nasdaq-100 Shares have been approved for listing on the Amex, subject to
official notice of issuance. Transactions involving Nasdaq-100 Shares in the
public trading market are subject to customary brokerage charges and
commissions.
The Sponsor's aim in designing Nasdaq-100 Shares was to provide investors
with a security whose initial market value would approximate one-twentieth
(1/20th) the value of the Index. Thus, for example, if the Index were at 1600,
investors might expect a Nasdaq-100 Share to trade initially at approximately
$80. Note, however, that the market price of a Nasdaq-100 Share may be affected
by supply and demand, market volatility, sentiment, and other factors (see
"Special Considerations and Risk Factors"). Note also, that due to these factors
as well as other factors including required distributions for tax purposes (see
"Tax Status of the Trust") or the sale of Securities to meet Trust expenses in
excess of the dividends received on the Securities (see
63
"Expenses of the Trust"), the one-twentieth (1/20th) relationship between the
initial value of a Nasdaq-100 Share and the value of the Index is not expected
to persist indefinitely.
There can be no assurance that Nasdaq-100 Shares will always be listed on
the Amex. The Amex will consider the suspension of trading in or removal from
listing of Nasdaq-100 Shares:
(a) if the Trust has more than 60 days remaining until termination and there
are fewer than 50 record and/or beneficial holders of Nasdaq-100 Shares
for 30 or more consecutive trading days;
(b) if the Index is no longer calculated or available; or
(c) if such other event shall occur or condition exists which, in the
opinion of the Amex, makes further dealings on the Amex inadvisable.
The Trust is not required to pay a listing fee to the Amex.
The Trust will be terminated in the event that Nasdaq-100 Shares are
delisted from the Amex and are not subsequently relisted on a national
securities exchange or a quotation medium operated by a national securities
association (see "Administration of the Trust--Termination").
TAX STATUS OF THE TRUST
The Trust intends to qualify for and elect tax treatment as a "regulated
investment company" under Subchapter M of the Code. The Trust intends to adopt a
fiscal year ending on September 30 of each year. To qualify as a regulated
investment company, the Trust must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, gains
from the sale or other disposition of stock, securities or foreign currencies,
or certain other sources, (b) meet certain diversification tests, and (c)
distribute in each year at least 90% of its investment company taxable income.
If the Trust qualifies as a regulated investment company, subject to certain
conditions and requirements, the Trust will not be subject to federal income tax
to the extent its income is distributed in a timely manner. Any undistributed
income may be subject to tax, including a four percent (4%) excise tax imposed
by section 4982 of the Code on certain undistributed income of a regulated
investment company that does not distribute to shareholders in a timely manner
at least ninety-eight percent (98%) of its taxable income (including capital
gains).
64
TAX CONSEQUENCES TO BENEFICIAL OWNERS
Any net dividends paid by the Trust from its investment company taxable
income (which includes dividends, interest, and the excess of net short-term
capital gains over net long-term capital losses) will be taxable to Beneficial
Owners as ordinary income. A net dividend, if any, paid in January will be
considered for federal income tax purposes to have been paid by the Trust and
received by Beneficial Owners on the preceding December 31 if the net dividend
was declared in the preceding October, November, or December to Beneficial
Owners of record shown on the records of the Depository and the DTC Participants
(see "The Trust--Book-Entry-Only System") on a date in one of those months.
Distributions paid by the Trust from the excess of net long-term capital
gains over net short-term capital losses ("net capital gain") are taxable as
long-term capital gain, regardless of the length of time an investor has owned
Nasdaq-100 Shares. Any loss on the sale or exchange of a Nasdaq-100 Share held
for six months or less may be treated as a long-term capital loss to the extent
of any capital gain dividends received by the Beneficial Owner. For corporate
investors, net dividends from net investment income (but not return of capital
distributions or capital gain dividends) generally will qualify for the
corporate dividends-received deduction to the extent of qualifying dividend
income received by the Trust, subject to the limitations contained in the Code.
Investors should note that the quarterly net dividends paid by the Trust, if
any, will not be based on the Trust's investment company taxable income and net
capital gain, but rather will be based on the dividends paid with respect to the
Securities net of accrued expenses and liabilities of the Trust. As a result, a
portion of the distributions of the Trust may be treated as a return of capital
or a capital gain dividend for federal income tax purposes or the Trust may make
additional distributions in excess of the yield performance of the Securities in
order to distribute all of its investment company taxable income and net capital
gain.
Distributions in excess of the Trust's current or accumulated earnings and
profits (as specially computed) generally will be treated as a return of capital
for federal income tax purposes and will reduce a Beneficial Owner's tax basis
in Nasdaq-100 Shares. Return of capital distributions may result, for example,
if a portion of the net dividends, if any, declared represents cash amounts
deposited in connection with Portfolio Deposits rather than dividends actually
received by the Trust. Under certain circumstances, a significant portion of any
quarterly net dividends of the Trust could be treated as return of capital
distributions. Such circumstances may be more likely to occur in periods during
which the number of outstanding Nasdaq-100 Shares fluctuates significantly, as
65
may occur during the initial years of the Trust. Beneficial Owners will receive
annually notification from the Trustee through the DTC Participants as to the
tax status of the Trust's distributions (see "The Trust--Book-Entry-Only
System"). A distribution, if any, paid shortly after a purchase or creation of
Nasdaq-100 Shares may be taxable even though in effect it may represent a return
of capital.
The sale of Nasdaq-100 Shares by a Beneficial Owner is a taxable event, and
may result in a gain or loss, which generally should be a capital gain or loss
for Beneficial Owners that are not dealers in securities.
Under the Code, an in-kind redemption of Nasdaq-100 Shares will not result
in the recognition of taxable gain or loss by the Trust but generally will
constitute a taxable event for the redeeming shareholder. Upon redemption, a
Beneficial Owner generally will recognize gain or loss measured by the
difference on the date of redemption between the aggregate value of the cash and
securities received and its tax basis in the Nasdaq-100 Shares redeemed.
Securities received upon redemption (which will be comprised of the securities
portion of the Portfolio Deposit in effect on the date of redemption) generally
will have an initial tax basis equal to their respective market values on the
date of redemption. The U.S. Internal Revenue Service ("IRS") may assert that
any resulting loss may not be deducted by a Beneficial Owner on the basis that
there has been no material change in such Beneficial Owner's economic position
or that the transaction has no significant economic or business utility apart
from the anticipated tax consequences. Beneficial Owners of Nasdaq-100 Shares in
Creation Unit size aggregations should consult their own tax advisors as to the
consequences to them of the redemption of Nasdaq-100 Shares.
Net dividend distributions, capital gains distributions, and capital gains
from sales or redemptions may also be subject to state, local and foreign taxes.
Deposit of a Portfolio Deposit with the Trustee in exchange for Nasdaq-100
Shares in Creation Unit size aggregations will not result in the recognition of
taxable gain or loss by the Trust but generally will constitute a taxable event
to the depositor under the Code, and a depositor generally will recognize gain
or loss with respect to each security deposited equal to the difference between
the amount realized in respect of the security and the depositor's tax basis
therein. The amount realized with respect to a security deposited should be
determined by allocating the value on the date of deposit of the Nasdaq-100
Shares received (less any cash paid to the Trust, or plus any cash received from
the Trust, in connection with the deposit) among the securities deposited on the
basis of their respective fair market values at that time. The IRS may assert
that any resulting losses may not be deducted by a depositor on the basis that
there has been no material change in the depositor's
66
economic position or that the transaction has no significant economic or
business utility or purpose apart from the anticipated tax consequences.
Depositors should consult their own tax advisors as to the tax consequences to
them of a deposit to the Trust.
After the initial deposit of Portfolio Deposits with the Trustee, the
Trustee has the right to reject the order to create Creation Units transmitted
to it by the Distributor if the depositor or group of depositors, upon obtaining
the Nasdaq-100 Shares ordered, would own eighty percent (80%) or more of the
outstanding Nasdaq-100 Shares, and if pursuant to section 351 of the Code such a
circumstance would result in the Trust having a basis in the securities
deposited different from the market value of such securities on the date of
deposit. The Trustee has the right to require information regarding Nasdaq-100
Share ownership pursuant to the Nasdaq-100 Participant Agreement and from the
Depository and to rely thereon to the extent necessary to make the foregoing
determination as a condition to the acceptance of a Portfolio Deposit.
Ordinary income dividends received via the Depository by Beneficial Owners
who are non-resident aliens will be subject to a thirty percent (30%) United
States withholding tax unless a reduced rate of withholding or a withholding
exemption is provided under applicable tax treaties. Non-resident shareholders
are urged to consult their own tax advisors concerning the applicability of
United States withholding tax.
Backup withholding at a rate of 31% will apply to dividends, capital gain
distributions, redemptions and sales of Nasdaq-100 Shares unless (a) the
Beneficial Owner is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. The amount of any backup withholding from a payment to a
Beneficial Owner will be allowed as a credit against the holder's U.S. federal
income tax liability and may entitle such holder to a refund from the IRS,
provided that the required information is furnished to the IRS.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN
THE TRUST, INCLUDING THE EFFECT OF POSSIBLE LEGISLATIVE CHANGES.
CONTINUOUS OFFERING OF NASDAQ-100 SHARES
Nasdaq-100 Shares in Creation Unit size aggregations will be offered
continuously to the public by the Trust through the Distributor and will be
delivered upon the deposit of a Portfolio Deposit (see "The Trust--Procedures
for
67
Creation of Creation Units"). A list of the identity and number of shares of
each of the Index Securities in the current Portfolio Deposit and the amount of
the Income Net of Expense Amount effective through and including the previous
Business Day is made available by the Trustee to NSCC on each Business Day.
Under certain extraordinary circumstances which may make it impossible for the
Trustee to provide such information to NSCC on a given Business Day, NSCC shall
use the composition and weighting of the Index Securities of the Portfolio
Deposit on the previous Business Day. The minimum number of Nasdaq-100 Shares
that may be created as described herein is 50,000 or one Creation Unit. Persons
making Portfolio Deposits and creating Creation Unit size aggregations of
Nasdaq-100 Shares will receive no fees, commissions, or other form of
compensation or inducement of any kind from the Sponsor or the Distributor, nor
will any such person have any obligation or responsibility to the Sponsor or
Distributor to effect any sale or resale of Nasdaq-100 Shares. Notwithstanding
the above, the Sponsor reserves the right, in its sole discretion, to
periodically reimburse in whole or in part the Transaction Fees paid by eligible
entities in connection with the creation or redemption of certain lot-sizes of
Nasdaq-100 Shares.
Because new Nasdaq-100 Shares can be created and issued on an ongoing basis,
at any point during the life of the Trust a "distribution", as such term is used
in the Securities Act of 1933, as amended (the "Securities Act"), may be
occurring. Broker-dealers and other persons are cautioned that some activities
on their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus-delivery and liability
provisions of the Securities Act. For example, a broker-dealer firm or its
client may be deemed a statutory underwriter if it takes Creation Units after
placing a creation order with the Distributor, breaks them down into the
constituent Nasdaq-100 Shares, and sells the Nasdaq-100 Shares directly to its
customers, or if it chooses to couple the creation of a supply of new Nasdaq-100
Shares with an active selling effort involving solicitation of secondary market
demand for Nasdaq-100 Shares. A determination of whether one is an underwriter
must take into account all the facts and circumstances pertaining to the
activities of the broker-dealer or its client in the particular case, and the
examples mentioned above should not be considered a complete description of all
the activities that could lead to categorization as an underwriter.
Dealers who are not "underwriters" but are participating in a distribution
(as contrasted to ordinary secondary trading transactions), and thus dealing
with Nasdaq-100 Shares that are part of an "unsold allotment" within the meaning
of Section 4(3)(C) of the Securities Act, would be unable to take advantage of
the prospectus-delivery exemption provided by Section 4(3) of the
68
Securities Act. Firms that do incur a prospectus delivery obligation with
respect to Nasdaq-100 Shares are reminded that under Securities Act Rule 153, a
prospectus-delivery obligation under Section 5(b)(2) of the Securities Act owed
to an Amex member in connection with a sale on the Amex is satisfied by the fact
that Nasdaq-100 Share prospectuses will be available at the Amex upon request.
