File No. 333-61001
As filed with the Securities and Exchange Commission on January 8, 2003
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 7
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
A. Exact name of Trust:
NASDAQ-100 TRUST, SERIES 1
(formerly known as the NASDAQ GOLD Trust, Series 1)
B. Name of Depositor (Sponsor):
NASDAQ FINANCIAL PRODUCTS SERVICES, INC.
(formerly known as NASDAQ Investment Product Services, Inc.)
C. Complete address of Sponsor's principal executive offices:
NASDAQ FINANCIAL PRODUCTS SERVICES, INC.
c/o THE NASDAQ STOCK MARKET, INC.
9513 Key West Avenue
Rockville, MD 20850
D. Name and complete address of agent for service:
John L. Jacobs
NASDAQ FINANCIAL PRODUCTS SERVICES, INC.
c/o THE NASDAQ STOCK MARKET, INC.
9513 Key West Avenue
Rockville, MD 20850
Copy to:
David M. Mahle
JONES DAY
222 E. 41st Street
New York, NY 10017
It is proposed that this filing will become effective:
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
E. Title and amount of securities being registered:
An indefinite number of units of beneficial interest pursuant to Rule
24f-2 under the Investment Company Act of 1940.
F. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT.
|_| Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to paragraph (b) of Rule 485.
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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
- ----------------------------------------------------------------------------------- ---------------------
I. Organization and General Information
1. (a) Name of Trust ...................................................... Prospectus Front Cover
(b) Title of securities issued ......................................... Prospectus Front Cover
2. Name, address and Internal Revenue Service Employer Identification Number
of 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 ................................................. *
5. State of organization of Trust ........................................... Highlights
6. (a) Dates of execution and termination of Trust Agreement .............. Summary
(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 ......................................... Summary
(c) Rights of holders as to withdrawal or redemption ................... Redemption of
NASDAQ-100 Shares;
Administration of the
Trust - Rights of
Beneficial Owners
(d) Rights of holders as to conversion, transfer, etc .................. 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 - 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
- ----------------------------------------------------------------------------------- ---------------------
(g) Notice to holders as to change in:
(1) Composition of Trust assets ................................... *
(2) Terms and conditions of Trust's securities .................... Administration of the
Trust - Amendment
(3) Provisions of Trust Agreement ................................. Same as set forth in
10(g) (2)
(4) Identity of sponsor and trustee ............................... The Sponsor; The
Trustee
(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 ............................... The Sponsor; The
Trustee
(i) Other principal features of the securities ........................ Summary; Highlights
11. Type of securities comprising units ...................................... The Prospectus - Front
Cover; Highlights; 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 ... *
(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 ............ Summary; The Trust -
Creation of Creation
Units; Redemption of
NASDAQ-100 Shares -
Procedure for
Redemptions of
NASDAQ-100 Shares
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* Not applicable, answer negative or not required.
ii
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
- ----------------------------------------------------------------------------------- ---------------------
(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; - 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
(b) Reinvestment of distributions ...................................... *
(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; -
Distributions to
Beneficial Owners; -
Statements to
Beneficial Owners
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 .................................. The Trustee
(d) Successor trustee .................................................. Same as set forth in
20(c)
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* Not applicable, answer negative or not required.
iii
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
- ----------------------------------------------------------------------------------- ---------------------
(e) Removal or resignation of sponsor .................................. The Sponsor
(f) Successor sponsor .................................................. Same as set forth in
20(c) and 20(e)
21. Loans to security holders ................................................ *
22. Limitations on liabilities ............................................... 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 sponsors ..................................................... 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 .................................................................... *
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 ............................................. The Trust;
Marketplace Listing;
Continuous Offering
of NASDAQ-100 Shares
(b) Underwriting agreements ............................................ 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 ............................. Highlights
(b) NASD membership of principal underwriter .......................... Highlights
40. Certain fees received by principal underwriters .......................... *
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* Not applicable, answer negative or not required.
iv
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
- ----------------------------------------------------------------------------------- ---------------------
41. (a) Business of principal underwriters ................................. Highlights
(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 ...................... *
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 .............................................. Summary; 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 ........... *
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* Not applicable, answer negative or not required.
v
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
- ----------------------------------------------------------------------------------- ---------------------
53. (a) Taxable status of the Trust ........................................ Tax Status of the
Trust
(b) Qualification of the Trust as a regulated investment company ....... Same as set forth in
53(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.
vi
PRELIMINARY PROSPECTUS
NASDAQ-100 TRUST(SM), SERIES 1
A Unit Investment Trust
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The NASDAQ-100 Index(R):
o measures the average performance of a broadly diversified group of stocks
traded on The NASDAQ Stock Market(R).
o includes the stocks of 100 of the largest and most actively traded
non-financial companies listed on The NASDAQ Stock Market.
o is a modified capitalization weighted index which promotes portfolio
weight diversification.
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The NASDAQ-100 Trust(sm), Series 1:
o is a unit investment trust designed to closely track the price and
yield performance of the NASDAQ-100 Index.
o holds all of the stocks in the NASDAQ-100 Index.
o issues and redeems shares of NASDAQ-100 Index Tracking Stock(sm) in
multiples of 50,000 in exchange for the stocks in the NASDAQ-100
Index and cash.
NASDAQ-100 Index Tracking Stock:
o represents undivided ownership interests in the NASDAQ-100 Trust,
Series 1.
o trades on the American Stock Exchange under the symbol "QQQ."
o minimum trading unit: 1 Share of NASDAQ-100 Index Tracking Stock.
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Sponsor: NASDAQ Financial Products Services, Inc.
(which is owned by The NASDAQ Stock Market, Inc.)
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The Securities and Exchange Commission has not approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
contrary representation is a criminal offense.
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Prospectus dated January __, 2003
COPYRIGHT(C)2003 by NASDAQ Financial Products Services, Inc.,
all rights reserved
The NASDAQ-100 Trust(SM), Series 1
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NASDAQ-100 Index Tracking Stock(sm)
Table of Contents
Page
----
FRONT COVER PAGE
SUMMARY ................................................................... 1
ESSENTIAL INFORMATION AS OF SEPTEMBER 30, 2002 ............................ 1
HIGHLIGHTS ................................................................ 2
NASDAQ-100 SHARES(SM) ARE OWNERSHIP INTERESTS IN THE NASDAQ-100 TRUST .. 2
NASDAQ-100 SHARES SHOULD CLOSELY TRACK THE VALUE OF THE UNDERLYING
NASDAQ-100 INDEX STOCKS ........................................ 2
NASDAQ-100 SHARES TRADE ON THE AMERICAN STOCK EXCHANGE ................. 2
THE NASDAQ-100 TRUST ISSUES AND REDEEMS NASDAQ-100 SHARES IN MULTIPLES
OF 50,000 SHARES CALLED "CREATION UNITS" ....................... 3
EXPENSES OF THE TRUST .................................................. 4
TERMINATION OF THE NASDAQ-100 TRUST .................................... 6
PURCHASES OF NASDAQ-100 SHARES BY REGISTERED INVESTMENT COMPANIES ...... 6
RISK FACTORS ........................................................... 6
SPECIAL CONSIDERATIONS .................................................... 20
THE TRUST ................................................................. 20
REDEMPTION OF NASDAQ-100 SHARES ........................................... 24
THE PORTFOLIO ............................................................. 27
THE INDEX ................................................................. 32
LICENSE AGREEMENT ......................................................... 35
MARKETPLACE LISTING ....................................................... 36
TAX STATUS OF THE TRUST ................................................... 37
ERISA CONSIDERATIONS ...................................................... 38
CONTINUOUS OFFERING OF NASDAQ-100 SHARES .................................. 39
EXPENSES OF THE TRUST ..................................................... 40
VALUATION ................................................................. 41
ADMINISTRATION OF THE TRUST ............................................... 42
SPONSOR ................................................................... 46
TRUSTEE ................................................................... 47
DEPOSITORY ................................................................ 47
LEGAL OPINION ............................................................. 48
INDEPENDENT ACCOUNTANTS ................................................... 48
CODE OF ETHICS ............................................................ 48
Table of Contents
(continued)
INFORMATION AND COMPARISON RELATING TO TRUST, SECONDARY MARKET
TRADING, NET ASSET SIZE, PERFORMANCE, AND TAX TREATMENT ........... 48
ADDITIONAL INFORMATION .................................................... 54
SUMMARY
ESSENTIAL INFORMATION AS OF SEPTEMBER 30, 2002(1)
Glossary: All defined terms used in this Prospectus and page
numbers on which their definitions appear are listed in
the Glossary on page [55].
Total Trust Assets: [$18,126,335,707]
Number of NASDAQ-100 Shares: [622,000,000]
Fractional Undivided Interest in the Trust
Represented by each NASDAQ-100 Share: [1/622,000,000]
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): [$29.11]
Annual Trust Ordinary Operating Expenses: 0.20% of the Trust's
average net assets.
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.
Record Dates: Quarterly, on the second Business Day following the
third Friday in each of March, June, September, and
December.
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 the value of
the Securities held by the Trust is less than
$350,000,000, as such amount is adjusted for
inflation.(2)
Market Symbol: NASDAQ - 100 Shares trade on the American Stock Exchange
(the "Amex") under the symbol "QQQ."
CUSIP: 631097 10 2
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(1) The Trust Agreement became effective and the initial deposit was
made on March 4, 1999 (the "Initial Date of Deposit").
(2) The Trust may also be terminated under other circumstances. See
"Administration of the Trust--Termination."