Of course, the prospectus-delivery mechanism provided in Rule 153 is only
available with respect to transactions on an exchange.
The Sponsor intends to market Nasdaq-100 Shares through broker-dealers who
are members of the National Association of Securities Dealers, Inc. Investors
intending to create or redeem Creation Unit size aggregations of Nasdaq-100
Shares in transactions not involving a broker-dealer registered in such
investor's state of domicile or residence should consult counsel regarding
applicable broker-dealer or securities regulatory requirements under such state
securities laws prior to such creation or redemption.
EXPENSES OF THE TRUST
Until further notice, the Sponsor has undertaken that on each day during
each fiscal year up to and including the fiscal year ending September 30, 2000,
the ordinary operating expenses of the Trust as calculated by the Trustee will
not be permitted to exceed an amount which is 18/100 of one percent (0.18%) per
annum of the daily net asset value of the Trust. To the extent during such
period the ordinary operating expenses of the Trust do exceed such 0.18% level,
the Sponsor will reimburse the Trust or assume invoices on behalf of the Trust
for such excess ordinary operating expenses. The Sponsor retains the ability to
be repaid by the Trust for expenses so reimbursed or assumed to the extent that
subsequently during the fiscal year expenses fall below the 0.18% per annum
level on any given day. For purposes of this undertaking by the Sponsor,
ordinary operating expenses of the Trust shall not include taxes, brokerage
commissions, and such extraordinary non-recurring expenses as may arise,
including without limitation the cost of any litigation to which the Trust or
Trustee may be a party. After September 30, 2000, the Sponsor may discontinue
its undertaking to limit ordinary operating expenses of the Trust or renew this
undertaking for an additional period of time, or may choose to reimburse or
assume certain Trust expenses in later periods in order to keep Trust expenses
at a level lower than what would reflect ordinary operating expenses of the
Trust, but is not obligated to do so. In any event, it is possible that, on any
day and during any period over the life of the Trust, total fees and expenses of
the Trust may exceed 0.18% per annum.
69
Subject to any applicable cap, the Sponsor reserves the right to charge the
Trust a special sponsor fee from time to time in reimbursement for certain
services it may provide to the Trust which would otherwise be provided by the
Trustee in an amount not to exceed the actual cost of providing such services.
The Sponsor or the Trustee from time to time may voluntarily assume some
expenses or reimburse the Trust so that total expenses of the Trust are reduced,
although neither the Sponsor nor the Trustee is obligated to do so and either
one or both parties may discontinue such voluntary assumption of expenses or
reimbursement at any time without notice. In connection therewith, Nasdaq, on
behalf of the Sponsor, has agreed to assume the expenses incident to the
organization of the Trust and its registration as an investment company, and
such expenses will not be borne by the Trust.
The following charges are or may be accrued and paid by the Trust: (a) the
Trustee's fee as discussed more fully below; (b) fees payable to transfer agents
for the provision of transfer agency services; (c) fees of the Trustee for
extraordinary services performed under the Trust Agreement; (d) various
governmental charges; (e) any taxes, fees, and charges payable by the Trustee
with respect to Nasdaq-100 Shares (whether in Creation Unit size aggregations or
otherwise); (f) expenses and costs of any action taken by the Trustee or the
Sponsor to protect the Trust and the rights and interests of Beneficial Owners
of Nasdaq-100 Shares (whether in Creation Unit size aggregations or otherwise);
(g) indemnification of the Trustee or the Sponsor for any losses, liabilities or
expenses incurred by them in the administration of the Trust without gross
negligence, bad faith, wilful misconduct, or wilful malfeasance on their part or
reckless disregard of their obligations and duties; (h) expenses incurred in
contacting Beneficial Owners of Nasdaq-100 Shares during the life of the Trust
and upon termination of the Trust; (i) brokerage commissions incurred by the
Trustee when acquiring or selling Index Securities pursuant to the provisions of
the Trust Agreement; and (j) other out-of-pocket expenses of the Trust incurred
pursuant to actions permitted or required under the Trust Agreement.
In addition to the specific expenses discussed in the previous paragraph,
the following expenses are or may be charged to the Trust: (a) reimbursement to
the Sponsor of amounts paid by it to Nasdaq in respect of annual licensing fees
pursuant to the License Agreement (the Sponsor has, however, committed not to
seek reimbursement from the Trust for licensing fees paid for the period through
the Trust's fiscal year ending September 30, 1999, see "License Agreement"), (b)
federal and state annual registration fees for the issuance of Nasdaq-100
Shares, and (c) expenses of the Sponsor relating to the printing and
distribution of marketing materials describing Nasdaq-100 Shares and the Trust
(including, but not limited to, associated legal, consulting, advertising,
70
and marketing costs and other out-of-pocket expenses such as printing). Pursuant
to the provisions of an exemptive order, the expenses set forth in this
paragraph may be charged to the Trust by the Trustee in an amount equal to the
actual costs incurred, but in no case shall such charges exceed 20/100 of 1%
(0.20%) per annum of the daily net asset value of the Trust.
Trust fees and expenses will first be paid out of income received by the
Trust in the form of dividends and other distributions on the Securities. It is
currently expected that Trust income may be insufficient to cover Trust fees and
expenses (see "Special Considerations and Risk Factors--Little or No Expected
Net Dividend Distributions to Beneficial Owners"). In such circumstances, the
Trustee will sell Securities in an amount sufficient to pay the excess of
accrued fees and expenses over the dividends and other Trust accrued income.
Specifically, the Trustee will ordinarily be required to sell Securities
whenever the Trustee determines that projected annualized fees and expenses
accrued on a daily basis exceed projected annualized dividends and other Trust
income accrued on a daily basis by more than 1/100 of one percent (0.01%) of the
net asset value of the Trust. Whenever the 0.01% threshold is exceeded, the
Trustee will sell sufficient Securities to cover such excess no later than the
next occasion it is required to make adjustments to the Portfolio due to a
Misweighting (see "The Portfolio--Adjustments to the Portfolio"), unless the
Trustee determines, in its discretion, that such a sale is unnecessary because
the cash to be generated is not needed by the Trust at that time for the payment
of expenses then due or because the Trustee otherwise determines that such sale
is not warranted or advisable. At the time of the sale, the Trustee shall first
sell Securities that are over-weighted in the Portfolio as compared to their
relative weighting in the Index.
The Trustee may also make advances to the Trust to cover expenses. The
Trustee may reimburse itself in the amount of any such advance, plus any amounts
required by the Federal Reserve Board which are related to such advances,
together with interest thereon at a percentage rate equal to the then-current
overnight federal funds rate, by deducting such amounts from (1) dividend
payments or other income of the Trust when such payments or other income is
received, (2) the amounts earned or benefits derived by the Trustee on cash held
by the Trustee for the benefit of the Trust, and (3) the sale of Securities.
Notwithstanding the foregoing, in the event that any advance remains outstanding
for more than forty-five (45) Business Days, the Trustee shall ordinarily sell
Securities to reimburse itself for the amount of such advance and any accrued
interest thereon. Such advances, as well as rights of the Trustee to the payment
of its fee, reimbursement of expenses and other claims, will be secured by a
lien upon and a security interest in the assets of
71
the Trust in favor of the Trustee. The expenses of the Trust are reflected in
the net asset value of the Trust (see "Valuation").
For services performed under the Trust Agreement, the Trustee is paid by the
Trust a fee at an annual rate of 6/100 of 1% to 10/100 of 1% of the net asset
value of the Trust, as shown below, such percentage amount to vary depending on
the net asset value of the Trust. Such compensation is computed on each Business
Day on the basis of the net asset value of the Trust on such day, and the amount
thereof is accrued daily and paid monthly. The Trustee, in its discretion, may
waive all or a portion of such fee. Notwithstanding the fee schedule set forth
in the table below, the Trustee shall be paid a minimum annual fee of $180,000
per annum. To the extent that the amount of the Trustee's compensation is less
than such minimum annual fee, the Sponsor has agreed to pay the amount of any
such shortfall.
TRUSTEE FEE SCALE
NET ASSET VALUE FEE AS A PERCENTAGE OF NET
OF THE TRUST ASSET VALUE OF THE TRUST
- -------------------------------------------------------- -----------------------------
$0-$499,999,999......................................... 10/100 of 1% per annum*
$500,000,000-$2,499,999,999............................. 8/100 of 1% per annum*
$2,500,000,000 and above................................ 6/100 of 1% per annum*
- ------------------------
* The fee indicated applies to that portion of the net asset value of the
Trust which falls in the size category indicated.
REDEMPTION OF NASDAQ-100 SHARES
Nasdaq-100 Shares in Creation Unit size aggregations are ordinarily
redeemable in kind only and are not redeemable for cash except under certain
circumstances. Nasdaq-100 Shares in Creation Unit size aggregations may be
redeemed by submitting a request for redemption, the requisite number of
Nasdaq-100 Shares, and the Cash Redemption Amount (as defined below), if
applicable, to the Trustee in the manner specified below. Beneficial Owners of
Nasdaq-100 Shares may sell Nasdaq-100 Shares in the secondary market, but must
accumulate enough Nasdaq-100 Shares to constitute a Creation Unit (I.E., 50,000
shares) in order to redeem through the Trust. Nasdaq-100 Shares can be redeemed
only when Creation Unit size aggregations are owned by a Beneficial Owner and
held in the account of a single Participating Party (with respect to redemptions
through the Nasdaq-100 Clearing Process) or a single DTC Participant (with
respect to redemptions outside the Nasdaq-100 Clearing Process). Nasdaq-100
Shares will remain outstanding until redeemed or until the termination of the
Trust.
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PROCEDURE FOR REDEMPTION OF NASDAQ-100 SHARES
Requests for redemptions of Creation Units may be made on any Business Day
through the Nasdaq-100 Clearing Process to the Trustee at its trust office at
101 Barclay Street, New York, New York 10286, or at such other office as may be
designated by the Trustee. Requests for redemptions of Creation Units may also
be made directly to the Trustee outside the Nasdaq-100 Clearing Process.
Requests for redemptions shall not be made to the Distributor. In the case of
redemptions made through the Nasdaq-100 Clearing Process, the Transaction Fee
will be deducted from the amount delivered to the redeemer or added to the
amount owed by the redeemer to the Trustee, as applicable. In case of
redemptions tendered directly to the Trustee outside the Nasdaq-100 Clearing
Process, a total fee will be charged equal to the Transaction Fee plus an
additional amount not to exceed three (3) times the Transaction Fee applicable
for a Creation Unit (due in part to the increased expense associated with
delivery outside the Nasdaq-100 Clearing Process), and such amount will be
deducted from the amount delivered to the redeemer or added to the amount owed
by the redeemer to the Trustee on behalf of the Trust, as applicable (see
"Prospectus Summary--Transaction Fee"). In all cases, the tender of Nasdaq-100
Shares for redemption and distributions to the redeemer (or payments to the
Trustee, as applicable) in respect of Nasdaq-100 Shares redeemed will be
effected through the Depository and the relevant DTC Participant(s) to the
Beneficial Owner thereof as recorded on the book entry system of the Depository
or the relevant DTC Participant, as the case may be (see "The
Trust--Book-Entry-Only System").
The Trustee will transfer to the redeeming Beneficial Owner via the
Depository and the relevant DTC Participant(s) a portfolio of Securities for
each Creation Unit size aggregation of Nasdaq-100 Shares delivered, typically
identical in composition and weighting to the securities portion of a Portfolio
Deposit as in effect (1) on the date a request for redemption is deemed received
by the Trustee as described below, in the case of redemptions made either
through the Nasdaq-100 Clearing Process or outside the Nasdaq-100 Clearing
Process or (2) on the date that notice of the termination of the Trust is given,
in the case of the termination of the Trust (see "Administration of the
Trust--Termination" and "The Portfolio--Adjustments to the Portfolio"). Each
redemption also includes a cash amount, the "Cash Redemption Amount," which will
either be paid to the Trustee on behalf of the Trust by the redeemer or paid to
the redeemer by the Trustee on behalf of the Trust as described below. On any
given Business Day, the Cash Redemption Amount is typically an amount identical
to the amount of the Cash Component and is equal to a proportional amount of the
following: dividends on all the Securities for the period through the date of
redemption, net of accrued expenses and liabilities
73
for such period not previously deducted (including, without limitation, (x)
taxes or other governmental charges against the Trust not previously deducted,
if any, and (y) accrued fees of the Trustee and other expenses of the Trust
(including legal and auditing expenses) and other expenses not previously
deducted (see "Expenses of the Trust")), plus or minus the Balancing Amount. To
the extent the sum of dividends on all Securities with ex-dividend dates within
the Accumulation Period, plus or minus the Balancing Amount, exceeds the accrued
expenses and liabilities of the Trust for such period (I.E., the Cash Redemption
Amount has a positive value), then the Trustee on behalf of the Trust will
transfer payment thereof via the relevant DTC Participant(s) to the redeeming
Beneficial Owner. Conversely, to the extent the sum of dividends on all
Securities with ex-dividend dates within the Accumulation Period, plus or minus
the Balancing Amount, is less than the accrued expenses and liabilities of the
Trust for such period (I.E., the Cash Redemption Amount has a negative value),
then such Beneficial Owner shall be required to deliver payment thereof via the
relevant DTC Participant(s) to the Trustee on behalf of the Trust. In the case
of redemptions made through the Nasdaq-100 Clearing Process, the Trustee on
behalf of the Trust will effect a transfer of the Cash Redemption Amount (if
required) and the securities to the redeeming Beneficial Owner by the third
(3rd) NSCC Business Day following the date on which request for redemption is
deemed received. In the case of redemptions made outside the Nasdaq-100 Clearing
Process, the Trustee on behalf of the Trust will transfer the Cash Redemption
Amount (if required) and the securities to the redeeming Beneficial Owner by the
third (3rd) Business Day following the date on which the request for redemption
is deemed received. In cases in which the Cash Redemption Amount is payable by
the redeemer to the Trustee, the redeeming Beneficial Owner (via the Depository
and the relevant DTC Participants(s)) is required to make payment of such cash
amount by the third (3rd) NSCC Business Day, for redemptions made through the
Nasdaq-100 Clearing Process, or the first (1st) Business Day, for redemptions
outside the Nasdaq-100 Clearing Process, following the date on which the request
for redemption is deemed received. The Trustee will cancel all Nasdaq-100 Shares
delivered upon redemption.
In the event that the Trustee determines in its discretion that an Index
Security is likely to be unavailable or available in insufficient quantity for
delivery by the Trust upon the redemption of Nasdaq-100 Shares in Creation Unit
size aggregations, the Trustee shall have the right in its discretion to include
the cash equivalent value of such Index Security or Index Securities, based on
the market value of such Index Security or Index Securities as of the
74
Evaluation Time on the date such redemption is deemed received by the Trustee,
in the calculation of the Cash Redemption Amount in lieu of delivering such
Index Security or Index Securities to the redeemer.
In connection with the redemption of Nasdaq-100 Shares, if a redeeming
investor requests redemption in cash, rather than in kind, with respect to one
or more Securities (for example, because such a redeemer is restricted by
regulation or otherwise from investing or engaging in a transaction in one or
more Index Securities), the Trustee shall have the right in its discretion to
include the cash equivalent value of such Index Security or Index Securities,
based on the market value of such Index Security or Index Securities as of the
Evaluation Time on the date such redemption order is deemed received by the
Trustee, in the calculation of the Cash Redemption Amount in lieu of delivering
such Index Security or Index Securities to the redeemer. In such case, such
investor will pay the Trustee the standard Transaction Fee, plus an additional
amount not to exceed three (3) times the Transaction Fee applicable for a
Creation Unit (see "Prospectus Summary--Transaction Fee").
The Trustee, in its discretion, upon the request of a redeeming investor,
may redeem Creation Units in whole or in part by providing such redeemer with a
portfolio of Securities differing in exact composition from the Index Securities
but not differing in net asset value from the then-current Portfolio Deposit.
Such a redemption is likely to be made only if it were to be determined that
this composition would be appropriate in order to maintain the Portfolio's
correlation to the composition and weighting of the Index, for instance, in
connection with a replacement of one of the Index Securities (E.G., due to a
merger, acquisition or bankruptcy). (See "The Portfolio" and "The Index".)
The Trustee may sell Securities to obtain sufficient cash proceeds to
deliver to the redeeming Beneficial Owner. To the extent cash proceeds are
received by the Trustee in excess of the amount required to be provided to the
redeeming Beneficial Owner, such cash amounts shall be held by the Trustee and
shall be applied in accordance with the guidelines applicable to Misweightings
(see "The Portfolio--Adjustments to the Portfolio").
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to allow distribution of the
Cash Redemption Amount to a redeemer of Nasdaq-100 Shares, the Trustee may
advance out of its own funds any amounts necessary in respect of redemptions of
Nasdaq-100 Shares; otherwise, the Trustee may sell Securities in an amount
sufficient to effect such redemptions. The Trustee may reimburse itself in the
amount of such advance, plus any amounts required by the Federal Reserve Board
which are related to such advance, together with interest thereon at a
75
percentage rate equal to the then current overnight federal funds rate, by
deducting such amounts from (1) dividend payments or other income of the Trust
when such payments or other income is received, (2) the amounts earned or
benefits derived by the Trustee on cash held by the Trustee for the benefit of
the Trust, and (3) the sale of Securities. Notwithstanding the foregoing, in the
event that any advance remains outstanding for more than forty-five (45)
Business Days, the Trustee shall ordinarily sell Securities to reimburse itself
for such advance and any accrued interest thereon. Such advances will be secured
by a lien upon and a security interest in the assets of the Trust in favor of
the Trustee.
The Trustee may, in its discretion, and will when so directed by the
Sponsor, suspend the right of redemption, or postpone the date of payment of the
net asset value for more than five (5) Business Days following the date on which
the request for redemption is deemed received by the Trustee (1) for any period
during which the New York Stock Exchange is closed; (2) for any period during
which an emergency exists as a result of which disposal or evaluation of the
Securities is not reasonably practicable; or (3) for such other period as the
Commission may by order permit for the protection of Beneficial Owners. Neither
the Sponsor nor the Trustee is liable to any person or in any way for any loss
or damages which may result from any such suspension or postponement.
To be eligible to place orders with the Trustee to redeem Nasdaq-100 Shares
in Creation Unit size aggregations, an entity or person must be (1) a
Participating Party, with respect to redemptions through the Nasdaq-100 Clearing
Process, or (2) a DTC Participant, with respect to redemptions outside the
Nasdaq-100 Clearing Process, and in either case must have executed a Nasdaq-100
Participant Agreement with the Distributor and the Trustee.
All orders to redeem Nasdaq-100 Shares must be placed in multiples of 50,000
shares (Creation Unit size). Orders must be transmitted to the Trustee by
telephone or other transmission method acceptable to the Trustee so as to be
received by the Trustee not later than the Closing Time on the Transmittal Date,
pursuant to procedures set forth in the Nasdaq-100 Participant Agreement. Severe
economic or market changes or disruptions, or telephone or other communication
failure, may impede the ability to reach the Trustee, a Participating Party, or
a DTC Participant.
Orders to redeem Creation Unit size aggregations of Nasdaq-100 Shares shall
be placed with a Participating Party or DTC Participant, as applicable, in the
form required by such Participating Party or DTC Participant. Investors should
be aware that their particular broker may not have executed a
76
Nasdaq-100 Participant Agreement, and that, therefore, orders to redeem Creation
Unit size aggregations of Nasdaq-100 Shares may have to be placed by the
investor's broker through a Participating Party or a DTC Participant who has
executed a Nasdaq-100 Participant Agreement. At any given time there may be only
a limited number of broker-dealers that have executed a Nasdaq-100 Participant
Agreement. Those placing orders to redeem Nasdaq-100 Shares should afford
sufficient time to permit (1) proper submission of the order by a Participating
Party or DTC Participant to the Trustee and (2) the receipt of the Nasdaq-100
Shares to be redeemed and the Cash Redemption Amount, if any, by the Trustee in
a timely manner, as described below. Orders for redemption that are effected
outside the Nasdaq-100 Clearing Process are likely to require transmittal by the
DTC Participant earlier on the Transmittal Date than orders effected using the
Nasdaq-100 Clearing Process. Those persons placing orders outside the Nasdaq-100
Clearing Process should ascertain the deadlines applicable to DTC and the
Federal Reserve Bank wire system by contacting the operations department of the
broker or depository institution effectuating such transfer of Nasdaq-100 Shares
and Cash Redemption Amount. These deadlines will vary by institution. The
Participant notified of an order to redeem outside the Nasdaq-100 Clearing
Process will be required to transfer Nasdaq-100 Shares through DTC and the Cash
Redemption Amount, if any, through the Federal Reserve Bank wire system in a
timely manner (see "Placement of Redemption Orders Outside the Nasdaq-100
Clearing Process"). Information regarding the Cash Redemption Amount, number of
outstanding Nasdaq-100 Shares, and Transaction Fees may be obtained from the
Trustee at the toll-free number: (800) 545-5256.
PLACEMENT OF REDEMPTION ORDERS USING THE NASDAQ-100 CLEARING PROCESS
Orders to redeem Nasdaq-100 Shares in Creation Unit size aggregations
through the Nasdaq-100 Clearing Process must be delivered through a
Participating Party (see "Prospectus Summary--Portfolio Deposit") that has
executed the Nasdaq-100 Participant Agreement with the Distributor and with the
Trustee (as the same may be from time to time amended in accordance with its
terms). An order to redeem Nasdaq-100 Shares using the Nasdaq-100 Clearing
Process is deemed received by the Trustee on the Transmittal Date if (i) such
order is received by the Trustee not later than the Closing Time on such
Transmittal Date and (ii) all other procedures set forth in the Nasdaq-100
Participant Agreement are properly followed; such order will be effected based
on the net asset value of the Trust as determined as of the Evaluation Time on
the Transmittal Date. An order to redeem Nasdaq-100 Shares using the Nasdaq-100
Clearing Process made in proper form but received by the Trustee after the
Closing Time will be deemed received on the next Business Day
77
immediately following the Transmittal Date. The Nasdaq-100 Participant Agreement
authorizes the Trustee to transmit to NSCC on behalf of the Participating Party
such trade instructions as are necessary to effect the Participating Party's
redemption order. Pursuant to such trade instructions from the Trustee to NSCC,
the Trustee will transfer the requisite Securities (or contracts to purchase
such Securities which are expected to be delivered in a "regular way" manner
through NSCC) by the third (3rd) NSCC Business Day following the date on which
such request for redemption is deemed received, and the Cash Redemption Amount,
if any. If the Cash Redemption Amount is owed by the Beneficial Owner to the
Trustee, such amount must be delivered by the third (3rd) NSCC Business Day
following the date on which the redemption request is deemed received. The
calculation of the value of the Securities and the Cash Redemption Amount will
be made according to the procedures set forth under "Valuation," computed as of
the Evaluation Time on the Business Day on which a redemption order is deemed
received by the Trustee.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE THE NASDAQ-100 CLEARING PROCESS
Orders to redeem Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process
must be delivered through a DTC Participant that has executed the Nasdaq-100
Participant Agreement with the Distributor and with the Trustee. A DTC
Participant who wishes to place an order for redemption of Nasdaq-100 Shares to
be effected outside the Nasdaq-100 Clearing Process need not be a Participating
Party, but such orders must state that the DTC Participant is not using the
Nasdaq-100 Clearing Process and that redemption of Nasdaq-100 Shares will
instead be effected through transfer of Nasdaq-100 Shares directly through DTC.