1
HIGHLIGHTS
NASDAQ-100 Shares(sm) are Ownership Interests in the NASDAQ-100 Trust
The NASDAQ-100 Trust, Series 1 (the "Trust") is a unit investment trust
that issues securities called NASDAQ-100 Index Tracking Stock (also referred to
in this Prospectus as "NASDAQ-100 Shares(sm)"). 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 NASDAQ Financial Products Services, Inc. (the "Sponsor"),
dated and executed as of March 4, 1999, as amended by Amendment No. 1 to the
Trust Agreement, dated as of April 17, 2001. NASDAQ-100 Index Tracking Stock
represents undivided ownership interests in the portfolio of stocks held by the
Trust. The Trust holds all of the common stocks of the NASDAQ-100 Index (the
"Index").
NASDAQ-100 Shares Should Closely Track the Value of the Underlying NASDAQ-100
Index Stocks
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.
The Trust holds the Portfolio and cash and is not actively "managed" by
traditional methods, which typically involve effecting changes in the Portfolio
on the basis of judgments made relating to economic, financial and market
considerations. To maintain the correspondence between the composition and
weights of the securities in the Trust (the "Securities") and the stocks in the
NASDAQ-100 Index, the Trustee adjusts the Securities from time to time to
conform to periodic changes in the identity and/or relative weights of
NASDAQ-100 Index stocks. 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 generally 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 or shortly
thereafter. Changes to the Index are made after the close of the market (see
"The Portfolio--Adjustments to the Portfolio Deposit").
The value of the NASDAQ-100 Shares will fluctuate in relation to changes
in the value of the Trust's portfolio of securities. However, at any point in
time, the market price of each individual NASDAQ-100 Share may not be identical
to the net asset value ("NAV") of such share. Historically, these two valuations
have been very close.
The current value of the NASDAQ-100 Index will ordinarily continue to be
reported even when trading is interrupted in its component stocks. In that
event, the reported Index level will be based on the current market price of
those stocks still being traded (if any) and the last reported prices for those
stocks that are not currently trading. As a result, reported Index levels may at
times be based on noncurrent price information with respect to some or even all
of the stocks in the NASDAQ-100 Index.
NASDAQ-100 Shares Trade on the American Stock Exchange
NASDAQ-100 Shares are listed for trading on the Amex. NASDAQ-100 Shares
are bought and sold in the secondary market like ordinary shares of stock at any
time during the trading day. NASDAQ-100 Shares generally trade in round lots of
100 shares, but can be traded in odd lots of as little as one share. Trading of
NASDAQ-100 Shares on the Amex may be halted under the circumstances described in
the paragraphs below relating to the risks of investing in NASDAQ-100 Shares.
2
The NASDAQ-100 Trust Issues and Redeems NASDAQ-100 Shares in Multiples of 50,000
Shares Called "Creation Units"
The Trust issues NASDAQ-100 Shares only in blocks of 50,000 or multiples
of 50,000, which are referred to as "Creation Units."
Creation Units are issued by the Trust to anyone who, after placing a
creation order with ALPS Distributors, Inc. (the "Distributor"), deposits with
The Bank of New York, the "Trustee" of the Trust, a specified portfolio of
NASDAQ-100 Index securities, as well as a cash payment, if any, generally equal
to accumulated dividends of the securities (net of expenses) up to the time of
deposit.
NASDAQ-100 Shares are not individually redeemable, except upon termination
of the Trust. NASDAQ-100 Shares can be redeemed only by tendering to the Trust
50,000 NASDAQ-100 Shares or multiples thereof. Upon redemption, the redeeming
holder will receive a portfolio of NASDAQ-100 Index securities based on the net
asset value of the Trust plus, in some cases, a cash payment. The cash payment
amount is generally equal to the cash amount determined for creations of
NASDAQ-100 Shares and, likewise, may be paid by either the redeeming holder or
the Trust, depending on the values of the dividends received, Trust expenses and
the adjustment amount.
Creation Orders Must be Placed With the Distributor
All orders to create NASDAQ-100 Shares must be placed with the Distributor
(see "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. The term "Participating Party"
means a broker-dealer or other participant in the NASDAQ-100 Clearing Process,
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 "SEC").(3) 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
Creation Units"), 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 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
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(3) As of December 31, 2002, the National Association of Securities
Dealers, Inc. (the "NASD") beneficially owned approximately [8.8%] of the issued
and outstanding shares of common stock of The Depository Trust & Clearing
Corporation ("DTCC"), the parent company of NSCC and the Depository, and the
NASD owned [10,000 shares] of preferred stock of DTCC, which entitles the NASD
to elect one director of DTCC. [The NASD is currently the majority owner of
NASDAQ.]
3
"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.
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).
The Distributor acts as underwriter of NASDAQ-100 Shares on an agency
basis. The Distributor maintains records of the orders placed with it and the
confirmations of acceptance and furnishes to those placing such orders
confirmations of acceptance of the orders. The Distributor also is responsible
for delivering a prospectus to persons creating NASDAQ-100 Shares. The
Distributor also maintains a record of the delivery instructions in response to
orders and may provide certain other administrative services, such as those
related to state securities law compliance. The Distributor is a corporation
organized under the laws of the State of Colorado and is located at 370 17th
Street, Suite 3100, Denver, CO 80202. The Distributor is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. The Sponsor pays the Distributor for its services a flat annual fee. The
Sponsor will not seek reimbursement for such payment from the Trust without
obtaining prior exemptive relief from the SEC.
Expenses of the Trust
The expenses of the Trust will be accrued daily and reflected in the net
asset value of the Trust. Pursuant to a letter agreement with the Trustee, the
Trustee has agreed to contribute towards the marketing or other promotion of the
Trust and the NASDAQ-100 Shares. The Sponsor has undertaken that, effective
October 1, 2001, the ordinary operating expenses of the Trust will not exceed
0.20% per annum of the daily net asset value of the Trust, and the Sponsor will
reimburse the Trust for expenses incurred by it in excess of such amount.
Estimated Trust Annual Ordinary Operating Expenses:
As a % of Trust
Net Assets
---------------
Trustee's Fee ................................................... [0.06%(1)]
NASDAQ License Fee .............................................. [0.04%]
Marketing Expenses .............................................. [0.07%(2)]
Estimated Other Operating Expenses .............................. [0.03%]
---------------
Total Gross Expenses ............................................ [0.20%(3)]
===============
- ----------
(1) The Trustee's annual fee ranges from [0.04%] to [0.10%], based on the net
asset value of the Trust.
(2) Marketing expenses include direct advertising in print and television
media, and the cost of production of such advertising, consultant fees and
prospectus printing expenses.
(3) The Sponsor has undertaken that, effective October 1, 2001, and until the
Sponsor otherwise determines, the ordinary operating expenses of the Trust
will not be permitted to exceed 0.20% per annum of the daily net asset
value of the Trust. Gross expenses of the Trust for the year ending
September 30, 2003, without regard to this undertaking, are estimated to
be [0.20%] of the net asset value of the Trust. The gross expenses of the
Trust for the year ended September 30, 2002, if the Sponsor had not
undertaken to limit the expenses of the Trust to 0.20%, would have been
[0.20%], as disclosed in footnote [(2)] to the financial highlights of the
Trust. 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
0.20% level may be changed and may exceed 0.20%. See "Expenses of the
Trust."
4
Future expense accruals will depend primarily on the level of the Trust's
net assets and the level of expenses. There is no guarantee that in the future
the Trust's ordinary operating expenses will not exceed 0.20% of the Trust's
daily net asset value. The Sponsor reserves the right to discontinue its
reimbursement policy in the future.
A transaction fee is payable to the Trustee in connection with each
creation and redemption of Creation Units made through the NASDAQ-100 Clearing
Process ("Transaction Fee") and is nonrefundable, regardless of the NAV 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 is (i) $500 per Participating Party per day for
creations of Creation Unit size aggregations of Nasdaq-100 Shares where there
are also, in the same day, separate creations in any number, or redemptions in
an amount not equal to the number of Nasdaq-100 Shares created, of other similar
exchange traded funds based on the Index for which the Trustee or its affiliate
acts as trustee, fund administrator or in any similar capacity, (ii) no fee per
Participating Party where there is, in the same day, a redemption of an equal
number of shares of another similar exchange traded fund based on the Index for
which the Trustee or its affiliate acts as the trustee, fund administrator or in
any similar capacity, and (iii) in all other cases $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 (i) $500 per Participating
Party per day for redemption of Creation Unit size aggregations of Nasdaq-100
Shares where there are also, in the same day, separate redemptions in any
number, or creations in an amount not equal to the number of Nasdaq-100 Shares
redeemed, or another similar exchange traded fund based on the Index for which
the Trustee or its affiliate acts as trustee, fund administrator or in any
similar capacity, (ii) no fee per Participating Party where there is, in the
same day, a creation of an equal number of shares of another similar exchange
traded fund based on the Index for which the Trustee or its affiliate acts as
the trustee, fund administrator or in any similar capacity, and (iii) in all
other cases $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, with 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 creation or redemption as
the case may be (the "10 Basis Point Limit"). No modification 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.
For creations and redemptions 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 (i) $500 per
Participating Party per day for creations of Creation Unit size aggregations of
Nasdaq-100 Shares where there are also, in the same day, separate creations in
any number, or redemptions in an amount not equal to the number of Nasdaq-100
Shares created, of other similar exchange traded funds based on the Index for
which the Trustee or its affiliate acts as trustee, fund administrator or in any
similar capacity, (ii) no fee per Participating Party where there is, in the
same day, a redemption of an equal number of shares of another similar exchange
traded fund based on the Index for which the Trustee or its affiliate acts as
the trustee, fund administrator or in any similar capacity and (iii) in all
other cases $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.
Book-Entry Ownership Only 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 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 DTC or its participants. Certificates will not be issued for
NASDAQ-100 Shares, whether in Creation Unit size aggregations or otherwise.
5
Distributions
Distributions by the Trust are made quarterly to the extent 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 for NASDAQ-100 Shares. 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.
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.