An order to redeem Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process is
deemed received by the Trustee on the Transmittal Date if (i) such order is
received by the Trustee not later than the Closing Time on such Transmittal
Date, (ii) such order is preceded or accompanied by the requisite number of
Nasdaq-100 Shares specified in such order, which delivery must be made through
DTC to the Trustee no later than the Closing Time of the regular trading session
on the Nasdaq Stock Market on such Transmittal Date and (iii) all other
procedures set forth in the Nasdaq-100 Participant Agreement are properly
followed. The Cash Redemption Amount owed by the Beneficial Owner, if any, must
be delivered no later than 1:00 p.m. on the Business Day immediately following
the Transmittal Date.
After the Trustee has deemed an order for redemption outside the Nasdaq-100
Clearing Process received, the Trustee will initiate procedures to transfer the
requisite Securities (or contracts to purchase such Securities which are
expected to be delivered within three Business Days) and the Cash
78
Redemption Amount to the redeeming Beneficial Owner (where such amount is
payable from the Trustee to the Beneficial Owner) by the third (3rd) Business
Day following the Transmittal Date on which such redemption order is deemed
received by the Trustee.
The calculation of the value of the Securities and the Cash Redemption
Amount will be made by the Trustee according to the procedures set forth under
"Valuation," computed as of the Evaluation Time on the Business Day on which a
redemption order is deemed received by the Trustee. Therefore, if a redemption
order in proper form is submitted to the Trustee by a DTC Participant not later
than the Closing Time on the Transmittal Date, and the requisite Nasdaq-100
Shares are also delivered to the Trustee prior to the Closing Time on such
Transmittal Date, then the value of the Securities and the Cash Redemption
Amount will be determined by the Trustee as of the Evaluation Time on such
Transmittal Date. If, however, a redemption order is submitted to the Trustee by
a DTC Participant not later than the Closing Time on a Transmittal Date but
either (1) the requisite Nasdaq-100 Shares are NOT delivered by the Closing Time
on such Transmittal Date or (2) the redemption order is not submitted in proper
form, then the redemption order will NOT be deemed received as of such
Transmittal Date. In such case, the value of the Securities and the Cash
Redemption Amount will be computed as of the Evaluation Time on the Business Day
that such order is deemed received by the Trustee, I.E., the Business Day on
which the Nasdaq-100 Shares are delivered through DTC to the Trustee by the
Closing Time on such Business Day pursuant to a properly submitted redemption
order.
VALUATION
The net asset value of the Trust is computed as of the Evaluation Time shown
under "Essential Information" on each Business Day. The net asset value of the
Trust on a per Nasdaq-100 Share basis is determined by subtracting all
liabilities (including accrued expenses and dividends payable) from the total
value of the Trust's investments and other assets and dividing the result by the
total number of outstanding Nasdaq-100 Shares.
The aggregate value of the Securities shall be determined by the Trustee in
good faith in the following manner. The value of a Security shall generally be
based on the closing sale price for the Security on that day (unless the Trustee
deems such price inappropriate as a basis for evaluation) on the Nasdaq Stock
Market or, if there is no such appropriate closing sale price on the Nasdaq
Stock Market, at the closing bid price (unless the Trustee deems such price
inappropriate as a basis for evaluation). If a Security is not so quoted on the
Nasdaq Stock Market or, if so quoted and the principal market therefor is other
than on the Nasdaq Stock Market or there is no such closing
79
bid price available, such evaluation shall generally be made by the Trustee in
good faith based (a) on the closing price for the Security on another market on
which the Security is traded (unless the Trustee deems such price inappropriate
as a basis for evaluation) or if there is no such appropriate closing price, at
the closing bid price on such other market, (b) on current bid prices on the
Nasdaq Stock Market or such other markets, (c) if bid prices are not available,
on the basis of current bid prices for comparable securities, (d) by the
Trustee's appraising the value of the Securities in good faith on the bid side
of the market, or (e) by any combination thereof.
ADMINISTRATION OF THE TRUST
RECORDS
The Trustee maintains records of the transactions of the Trust, including a
current list of the identity and number of shares of each of the Securities in
the Portfolio. Records of the creation of Nasdaq-100 Shares in Creation Unit
size aggregations are also maintained by the Distributor. Record of ownership of
Nasdaq-100 Shares is maintained by the Depository and by DTC Participants as
described above (see "The Trust--Book-Entry-Only System").
A complete copy of the Trust Agreement is maintained by the Trustee. A copy
of the Trust Agreement is available to Beneficial Owners at the corporate trust
office of the Trustee at 101 Barclay Street, New York, New York 10286 during
normal business hours.
VOTING
The Trustee has the right to vote all of the voting securities in the Trust.
The Trustee votes the voting securities of each issuer in the same proportionate
relationship as all other shares of each such issuer are voted to the extent
permissible and, if not permitted, abstains from voting.
DISTRIBUTIONS TO BENEFICIAL OWNERS
Distributions by the Trust will be made quarterly in the event that
dividends accumulated in respect of the Securities and other income, if any,
received by the Trust, exceed Trust fees and expenses accrued during the
quarterly Accumulation Period which ends on the Business Day preceding each
Ex-Dividend Date. Based on historical dividend payment rates of the portfolio of
securities comprising the Index and estimated ordinary operating expenses of the
Trust, little or no such distributions are currently anticipated (see "Special
Considerations and Risk Factors--Little or No Expected Net Dividend
Distributions to Beneficial Owners").
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The regular quarterly Ex-Dividend Date with respect to net dividends, if
any, for Nasdaq-100 Shares will be the third Friday in each of March, June,
September, and December, unless such day is not a Business Day, in which case
the Ex-Dividend Date will be the immediately preceding Business Day. Beneficial
Owners as reflected on the records of the Depository and the DTC Participants on
the second Business Day following the Ex-Dividend Date (the "Record Date") are
entitled to receive an amount, if any, representing dividends accumulated on the
Securities through the quarterly Accumulation Period which ends on the Business
Day preceding such Ex-Dividend Date (including Securities with ex-dividend dates
falling within such quarterly dividend period) and other income, if any,
received by the Trust, net of the fees and expenses of the Trust, accrued daily
for such period. For the purposes of such distributions, dividends per
Nasdaq-100 Share are calculated at least to the nearest 1/100th of $0.01.
However, there shall be no net dividend distribution in any given quarter, and
any net dividend amounts will be rolled into the next Accumulation Period, if
the aggregate net dividend distribution would be in an amount less than 5/100 of
one percent (0.05%) of the net asset value of the Trust as of the Friday in the
week immediately preceding the Ex-Dividend Date, unless the Trustee determines
that such net dividend distribution is required to be made in order to maintain
the Trust's status as a regulated investment company or to avoid the imposition
of income or excise taxes on undistributed income (see "Tax Status of the
Trust"). When net dividend payments are to be made by the Trust, payment will be
made on the last Business Day in the calendar month following each Ex-Dividend
Date (the "Dividend Payment Date"). Dividend payments will be made through the
Depository and the DTC Participants to Beneficial Owners then of record with
funds received from the Trustee. Nasdaq-100 Shares are registered in book-entry
only, which records are kept by the Depository (see "The Trust--Book-Entry-Only
System").
Dividends payable to the Trust in respect of the Securities are credited by
the Trustee to a non-interest bearing account as of the date on which the Trust
receives such dividends. Other moneys received by the Trustee in respect of the
Securities, including but not limited to the Cash Component, the Cash Redemption
Amount, all moneys realized by the Trustee from the sale of options, warrants,
or other similar rights received or distributed in respect of the Securities as
dividends or distributions and capital gains resulting from the sale of
Securities are also credited by the Trustee to a non-interest bearing account.
All funds collected or received are held by the Trustee without interest until
distributed or otherwise utilized in accordance with the provisions of the Trust
Agreement. To the extent the amounts credited to such accounts generate interest
income or an equivalent benefit to the Trustee, such interest income or benefit
is used to reduce any charges made in connection with
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advances made by the Trustee on behalf of the Trust to cover Trust expenses in
those cases when the Trust income is insufficient to pay such expenses when due
(see "Expenses of the Trust").
The Trust intends to qualify as a regulated investment company for federal
income tax purposes. A regulated investment company is not subject to federal
income tax on its net investment income and capital gains that it distributes to
shareholders, so long as it meets certain overall distribution and
diversification requirements and other conditions under Subchapter M of the
Code. The Trust intends to satisfy these overall distribution and
diversification requirements and to otherwise satisfy any required conditions.
The Trustee intends to make additional distributions to the minimum extent
necessary (i) to distribute the entire annual investment company taxable income
of the Trust, plus any net capital gains (from sales of securities in connection
with adjustments to the Portfolio, payment of the expenses of the Trust, or to
generate cash for such distributions), and (ii) to avoid imposition of the
excise tax imposed by section 4982 of the Code (see "Tax Status of the Trust").
The additional distributions, if needed, would consist of (a) any amount by
which estimated Trust investment company taxable income and net capital gains
for a fiscal year exceeds the amount of Trust taxable income previously
distributed with respect to such year or, if greater, the minimum amount
required to avoid imposition of such excise tax, and (b) a distribution soon
after the actual annual investment company taxable income and net capital gains
of the Trust have been computed of the amount, if any, by which such actual
income exceeds the distributions already made. The net asset value of the Trust
will be reduced by the amount of such additional distributions. The magnitude of
the additional distributions, if any, will depend upon a number of factors,
including the level of redemption activity experienced by the Trust. Because
substantially all proceeds from the sale of Securities in connection with
adjustments to the Portfolio will have been used to purchase shares of Index
Securities, the Trust may have no cash or insufficient cash with which to pay
any such additional distributions. In that case, the Trustee typically will have
to sell shares of the Securities sufficient to produce the cash required to make
such additional distributions. In selecting the Securities to be sold to produce
cash for such distributions, the Trustee will choose among the Securities that
are over-weighted in the Portfolio relative to their weighting in the Index
first and then from among all other Securities in a manner so as to maintain the
weighting of each of the Securities within the applicable Misweighting Amount
(see "The Portfolio--Adjustments to the Portfolio").
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The Trustee further reserves the right to declare special dividends if, in
its reasonable discretion, such action is necessary or advisable to preserve the
status of the Trust as a regulated investment company or to avoid imposition of
income or excise taxes on undistributed income.
The Trustee further reserves the right to vary the frequency with which
periodic distributions, if any, are to be made from the Trust (E.G., from
quarterly to semi-annually) if it is determined by the Sponsor and the Trustee,
in their discretion, that such a variance would be advisable to facilitate
compliance with the rules and regulations applicable to regulated investment
companies or would otherwise be advantageous to the Trust. In addition, the
Trustee reserves the right to change the regular Ex-Dividend Date for Nasdaq-100
Shares to another regular date if it is determined by the Sponsor and the
Trustee, in their discretion, that such a change would be advantageous to the
Trust. Notice of any such variance or change (which notice shall include changes
to the Record Date, the Ex-Dividend Date, the Dividend Payment Date, and the
Accumulation Period resulting from such variance) shall be provided to
Beneficial Owners via the Depository and the DTC Participants (see "The
Trust--Book-Entry-Only System").
The Trustee may, in its discretion, advance out of its own funds any amounts
necessary to permit distributions via the Depository to Beneficial Owners. The
Trustee may reimburse itself in the amount of such advance, together with
interest thereon at a percentage rate equal to then current overnight federal
funds rate, plus Federal Reserve Bank 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 ordinarily sell Securities to reimburse itself for such advance and any
accrued interest thereon. Such advances will be secured by a lien upon and a
security interest in the assets of the Trust in favor of the Trustee.
In addition, as soon as practicable after notice of termination of the
Trust, the Trustee will distribute via the Depository and the DTC Participants
to each Beneficial Owner redeeming Nasdaq-100 Shares in Creation Unit size
aggregations prior to the termination date specified in such notice, a portion
of the Securities and cash as described above (see "Redemption of Nasdaq-100
Shares" and "Administration of the Trust--Termination"). Otherwise, the Trustee
will distribute to each Beneficial Owner (whether in Creation Unit size
aggregations or otherwise), as soon as practical after termination of the Trust,
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such Beneficial Owner's pro rata share in cash of the net asset value of the
Trust (see "Administration of the Trust--Termination").
All distributions are made by the Trustee through the Depository and the DTC
Participants to Beneficial Owners as recorded on the book entry system of the
Depository and the DTC Participants (see "The Trust-- Book-Entry-Only System").
The settlement date for the creation of Nasdaq-100 Shares in Creation Unit
size aggregations or the purchase of Nasdaq-100 Shares in the secondary market
must occur on or prior to the Record Date in order for such creator or purchaser
to receive any distributions made by the Trust on the next Dividend Payment
Date. If the settlement date for such creation or a secondary market purchase
occurs after the Record Date, the distribution will be made to the prior
security holder or Beneficial Owner as of such Record Date.
TRUST SUPERVISION
The Trust's Portfolio is not managed and therefore the adverse financial
condition of an issuer of securities in the Trust does not, in itself, require
the sale of Securities from the Portfolio. The Trustee shall, on a
non-discretionary basis, make changes to the Portfolio as described above (see
"The Portfolio-- Adjustments to the Portfolio").
The Trustee will direct its securities transactions only to brokers or
dealers, which may include affiliates of the Trustee, from whom it expects to
obtain the most favorable prices for execution of orders.
STATEMENTS TO BENEFICIAL OWNERS
With each distribution, the Trustee will furnish for distribution to
Beneficial Owners (see "The Trust--Book-Entry-Only System") a statement setting
forth the amount being distributed expressed as a dollar amount per Nasdaq-100
Share.
Promptly after the end of each fiscal year, the Trustee will furnish to the
DTC Participants, for distribution to each person who was a Beneficial Owner of
Nasdaq-100 Shares at the end of such fiscal year, an annual report of the Trust
containing financial statements audited by independent accountants of nationally
recognized standing and such other information as may be required by applicable
laws, rules, and regulations.
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REGISTER OF OWNERSHIP AND TRANSFER
The Trustee maintains a record of the creation and redemption of Nasdaq-100
Shares in Creation Unit size aggregations. The Depository maintains a record on
its book-entry system of the DTC Participant ownership of Nasdaq-100 Shares and
the number of Nasdaq-100 Shares owned (see "The Trust--Book-Entry-Only System").
Certificates are not issued for Nasdaq-100 Shares, whether in Creation Unit size
denominations or otherwise. Beneficial Owners have the rights accorded to
holders of "book-entry" securities under applicable law. Beneficial Owners may
transfer Nasdaq-100 Shares through the Depository by instructing the DTC
Participant(s) holding the Nasdaq-100 Shares for such Beneficial Owner in
accordance with standard securities industry procedures.
RIGHTS OF BENEFICIAL OWNERS
Nasdaq-100 Shares in Creation Unit size aggregations (I.E., 50,000
Nasdaq-100 Shares) may be tendered to the Trustee for redemption (see
"Redemption of Nasdaq-100 Shares"). Beneficial Owners may sell Nasdaq-100 Shares
in the secondary market, but must accumulate enough Nasdaq-100 Shares (I.E.,
50,000 shares) to constitute a full Creation Unit in order to redeem through the
Trust. The death or incapacity of any Beneficial Owner will not operate to
terminate the Trust nor entitle such Beneficial Owner's legal representatives or
heirs to claim an accounting or to take any action or proceeding in any court
for a partition or winding up of the Trust. By its purchase of a Nasdaq-100
Share, each Beneficial Owner expressly waives any right he or she may have under
law to require the Trustee at any time to account, in any manner other than as
expressly provided in the Trust Agreement, for the Securities or moneys from
time to time received, held, and applied by the Trustee under the Trust.
Beneficial Owners shall not have the right to vote concerning the Trust,
except as described below with respect to termination and as otherwise expressly
set forth in the Trust Agreement or in any manner control the operation and
management of the Trust, nor shall any Beneficial Owner be liable to any other
person by reason of any action taken by the Sponsor or the Trustee.
AMENDMENT
The Trust Agreement may be amended from time to time by the Trustee and the
Sponsor without the consent of any Beneficial Owners (a) to cure any ambiguity
or to correct or supplement any provision thereof which may be defective or
inconsistent or to make such other provisions in regard to matters or questions
arising thereunder as will not adversely affect the interests of
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Beneficial Owners; (b) to change any provision thereof as may be required by the
Commission; (c) to add or change any provision as may be necessary or advisable
for the continuing qualification of the Trust as a "regulated investment
company" under the Code; (d) to add or change any provision thereof as may be
necessary or advisable in the event that NSCC or the Depository is unable or
unwilling to continue to perform its functions as set forth therein; (e) to add
or change any provision thereof to conform the adjustments to the Portfolio and
the Portfolio Deposit to changes, if any, made by Nasdaq in its method of
determining the Index; (f) to add or change any provision thereof as may be
necessary to implement a dividend reinvestment plan or service; (g) to make
changes to the Transaction Fee and to other amounts charged in connection with
creations and redemptions of Nasdaq-100 Shares within the original parameters
set forth in the Trust Agreement; and (h) to make changes to the level of net
dividends below which a dividend distribution will not be paid in a given
quarter and will instead be rolled into the next Accumulation Period.
The Trust Agreement may also be amended from time to time by the Sponsor and
the Trustee with the consent of the Beneficial Owners of 51% of the outstanding
Nasdaq-100 Shares 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 Nasdaq-100 Shares if such
amendment would (1) permit, except in accordance with the terms and conditions
of the Trust Agreement, the acquisition of any securities other than those
acquired in accordance with the terms and conditions of the Trust Agreement; (2)
reduce the interest of any Beneficial Owner in the Trust; or (3) reduce the
percentage of Beneficial Owners required to consent to any such amendment.
Promptly after the execution of any such amendment, the Trustee shall
receive from the Depository, pursuant to the terms of the Depository Agreement,
a list of all DTC Participants holding Nasdaq-100 Shares. The Trustee shall
inquire of each such DTC Participant as to the number of Beneficial Owners for
whom such DTC Participant holds Nasdaq-100 Shares, and provide each such DTC
Participant with sufficient copies of a written notice of the substance of such
amendment for transmittal by each such DTC Participant to such Beneficial Owners
(see "The Trust--Book-Entry-Only System").
TERMINATION
The Trust Agreement provides that the Sponsor has the discretionary right to
direct the Trustee to terminate the Trust if at any time after six months
86
following and prior to three years following the Initial Date of Deposit the net
asset value of the Trust falls below $150,000,000 or if at any time on or after
three years following the Initial Date of Deposit the net asset value of the
Trust is less than $350,000,000, as such dollar amount shall be adjusted for
inflation in accordance with the CPI-U, such adjustment to take effect at the
end of the fourth year following the Initial Date of Deposit and at the end of
each year thereafter and to be made so as to reflect the percentage increase in
consumer prices as set forth in the CPI-U for the twelve month period ending in
the last month of the preceding fiscal year.
The Trust Agreement also provides that the Trustee shall, at the direction
of the Sponsor, terminate the Trust if within 90 days from the Initial Date of
Deposit the net asset value is less than $100,000. The Trust will also terminate
in the event that Nasdaq-100 Shares are delisted from the Amex and are not
subsequently relisted on a national securities exchange or a quotation medium
operated by a national securities association. The Amex will consider the
suspension of trading in or the delisting of Nasdaq-100 Shares as discussed
above (see "Marketplace Listing").
The Trust may also be terminated (a) by the agreement of the Beneficial
Owners of 66 2/3% of outstanding Nasdaq-100 Shares; (b) if the Depository is
unable or unwilling to continue to perform its functions as set forth under the
Trust Agreement and a suitable replacement is unavailable; (c) if NSCC no longer
provides clearance services with respect to Nasdaq-100 Shares and a suitable
replacement is unavailable, or if the Trustee is no longer a participant in NSCC
or any successor to NSCC providing clearance services; (d) if Nasdaq ceases
publishing the Index; and (e) if the License Agreement is terminated. Currently,
the License Agreement is scheduled to expire five years from the commencement
date of trading of Nasdaq-100 Shares in accordance with its terms and is subject
to a five year renewal period following such date. The Trust will also terminate
by its terms on the Mandatory Termination Date.
If either the Sponsor or the Trustee shall resign or be removed and a
successor is not appointed, the Trust will terminate (see "Resignation, Removal
and Liability--The Trustee" and "Resignation, Removal and Liability--The
Sponsor"). The dissolution of the Sponsor or its ceasing to exist as a legal
entity for any cause whatsoever, however, will not cause the termination of the
Trust Agreement or the Trust unless the Trustee deems termination to be in the
best interests of Beneficial Owners.
Prior written notice of the termination of the Trust will be given at least
twenty (20) days prior to termination of the Trust to all Beneficial Owners in
the manner described above (see "The Trust--Book-Entry-Only System"). The
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notice will set forth the date on which the Trust will be terminated (the
"Termination Date"), the period during which the assets of the Trust will be
liquidated, the date on which Beneficial Owners of Nasdaq-100 Shares (whether in
Creation Unit size aggregations or otherwise) will receive in cash the net asset
value of the Nasdaq-100 Shares held, and the date determined by the Trustee upon
which the books of the Trust shall be closed. Such notice shall further state
that, as of the date thereof and thereafter, neither requests to create
additional Creation Units nor Portfolio Deposits will be accepted, and that, as
of the date thereof and thereafter, the portfolio of Securities delivered upon
redemption shall be essentially identical in composition and weighting to the
Securities held in the Trust as of such date rather than the securities portion
of the Portfolio Deposit as in effect on the date the request for redemption is
deemed received. Beneficial Owners of Nasdaq-100 Shares in Creation Unit size
aggregations may, in advance of the Termination Date, redeem in kind directly
from the Trust (see "Redemption of Nasdaq-100 Shares").
Within a reasonable period of time after the Termination Date the Trustee
shall, subject to any applicable provisions of law, use its best efforts to sell
all of the Securities not already distributed to redeeming Beneficial Owners of
Creation Units. The Trustee shall not be liable for or responsible in any way
for depreciation or loss incurred by reason of any such sale or sales. The
Trustee may suspend such sales upon the occurrence of unusual or unforeseen
circumstances, including but not limited to a suspension in trading of a
Security, the closing or restriction of trading, the outbreak of hostilities, or
the collapse of the economy. Upon receipt of proceeds from the sale of the last
Security, the Trustee shall deduct therefrom its fees and all other expenses
(see "Expenses of the Trust"). The remaining amount shall be transmitted to the
Depository for distribution via the DTC Participants, together with a final
statement setting forth the computation of the gross amount distributed.
Nasdaq-100 Shares not redeemed prior to termination of the Trust will be
redeemed in cash at net asset value based on the proceeds of the sale of the
Securities. Such redemptions in cash at net asset value shall be available to
all Beneficial Owners, with no minimum aggregation of Nasdaq-100 Shares
required.
RESIGNATION, REMOVAL, AND LIABILITY
THE TRUSTEE
Under the Trust Agreement, the Trustee may resign and be discharged of the
Trust created by the Trust Agreement by executing a notice of resignation in
writing and filing such notice with the Sponsor and mailing a copy of the notice
of resignation to all DTC Participants that are reflected on the records
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of the Depository as owning Nasdaq-100 Shares, for distribution to Beneficial
Owners as provided above (see "The Trust--Book-Entry-Only System") not less than
sixty (60) days before the date such resignation is to take effect. Such
resignation will become effective upon the appointment of and the acceptance of
the Trust by a successor Trustee or, if no successor is appointed within sixty
(60) days after the date such notice of resignation is given, the Trust shall
terminate (see "Administration of the Trust--Termination"). The Sponsor, upon
receiving notice of such resignation, is obligated to use its best efforts to
appoint a successor Trustee promptly.
In case the Trustee becomes incapable of acting as such or is adjudged a
bankrupt or is taken over by any public authority, the Sponsor may discharge the
Trustee and appoint a successor Trustee as provided in the Trust Agreement.