Any net capital gains recognized by the Trust in any taxable year is to 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 (as defined below). Although income distributions, if any,
are currently made on a quarterly basis, the Trustee reserves the right to vary
the frequency of distributions.
Federal Income Tax Considerations
The Trust has elected tax treatment as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), and
distributes annually its entire investment company taxable income and capital
gain, if any. 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. 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. 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.
Termination of the NASDAQ-100 Trust
The Trust has a specified lifetime term. The Trust will terminate by its
terms on the first to occur of: (i) 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").
Purchases of Nasdaq-100 Shares by Registered Investment Companies
Purchases of Nasdaq-100 Shares by registered investment companies are
subject to restrictions set forth in Section 12(d)(1) of the Investment Company
Act of 1940.
Risk Factors
Investors can lose money by investing in NASDAQ-100 Shares. Investors
should carefully consider the risk factors described below together with all of
the other information included in this Prospectus before deciding to invest in
NASDAQ-100 Shares.
Investment in the Trust involves the risk 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.
6
The financial condition of the issuers of the Securities may become
impaired or the general condition of the stock market may deteriorate (either of
which may cause a decrease in the value of the 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. 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.
The Trust is not actively "managed" by traditional methods, and therefore
the adverse financial condition of an issuer will not result in the elimination
of its securities from the Securities held by the Trust unless the Securities of
such issuer are removed from the Index.
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 subordinate rights to
receive payments from such issuer in comparison with the rights of creditors of,
or holders of debt obligations or preferred stocks issued by, such issuer.
Further, unlike debt securities which typically have a stated principal amount
payable at maturity (whose value, however, will be subject to market
fluctuations prior thereto), or preferred stocks which typically have a
liquidation preference and which may have stated optional or mandatory
redemption provisions, common stocks have neither a fixed principal amount nor a
maturity. Common stock values are subject to market fluctuations as long as the
common stock remains outstanding. The value of the Securities may therefore be
expected to fluctuate over the entire life of the Trust.
All of the Securities are currently listed on the Nasdaq National 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.
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.
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 are based on NSCC's current "regular way" settlement
period of three (3) days during which NSCC is open for business (each such day
an "NSCC Business Day"). NSCC may, in the future, reduce such "regular way"
settlement period, in which case it is anticipated that there would be a
corresponding reduction or increase in settlement periods applicable to
NASDAQ-100 Share creations and redemptions.
Historically, the portfolio of securities comprising the Index has paid
relatively low dividends when compared to the securities comprising other
broad-based stock indices. Distribution to Beneficial Owners is dependent on the
payment of dividends by issuers of the Securities.
The Sponsor has currently undertaken to limit ordinary operating expenses
of the Trust to 0.20%. The Sponsor may in its sole discretion, discontinue its
undertaking to limit ordinary operating expenses of the Trust. 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 the 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.
7
The net asset value of the NASDAQ-100 Shares may not always correspond to
market price. 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 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. 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.
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.
NASDAQ-100 Shares are 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) 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. 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
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,
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.
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. 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 the NASDAQ-100 Shares as compared with trading in a broad market
portfolio of equity securities.
The Trustee will ordinarily deliver a portfolio of Securities for each
Creation Unit size aggregation of NASDAQ-100 Shares delivered for redemption,
substantially 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. If a redemption is processed through the NASDAQ-100 Clearing
Process, to the extent that the Securities to be delivered on settlement date
8
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.
The Sponsor of the Trust has been granted a license to use the NASDAQ-100
Index as a basis for determining the composition of the Trust and to use certain
trade names and trademarks of NASDAQ. The Trust may be terminated if the license
agreement is terminated.
9
NASDAQ-100 Trust, Series 1
[TO BE REVISED]
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 assets and liabilities of
the NASDAQ-100 Trust, Series 1 (the "Trust"), including the schedule of
investments, as of September 30, 2002, and the related statements of operations,
changes in net assets, and the financial highlights for each of the three years
in the period ended September 30, 2002, and for the period March 5, 1999 to
September 30, 1999. These financial statements and financial highlights are the
responsibility of the Trust's Sponsor, NASDAQ Financial Products Services, Inc.
(the "Sponsor"). Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of September 30, 2002, by correspondence
with the Trust's custodian. An audit also includes assessing the accounting
principles used and significant estimates made by the Sponsor, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the NASDAQ-100 Trust, Series 1 at September 30, 2002, the results of
its operations, the changes in its net assets, and the financial highlights for
each of the three years in the period ended September 30, 2002 and for the
period March 5, 1999 to September 30, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
December [ ], 2002
10
NASDAQ-100 Trust, Series 1
Statement of Assets and Liabilities
September 30, 2002(4)
Assets
Investment in Securities, at value.............................
Cash...........................................................
Dividends receivable...........................................
Receivable for units redeemed..................................
-------------
TOTAL ASSETS................................................
=============
Liabilities
Payable to Sponsor.............................................
Accrued liabilities............................................
Payable for units created......................................
-------------
TOTAL LIABILITIES...........................................
-------------
Net assets.....................................................
=============
Net Assets Represented By:
Paid in surplus relating to 9,663 units of fractional
undivided interest ([ ]NASDAQ-100
Index Tracking Stock shares) outstanding; unlimited
units authorized............................................
Accumulated net realized loss on investments...................
Net unrealized depreciation of investments.....................
-------------
Net assets.....................................................
=============
Net asset value per NASDAQ-100 Index Tracking Stock share......
=============
(comprised of [$18,105,559,881/622,000,000] NASDAQ-100 Index Tracking Stock
shares outstanding)
See accompanying notes to financial statements.
- ----------
(4) E&Y to update.
11
NASDAQ-100 Trust, Series 1
Statements of Operations(5)
For the period
Year ended Year ended Year ended March 5, 1999 to
September 30, September 30, September 30, September 30,
2002 2001 2000 1999
---------------- ---------------- -------------- ------------
Investment income:
Dividend income ........................................ $11,763,129 $2,980,025 $485,649
Expenses:
Trustee fees ........................................... 13,861,584 5,999,139 751,671
Marketing expenses ..................................... 10,249,572 4,562,377 1,856,534
Licensing fees ......................................... 8,851,160 3,601,321 353,391
SEC filing fees ........................................ 6,681,029 2,367,960 512,002
Legal and audit fees ................................... 228,039 219,424 292,885
Consulting fees ........................................ -- 16,113 634,631
Other fees and expenses ................................ 83,245 47,099 44,323
---------------- ---------------- -------------- ------------
Total expenses ......................................... 39,954,629 16,813,433 4,445,437
Less: expenses assumed by the Sponsor .................. (149,377) (607,486) (2,876,961)
---------------- ---------------- -------------- ------------
Net expenses ........................................... 39,805,252 16,205,947 1,568,476
---------------- ---------------- -------------- ------------
Net investment loss .................................... (28,042,123) (13,225,922) (1,082,827)
---------------- ---------------- -------------- ------------
Realized and unrealized gain (loss) on investments:
Net realized loss on sale of investments ............... (3,700,999,545) (493,093,045) (18,036,354)
Net realized gain on in-kind redemptions ............... 1,304,483,199 3,755,118,927 370,653,973
Net change in unrealized depreciation of investments ... (19,791,940,731) (1,991,973,018) (50,839,245)
---------------- ---------------- -------------- ------------
Net realized and unrealized loss on investments ........ (22,188,457,077) 1,270,052,864 301,778,374
---------------- ---------------- -------------- ------------
Net increase (decrease) in net assets resulting from
operations ......................................... $(22,216,499,200) $1,256,826,942 $300,695,547
================ ================ ============== ============
See accompanying notes to financial statements.
- ----------
(5) E&Y to update.
12
NASDAQ-100 Trust, Series 1
Statements of Changes in Net Assets(6)
For the period
Year ended Year ended Year ended March 5, 1999 to
September 30, September 30, September 30, September 30,
2002 2001 2000 1999
--------------- --------------- --------------- --------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss .................................. $(28,042,123) $(13,225,922) $(1,082,827)
Net realized gain (loss) on investment transactions .. (2,396,516,346) 3,262,025,882 352,617,619
Net change in unrealized depreciation on investments . (19,791,940,731) (1,991,973,018) (50,839,245)
--------------- --------------- --------------- --------------
Net increase (decrease) in net assets resulting from
operations ....................................... (22,216,499,200) 1,256,826,942 300,695,547
--------------- --------------- --------------- --------------
Unitholder transactions:
Proceeds from subscriptions of NASDAQ-100 units ...... 44,290,733,197 29,363,292,709 5,260,674,390
Less: Redemptions of NASDAQ-100 units ................ (16,336,620,280) (20,393,746,274) (3,434,294,920)
--------------- --------------- --------------- --------------
Increase in net assets due to unitholder transactions 27,954,112,917 8,969,546,435 1,826,379,470
--------------- --------------- --------------- --------------
Total increase ............................................. 5,737,613,717 10,226,373,377 2,127,075,017
Net assets:
Beginning of period .................................. 12,367,946,164 2,141,572,787 14,497,770
--------------- --------------- --------------- --------------
End of period ........................................ $18,105,559,881 $12,367,946,164 $2,141,572,787
=============== =============== =============== ==============
See accompanying notes to financial statements.
- ----------
(6) E&Y to update.
13
NASDAQ-100 Trust, Series 1
Financial Highlights(7)
For the period
March 5,
Year ended Year ended Year ended 1999 to
September 30, September 30, September 30, September 30,
2002 2001 2000 1999 (1)
----------- ----------- ----------- ----------
Net Asset Value, Beginning of Period ....................... $89.07 $60.16 $48.32
Investment operations:
Net investment loss .................................. (0.06) (0.16) (0.04)
Net realized and unrealized gain (loss) on
investments (59.90) 29.07 11.88
----------- ----------- ----------- ----------
Total from Investment Operations ........................... (59.96) 28.91 11.84
----------- ----------- ----------- ----------
Net Asset Value, End of Period ............................. $29.11 $89.07 $60.16
=========== =========== =========== ==========
Total Investment Return .................................... (67.32%) 48.06% 24.18%*
Ratios and Supplemental Data:
Net assets, end of period (000's) .................... $18,105,560 $12,367,946 $2,141,573
Ratio of expenses to average net assets (2) .......... 0.18% 0.18% 0.18%**
Ratio of net investment loss to average net assets (2) (0.13%) (0.15%) (0.12%)**
Portfolio turnover rate (3) .......................... 21.77% 23.46% 13.60%*
The financial highlights summarize the impact of net investment income, net
realized and unrealized gains and losses and distributions on a single unit of
the NASDAQ-100 Trust for the periods shown. Additionally, important
relationships between certain financial statement items are expressed in ratio
form.
See accompanying notes to financial statements.
- ----------
* Not annualized
** Annualized
(1) Amounts have been adjusted for the affect of a 2-for-1 stock split
which occurred on March 17, 2000. See Note 4 to the Financial
Statements.
(2) Net of expenses assumed by the Sponsor. If the Trust had borne all
expenses, the expenses to average net assets and net investment loss
ratios would have been 0.18% and (0.13%) for the year ended September 30,
2001, 0.19% and (0.16%) for the year ended September 30, 2000 and 0.50%
and (0.44%) for the period March 5, 1999 to September 30, 1999.
(3) Portfolio turnover excludes securities received or delivered from
processing creations or redemptions of NASDAQ-100 units.
- ----------
(7) E&Y to update.
14
NASDAQ-100 Trust, Series 1
Notes to Financial Statements
September 30, 2002(8)
Organization
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.
The Trust commenced operations on March 5, 1999 upon the initial issuance
of 150,000 shares of the NASDAQ-100 Index Tracking Stock (equivalent to three
Creation Units) in exchange for a portfolio of securities assembled to reflect
the intended portfolio composition of the Trust.
Significant Accounting Policies
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
Security Valuation
Portfolio securities are valued based on the closing sale price on The
NASDAQ Stock Market, which is deemed to be the principal market for the
security. If no closing sale price is available, then the security is valued at
the mean between the closing bid and asked prices on The NASDAQ Stock Market. If
there are no closing bid and asked prices available, valuation will be
determined by the Trustee in good faith based on available information.
Investment Transactions
Investment transactions are recorded on the trade date. Realized gains and
losses from the sale or disposition of securities are recorded on a specific
identification basis. Dividend income is recorded on the ex-dividend date.
Distributions to Unitholders
The Trust will declare and distribute dividends, if any, from net
investment income quarterly. The Trust will distribute net realized capital
gains, if any, at least annually. Distributions will only occur in the event
that dividends accumulated and other income received by the Trust exceed Trust
fees and expenses during such period.
Federal Income Tax
The Trust has qualified and intends to continue to qualify for and elect
treatment as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). By so qualifying the Trust will
not be subject to federal income taxes to the extent it distributes its taxable
income, including any net realized capital gains, for each fiscal year. In
addition, by distributing during each calendar year substantially all of its net
investment income and capital gains, if any, the Trust will not be subject to
federal excise tax. Income and capital gain distributions are determined in
accordance with income tax regulations, which may differ from accounting
principles generally accepted in the United States. To the extent these
differences are permanent, such amounts are reclassified within the capital
accounts based on their federal tax basis treatment; temporary differences do
not require such reclassifications.
At September 30, 2002, permanent differences of [$1,276,441,076] were
reclassified within the components of net assets, primarily due to the tax
treatment of in-kind transactions and net operating losses, and resulted in a
net decrease in accumulated net investment loss, a net increase in
- ----------
(8) E&Y to update.
15
accumulated net realized loss on investments and a corresponding increase to
paid in surplus. This reclassification had no effect on net assets of the Trust.
At September 30, 2002, the Trust had a capital loss carryforward of
[$642,932,320], of which [$18,036,354] expires in [2007], [$9,472,938] expires
in [2008] and [$615,423,028] expires in [2009].
Capital losses incurred after October 31 ("post-October" losses) within
the taxable year are deemed to arise on the first business day of the Trust's
next taxable year. The Trust incurred and will elect to defer net capital losses
of [$1,585,034,608] for the year ended September 30, 2002. These carryover
losses may be used to offset future gains. To the extent they are so used,
future gains will not be distributed to unitholders until they exceed available
loss carryovers.
Transactions with the Trustee and Sponsor
The Trust pays the expenses of its operations, including the fees of its
Trustee and reimbursement to the Sponsor for payments to The NASDAQ Stock
Market, Inc. ("NASDAQ") for a license to use the NASDAQ-100 Index as a basis for
determining the composition and weighting of securities held by the Trust.
NASDAQ paid the fees and expenses incurred in connection with the organization
of the Trust and its initial registration as an investment company, and such
expenses were not borne by the Trust.
In accordance with the Trust Agreement, The Bank of New York (the
"Trustee") maintains the Trust's accounting records, acts as custodian and
transfer agent to the Trust, and provides administrative services, including
filing of all required regulatory reports. The Trustee is also responsible for
determining the composition of the portfolio of securities, which must be
delivered in exchange for the issuance of Creation Units of the Trust, and for
adjusting the composition of the Trust's portfolio from time to time to conform
to changes in the composition and/or weighting structure of the NASDAQ-100
Index. For these services, the Trustee receives a fee at the following annual
rates:
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 - 24,999,999,999* 6/100 of 1% per annum
$25,000,000,000 - $49,999,999,999* 5/100 of 1% per annum
$50,000,000,000 and over* 4/100 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.
The minimum annual fee which shall be paid to the Trustee is $180,000. Any
shortfall between the Trustee fee computed per the above table and the minimum
annual fee will be paid by the Sponsor.
The Sponsor had undertaken that on each day during each fiscal year up to
and including the fiscal year ending September 30, 2002, the ordinary operating
expenses of the Trust as calculated by the Trustee would not be permitted to
exceed an amount which is 20/100 of one percent (0.20%) per annum of the daily
net asset value of the Trust. To the extent during such period that ordinary
operating expenses of the Trust exceeded such 0.20% amount, the Sponsor
reimbursed the Trust or assumed invoices on behalf of the Trust for such excess
ordinary operating expenses. The Sponsor retained the ability to be repaid by
the Trust for expenses so reimbursed or assumed to the extent that subsequently
during the fiscal year expenses fell below the 0.20% per annum level on any
given day. For the year ended September 30, 2002, ordinary operating expenses
incurred by the Trust exceeded the 0.20% per annum level and, accordingly, the
Sponsor assumed [$149,377] of expenses incurred by the Trust. During 2001, 2000
and 1999, the Sponsor assumed expenses of [$_________], [$607,486] and
[$2,876,961], respectively, incurred by the Trust.
As of October 1, 2002, the Sponsor has agreed to reimburse the Trust or
assume invoices on behalf of the Trust for operating expenses that exceed 0.20%
(per annum) of the daily net asset value of the Trust.
In addition, [$9,020,058] of expenses paid by the Sponsor on behalf of the
Trust for invoices received directly by the Sponsor during the year remain
payable to the Sponsor on September 30, 2002.
16
Trust Transactions in shares of the NASDAQ-100 Index Tracking Stock
Transactions in shares of the NASDAQ-100 Index Tracking Stock were as
follows:
For the Year Ended For the Year Ended
September 30, 2002 September 30, 2001
-----------------------------------------------------------------
NASDAQ-100 NASDAQ-100
Shares Amount Shares Amount
-----------------------------------------------------------------
NASDAQ-100 Index Tracking
Stock shares sold ..... [___________] [$___________] 820,600,000 $44,290,733,197
NASDAQ-100 Index Tracking
Stock shares redeemed [___________] [$___________] (337,450,000) (16,336,620,280)
NASDAQ-100 Index Tracking
Stock shares issued in
conjunction with stock
split ................. -- -- -- --
-----------------------------------------------------------------
Net increase .............. [___________] [$___________] 483,150,000 $27,954,112,917
=================================================================
For the Year Ended For the Period
September 30, 2000 March 5, 1999
For the Year Ended Through
September 30, 2002 September 30, 2000
-----------------------------------------------------------------
NASDAQ-100 NASDAQ-100
Shares Amount Shares Amount
-----------------------------------------------------------------
NASDAQ-100 Index Tracking
Stock shares sold ..... 243,500,000 $29,363,292,709 49,350,000 $5,260,674,390
NASDAQ-100 Index Tracking
Stock shares redeemed (169,850,000) (20,393,746,274) (31,700,000) (3,434,294,920)
NASDAQ-100 Index Tracking
Stock shares issued in
conjunction with stock
split ................. 47,400,000 --
- ----------------------------------------------------------------------------------------------
Net increase .............. 121,050,000 $8,969,546,435 17,650,000 $1,826,379,470
==============================================================================================
NASDAQ-100 Index Tracking shares are issued and redeemed by the Trust only
in Creation Unit size aggregations of 50,000 NASDAQ-100 Index Tracking shares.
Such transactions are only permitted on an in-kind basis, with a separate cash
payment that is equivalent to the undistributed net investment income per
NASDAQ-100 Index Tracking share and a balancing cash component to equate the
transaction to the net asset value per unit of the Trust on the transaction
date. The transaction fee charged in connection with creation or redemption of
Creation Units through the NASDAQ-100 Clearing Process is $1,000 per
participating party per day. The total fee charged in connection with the
creation or redemption of Creation Units outside the NASDAQ-100 Clearing Process
is $4,000 per participating party per day. Transaction fees are received by the
Trustee and used to offset the expense of processing orders. For the years ended
September 30, 2002, 2001 and 2000, and the period March 5, 1999 to September 30,
1999, the Trustee earned [$_______], $762,000, $532,000 and $100,000,
respectively, in transaction fees. The Trustee, in its sole discretion, may
voluntarily reduce or waive its fee, or modify its transaction fee schedule,
subject to certain limitations. There were no such reductions or waivers for the
years ended September 30, 2002, 2001 and 2000, and the period March 5, 1999 to
September 30, 1999.