Notice of such discharge and appointment shall be mailed by the Sponsor to the
Depository and the DTC Participants for distribution to Beneficial Owners.
Upon a successor Trustee's execution of a written acceptance of an
appointment as Trustee for the Trust, such successor Trustee will become vested
with all the rights, powers, duties, and obligations of the original Trustee.
A successor Trustee is required to be a bank, trust company, corporation, or
national banking association organized and doing business under the laws of the
United States or any state thereof, to be authorized under such laws to exercise
corporate trust powers, and to have at all times an aggregate capital, surplus,
and undivided profit of not less than $50,000,000.
Beneficial Owners of 51% of the then outstanding Nasdaq-100 Shares may at
any time remove the Trustee by written instrument(s) delivered to the Trustee
and the Sponsor. The Sponsor shall thereupon use its best efforts to appoint a
successor Trustee in the manner specified above and in the Trust Agreement.
The Trust Agreement provides that the Trustee is not liable for any action
taken in reasonable reliance on properly executed documents or for the
disposition of moneys or Securities or for the evaluations required to be made
thereunder, except by reason of its own gross negligence, bad faith, wilful
malfeasance, wilful misconduct, or reckless disregard of its duties and
obligations, nor is the Trustee liable or responsible in any way for
depreciation or loss incurred by reason of the sale by the Trustee of any
Securities in the Trust. In the event of the failure of the Sponsor to act, the
Trustee may act and is not liable for any such action taken by it in good faith.
The Trustee is not personally liable for any taxes or other governmental charges
imposed upon or
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in respect of the Securities or upon the interest thereon or upon it as Trustee
or upon or in respect of the Trust which the Trustee may be required to pay
under any present or future law of the United States of America or of any other
taxing authority having jurisdiction. In addition, the Trust Agreement contains
other customary provisions limiting the liability of the Trustee. The Trustee
and its directors, subsidiaries, shareholders, officers, employees, and
affiliates under common control with the Trustee (each a "Trustee Indemnified
Party") will be indemnified from the assets of the Trust and held harmless
against any loss, liability, or expense incurred without gross negligence, bad
faith, wilful misconduct, wilful malfeasance on the part of such Trustee
Indemnified Party, or reckless disregard of its duties and obligations, arising
out of, or in connection with its acceptance or administration of the Trust,
including the costs and expenses (including counsel fees) of defending against
any claim or liability.
THE SPONSOR
If at any time the Sponsor shall fail to undertake or perform or become
incapable of undertaking or performing any of the duties which by the terms of
the Trust Agreement are required of it to be undertaken or performed, or shall
resign, or shall become bankrupt or its affairs shall be taken over by public
authorities, the Trustee may appoint a successor Sponsor as shall be
satisfactory to the Trustee, agree to act as Sponsor itself, or may terminate
the Trust Agreement and liquidate the Trust (see "Administration of the Trust--
Termination"). Notice of the resignation or removal of the Sponsor and the
appointment of a successor shall be mailed by the Trustee to the Depository and
the DTC Participants for distribution to Beneficial Owners (see "The
Trust--Book-Entry-Only System"). Upon a successor Sponsor's execution of a
written acceptance of such appointment as Sponsor of the Trust, such successor
Sponsor shall become vested with all of the rights, powers, duties, and
obligations of the original Sponsor. Any successor Sponsor may be compensated at
rates deemed by the Trustee to be reasonable.
The Sponsor may resign by executing and delivering to the Trustee an
instrument of resignation. Such resignation shall become effective upon the
appointment of a successor Sponsor and the acceptance of such appointment by the
successor Sponsor, unless the Trustee either agrees to act as Sponsor or
terminates the Trust Agreement and liquidates the Trust, which the Trustee shall
do if no successor Sponsor is appointed (see "Administration of the
Trust--Termination").
The dissolution of the Sponsor or its ceasing to exist as a legal entity for
any reason whatsoever will not cause the termination of the Trust Agreement or
the Trust unless the Trustee deems termination to be in the best interests of
the Beneficial Owners of Nasdaq-100 Shares.
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The Trust Agreement provides that the Sponsor is not liable to the Trustee,
the Trust, or to the Beneficial Owners of Nasdaq-100 Shares for taking any
action or for refraining from taking any action made in good faith or for errors
in judgment, but is liable only for its own gross negligence, bad faith, wilful
misconduct, or wilful malfeasance in the performance of its duties or its
reckless disregard of its obligations and duties under the Trust Agreement. The
Sponsor is not liable or responsible in any way for depreciation or loss
incurred by the Trust by reason of the sale of any Securities of the Trust. The
Trust Agreement further provides that the Sponsor and its directors,
subsidiaries, shareholders, officers, employees, and affiliates under common
control with the Sponsor (each a "Sponsor Indemnified Party") shall be
indemnified from the assets of the Trust and held harmless against any loss,
liability, or expense incurred without gross negligence, bad faith, wilful
misconduct, or wilful malfeasance on the part of any Sponsor Indemnified Party
in the performance of its duties or reckless disregard of its obligations and
duties under the Trust Agreement, including the payment of the costs and
expenses (including counsel fees) of defending against any claim or liability.
SPONSOR
The Sponsor of the Trust is Nasdaq-Amex Investment Product Services, Inc., a
Delaware corporation incorporated on August 7, 1998 with offices c/o The Nasdaq
Stock Market, Inc., 1735 K Street NW, Washington, DC 20006-1500. The Sponsor's
Internal Revenue Service Employer Identification Number is 52-2115391. Nasdaq
owns all of the Sponsor's outstanding shares of common stock. Nasdaq is a
"control person" of the Sponsor as such term is defined in the Securities Act.
The Sponsor, at its own expense, may from time to time provide additional
promotional incentives to brokers who sell Nasdaq-100 Shares to the public. In
certain instances, these incentives may be provided only to those brokers who
meet certain threshold requirements for participation in a given incentive
program, such as selling a significant number of Nasdaq-100 Shares within a
specified time period.
TRUSTEE
The Trustee is The Bank of New York, a corporation organized under the laws
of the State of New York with trust powers. The Trustee has a trust office at
101 Barclay Street, New York, New York 10286 and its Internal Revenue Service
Employer Identification Number is 135-160382. The Trustee is subject to
supervision and examination by the Federal Reserve Bank of New York, the
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Federal Deposit Insurance Corporation and the New York State Banking Department.
DEPOSITORY
The Depository Trust Company, New York, New York, a limited purpose trust
company and member of the Federal Reserve System, acts as Depository for
Nasdaq-100 Shares. The Depository receives customary fees for its services.
LEGAL OPINION
The legality of the Nasdaq-100 Shares offered hereby has been passed upon by
Jones, Day, Reavis & Pogue, New York, New York, as counsel for the Sponsor.
Winston & Strawn, New York, New York, has acted as counsel for the Trustee.
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
The statement of financial condition, including the schedule of investments,
as of March 5, 1999 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
INFORMATION AND COMPARISON RELATING TO TRUST,
SECONDARY MARKET TRADING, NET ASSET SIZE,
PERFORMANCE, AND TAX TREATMENT
Information regarding various aspects of the Trust, including the net asset
size thereof, as well as the secondary market trading, the performance, and the
tax treatment of Nasdaq-100 Shares, may be included from time to time in
advertisements, sales literature, and other communications as well as in reports
to current or prospective Beneficial Owners.
Information may be provided to prospective investors to help such investors
assess their specific investment goals and to aid in their understanding of
various financial strategies. Such information may present current economic and
political trends and conditions and may describe general principles of investing
such as asset allocation, diversification, and risk tolerance, as well as
specific investment techniques such as indexing and hedging. In addition,
information may be presented to prospective or current Beneficial Owners
regarding the purchase of Nasdaq-100 Shares in the secondary market, such as
margin requirements, types of orders that may be entered, and information
concerning short sales. Similarly, market data symbols, trading fractions, other
92
trading information, and the CUSIP number relating to Nasdaq-100 Shares may be
included in such information. Comparisons with other investment vehicles, such
as mutual funds, may be made with respect to the application of such
requirements, costs of fund management and administration, costs and advantages
of intraday trading, and rules applicable to short sales.
Information regarding the Trust's net asset size may be stated in
communications to prospective or current Beneficial Owners for one or more time
periods, including annual, year-to-date, or daily periods. Such information may
also be expressed in terms of the total number of Nasdaq-100 Shares outstanding
as of one or more time periods. Factors integral to the size of the Trust's net
assets, such as creation volume and activity, may also be discussed and may be
specified from time to time or with respect to various periods of time.
Comparisons of such information during various periods may also be made and may
be expressed by means of percentages.
Information may be provided to investors regarding the ability to engage in
short sales of Nasdaq-100 Shares, including reference to any applicable
exemption from the "tick test" provision of the Commission's "short sale rule"
(Rule 10a-1 under the Securities Exchange Act of 1934), to permit short sales on
"minus" or "zero-minus" ticks. Selling short refers to the sale of securities
which the seller does not own, but which the seller arranges to borrow prior to
effecting the sale. Institutional investors may be advised that lending their
Nasdaq-100 Shares to short sellers may generate stock loan credits which may
supplement the return they can earn from an investment in Nasdaq-100 Shares.
These stock loan credits may provide a useful source of additional income for
certain institutional investors who can arrange to lend Nasdaq-100 Shares.
Potential short sellers may be advised that a short rebate (functionally
equivalent to partial use of proceeds of the short sale) may reduce their cost
of selling short.
Information may be provided to investors regarding capital gains
distributions by the Trust, including historical information relating to such
distributions. Comparisons between the Trust and other investment vehicles such
as mutual funds may be made regarding such capital gains distributions, as well
as relative tax efficiencies between the Trust and such other investment
vehicles (E.G., realization of capital gains or losses to the Trust and to such
other investment vehicles in connection with redemption of their respective
securities). (See "Tax Status of the Trust" for discussion of tax consequences
to Beneficial Owners of Nasdaq-100 Shares in connection with the sale or
redemption of Nasdaq-100 Shares.) Based on projected differences between
Nasdaq-100 Shares and conventional mutual funds with regard to capital gains
93
distributions, projections may be made regarding comparative capital gains
distributions and tax rates for taxable investors holding Nasdaq-100 Shares over
a long period of time. Comparisons may also be provided regarding the probable
tax impact resulting from rebalancing of the Trust portfolio (see "The
Portfolio--Adjustments to the Portfolio") and adjustments to the portfolio of an
actively managed investment vehicle.
Specifically, information may be provided to prospective or current
investors comparing and contrasting the tax efficiencies of conventional mutual
funds with Nasdaq-100 Shares. Both conventional mutual funds and the Trust may
be required to recognize capital gains incurred as a result of adjustments to
the composition and weighting of the Index and therefore to their respective
portfolios. From a tax perspective, however, a significant difference between a
conventional mutual fund and the Trust is the process by which their shares are
redeemed. In cases where a conventional mutual fund experiences redemptions in
excess of subscriptions ("net redemptions") and has insufficient cash available
to fund such net redemptions, such fund may have to sell stocks held in its
portfolio to raise and pay cash to redeeming shareholders. A mutual fund will
generally experience a taxable gain or loss when it sells such portfolio stocks
in order to pay cash to redeeming fund shareholders. In contrast, the redemption
mechanism for Nasdaq-100 Shares does not ordinarily involve selling the
Securities held by the Trust in the event of a redemption. Instead, the Trust
delivers an actual portfolio of securities in an "in-kind" exchange to any
person redeeming Nasdaq-100 Shares in Creation Unit size aggregations (I.E.,
50,000 Nasdaq-100 Shares per Creation Unit). While this "in-kind" exchange is a
taxable transaction to the redeeming entity (usually a broker/dealer) making the
exchange, it generally does not constitute a taxable transaction at the Trust
level and, consequently, there is no realization of taxable gain or loss by the
Trust with respect to such "in-kind" exchanges. In a period of market
appreciation of the Index and, consequently, appreciation of Nasdaq-100 Shares,
this "in-kind" redemption mechanism has the effect of eliminating the
recognition and distribution of those net unrealized gains at the Trust level.