Investment Transactions
For the year ended September 30, 2002, the Trust had purchases and sales
of investment securities of [$4,677,406,142] and [4,708,367,646], respectively.
At September 30, 2002, the cost of investments for federal income tax purposes
was [$41,925,703,817]. Accordingly, gross unrealized depreciation was
[$45,697,166,357] and gross unrealized appreciation was [$21,878,251,347],
resulting in net unrealized depreciation of [$23,818,915,010].
17
NASDAQ-100 Trust, Series 1
Schedule of Investments
September 30, 2002(9)
[TO BE REVISED]
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------- ---------- ---------
- ----------
(9) NASDAQ to update.
18
[TO BE REVISED]
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------- ---------- ---------
-----------
Total Investments--(Cost $___________________) ===========
* Designates a security on which no dividends were declared during the
period from October 1, 2001 through September 30, 2002.
See accompanying notes to financial statements.
19
SPECIAL CONSIDERATIONS
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. [NASDAQ and the Amex, the exchange on which NASDAQ-100 Shares
are listed, operate as separate affiliates 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").
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.
THE TRUST
The Trust, an exchange traded fund or "ETF," is a registered investment
company which both (a) continuously issues and redeems "in-kind" its shares,
known as SPDRs, only in large lot sizes called Creation Units at their
once-daily NAV and (b) lists SPDRs individually for trading on the American
Stock Exchange at prices established throughout the trading day, like any other
listed equity security trading in the secondary market on the Exchange. 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
Portfolio Deposits may be deposited with the Trustee via instructions
submitted through the NASDAQ-100 Clearing Process of NSCC, following placement
with the Distributor of orders to create NASDAQ-100 Shares by a person who has
executed a Participant Agreement with the Distributor and the Trustee. The
Distributor shall reject any order that is not submitted in proper form.
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.
The Trustee and the Sponsor, from time to time and for such periods as
they may determine, together may increase(10) 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, 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
- ----------
(10) Such increase is subject to the 10 Basis Point Limit discussed above
under "Summary--Trustee's Annual Fee." 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 "Summary--Trustee's Annual Fee."
20
Transaction Fee and the number of Creation Units created or redeemed to which
such increase, reduction, or waiver applies shall be disclosed in the then
current NASDAQ-100 Share Prospectus.
The Sponsor makes 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 one or more Portfolio 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 DTC or its nominee. In turn, the NASDAQ-100
Share position will be removed from the Trustee's account at the DTC and will be
allocated to the account of the DTC Participant acting on behalf of the
depositor creating Creation Unit(s). Each NASDAQ-100 Share represents 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 own eighty percent
(80%) or more of the outstanding NASDAQ-100 Shares. The Trustee also may reject
any Portfolio Deposit or any component thereof under certain other
circumstances. 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. 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.
Procedures for Creation of Creation Units
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. 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 in this prospectus. 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. 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
21
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 NSCC rules, by midnight
of the day following the receipt by NSCC of such order, NSCC will normally
guarantee to the Trustee the delivery of the securities portion 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 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.
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; (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 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.
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 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.
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 and has stated in its order
that it is not using the NASDAQ-100 Clearing Process and that creation will
instead be effected through a transfer of stocks and cash. The requisite number
of Index Securities must be delivered through DTC to the account of the Trustee
by no later than 11:00 a.m. of the next Business Day immediately following the
Transmittal Date. The Trustee, through the Federal Reserve Bank wire system,
must receive the Cash Component no later than 1:00 p.m. on the next Business Day
immediately following the Transmittal Date. If the Trustee does not receive both
the requisite Index Securities and the Cash Component (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.
22
Securities Depository; Book-Entry-Only System
The DTC acts as securities depository for NASDAQ-100 Shares. Cede & Co.,
as nominee for the DTC, 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 DTC has advised the Sponsor and the Trustee as follows: The DTC is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. The DTC 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 DTCC, the parent company of the DTC and
NSCC. Access to the DTC system is also available to others such as banks,
brokers, dealers, and trust companies that maintain a custodial relationship
with a DTC Participant, either directly or indirectly (the "Indirect
Participants").
Upon the settlement date of any creation, transfer, or redemption of
NASDAQ-100 Shares, the DTC 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. 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 DTC (with respect to DTC Participants) and on the records of
DTC Participants (with respect to Indirect Participants and Beneficial Owners
that are not DTC Participants). Beneficial Owners are expected to receive from
or through the DTC Participant a written confirmation relating to their purchase
of 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 DTC, 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 DTC, 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 recognizes the DTC or its nominee as the owner of all
NASDAQ-100 Shares for all purposes except as expressly set forth in the Trust
Agreement. Pursuant to the agreement between the Trustee and DTC (the
"Depository Agreement"), the DTC is required to make available to the Trustee
upon request and for a fee to be charged to the Trust a listing of the
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.
23
NASDAQ-100 Share distributions shall be made to DTC or its nominee, Cede &
Co., DTC or Cede & Co., upon receipt of any payment of distributions in respect
of the NASDAQ-100 Shares, is required immediately to credit DTC Participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the NASDAQ-100 Shares, as shown on the records of DTC or its
nominee. Payments by DTC Participants to Indirect Participants and Beneficial
Owners of the 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 aspects of the records relating to or notices to Beneficial
Owners, or payments made on account of beneficial ownership interests in the
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 DTC and the DTC Participants or the relationship between
such DTC Participants and the Indirect Participants and Beneficial Owners owning
through such DTC Participants.
DTC may 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 DTC 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").
REDEMPTION OF NASDAQ-100 SHARES
The NASDAQ-100 Shares are redeemable only in Creation Units. Creation
Units are redeemable in kind only and are not redeemable for cash except as
described under "Summary--Highlights--Termination of the NASDAQ-100 Trust."
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, NY 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
"Summary"). 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 DTC and the
relevant DTC Participant(s) to the Beneficial Owner thereof as recorded on the
book entry system of DTC 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 DTC and
the relevant DTC Participant(s) a portfolio of Securities for each Creation Unit
size aggregation of NASDAQ-100 Shares delivered, generally 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. The Trustee also
transfers via the relevant DTC Participant(s) to the redeeming Beneficial Owner
a "Cash Redemption Payment," which on any given Business Day is an amount
identical to the amount of the Cash Component and is equal to a proportional
amount of the following: dividends on all the Securities for the period through
the date of redemption, 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
24
legal and auditing expenses) and other expenses not previously deducted (see
"Expenses of the Trust")), plus or minus the Balancing Amount. The redeeming
Beneficial Owner must deliver to the Trustee any amount by which the amount
payable to the Trust by such Beneficial Owner exceeds the amount of the Cash
Redemption Payment ("Excess Cash Amounts"). For redemptions 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 DTC 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.
If the Trustee determines 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 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, 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 "Summary").
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.
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
(as defined below).
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
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
NAV 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 SEC 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.
25
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 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
A redemption order 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. A redemption order 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 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.
26
Placement of Redemption Orders Outside the NASDAQ-100 Clearing Process
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.
The Trustee will initiate procedures to transfer the requisite Securities
and the Cash 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 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 nonfinancial 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.(11)
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. For example, for the 1998, 1999,
2000, 2001 and 2002 calendar years, there were 6, 15, 5, 6 and [__] company
changes, respectively, made during those years due to corporate actions (e.g.,
mergers, acquisitions, bankruptcies) and 9, 15, 12, 13 and [__] other company
- ----------
(11) For example, on December 31, 2002 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
[$2,121,466,492], the divisor was [168,151,393] on December 31, 2002, and the
reported Index value was [1,577.05] on December 31, 2002.
27
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 Ranking
Review"). The ratio of the market capitalization of the securities replaced in
the Index in 1998, 1999, 2000, 2001 and 2002 to the total market capitalization
of the securities comprising the Index at year-end was 3.1%, 7.2%, 5.1%, 5.10%
and [___%], 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 (see "The Index--Calculation 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 Trust is not managed and therefore the adverse financial condition of
an issuer does not require the sale of stocks from the Portfolio. The Trustee on
a nondiscretionary basis 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 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 examines 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 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.
28
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.
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. 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 Portfolio adjustments shall be made by the Trustee pursuant to the
foregoing specifications and as set forth in the Trust Agreement and shall be
nondiscretionary. 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 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. 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 DTC 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.
The Trustee relies 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 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
29
(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.
If the Trust is terminated, the Trustee shall use the composition and
weighting of the Securities held in the Trust as of the date of notice of the
Trust termination 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 acquirers 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 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. In addition, Beneficial
Owners of NASDAQ-100 Shares in Creation Unit size aggregations have the right to
redeem in kind.
Adjustments to the Portfolio Deposit
On each Business Day (each such day, an "Adjustment Day"), the number of
shares and/or identity of each of the Index Securities in a Portfolio Deposit is
adjusted in accordance with the following procedure. Generally, as of the 4:00
p.m. market close 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"). 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 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
30
on Request Day and thereafter until the next subsequent 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 the Request Day and on each day that a request for the creation or
redemption of NASDAQ-100 Shares 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,
based on the close of the market on Request Day. The difference between the NAV
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 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.
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,(12) 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 may 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 may 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.
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.
- ----------
(12) NASDAQ normally publicly announces changes in the identity and/or
weighting of the Index Securities in advance of the actual changes.
31
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 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).
THE INDEX
The Sponsor selected the NASDAQ-100 Index 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
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 nonfinancial
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. The Index does not contain financial
companies, including registered investment companies. As of December 31, 2002,
the major industry groups covered in the Index (listed according to their
respective capitalization in the Index) were as follows: [computer and office
equipment [(34.2%)], computer software/services [(30.2%)], biotechnology
[(12.9%)], telecommunications [(12.7%)], retail/wholesale trade [(4.2%)],
services [(2.8%)], health care [(2.2%)] and manufacturing [(0.8%)]]. The
identity and capitalization weightings of the five largest companies represented
in the Index as of December 31, 2002 were as follows: [Microsoft Corporation
(10.87%), Intel Corporation (6.54%), Cisco Systems, Inc. (4.2%), QUALCOMM
Incorporated (4.12%), and Oracle Corporation (2.83%)]. 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 (see
- --"Calculation 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 2002. 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.
32
Calendar Year-
End Index Value* Point Change in Calendar Year-
(January 31, Index for Year % Change End 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 1,836.01 845.21 85.31% 0.07%
1999 3,707.83 1,871.81 101.95% 0.03%
2000 2,341.70 -1,366.13 -36.84% 0.06%
2001 1,577.05 -764.65 -32.65% 0.06%
2002 [________] [________] [________] [________]
--------- --------- --------- ----------
- ----------
* 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.
Index Security Eligibility Criteria and 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:
o the security must be of a nonfinancial company;
o only one class of security per issuer may be included;
o the security may not be issued by an issuer currently in bankruptcy
proceedings;
o the security must have average daily trading volume on The NASDAQ
Stock Market of at least 200,000 shares;
o 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);
o if a security would otherwise qualify to be in the top 25% of the
issuers included in the Index by market capitalization for the six
prior consecutive month ends, then a one-year "seasoning" criteria
would apply;
o if the security is of a foreign issuer (based on its country of
incorporation), the company must be eligible for listed options
trading;
33
o 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;
o the security must have an adjusted market capitalization equal to or
exceeding 0.10% of the aggregate adjusted market capitalization of
the Index at each month end. In the event a company does not meet
these criteria for two consecutive month ends, it will be removed
from the Index effective after the close of trading on the third
Friday of the following month; and
o the issuer of the security may not have annual financial statements
with an audit opinion that is currently withdrawn or which the
company has indicated that its annual financial statements cannot be
relied upon.
These Index eligibility criteria may be revised from time to time by
NASDAQ without regard to the Trust.
The Index Securities are evaluated on an annual basis, except under
extraordinary circumstances which may result in an interim evaluation, as
follows (such evaluation is referred to herein as the "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 ranking 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. Generally, the list of annual additions and deletions is
publicly announced via a press release in the early part of December and
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 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
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 made to the Index on the evening prior to the
effective date of such corporate action or as soon as practical thereafter.
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.
Calculation of the Index
The Index is 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%).
34
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%. In addition, NASDAQ
may conduct a special rebalancing if it is determined necessary to maintain the
integrity of the Index.
If either one or both of these weight distribution requirements are not
met upon quarterly review or NASDAQ determines that a special rebalancing is
required, a weight rebalancing will be performed. 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
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.
Ordinarily, new rebalanced weights will be determined by applying the
above procedures to the current Index share weights. However, NASDAQ may from
time to time determine rebalanced weights, if necessary, by instead applying the
above procedure to the actual current market capitalization of the Index
components. In such instances, NASDAQ would announce the different basis for
rebalancing prior to its implementation.
LICENSE AGREEMENT
The License Agreement grants the Sponsor 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 on March 10, 2004 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.
35
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").
None of the Trust, the Trustee, the Distributor, the DTC, 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(R)," "NASDAQ-100(R)," "NASDAQ(R)," "The NASDAQ Stock
Market(R)," "NASDAQ-100 Index Tracking Stock(sm)," "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.
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 undelayed 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 are listed on the Amex. 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-fortieth
(1/40th) the value of the Index. 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 "Expenses of
the Trust"), the one-fortieth (1/40th) 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 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").
36
TAX STATUS OF THE TRUST
For the fiscal year ended September 30, 2002, the Trust qualified for tax
treatment as a "regulated investment company" under Subchapter M of the Code.
The Trust intends to continue to so qualify. To qualify as a regulated
investment company, the Trust must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, gains
from the sale or other disposition of stock, securities or foreign currencies,
or certain other sources, (b) meet certain diversification tests, and (c)
distribute in each year at least 90% of its investment company taxable income.
If the Trust qualifies as a regulated investment company, subject to certain
conditions and requirements, the Trust will not be subject to federal income tax
to the extent its income is distributed in a timely manner. Any undistributed
income may be subject to tax, including a four percent (4%) excise tax imposed
by section 4982 of the Code on certain undistributed income of a regulated
investment company that does not distribute to shareholders in a timely manner
at least ninety-eight percent (98%) of its taxable income (including capital
gains).
Tax Consequences to Beneficial Owners
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 DTC 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
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.
37
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 economic position or that
the transaction has no significant economic or business utility or purpose apart
from the anticipated tax consequences. Depositors should consult their own tax
advisors as to the tax consequences to them of a deposit to the Trust.
The Trustee has the right to reject the order to create Creation Units
transmitted to it by the Distributor if the depositor or group of depositors,
upon obtaining the 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 DTC 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 DTC by Beneficial Owners who are
nonresident 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. Nonresident shareholders are urged
to consult their own tax advisors concerning the applicability of United States
withholding tax.
Backup withholding at a current rate of 30% for 2003, 29% for 2004 and
2005 and 28% for 2006 and thereafter 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.
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
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.
38
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.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA) and
foreign plans (as described in Section 4(b)(4) of ERISA) are not subject to the
requirements of ERISA or Section 4975 of the Code. The fiduciaries of
governmental plans should, however, consider the impact of their respective
state pension codes on investments in the NASDAQ-100 Shares and the
considerations discussed above, to the extent applicable.
CONTINUOUS OFFERING OF NASDAQ-100 SHARES
NASDAQ-100 Shares in Creation Unit size aggregations are offered
continuously to the public by the Trust through the Distributor and are
delivered upon the deposit of a Portfolio Deposit (see "The Trust--Procedures
for Creation of Creation Units"). 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 Securities
Act.
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.
39
EXPENSES OF THE TRUST
Effective October 1, 2002, the Sponsor has undertaken to limit the
ordinary operating expenses of the Trust to 0.20%. If the ordinary operating
expenses of the Trust exceed such 0.20% 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 0.20% per annum level on any given day.
Ordinary operating expenses of the Trust do not include taxes, brokerage
commissions, and such extraordinary nonrecurring expenses as may arise,
including without limitation the cost of any litigation to which the Trust or
Trustee may be a party. The Sponsor may discontinue 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 0.20% per annum.
Subject to any applicable cap, the Sponsor reserves the right to charge
the Trust a special sponsor fee from time to time in reimbursement for certain
services it may provide to the Trust which would otherwise be provided by the
Trustee in an amount not to exceed the actual cost of providing such services.
The Sponsor or the Trustee from time to time may voluntarily assume some
expenses or reimburse the Trust so that total expenses of the Trust are reduced,
although neither the Sponsor nor the Trustee is obligated to do so and either
one or both parties may discontinue such voluntary assumption of expenses or
reimbursement at any time without notice.
The following charges are or may be accrued and paid by the Trust: (a) the
Trustee's fee as discussed more fully below; (b) fees payable to transfer agents
for the provision of transfer agency services; (c) fees of the Trustee for
extraordinary services performed under the Trust Agreement; (d) various
governmental charges; (e) any taxes, fees, and charges payable by the Trustee
with respect to 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, willful misconduct, or willful 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, (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, 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.
If income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to cover Trust fees and
expenses, 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
40
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 the Trust in favor of the
Trustee. The expenses of the Trust are reflected in the net asset value of the
Trust (see "Valuation").
The Trustee has agreed to contribute towards the marketing or other
promotion of the Trust and the NASDAQ-100 Shares. This contribution will be
subject to annual review and will be based upon the asset size of the Trust on
the following basis:
The Bank of New York
Net Asset Value Marketing
of the Trust Contribution
- --------------------------------- ---------------------
0 - $29,999,999,999 -0-
$30,000,000,000 - $39,999,999,999 1/100 of 1% per annum
$40,000,000,000 and over 2/100 of 1% per annum
For services performed under the Trust Agreement, the Trustee is paid by
the Trust a fee at an annual rate of 4/100 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 - $24,999,999,999 6/100 of 1% per annum*
$25,000,000,000 - $49,999,999,999 5/100 of 1% per annum*
$50,000,000,000 and over 4/100 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.
VALUATION
The NAV of the Trust is computed as of the Evaluation Time shown under
"Summary-Essential Information" on each Business Day. The NAV of the Trust on a
per NASDAQ-100 Share basis is determined by subtracting all liabilities
41
(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 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, if available, or otherwise based on the closing sale price
on The NASDAQ Stock Market on the last day that the security 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
Distributions to Beneficial Owners
The regular quarterly Ex-Dividend Date with respect to net dividends, if
any, for NASDAQ-100 Shares is the third Friday in each of March, June,
September, and December, unless such day is not a Business Day, in which case
the Ex-Dividend Date will be the immediately preceding Business Day. Beneficial
Owners as reflected on the records of the DTC 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").
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
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 has qualified, and intends to continue 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
42
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. 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.
The Trustee may 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 may 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 DTC and the DTC
Participants (see "The Trust--Book-Entry-Only System").
The Trustee may advance out of its own funds any amounts necessary to
permit distributions via the DTC 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 DTC 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. Otherwise, the Trustee will distribute
to each Beneficial Owner (whether in Creation Unit size aggregations or
otherwise), as soon as practical after termination of the Trust, such Beneficial
Owner's pro rata share in cash of the net asset value of the Trust.
All distributions are made by the Trustee through the DTC and the DTC
Participants to Beneficial Owners as recorded on the book entry system of the
DTC and the DTC Participants.