Investors should note that although the same result would occur for conventional
mutual funds utilizing an "in-kind" redemption mechanism, the opportunities to
redeem fund shares by delivering portfolio stocks "in-kind" are limited in most
mutual funds.
Investors may be informed that, while no unequivocal statement can be made
as to the net tax impact on a conventional mutual fund resulting from the
purchases and sales of its portfolio stocks over a period of time, conventional
funds that have accumulated substantial unrealized capital gains, if they
experience net redemptions and do not have sufficient available cash, may be
required to make taxable capital gains distributions that are generated by
94
changes in such fund's portfolio. In contrast, the "in-kind" redemption
mechanism of Nasdaq-100 Shares may make them more tax efficient investments
under most circumstances than comparable conventional mutual fund shares. As
discussed above, the "in-kind" redemption feature of the Trust tends to lower
the amount of annual net capital gains distributions to Nasdaq-100 Share holders
as compared to their conventional mutual fund counterparts. Since shareholders
are generally required to pay income tax on capital gains distributions, the
smaller the amount of such distributions, the less taxes that are payable
currently. To the extent that the Trust is not required to recognize capital
gains, the Nasdaq-100 Share holder is able, in effect, to defer tax on such
gains until he sells or otherwise disposes of his shares, or the Trust
terminates. If such holder retains his shares until his death, under current law
the tax basis of such shares would be adjusted to their then fair market value.
Information regarding the secondary market trading activity of Nasdaq-100
Shares also may be presented over one or more stated time periods, such as for
daily, monthly, quarterly, or annual periods. Nasdaq-100 Share secondary market
trading volume information may be compared with similar information relating to
other issues trading on the Amex during the same reporting period. Average daily
secondary market trading volume of Nasdaq-100 Shares may also be reported from
time to time. Comparisons of such information during various periods may also be
made, and may be expressed by means of percentages.
Information may also be provided in communications to prospective investors
or current Beneficial Owners comparing and contrasting the relative advantages
of investing in Nasdaq-100 Shares as compared to other investment vehicles, such
as mutual funds, both on an individual and a group basis (E.G., stock index
mutual funds). Such information may include comparisons of costs and expense
ratios, expressed either in dollars or basis points, stock lending activities,
permitted investments and hedging activities (E.G., engaging in options or
futures transactions), and portfolio turnover data and analyses. In addition,
such information may quote, reprint, or include portions of financial,
scholarly, or business publications or periodicals, including model allocation
schedules or portfolios, as the foregoing relate to the comparison of Nasdaq-100
Shares to other investment vehicles, current economic, financial and political
conditions, investment philosophy or techniques, or the desirability of owning
Nasdaq-100 Shares.
In addition, information on the performance of Nasdaq-100 Shares on the
basis of changes in price per Nasdaq-100 Share with or without reinvesting all
dividends, if any, and/or any distributions of capital in additional Nasdaq-100
95
Shares may be included from time to time in such information. Average annualized
performance may be stated for various periods. Total return figures may also be
stated for a period from the Initial Date of Deposit, a date at least twelve
months prior to the end of the reporting period or for annual periods for the
life of the Trust. Total return measures the percentage growth in the total
dollar value of an investment in Nasdaq-100 Shares (reflecting dividends, if
any, and capital appreciation but without provision for any income taxes
payable).
Information on the Index contained in this Prospectus, as updated from time
to time, may also be included from time to time in such material. The
performance of the Trust, of the Index (provided information is also given
reflecting the performance of the Trust in comparison to the Index) or both may
also be compared to the performance of money managers as reported in market
surveys such as SEI Fund Evaluation Survey (a leading database of tax-exempt
funds) or mutual funds such as those reported by Lipper Analytical Services
Inc., Money Magazine Fund Watch, Wiesenberger Investment Companies Service,
Morningstar Incorporated, and Value Line Investment Survey, each of which
measures performance following their own specific and well-defined calculation
measures, or of the New York Stock Exchange Composite Index, the American Stock
Exchange Composite Index, the Nasdaq Composite Index (indices of stocks traded
on the New York and American Stock Exchanges and the Nasdaq Stock Market,
respectively), the S&P 500 Index-Registered Trademark- (a broad-based index of
500 publicly traded companies), the S&P MidCap 400 Index-TM- (a broad-based
index of 400 publicly traded middle capitalization companies), the Dow Jones
Industrial Average(SM) (an index currently comprising 30 publicly traded large
capitalization companies), or similar domestic or foreign measurement standards
during the same period of time. In addition to all other sources of comparative
information, comparative performance figures published by other funds or money
managers may be included from time to time. Information may also be included
regarding the aggregate amount of assets committed to index investing generally
by various types of investors, such as pension funds and other institutional
investors, which currently exceeds $300 billion.
Information on the relative price performance of Nasdaq-100 Shares in
relation to other securities and/or indices may be represented in the form of
"correlation." Correlation is a standard measure of the degree of linear
association between two price series, and ranges from minus one hundred percent
(-100%) (I.E., perfect negative linear association) to positive one hundred
percent (100%) (I.E., perfect positive linear association).
96
One important difference between Nasdaq-100 Shares and conventional mutual
fund shares is that Nasdaq-100 Shares are available for purchase or sale on an
intraday basis on the Amex. An investor who buys shares in a conventional mutual
fund will usually buy or sell shares at a price at or related to the closing net
asset value per share, as determined by the fund. In contrast, Nasdaq-100 Shares
are not offered for purchase or redeemed for cash at a fixed relationship to
closing NAV. Information may be presented to help investors evaluate potential
advantages and disadvantages of Nasdaq-100 Shares relative to funds sold and
redeemed at prices related to closing NAV.
Information relating to the relative price performance of Nasdaq-100 Shares
may be compared against a wide variety of investment categories and asset
classes, including common stocks, small capitalization stocks, long and
intermediate term corporate and government bonds, Treasury bills, the rate of
inflation in the United States (based on the Consumer Price Index ("CPI")) and
combinations of various capital markets. Historical returns of these and other
capital markets in the United States may be provided by independent statistical
studies and sources, such as those provided by Ibbotson Associates of Chicago,
Illinois. The performance of these capital markets is based on the returns of
different indices. Information may be presented using the performance of these
and other capital markets to demonstrate general investment strategies. For
example, the performance of Nasdaq-100 Shares may be compared to the performance
of selected asset classes such as short-term U.S. Treasury bills, long-term U.S.
Treasury bonds, long-term corporate bonds, mid-capitalization stocks, foreign
stocks, and small capitalization stocks and may also be measured against the
rate of inflation as set forth in well-known indices (such as the CPI).
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. Performance of Nasdaq-100 Shares may also be
compared to that of other indices or compilations that may be developed and made
available to the investing public in the future. Of course, such comparisons
will only reflect past performance of Nasdaq-100 Shares and the investment
categories, indices, or compilations chosen, and no guarantees can be made of
future results regarding the performance of either Nasdaq-100 Shares or the
asset classes chosen for such comparisons.
DIVIDEND REINVESTMENT SERVICE
The Sponsor reserves the right in the future to make the DTC book-entry
Dividend Reinvestment Service (the "Service") available for use by Beneficial
Owners through DTC Participants for reinvestment of their cash proceeds, if
97
any. The Sponsor may choose to make the Service available within its discretion
and without the consent of Beneficial Owners. Some or all DTC Participants may
not elect to utilize the Service; therefore, if the Service is made available
for Nasdaq-100 Shares, an interested Nasdaq-100 Share investor may wish to
contact his or her broker to ascertain the availability of the Service through
such broker at such time. Interested Beneficial Owners should also note that
each broker may require investors to adhere to specific procedures and
timetables in order to participate in the Service and investors should ascertain
from their broker such necessary details at the time when the Service is made
available for Nasdaq-100 Shares.
If and when the Service is utilized, the Trustee may use the cash proceeds
of dividends received from all Beneficial Owners participating in reinvestment
through the Service to obtain Index Securities necessary to create the requisite
number of Nasdaq-100 Shares at the close of business on each Nasdaq-100 Share
distribution date. Alternatively, the Trustee may choose to implement the
reinvestment of dividends through other means (E.G., through trade executions
for Nasdaq-100 Shares on the open market). Any cash balance remaining after the
requisite number of Nasdaq-100 Shares have been created or otherwise acquired
will be distributed, on a pro rata basis, to all Beneficial Owners who
participated in the Service. Brokerage commissions, if any, incurred in
obtaining the Index Securities necessary to create additional Nasdaq-100 Shares
with the cash from the distributions, or in purchasing Nasdaq-100 Shares on the
open market, will be an expense of the Trust.
Nasdaq-100 Shares acquired pursuant to the Service will be held by the
Beneficial Owners in the same manner, and subject to the same terms and
conditions, as original ownership of Nasdaq-100 Shares. Distributions reinvested
in additional Nasdaq-100 Shares through the Service will nevertheless be taxable
dividends to Beneficial Owners to the same extent as if received in cash.
ADDITIONAL INFORMATION
A Registration Statement on Form S-6, including amendments thereto, relating
to the Trust, of which this Prospectus forms a part, has been filed with the
Commission. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Trust, reference is
98
made to such Registration Statement and the exhibits thereto. A copy of the
Registration Statement may be inspected by anyone without charge at the
Commission's principal office located at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, the Northeast Regional Office located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and the Midwest Regional
Office located at Citicorp Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661-2511, and copies of all or any part thereof may be obtained from
the Public Reference Branch of the Commission upon the payment of certain fees
prescribed by the Commission. In addition, the Registration Statement may be
accessed electronically at the Commission's site on the World Wide Web located
at http://www.sec.gov. Such information is also available from Nasdaq-Amex by
calling: 1-800-843-2639.
99
GLOSSARY OF DEFINED TERMS
PAGE
-----
"10 Basis Point Limit".......................................................... 9
"1940 Act"...................................................................... 12
"Accumulation Period"........................................................... 6
"Adjustment Day"................................................................ 53
"Amex".......................................................................... 1
"Annual Ranking Review"......................................................... 59
"Balancing Amount".............................................................. 54
"BNY"........................................................................... 26
"Beneficial Owners"............................................................. 45
"Business Day".................................................................. 10
"Cash Component"................................................................ 7
"Cash Redemption Amount"........................................................ 73
"Closing Time".................................................................. 39
"CNS"........................................................................... 6
"Code".......................................................................... 11
"Commission".................................................................... 6
"CPI"........................................................................... 97
"CPI-U"......................................................................... 15
"Creation Unit"................................................................. 1
"Depository Agreement".......................................................... 46
"Depository".................................................................... 10
"Distributor"................................................................... 16
"Dividend Payment Date"......................................................... 81
"DTC"........................................................................... 10
"DTC Participants".............................................................. 44
"ERISA"......................................................................... 12
"Evaluation Time"............................................................... 4
"Ex-Dividend Date".............................................................. 13
"Income Net of Expense Amount".................................................. 6
"Index Securities".............................................................. 5
"Index"......................................................................... 1
"Indirect Participants"......................................................... 45
"Initial Date of Deposit"....................................................... 4
"IRA"........................................................................... 12
"Large Stocks".................................................................. 60
"License Agreement"............................................................. 62
"Mandatory Termination Date".................................................... 15
"Nasdaq"........................................................................ 1
"Nasdaq-100 Shares"............................................................. 1
"Nasdaq-100 Clearing Process"................................................... 8
100
GLOSSARY OF DEFINED TERMS (CONTINUED)
PAGE
-----
"Nasdaq-100 Participant Agreement".............................................. 42
"NAV Amount".................................................................... 53
"NSCC Business Day"............................................................. 20
"NSCC".......................................................................... 6
"Participating Party"........................................................... 6
"Plans"......................................................................... 11
"Portfolio Deposit Amount"...................................................... 54
"Portfolio Deposit"............................................................. 7
"Portfolio"..................................................................... 35
"Record Date"................................................................... 81
"Request Day"................................................................... 53
"Securities Act"................................................................ 68
"Securities".................................................................... 1
"Service"....................................................................... 97
"Small Stocks".................................................................. 60
"Sponsor"....................................................................... 1
"Sponsor Indemnified Party"..................................................... 91
"Termination Date".............................................................. 88
"Transaction Fee"............................................................... 8
"Transmittal Date".............................................................. 39
"Trust Agreement"............................................................... 5
"Trust"......................................................................... 1
"Trustee"....................................................................... 5
"Trustee Indemnified Party"..................................................... 90
101
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND ANY
INFORMATION OR REPRESENTATIONS NOT STATED IN IT, OR IN THE REGISTRATION
STATEMENT AND EXHIBITS OF WHICH IT IS A PART, MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST, THE SPONSOR, OR THE TRUSTEE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, ANY
SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, SECURITIES IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION IN IT IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
THE TRUST IS REGISTERED AS A UNIT INVESTMENT TRUST UNDER THE INVESTMENT
COMPANY ACT OF 1940. REGISTRATION DOES NOT IMPLY THAT THE TRUST OR NASDAQ-100
SHARES HAVE BEEN GUARANTEED, SPONSORED, RECOMMENDED, OR APPROVED BY THE UNITED
STATES OR ANY STATE OR ANY AGENCY OR OFFICER THEREOF.