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
43
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.
Statements to Beneficial Owners; Annual Reports
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.
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. 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 (a) have the right to vote concerning the
Trust, except with respect to termination and as otherwise expressly set forth
in the Trust Agreement, (b) in any manner control the operation and management
of the Trust or (c) be liable to any other person by reason of any action taken
by the Sponsor or the Trustee. The Trustee has the right to vote all of the
voting 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.
Amendment
The Trust Agreement may be amended from time to time by the Trustee and
the Sponsor without the consent of any Beneficial Owners (a) to cure any
ambiguity or to correct or supplement any provision thereof which may be
defective or inconsistent or to make such other provisions in regard to matters
or questions arising thereunder as will not adversely affect the interests of
Beneficial Owners; (b) to change any provision thereof as may be required by the
SEC; (c) to add or change any provision as may be necessary or advisable for the
continuing qualification of the Trust as a "regulated investment company" under
the Code; (d) to add or change any provision thereof as may be necessary or
advisable in the event that NSCC or the DTC 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
44
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 DTC, 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.
Termination
The Trust Agreement provides that the Sponsor has the discretionary right
to direct the Trustee to terminate the Trust if at any time the net asset value
of the Trust is less than $350,000,000, as such dollar amount shall be adjusted
for inflation in accordance with the CPI-U, such adjustment to take effect at
the end of the fourth year following the Initial Date of Deposit and at the end
of each year thereafter and to be made so as to reflect the percentage increase
in consumer prices as set forth in the CPI-U for the twelve-month period ending
in the last month of the preceding fiscal year.
The Trust will also terminate in the event that 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.
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 DTC 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 on March 10, 2004 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. 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. The 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.
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.
The remaining amount shall be transmitted to the DTC for distribution via the
45
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.
SPONSOR
The Sponsor of the Trust is NASDAQ Financial Products Services, Inc.
(formerly, NASDAQ Investment Product Services, Inc.), a Delaware corporation
incorporated on August 7, 1998 with offices c/o The NASDAQ Stock
Market, Inc., 9513 Key West Avenue, Rockville, MD 20850. 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.
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. Notice of the resignation or
removal of the Sponsor and the appointment of a successor shall be mailed by the
Trustee to the DTC and the DTC Participants for distribution to Beneficial
Owners. 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. 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.
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,
willful misconduct, or willful malfeasance in the performance of its duties or
its reckless disregard of its obligations and duties under the Trust Agreement.
The Sponsor is not liable or responsible in any way for depreciation or loss
incurred by the Trust 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, willful
misconduct, or willful 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.
46
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 an office at
101 Barclay Street, New York, NY 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 Federal Deposit
Insurance Corporation and the New York State Banking Department.
Under the Trust Agreement, the Trustee may resign and be discharged of the
Trust created by the Trust Agreement by executing a notice of resignation in
writing and filing such notice with the Sponsor and mailing a copy of the notice
of resignation to all DTC Participants that are reflected on the records of the
DTC 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
DTC 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, willful
malfeasance, willful misconduct, or reckless disregard of its duties and
obligations, nor is the Trustee liable or responsible in any way for
depreciation or loss incurred by reason of the sale by the Trustee of any
Securities in the Trust. In the event of the failure of the Sponsor to act, the
Trustee may act and is not liable for any such action taken by it in good faith.
The Trustee is not personally liable for any taxes or other governmental charges
imposed upon or in respect of the Securities or upon the interest thereon or
upon it as Trustee or upon or in respect of the Trust which the Trustee may be
required to pay under any present or future law of the United States of America
or of any other taxing authority having jurisdiction. In addition, the Trust
Agreement contains other customary provisions limiting the liability of the
Trustee. The Trustee and its directors, subsidiaries, shareholders, officers,
employees, and affiliates under common control with the Trustee (each a "Trustee
Indemnified Party") will be indemnified from the assets of the Trust and held
harmless against any loss, liability, or expense incurred without gross
negligence, bad faith, willful misconduct, willful 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.
DEPOSITORY
DTC is a limited purpose trust company and member of the Federal Reserve
System.
47
LEGAL OPINION
The legality of the NASDAQ-100 Shares offered hereby has been passed upon
by Jones Day, New York, New York, as counsel for the Sponsor.
Winston & Strawn, New York, New York, has acted as counsel for the Trustee.
INDEPENDENT ACCOUNTANTS
The statement of assets and liabilities, including the schedule of
investments of the NASDAQ-100 Trust, Series 1, as of September 30, 2002 and the
related statements of operations, changes in net assets and the financial
highlights for each of the three years in the period ended September 30, 2002
and for the period of March 5, 1999 (commencement of operations) to September
30, 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.
CODE OF ETHICS
The Trust and the Sponsor have adopted a code of ethics regarding personal
securities transactions by their respective employees. Subject to certain
conditions and standards, the code permits employees to invest in the NASDAQ-100
Shares for their own accounts. The code is designed to prevent fraud, deception
and misconduct against the Trust and to provide reasonable standards of conduct.
The code is on file with the SEC and you may obtain a copy by visiting the SEC
at the address listed on the back cover of this prospectus. The code is also
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. A copy may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the SEC at the address
listed on the back cover of this prospectus.
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 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
48
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 SEC'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
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
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 Shareholders
as compared to their conventional mutual fund counterparts. Since shareholders
49
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 Shareholder 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
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(R) (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).
50
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. The tables below illustrate the distribution relationships of daily
pricing data for NASDAQ-100 Shares, NAV and the NASDAQ-100 Index for the 2002
calendar year. These tables may help investors compare the trading costs and
intraday trading risks of NASDAQ-100 Shares to funds sold and redeemed at prices
related to closing NAV.
Investors who purchase or sell NASDAQ-100 Shares may wish to evaluate the
volatility of the price of NASDAQ-100 Shares during the trading day. To assist
investors in making such an evaluation, the Daily Percentage Price Range table
illustrates the volatility of price movements for both NASDAQ-100 Shares and the
NASDAQ-100 Index on a daily basis. Investors who purchase or sell NASDAQ-100
Shares may also wish to evaluate the opportunity to buy or sell on an intraday
basis versus the assurance of a transaction at or related to closing NAV. To
assist investors in making this comparison, the High and Low Price versus
Closing Value table illustrates the possibility of buying or selling NASDAQ-100
Shares at prices less or more favorable than closing NAV.
Investors may wish to evaluate the potential of NASDAQ-100 Shares to
approximate the value of the assets in the Trust as a basis of valuation of the
shares. The Closing Price versus NAV table illustrates the closing value of
NASDAQ-100 Shares in relation to the underlying value of the assets in the Trust
on a daily basis. Additionally, the NAV versus NASDAQ-100 Index table shows the
difference between the underlying value of assets in the Trust and the
NASDAQ-100 Index based on month-end values.
Finally, investors may wish to consider the average bid/asked spread on
NASDAQ-100 Shares, as illustrated in the Bid/Ask Spread table, and add any
commissions charged by a broker to determine the direct costs of trading
NASDAQ-100 Shares.
The information provided in the following tables with respect to the
NASDAQ-100 Shares (including price ranges, relationship of prices to closing
NAV, and bid/asked spreads) may vary materially over time. There is some
evidence, for example, that the bid/asked spread will widen in more volatile
markets and narrow when markets are less volatile.
[TO BE REVISED]
51
DAILY PERCENTAGE PRICE RANGES:
FREQUENCY DISTRIBUTION FOR
NASDAQ-100 INDEX AND NASDAQ-100 TRUST, SERIES 1(13)
(From January 1, 2002 through December 31, 2002)
NASDAQ-100 Index NASDAQ-100 Trust
----------------------- -----------------------
Range Frequency % of Total Frequency % of Total
- ---------- --------- ---------- --------- ----------
0-1.00% 5 1.98% 0 0.00%
1.01-1.50% 5 1.98% 4 1.59%
1.51-2.00% 8 3.17% 6 2.38%
2.01-2.50% 22 8.73% 9 3.57%
2.51-3.00% 34 13.49% 35 13.89%
3.01-3.50% 27 10.71% 22 8.73%
3.51-4.00% 35 13.89% 34 13.49%
4.01-5.00% 52 20.63% 45 17.86%
> 5.00% 64 25.40% 97 38.49%
--- ------ --- ------
Total 252 100.00% 252 100.00%
HIGH AND LOW PRICES V. CLOSING VALUE
FREQUENCY DISTRIBUTION FOR
NASDAQ-100 INDEX AND NASDAQ-100 TRUST, SERIES 1(14)
(From January 1, 2002 through December 31, 2002)
NASDAQ-100 Index NASDAQ-100 Trust
------------------------------------- --------------------------------------
Intraday High Intraday Low Intraday High Intraday Low
Value Above Value Below Value Above Value Below
Closing Value Closing Value Closing Value Closing Value
----------------- ----------------- ----------------- -----------------
% of % of % of % of
Range Frequency Total Frequency Total Frequency Total Frequency Total
- ---------- --------- ----- --------- ----- --------- ----- --------- -----
0.00-1.00% 1 0.41% 1 0.41% 0 0.00% 0 0.00%
1.01-1.50% 5 2.03% 5 2.03% 4 1.62% 4 1.63%
1.51-2.00% 8 3.25% 8 3.25% 6 2.43% 6 2.45%
2.01-2.50% 22 8.94% 22 8.94% 9 3.64% 9 3.67%
2.51-3.00% 34 13.82% 34 13.82% 34 13.77% 34 13.88%
3.01-3.50% 27 10.98% 27 10.98% 22 8.91% 22 8.98%
3.51-4.00% 35 14.23% 34 13.82% 34 13.77% 33 13.47%
4.01-5.00% 51 20.73% 52 21.14% 45 18.22% 43 17.55%
> 5.00% 63 25.61% 63 25.61% 93 37.65% 94 38.37%
--- ------ --- ------ --- ------ --- ------
Total 246 100.00% 246 100.00% 247 100.00% 245 100.00%
The frequency totals in the second table above are less than the frequency
totals in the prior table because there were occasions during the period when
the daily closing value was equal to the daily high or low value.