--------------------------
Until April 5, 1999, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus.
NASDAQ-100 TRUST(SM)
SERIES 1
------------------------
NASDAQ-100 SHARES(SM)
---------------------
PROSPECTUS
---------------------
SPONSOR:
NASDAQ-AMEX
INVESTMENT PRODUCT
SERVICES, INC.
------------------------
TABLE OF CONTENTS
PAGE
-----
Essential Information.............. 2
Prospectus Summary................. 5
Special Considerations and Risk
Factors.......................... 18
Report of Ernst & Young LLP,
Independent Auditors............. 29
Statement of Financial Condition... 30
Schedule of Investments............ 32
The Trust.......................... 35
The Portfolio...................... 47
The Index.......................... 56
License Agreement.................. 62
Marketplace Listing................ 63
Tax Status of the Trust............ 64
Continuous Offering of Nasdaq-100
Shares........................... 67
Expenses of the Trust.............. 69
Redemption of Nasdaq-100 Shares.... 72
Valuation.......................... 79
Administration of the Trust........ 80
Resignation, Removal, and
Liability........................ 88
Sponsor............................ 91
Trustee............................ 91
Depository......................... 92
Legal Opinion...................... 92
Independent Auditors and Financial
Statements....................... 92
Information and Comparison Relating
to Trust, Secondary Market
Trading,
Net Asset Size, Performance, and
Tax Treatment.................... 92
Dividend Reinvestment Service...... 97
Additional Information............. 98
Glossary of Defined Terms.......... 100
March 5, 1999
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
PART II - ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet.
The cross-reference sheet.
The prospectus.
The undertaking to file reports.
The signatures.
The following exhibits:
1. Ex. - 5.1 - Opinion of Jones, Day, Reavis & Pogue as to legality of
securities being registered.
2. Ex. - 8.1 - Opinion of Jones, Day, Reavis & Pogue as to certain tax aspects
of the Trust.
3. Ex. - 23.1 - Consent of Ernst & Young LLP, Independent Auditors, relating to
the audited financial statements of the Trust.
4. Ex. - 23.2 - Consent of Ernst & Young LLP, Independent Auditors, relating to
the audited financial statements of Nasdaq-Amex Investment Product Services,
Inc.
5. Ex. - 23.3 - Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1
and 8.1).
6. Ex. - 24.1 - Power of Attorney (previously filed as part of the Registration
Statement, filed August 7, 1998).
7. Ex. - 27 - Financial Data Schedule.
8. Ex.--99.A(1)(a)--Standard Terms and Conditions of Trust dated as of March 1,
1999 between Nasdaq-Amex Investment Product Services, Inc., as Sponsor (the
"Sponsor"), and The Bank of New York, as Trustee (the "Trustee") (filed as
exhibit A(1)(a) to Amendment No. 1 to the Trust's Registration Statement on
Form N-8B-2, filed March 9, 1999 (File No. 811-8947) and hereby incorporated
by reference).
9. Ex.--99.A(1)(b)--Trust Indenture and Agreement dated as of March 4, 1999
between the Sponsor and the Trustee (filed as exhibit A(1)(b) to Amendment
No. 1 to the Trust's Registration Statement on Form N-8B-2, filed March 9,
1999 (File No. 811-8947) and hereby incorporated by reference).
10. Ex.--99.A(3) -Distribution Agreement dated as of March 1, 1999 among the
Sponsor, the Trust, and ALPS Mutual Funds Services, Inc., as distributor
(the "Distributor") (filed as exhibit A(3) to Amendment No. 1 to the Trust's
Registration Statement on Form N-8B-2, filed March 9, 1999 (File No.
811-8947) and hereby incorporated by reference).
11. Ex.--99.A(6)(a)--Certificate of Incorporation of the Sponsor, as amended
(previously filed as part of Pre-Effective Amendment No. 2 to the
Registration Statement, filed January 28, 1999).
II-1
12. Ex.--99.A(6)(b)--By-laws of the Sponsor (previously filed as part of
Pre-Effective Amendment No. 1 to the Registration Statement, filed October
19, 1998).
13. Ex.--99.A(9)(a)--Depository Agreement among The Depository Trust Company,
the Sponsor and the Trustee (filed as exhibit A(9)(a) to Amendment No. 1 to
the Trust's Registration Statement on Form N-8B-2, filed March 9, 1999 (File
No. 811-8947) and hereby incorporated by reference).
14. Ex.--99.A(9)(b)--License Agreement between The Nasdaq Stock Market, Inc. and
the Sponsor (filed as exhibit A(9)(b) to Amendment No. 1 to the Trust's
Registration Statement on Form N-8B-2, filed March 9, 1999 (File No.
811-8947) and hereby incorporated by reference).
15. Ex.--99.A(9)(c)--Form of Participant Agreement to be entered into among the
Trustee, the Distributor and various broker-dealers, as participants (filed
as exhibit A(9)(c) to Amendment No. 1 to the Trust's Registration Statement
on Form N-8B-2, filed March 9, 1999 (File No. 811-8947) and hereby
incorporated by reference).
FINANCIAL STATEMENTS
l. Form of Statement of Financial Condition of the Trust as shown in the
current Prospectus for this series herewith.
2. Financial Statements of Nasdaq-Amex Investment Product Services, Inc., the
Sponsor, for the period from August 7, 1998 (inception) to December 31,
1998, included as Exhibit 99.B.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Nasdaq-100 Trust, Series 1, has duly caused this Amendment No. 3 to the
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, all in the District of Columbia, on the 9th day of March, 1999.
NASDAQ-100 TRUST, SERIES 1
---------------------------------------------
(Name of Registrant)
By: NASDAQ-AMEX INVESTMENT PRODUCT SERVICES,
INC.
---------------------------------------------
(Sponsor)
By: /s/ JOHN L. JACOBS
---------------------------------------------
John L. Jacobs
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed on behalf of Nasdaq-Amex
Investment Product Services, Inc., the Sponsor, by the following persons who
constitute a majority of its Board of Directors and by the named persons who are
in the following capacities on the date above indicated.
NASDAQ-AMEX INVESTMENT PRODUCT SERVICES, INC.
J. PATRICK CAMPBELL*
- ------------------------------ Director, Chairman
J. Patrick Campbell
SALVATORE F. SODANO* Director, Chief Operating
- ------------------------------ Officer and Chief
Salvatore F. Sodano Financial Officer
L. BRIAN HOLLAND*
- ------------------------------ Director, President and
L. Brian Holland Chief Executive Officer
/s/ JOHN L. JACOBS
- ------------------------------ Director, Executive Vice
John L. Jacobs President
DOUGLAS A. PATTERSON*
- ------------------------------ Director, Senior Vice
Douglas A. Patterson President and Secretary
JAMES R. ALLEN*
- ------------------------------ Director, Senior Vice
James R. Allen President and Treasurer
* By his signature below, John L. Jacobs, pursuant to a duly executed Power of
Attorney filed with the Securities and Exchange Commission in connection with
the Registration Statement on August 7, 1998, has signed this Amendment No. 3 to
the Registration Statement on behalf of the persons whose signatures are printed
above, in the capacities set forth opposite their respective names.
By: /s/ JOHN L. JACOBS
-----------------------------------------
John L. Jacobs
Attorney-in-Fact
II-3
EXHIBIT INDEX
EXHIBIT NO. TITLE OF DOCUMENT
- --------------- -----------------------------------------------------------------------------------------------------
1. Ex. - 5.1 - Opinion of Jones, Day, Reavis & Pogue as to legality of securities being registered.
2. Ex. - 8.1 - Opinion of Jones, Day, Reavis & Pogue as to certain tax aspects of the Trust.
3. Ex. - 23.1 - Consent of Ernst & Young LLP, Independent Auditors, relating to the audited financial
statements of the Trust.
4. Ex. - 23.2 - Consent of Ernst & Young LLP, Independent Auditors, relating to the audited financial
statements of Nasdaq-Amex Investment Product Services, Inc.
5. Ex. - 23.3 - Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1 and 8.1).
6. Ex. - 24.1 - Power of Attorney (previously filed as part of the Registration Statement, filed August
7, 1998).
7. Ex. - 27 - Financial Data Schedule.
8. Ex.--99.A(1)(a)--Standard Terms and Conditions of Trust dated as of March 1, 1999 between Nasdaq-Amex
Investment Product Services, Inc., as Sponsor (the "Sponsor"), and The Bank of New York, as Trustee
(the "Trustee") (filed as exhibit A(1)(a) to Amendment No. 1 to the Trust's Registration Statement on
Form N-8B-2, filed March 9, 1999 (File No. 811-8947) and hereby incorporated by reference).
9. Ex.--99.A(1)(b)--Trust Indenture and Agreement dated as of March 4, 1999 between the Sponsor and the
Trustee (filed as exhibit A(1)(b) to Amendment No. 1 to the Trust's Registration Statement on Form
N-8B-2, filed March 9, 1999 (File No. 811-8947) and hereby incorporated by reference).
10. Ex.--99.A(3) -Distribution Agreement dated as of March 1, 1999 among the Sponsor, the Trust, and ALPS
Mutual Funds Services, Inc., as distributor (the "Distributor") (filed as exhibit A(3) to Amendment
No. 1 to the Trust's Registration Statement on Form N-8B-2, filed March 9, 1999 (File No. 811-8947)
and hereby incorporated by reference).
11. Ex.--99.A(6)(a)--Certificate of Incorporation of the Sponsor, as amended (previously filed as part of
Pre-Effective Amendment No. 2 to the Registration Statement, filed January 28, 1999).
12. Ex.--99.A(6)(b)--By-laws of the Sponsor (previously filed as part of Pre-Effective Amendment No. 1 to
the Registration Statement, filed October 19, 1998).
13. Ex.--99.A(9)(a)--Depository Agreement among The Depository Trust Company, the Sponsor and the Trustee
(filed as exhibit A(9)(a) to Amendment No. 1 to the Trust's Registration Statement on Form N-8B-2,
filed March 9, 1999 (File No. 811-8947) and hereby incorporated by reference).
14. Ex.--99.A(9)(b)--License Agreement between The Nasdaq Stock Market, Inc. and the Sponsor (filed as
exhibit A(9)(b) to Amendment No. 1 to the Trust's Registration Statement on Form N-8B-2, filed March
9, 1999 (File No. 811-8947) and hereby incorporated by reference).
15. Ex.--99.A(9)(c)--Form of Participant Agreement to be entered into among the Trustee, the Distributor
and various broker-dealers, as participants (filed as exhibit A(9)(c) to Amendment No. 1 to the
Trust's Registration Statement on Form N-8B-2, filed March 9, 1999 (File No. 811-8947) and hereby
incorporated by reference).
16. Ex.--99.B--Financial Statements of Nasdaq-Amex Investment Product Services, Inc., the Sponsor, for
the period from August 7, 1998 (inception) to December 31, 1998.