- ----------
(13) NASDAQ to update.
(14) NASDAQ to update.
52
CLOSING PRICES V. NET ASSET VALUE
FREQUENCY DISTRIBUTION FOR
NASDAQ-100 TRUST, SERIES 1 AND NET ASSET VALUE(15)
(From January 1, 2002 through December 31, 2002)
Closing Price on Closing Price on
Amex Above Trust Amex Below Trust
NAV NAV
---------------------------- ----------------------------
Range Frequency % of Total Frequency % of Total
- ---------------------------------------------------- --------- ----------- --------- -----------
0-.25%.............................................. 58 50.43% 74 54.01%
..251%-.50%.......................................... 32 27.83% 33 24.09%
..501%-1.00%......................................... 23 20.00% 19 13.87%
1.01%-1.50%......................................... 2 1.74% 8 5.84%
1.51%-2.00%......................................... 0 0.00% 2 1.46%
>2.00%.............................................. 0 0.00% 1 0.73%
--- ------ --- ------
Total..................................... 115 100.00% 137 100.00%
Closing prices in the above table are based on prices as of 4:15 p.m.,
Eastern time, whereas NAV is calculated as of 4:00 p.m., Eastern time. As a
result, differences in closing prices are in large part based on price
variations between 4:00 and 4:15 p.m.
NET ASSET VALUE V. NASDAQ-100 INDEX(16)
(Monthly Closing Values From January 1, 2002 through December 31, 2002)
NAV NASDAQ-100 Percentage
Month Equivalent Index Value Difference
- ----------------------------------- ---------- ----------- ----------
January 2002....................... [2,586.61 2,593.00 0.2465%
February 2002...................... 1,903.38 1,908.32 0.2587%
March 2002......................... 1,568.96 1,573.25 0.2726%
April 2002......................... 1,849.89 1,855.15 0.2837%
May 2002........................... 1,794.58 1,799.89 0.2951%
June 2002.......................... 1,824.50 1,830.19 0.3107%
July 2002.......................... 1,678.19 1,683.61 0.3221%
August 2002........................ 1,464.84 1,469.70 0.3307%
September 2002..................... 1,164.34 1,168.37 0.3445%
October 2002....................... 1,359.74 1,364.78 0.3689%
November 2002...................... 1,590.03 1,596.05 0.3775%
December 2002...................... 1,570.42 1,577.05 0.4203%]
Source: The Bank of New York.
- ----------
(15) NASDAQ to update.
(16) NASDAQ to update.
53
BID/ASKED SPREAD DISTRIBUTION
FREQUENCY DISTRIBUTION FOR
BID/ASKED SPREAD OF THE NASDAQ-100 TRUST, SERIES 1(17)
(From January 1, 2002 through December 31, 2002)
Range % of Total
- -------------------------------------------------------------- ----------
Locked or crossed............................................. 5.79%
1/64-1/16..................................................... 77.59%
5/64-1/8...................................................... 12.54%
9/64-3/16..................................................... 3.20%
13/64-1/4..................................................... 0.65%
17/64-5/16.................................................... 0.10%
21/64-3/8..................................................... 0.04%
25/64-7/16.................................................... 0.02%
29/64-1/2..................................................... 0.02%
>1/2.......................................................... 0.05%
------
Total 100.00%
The price range of NASDAQ-100 Shares for the 2002 calendar year was from
[$28.08 to $68.08]; consequently, a spread of 1/8 represents from [0.23% to
0.10%] of the share price.
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.
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 SEC. 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 made
to such Registration Statement and the exhibits thereto. A copy of the
Registration Statement may be inspected by anyone without charge at the SEC's
principal office located at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, the Northeast Regional Office located at c/o Division of
Enforcement, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Midwest
Regional Office located at Citicorp Center, 500 West Madison Street, 14th Floor,
- ----------
(17) NASDAQ to update.
54
Chicago, Illinois 60661-2511, and copies of all or any part thereof may be
obtained from the Public Reference Branch of the SEC upon the payment of certain
fees prescribed by the SEC. In addition, the Registration Statement may be
accessed electronically at the SEC's site on the World Wide Web located at
http://www.sec.gov. Such information is also available from NASDAQ by calling:
1-800-843-2639.]
"10 Basis Point Limit".......................................................5
"1940 Act"..................................................................39
"Accumulation Period"........................................................3
"Adjustment Day"............................................................30
"Amex".......................................................................1
"Balancing Amount"...........................................................3
"Beneficial Owners".........................................................23
"Business Day"...............................................................2
"Cash Component".............................................................3
"Cash Redemption Payment"...................................................24
"Closing Time"..............................................................21
"CNS"........................................................................3
"Code".......................................................................6
"CPI".......................................................................54
"Creation Units".............................................................3
"Depository Agreement"......................................................23
"Distributor"................................................................3
"Dividend Payment Date".....................................................42
"divisor"...................................................................27
"DTC Participants"..........................................................23
"DTC"........................................................................5
"DTCC".......................................................................3
"ERISA".....................................................................38
"Excess Cash Amounts".......................................................25
"Income Net of Expense Amount"...............................................3
"Index Securities"...........................................................2
"Index"......................................................................2
"Indirect Participants".....................................................23
"IRA".......................................................................38
"IRS".......................................................................37
"Large Stocks"..............................................................34
"License Agreement".........................................................20
"Misweighting Amount".......................................................28
"Misweighting"..............................................................28
"NASD".......................................................................3
"NASDAQ"....................................................................16
"NASDAQ-100 Clearing Process"................................................4
"NASDAQ-100 Participant Agreement"..........................................22
"NASDAQ-100 Shares(sm)"......................................................2
"NAV"........................................................................2
"net capital gain"..........................................................37
"net redemptions"...........................................................49
"NSCC".......................................................................3
"Participating Party"........................................................3
"Plans".....................................................................38
"Portfolio Deposit Amount"..................................................31
"Portfolio".................................................................20
"Ranking Review"............................................................34
"Record Date"...............................................................42
"Redemption of NASDAQ-100 Shares"...........................................31
"Request Day"...............................................................30
55
"SEC"........................................................................3
"Securities Act"............................................................39
"Small Stocks"..............................................................34
"Sponsor Indemnified Party".................................................46
"Sponsor"....................................................................2
"Termination Date"..........................................................45
"Transaction Fee"............................................................5
"Trust Agreement"............................................................2
"Trust"......................................................................2
"Trustee Indemnified Party".................................................47
"Trustee"....................................................................2
"Weighting Analysis"........................................................28
56
NASDAQ-100 INDEX TRACKING STOCK
NASDAQ-100 TRUST(sm), SERIES 1
SPONSOR:
NASDAQ FINANCIAL PRODUCTS SERVICES, INC.
- --------------------------------------------------------------------------------
This Prospectus does not include all of the information with respect to the
NASDAQ-100 Trust set forth in its Registration Statement filed with the
Securities and Exchange Commission (the "SEC") under the:
o Securities Act of 1933 (File No. 333-61001) and
o Investment Company Act of 1940 (File No. 811-8947).
To obtain copies of such information, including the Trust's Code of Ethics, from
the SEC at prescribed rates--
Write: Public Reference Section of the SEC
450 Fifth Street, N.W., Washington, D.C. 20549
Call: 1-800-SEC-0330
Visit: http://www.sec.gov
- --------------------------------------------------------------------------------
No person is authorized to give any information or make any representation about
the NASDAQ-100 Trust not contained in this Prospectus, and you should not rely
on any other information. Read and keep both parts of this Prospectus for future
reference.
- --------------------------------------------------------------------------------
Prospectus dated January __, 2003
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.
Written consents of the following persons:
Consent of Ernst & Young LLP, included in Exhibit 23.1.
Consent of Jones Day, included in Exhibit 23.2.
The following exhibits to be supplied by amendment:
Exhibit 23.1 Consent of Independent Accountants.
Exhibit 23.2 Opinion of Counsel.
FINANCIAL STATEMENTS
1. Form of Statement of Assets and Liabilities and the related statements of
operations, changes in net assets and the financial highlights of the
Trust as shown in the current Prospectus for this series herewith.
2. Financial Statements of NASDAQ Financial Products Services, Inc., the
Sponsor, which is incorporated by reference to Amendment No. 2
to Form S-6 for BLDRS INDEX TRUST FUND dated November 8, 2002.
II-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, NASDAQ-100 Trust, Series 1, has duly caused this Post-Effective
Amendment No. 7 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, all in the State of Maryland, on the
8th day of January, 2003.
NASDAQ-100 TRUST, SERIES 1
--------------------------------------------
(Name of Registrant)
By: NASDAQ FINANCIAL PRODUCTS SERVICES, INC.
--------------------------------------------
(Sponsor)
By: /s/ JOHN L. JACOBS
--------------------------------------------
John L. Jacobs
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 7 to the Registration Statement has been signed on
behalf of NASDAQ Financial Products 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 FINANCIAL PRODUCTS SERVICES, INC.
DAVID P. WARREN* Director, Chairman
- -----------------------------
David P. Warren
JOHN L. JACOBS Director, Chief Executive Officer
- -----------------------------
John L. Jacobs
DENISE B. STIRES* Director, President
- -----------------------------
Denise B. Stires
* 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
Post-Effective Amendment No. 5 to the Registration Statement on January 30,
2002, has signed this Post-Effective Amendment No. 7 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-2
EXHIBIT INDEX
EXHIBIT NO. TITLE OF DOCUMENT
- ----------- --------------------------------------------------------------------
None